Psychedelic Mushrooms

In contrast to medical science’s aggressive pursuit of new therapeutics for cancers, cardiovascular disorders, or infectious disease, the discovery of new therapeutics for mental health has lagged. But, the past few years have witnessed renewed interest in the development of psychedelic therapeutics for treatment of unmet medical needs in mental health. The astonishing growth of a billion-dollar industry has taken place despite the fact that classic psychedelics, for example, psilocybin, LSD, ayahuasca, and MDMA remain classified under the federal Controlled Substances Act of 1970 as Schedule 1 drugs, meaning they are illegal and have no legitimate medical use.

The growth of this new industry has sparked an increase in the number of patent application filings directed to psychedelics.  Since the molecular structures of the classic psychedelics (also referred to as first-generation psychedelics) are known in the art, the molecules themselves are not patentable.  To secure commercially valuable claims, applicants have typically taken a page from pharmaceutical patenting strategies and pursued claims to, for example, formulations, combination therapies, methods of treatment, and methods of synthesis and manufacture.

Not surprisingly, as patents continue to be granted, patent litigation has followed.  Over the past two years, three petitions for Post-Grant Review have been filed with the Patent Trial and Appeal Board (PTAB) at the United States Patent and Trademark Office cases. (Kohn & Associates, PLLC v. Compass Pathways LimitedFreedom to Operate v. Compass Pathfinder LimitedFreedom to Operate v. Compass Pathfinder Limited).  Although the PTAB denied the institution of Post-Grant Review in all three cases, we can expect to see more patent litigation as the industry grows.

But, patents are not the only way to protect valuable ideas.  Trade secrets can be quite valuable, particularly in crowded fields in which the active pharmaceutical ingredient is well known.  The federal Defend Trade Secrets Act (“DTSA”) (18 U.S.C.§ 1831 et seq.) defines a trade secret as:

  • information that derives economic value from not being generally known to and not readily ascertainable by another person who can derive economic value from the disclosure or use of this information; and 
  • that is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. 

Under the DTSA, a wide swath of information falls under the definition of trade secrets.  A trade secret can be “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing.” (18 U.S. Code § 1839 – Definitions)

In the pharmaceutical/biotech area, researchers commonly develop “tweaks” to methods that, although they may not rise to the level of patentability, can result in a substantial difference in outcome.  For example, seemingly minor modifications to standard methods can have a significant effect on yield or the stability of a pharmaceutical product. Such modifications are often maintained as trade secrets.  And unlike patents, which have a finite term, trade secrets have a potentially unlimited term as long as reasonable efforts continue to be exerted to maintain secrecy.

Recently, the psychedelics field saw its first trade secret litigation.  On August 5, 2022, Terran Biosciences, Inc., (“Terran”), a licensee of the University of Maryland, Baltimore (“UMB”), filed a complaint against Compass Pathfinder Limited (“Compass”) in the United States District Court for the District of Maryland in which it alleged that Compass misappropriated confidential information that Terran and UMB had spent “years and substantial resources to develop.”  The Complaint was brought under the DTSA as well as under Maryland state law. 

According to the Complaint, Compass approached the UMB in May 2019 to explore a research collaboration with Scott Thompson, chair of the Department of Physiology at the University of Maryland School of Medicine. Dr. Thompson had been “working on the idea” of co-administering psilocybin with a 5-HT2A antagonist (including ketanserin) as a treatment for depression since 2016.  Such a combination was theorized to maintain the antidepressant activity of psilocybin while simultaneously reducing its hallucinogenic effects.  The Complaint also alleges that Dr. Thompson kept his research confidential.

The Complaint further alleges that after the parties signed a mutual nondisclosure agreement, Dr. Thompson and Compass engaged in negotiations between May and November 2019, about a potential research collaboration. Terran alleges that Dr. Thompson disclosed confidential information regarding the psilocybin/ketanserin co-administration, referred to as the “Psilocybin Trade Secrets.” In mid-August 2019, the University of Maryland filed patent applications relating to the “Psilocybin Trade Secrets.”  At the end of August 2019, allegedly based on its misappropriation of the “Psilocybin Trade Secrets.” Compass also filed a patent application relating to co-administration of psilocybin and a 5-HT2A antagonist.  In November 2019, Compass declined to participate in the research collaboration agreement.  Terran alleges that Compass “milked Thompson for all the information it could about his research” and that while Compass “was stringing Thompson along, it secretly filed its own patent application.”

For now, we have only a one-sided perspective on this case as Compass has not yet answered the complaint. Many questions remain. For example, what was Terran’s IP due diligence strategy given that UMB and Terran entered into a license agreement granting Terran an exclusive license to the “Psilocybin Trade Secrets” nearly 18 months after Compass had declined to go forward with the research agreement? How challenging is it for universities to maintain the confidentiality required for trade secret protection? 

This case is atypical; the routine trade secret case focuses on misappropriation of company secrets by employees or former employees.  Yet, there are a few takeaways that companies in the psychedelics space may wish to bear in mind:

  • Companies seeking to establish a research collaboration with either an academic institution or another company need to consider not only patentable inventions but trade secrets as well.  Companies and their collaborators need to make reasonable efforts to identify trade secrets and to ensure that such information is protected.  
  • As companies grow, they should adopt the practice of regularly engaging in a trade secret audit.  In general, technologies that can be readily reverse engineered are more suited to patenting, whereas those technologies that are more difficult to reverse engineer lend themselves better to trade secret protection.  But, the decision to take either approach is a business decision that should be made proactively rather than reactively.
  • Companies should reference confidentiality in employment agreements. Companies should also implement training programs for employees with respect to confidential information. Such training programs should be scheduled on a recurring basis particularly in fields where active research programs regularly generate new confidential information.
  • Particularly in technical fields such as pharmaceuticals and biotech, companies should implement policies restricting outside access to research labs and manufacturing facilities. 

 As is the case with patent litigation, we can expect an increase in trade secret litigation as the industry develops.  Companies that have taken active steps to identify and protect trade secrets will be at a competitive advantage. 

Gretchen L. Temeles, Ph.D., is a patent attorney and Of Counsel to the law firm of Feldman Legal Advisors PLLC, a New York City law firm . Gretchen can be reached at