Wall Street is increasingly investing millions of dollars in psychedelic drugs that could potentially treat mental illnesses, providing a more cost-effective alternative to current therapies. The recent capital raises by Transcend Therapeutics Inc., Gilgamesh Pharmaceuticals Inc., and Lusaris Therapeutics Inc. underscore the growing interest in the potential of these drugs. In January, Transcend Therapeutics raised $40 million from venture-capital investors to develop a post-traumatic stress disorder treatment that the company claims would require about half the amount of therapy as MDMA, a popular hallucinogen. Meanwhile, Gilgamesh Pharmaceuticals and Lusaris Therapeutics have announced capital raises of about $100 million since November for similar products addressing depression.

The focus of these companies on more cost-effective psychedelic therapy coincides with a sharp decline in biotech stocks last year, which tempered the enthusiasm surrounding the commercial potential of hallucinogens. According to pharmaceutical executives, while the FDA is expected to approve treatments using MDMA and psilocybin in the coming years, rolling them out could be expensive because they must be administered by trained therapists. Additionally, MDMA and psilocybin can induce psychedelic trips lasting six to eight hours, and treatments typically involve additional therapy before and after.

Transcend Therapeutics is conducting clinical trials for Methylone, a drug that will appeal to many PTSD patients precisely because it is less intoxicating than MDMA. Ben Kelmendi, the company’s co-founder and chief scientific adviser, said that patients already using selective serotonin reuptake inhibitors, a popular class of antidepressants, cannot take MDMA. Other candidates backed out of psychedelic studies because they feared being retraumatized or having their personalities altered. Methylone, which doesn’t have any hallucinogenic effects, is far milder than MDMA and is a better fit for the existing medical infrastructure, according to Rick Gerson, chief investment officer of Alpha Wave Global.

Despite the promise of these drugs, critics remain skeptical, arguing that the companies are merely attempting to create patentable drugs that will be far more costly to purchase than traditional psychedelics, without commensurate improvement in outcomes. Psilocybin isn’t patentable because it occurs naturally, while synthetic drugs like LSD and MDMA are decades old. However, global revenue from psychedelics could reach $8 billion by 2027, according to L.E.K. Consulting. Furthermore, some pharmaceutical companies are pushing to develop psychedelic compounds that don’t cause hallucinations or euphoric experiences, allowing for shorter and cheaper treatments.

The scarcity of mental-health workers in the US is another obstacle to delivering effective treatment to those in need. Data from the federal Health Resources and Services Administration shows that about 158 million Americans live in areas affected by mental-health shortages, up from 95 million a decade ago. Despite these challenges, the potential of these drugs to address mental-health issues is gaining wider recognition. With Wall Street now investing tens of millions of dollars in the sector, it is likely that more companies will emerge to develop innovative treatments that are both effective and affordable.