Tripping Over Reality: The Economics of Psilocybin in Oz
As Australia becomes one of the first places to officially embrace (or at least tolerate) psychedelic assisted therapy (PAT), it’s worth asking: just how much psilocybin does the Australian therapeutic sector need and what is the market potentially worth? How does this compare to the kind of money can be made from delivering PAT? The decisions of investors and activists alike will be heavily influenced by how these scenarios play out.
For my best guesses on at least two of these questions, served with a side of irreverence, read on!
(Disclaimer: Brace yourself for a journey filled with sarcasm, cynicism, satire, and plain-speaking. If any of these elements aren't your cup of tea, you might want to stick to more conventional reading options.)
Just so we’re clear, none of this constitutes medical, legal, or financial advice, nor am I encouraging anyone to do anything illegal.
Psilocybin unleashed
In considering the potential of a legal psilocybin market in Australia, I wanted to start with the most optimistic situation I could think of. So, what is the best possible scenario for psilocybin use as a therapeutic intervention in here? Like, irrationally, stupidly good? Consider the following:
Right now, psilocybin can only be prescribed by psychiatrists under relatively restrictive conditions, and I don’t see that changing any time soon. We have about 4000 psychiatrists in Australia[i]. Let’s assume psilocybin-assisted therapy is so good that all of them end up providing it, and that all of them have done training to be able to prescribe and oversee these treatments. Let’s make another assumption, and say that each of these psychiatrists prescribes, on average, 100 doses of psilocybin per year.
That’s 400,000 doses. At 25 milligrams per dose, that’s 10 million milligrams or 10 kg of psilocybin. The most outrageously high price I could find of $10,000 USD per gram, based on a figure Johns Hopkins researcher, Matthew Johnson, quoted to Quartz back in 2018. Based on that figure, 10kg of psilocybin means a total yearly market worth $100,000,000 USD or, at the time of writing, about $153,000,000 AUD.
As an aside, to naturally produce 10 kg of psilocybin would require about a metric tonne (1000 kg) of average dried Psilocybe cubensis or about half that amount of Psilocybe subaeruginosa. (Yes, I know that’s not exact, but I like round numbers.) For the cubes, growing that would require approximately 35,000 quarts of spawn and a lot of ventilation! For the subs, my estimates are even more deliberately half-assed, but I’d guess an enterprising cultivator, where legal, could achieve this with 20,000 square meters of woodchip-covered garden beds and either a mammoth inoculation system or a great deal of patience and luck. (Though, it’s worth noting that this isn’t exactly advanced wood-loving mushroom cultivation, but people will keep their secrets.)
My fantasies of tending a dedicated organic mushroom forest for millions of dollars a year aside, there’s a couple of things worth noting. One is that the street value of a tonne of dried cubes would be $10,000,000 at the absolute most. More relevant to this article is how big a company can this hypothetical market support, and what it might actually be earning and paying out to shareholders.
An overwhelmingly dominant player in this market might take $70,000,000 of the total $100,000,000 revenue up for grabs. To achieve a profit margin of 25%, total costs would need to be $52.5 million, which generates a profit of $17.5 million. If we assume 100 million outstanding shares and that they distribute half the profit as dividends, shareholders would get $0.087 per share. Depending on how optimistic we want to be with our assumed price to earnings ratio, this gives us a potential total valuation of this company between $350 million and $1.4 billion, with the higher end somehow assuming room for strong market growth.
All this could be yours, if you just believe in the power of the mushrooms (and purchase a large stake in my company)! Photo by Michael Heuser on Unsplash
“Wow”, you say, “how amazing would it be to sit astride that tryptamine behemoth as CEO, watching from my château as the profits roll in and people sell their spare kidneys and/or less favourite children to purchase our shares and ironically mushroom-themed merchandise!”
Back to reality
Except, it won’t be like that at all, not for a long time at least and probably not ever.
400,000 doses of psilocybin a year? What was I thinking?
For one thing we’d run out of people with treatment resistant depression (TRD) in a couple of years, as the estimated number of potential patients is about 150,000[ii]. (Remember, only people with TRD get psilocybin assisted therapy.) It’s also more than the total estimated number of Australians who used psychedelics in the past year[iii]. More importantly, it’s an utterly ridiculous number of prescribers. Every psychiatrist? Oh please! If we see 10% of them approved by 2030 (or have a regime that doesn’t require Special Access Scheme approval or similar) I’ll get up on the main stage at that year’s EGA conference and admit that I’m wrong via the medium of interpretive dance.
