The biotech startup and holding company forms and funds startups developing treatments with drugs that may be controversial, overlooked or underused

Atai Life Sciences has formed and financed several companies creating new drugs from unusual and controversial substances, including psilocybin mushrooms. PHOTO: PETER DEJONG/ASSOCIATED PRESS

By Heather Mack

Updated Sept. 19, 2019 5:26 pm ET

A startup backed by $80 million from investors is striking deals with a range of drug companies in its bid to lead the next wave of mental-health treatments.

Munich-based Atai Life Sciences AG has formed and financed several companies creating new drugs from unusual and controversial substances including psilocybin, found in “magic mushrooms,” and ketamine, which is nicknamed “Special K” and sometimes used illicitly. But the company intends to play a much larger part in a recent flurry of activity in drug-development innovation in mental health following decades of inactivity.

Founded in 2017, Atai is riding a wave of renewed interest from researchers, investors and regulatory bodies in developing and commercializing new therapies from substances that might be controversial, overlooked or underused, such as the use of ketamine to treat depression, and MDMA, commonly known as ecstasy, to treat post-traumatic stress disorder.

Employees of Atai Life Sciences, which operates and invests in companies developing new treatments for mental-health conditions. PHOTO: ATAI LIFE SCIENCES INC.

Last October, the U.S.Food and Drug Administration gave one of Atai’s portfolio companies, Compass Pathways Inc., breakthrough therapy designation for its psilocybin treatment for depression. The agency also approved two new depression drugs—one based on ketamine—in March. Those drugs are the first new depression treatments approved in decades.

Atai’s long-term goal is to assemble a broader drug-development platform. This strategy informed its decision to form a new partnership with an antianxiety drug developer called Gaba Therapeutics.

Similar to the other startups in Atai’s portfolio, which includes psilocybin-focused Compass Pathways and ketamine-focused Perception Neuroscience, Gaba has tinkered with an existing compound and created a new, proprietary compound that it says outperforms available medications for psychiatric disorders like anxiety and depression. Gaba is working with Etifoxine, a drug that was first approved in France nearly 40 years ago but was never offered in the U.S.

Atai founder Christian Angermayer said his company’s approach is similar to that of Privateer Holdings, a cannabis-focused private-equity and holding company that is backed by Peter Thiel, who has also invested in Atai’s portfolio company Compass Pathways.

Atai generally makes investments with the intention of taking a majority stake. As a result, the company prefers to invest alongside individuals and small firms, including Subversive Capital and Able Partners, rather than veteran life-science investors with big funds that might want larger stakes, Mr. Angermayer said.

Gaba Chief Executive Ian Massey said the partnership with Atai will allow the company to get to the next phase of clinical trials. Looking forward, Mr. Massey said, Gaba hopes to expand beyond anxiety treatment, and Atai’s platform could provide cross-pollination of ideas and resources with other companies working on conditions that affect the central nervous system.

Gaba, based in Newport Beach, Calif., is now one of five companies on Atai’s platform—built up through a mix of investments, acquisitions and in-house company creation. Atai aims to take majority ownership of as many novel mental-health therapies as possible, Mr. Angermayer said.

“We think there is a tremendous value in a platform model that shares resources, because this is a new market,” Atai Chief Executive Florian Brand said. “When we are developing a new class of therapies, we don’t want to have people working in silos. We need to share the knowledge that is crucial to achieve economies of scale.”

Atai plans to invest up to $15.5 million into Gaba, and has established a pathway to eventually own 51% of the company, Mr. Brand said. Atai declined to say how much it owns now.

Mr. Angermayer said Atai is considering an initial public offering in 2020.

Corrections & Amplifications
Peter Thiel has invested in Atai Life Sciences AG’s portfolio company Compass Pathways. An earlier version of this article incorrectly stated that Mr. Thiel had invested in Atai. (Sept. 19)

Write to Heather Mack at [email protected]