Why Psychedelic stocks are surging today

Investing.com -- Shares of psychedelic drug developers are surging premarket on Thursday after Eli Lilly announced a definitive agreement to acquire AtaiBeckley Inc., validating the sector and lifting sentiment across the space.

AtaiBeckley shares are up 30.8% premarket, while Compass Pathways is up 7.4% and GH Research is up 18.9%.

Under the deal, Lilly will acquire all outstanding AtaiBeckley shares for $6.75 per share in cash, plus up to $2.50 per share through a Contingent Value Right tied to development and regulatory milestones for AtaiBeckley's lead programs, BPL-003 and VLS-01.

The upfront cash consideration represents an aggregate equity value of approximately $2.8 billion, with the CVR representing additional potential value of about $1.0 billion. The deal is expected to close in the third quarter.

RBC Capital said in a note following the news that GH Research represents "the most direct and compelling read-through" to the acquisition, given the near-identical mechanism of its lead asset, GH001, to AtaiBeckley's BPL-003, both based on 5-MeO-DMT and targeting treatment-resistant depression.

Analyst Brian Abrahams noted GH Research is on track to initiate its own registrational program later this year following FDA feedback.

He added that Lilly's willingness to pay a premium for AtaiBeckley "would set a floor for GHRS shares and also further validate the class as well as position the company as a compelling opportunity for other strategics."

The firm maintained an Outperform rating on GH Research with a $40 price target, citing the scalability of the psychedelic treatment space, regulatory amenability, and reduced concerns around intellectual property vulnerability following Lilly's move.

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