In reality, there are only a handful of approved prescribers per state at this time, possibly not much more than 10 nation-wide. (While I was working on this post, Rich Harridy recently published this excellent piece on PAT in Australia, which corroborates this estimate.) Depending on how closely these psychiatrists supervise those in their care, I’d expect them to dose no more than a couple of patients per week. Even this is optimistic, as a more sensible approach is possibly to only supervise & oversee one dosing session per working week. Taking out some time for holidays, a couple of dosing sessions per week for existing approved prescribers means a national total of no more than 1000 doses per year, which is 25 grams of psilocybin. This will be worth no more than $250,000 (and could, theoretically, be sourced from a few dozen decent monotubs or about 50 square meters of high-yielding suburban Melbourne woodchip.)
And, not that I need to point this out to industry insiders, but $10,000 US dollars per gram of GMP psilocybin is itself an unrealistic assumption. My sources tell me a more realistic upper figure would be $6,500-7,000 USD per gram.
The amount of psilocybin prescribed by psychiatrists will undoubtedly grow over time, so maybe in five to ten years we’ll have enough approved prescribers to shift a few thousand doses per year, particularly if they run teams of cheaper employees to handle the face-to-face interactions with clients. That’s still going to be less than a tenth of the fantasy scenario, though. The price of GMP psilocybin might also come down further as manufacturers scale up and find more efficient methods of synthesis or extraction & purification. But while psilocybin vendors are selling such small amounts, I’m not sure there’ll be much incentive to pass savings onto clinicians.
What can we cautiously infer from this hypothetical story so far?
First off, not that I should need to point this out, this means that any breathless press releases from psilocybin manufacturers supplying Australian therapists should be taken with a massive grain of salt. Right now, they’re fighting for a slice of a market that will struggle to turn over a million dollars any time soon. They're not hoping to make it big selling psilocybin to Australia, as there is no “big” to make here. They're hoping that investors’ enthusiasm and FOMO is stronger than their ability to do basic math and analysis, or that they can make enough of a splash for a larger corporation to acquire them. I admit this opinion is perhaps little unfair. If you’re not an uncharitable cynic like me, you should at least assume they have some other plan to make serious money and give that some scrutiny. For example, perhaps they’re banking on similar changes happening in the US, which is a far larger market. (Of course, if you’re the kind of investor who doesn’t care if the business makes money, just that you can trade your shares to a greater fool in the future, you’ll just lean into the hype, the same way you did with crypto.)
Second, this gives us reason to ask to where the real money is in PAT. There are two main possibilities: Training people to deliver PAT and delivering the PAT itself. You’ll quickly see which one going to drive truly serious profits.
Show me the (drug) money!
To do specialized training in PAT costs thousands of dollars, with many people spending around $10,000 AUD with private providers to upskill in preparation for the legal psychedelic economy. If every psychiatrist, psychologist, and mental health nurse in the country had to do this training, that would be a lot of money for whoever cornered that market. Of course, the vast bulk of these professionals either won’t undertake training, or if they do, they’ll wait until cheaper, officially accredited, or easier alternatives emerge.
So, while training has some potential, it’s ultimately finite and relatively limited. That said, I’m naively assuming that the market for PAT training is limited by the numbers of people who need it, which is not how higher education works in Australia. Our universities are particularly good at getting students to enrol in glamourous-sounding degrees in fields where they may never find work. Given time, universities will absolutely do this with psychedelics (and probably sink a few private providers in the process.) So perhaps the earning potential of psychedelic professional education & training s more open-ended than I’m giving it credit for.
What about the PAT clinics themselves?
I wrote recently about the costs to clients/patients, with more than one provider now setting prices of over $20,000 AUD ($13,000 USD) for a full program of treatment including 2-3 dosing sessions, plus supervision and psychotherapy with specialized multidisciplinary teams of psychiatrists & clinical psychologists. So, if you are delivering PAT, revenue is closer to $5,000 USD or $7650 AUD per 25 milligram dose. This is vastly more than the maximum of $10,000 per gram/$250 per dose manufacturers would get.
Remember that patently ridiculous figure of 400,000 doses per year? That could pull in the equivalent of an incredible two billion US dollars in gross revenue to Australian PAT clinics! Even the less bizarre but still overly optimistic 1000 doses brings in at least $5,000,000 USD.
All that said, I suspect operating costs are going to be considerable - psychiatrists and clinical psychologists are not cheap employees. Clinical psychologists have an average base salary of over $100,000 AUD per year, and psychiatrists anywhere from $150,000 AUD upwards (often a long way upwards.) Furthermore, tastefully appointed clinics with soft furnishings and extensive video surveillance cost a lot to set up.
It’s clear that revenue will be high, but how much of it will be profit? This piece is already too long, so I’ll have to save my analysis of potential PAT clinic profit margins for another day. All we can be certain about is the cost to patients.
The long and winding road
If clinics do not drop their prices for PAT, the key to defraying cost to patients/clients who need that level of care will likely have to be via our sort-of-universal health care system and private health insurance. Even under the best of scenarios, the road to large-scale public/private coverage for psychedelic therapy will be very long. It is one that psychedelic therapists and their backers will pursue though, as it’s the only way to make PAT financially viable for more than a small percentage of Australians without lessening their asking prices. We may never hit 400,000 doses per year, but without reducing out of pocket expenses for people, we’ll never move beyond being an extremely niche industry. I know that charities like Mind Medicine Australia are currently raising money to help cover these costs, but if we take the Monarch figures I’ve used previously and assume a gap of at least $13,000 AUD per course of treatment, supporting patients is going to add up to a lot, very fast. As I’ve written elsewhere, most Australians have, at best, a few thousand in savings[iv]. The gap between what these treatments cost and people’s capacity to afford them is itself a cause of a whole slew of ethical risks, but that too is another whole article by itself.
So, for supplying psilocybin and providing PAT, there are different potential obstacles to profit.
For the existing PAT providers, as I’ve just mentioned, they’ll need to jump through the hoops to become truly mainstream. At the same time, they’ll likely seek ways to reduce the wage costs associated with dosing supervision and integration therapy. Trouble is, they need to get Human research Ethics Committees (HRECSs), the Therapeutic Goods Administration (TGA), and the Royal Australian and New Zealand College of Psychiatrists (RANZCP) to agree to these changes. And while it could seem like a good idea to externalise integration costs by pointing former patients towards nonprofits who provide affordable community integration circles, such as the Australian Psychedelic Society, this might not work either (mainly because we’re wise to this and have no intention of doing any clinic’s work for them for free.) In a worst-case scenario, cost and corner-cutting would be at odds with best practice and clinicians’ ethical obligations to patients. These are all themes I’ll explore in more detail over coming months.
For legal psilocybin vendors, the main problem is that our heavily medicalised system will never allow for a large amount of product to be sold. Specifically, only allowing psychiatrists to prescribe, and only under highly restrictive conditions at that, creates a bottleneck that severely limits potential sales and, therefore, revenue. Their options to remedy this include lobbying to loosen restrictions on who can prescribe/sell their product or using their capital to invest in vertically integrated PAT clinics, allowing them to skim some of those profits and vastly improve the dollars-per-dose ratio.
I suspected there were hippies in that yurt, threatening psychedelic capitalism with their very existence. But the anarchist guard-chickens wouldn’t let me get any closer to check. Photo by Annie Spratt on Unsplash
Which one of these strategies will scale best? That remains to be seen. Once I’ve run some numbers on what the margins on PAT clinics are likely to be, I’ll know more. The vertical approach is more politically expedient, as medical cannabis providers can attest. This is because it allows respectable psilocybin manufacturers to distance themselves from disturbing images of hippies in yurts eating mushrooms for, *horrified gasp*, fun! (My apologies dear reader; I’m as shocked as you are.) But, when asking prices are something only a tiny proportion of the population can afford and clinical practices face serious scrutiny from regulators and the psychiatric mainstream, leaning into vertical integration will not be without risk. It’s also worth noting that pursuing profit and high sticker prices, while not supporting broader reforms such as decriminalization, virtually guarantees that underground communities will see your organisation as an enemy. But all of this is, as I said earlier, a discussion for another day.
Right now, though, as things stand, what I can say is, in my considered opinion, it’s improbable that any company is going to make millions of dollars just by selling psilocybin into the Australian legal market any time soon. Make of that what you will. Thanks for reading.
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