There’s been a lot of chatter about the mental health crisis since the Covid-19 pandemic. Overall, 12 mental health disorders affect 970 million people around the world — or one in eight people, according to the Institute for Health Metrics and Evaluation’s Global Burden of Disease. That can mean anything from anxiety and depression to bipolar disorder and schizophrenia. Covid has exacerbated the crisis, with 28% more people reporting anxiety and depressive disorders as a result of the pandemic in 2020 versus 2019, the organization found . Now companies are stepping up to meet those needs — from innovation in drug therapies to providing services. “Covid really put a spotlight on a lot of things, including technology and health care, and very specifically, mental health issues,” said Peter Micca, a partner and national health tech leader at consulting firm Deloitte. “Most of the investment in the early parts of Covid were around access and awareness, and benefits and programs,” he added. “There’s always been organizations focused on neuroscience issues, but the connection is even stronger now than I think anyone could imagine.” ‘Exciting’ developments Already, big pharma — which has been largely absent in neuropsychiatry innovations — is getting on board. On Dec. 6, AbbVie said it would acquire Cerevel Therapeutics for about $8.7 billion . Cerevel’s antipsychotic drug Emraclidine is currently in a phase two study for schizophrenia and a phase one study in elderly volunteers for Alzheimer’s disease psychosis. CERE 6M mountain Cerevel’s 6-month performance Cerevel’s stock has moved nearly 20% higher since the deal announcement, while AbbVie has gained 23%. Then, on Dec. 22, Bristol-Myers Squibb announced a $14 billion deal to acquire Karuna Therapeutics . The latter’s antipsychotic, KarXT, is expected to launch in late 2024 to treat schizophrenia, according to the release announcing the agreement. Shares of Karuna have since soared nearly 48%, while Bristol Myers Squibb’s stock is down about 3%. Both drugs target muscarinic receptors, which influence key neurotransmitters in the brain. Marc Goodman, senior research analyst at Leerink Partners, called the new class of medication, “the most exciting thing going on in the schizophrenia world right now.” “Now we have a drug that has a better side effect profile and equal efficacy on the positive symptoms” compared to the other medications approved to treat the disease, he said. KRTX 6M mountain Karuna Therapeutics shares over the past six months. Attention to a long-time crisis The mental health crisis is nothing new. However, there has also been a growing awareness and acceptance of mental health illnesses over the past decade, said Canaccord Genuity analyst Richard Close. “There’s been recognition that mental health has a significant impact on a person’s overall health,” he said. More than one in five American adults live with a mental illness, according to the Centers for Disease Control and Prevention. About one in 25 have a serious mental illness, like bipolar disorder, major depression or schizophrenia, per the organization. That increased recognition can be seen, for example, in the donations pouring into the National Alliance on Mental Illness. In 2022, MacKenzie Scott donated $30 million to the grassroots organization, the largest it has ever received. “This is the mental health moment,” said Dr. Ken Duckworth, NAMI’s chief medical officer and author of “You Are Not Alone: The NAMI Guide to Mental Health.” At the same time, pharmaceutical companies are looking to pioneer new treatments for neuropsychiatric illnesses. Last year, Deloitte analyzed the market size of pharmacological interventions for 16 brain disorders, for both neurological or neuropsychiatric conditions. The latter generated $99 billion in 2022 and is expected to reach $121.7 billion in 2026, the consulting firm found. “AI and AI technologies and capabilities will accelerate the R & D process, will accelerate and make the clinical trials process more focused, and in theory, enable certain drugs to get to market quicker, faster, cheaper,” Deloitte’s Micca said. Existing pharmaceutical companies are also focusing on certain therapeutic classes, “so that they can go deep, not wide,” he added. In addition, Deloitte expects an expansion in non-drug treatments, such as behavioral therapy services. Some $444.7 billion in revenue was generated in 2022 and the firm is projecting it will rise to $515 billion in 2026, with an aggregate compound annual growth rate of 3.7%. Investing in biopharma Deloitte sees a big demand for innovation in neuropsychiatry. With big pharma largely out of the picture over the past several years, there is a large market opportunity for biopharmaceutical companies — and perhaps, eventually, more acquisitions by large companies, Wall Street analysts said. “There is a clear unmet need,” said William Blair analyst Myles Minter. For instance, only about 50% of those suffering from major depressive disorder are treated and of those, about three-quarters will relapse and have to be treated again, he said. What companies are looking for now are novel therapies for depression that are different from the current standard of care and those that can treat symptoms quicker. Among the names Minter rates outperform are Axsome Therapeutics and Neumora Therapeutics . Neumora is developing an opioid receptor antagonist, Navacaprant, which is now in phase three trial to treat depression and phase two trial to great bipolar depression. The company also has trials underway for medications to treat schizophrenia and agitation in Alzheimer’s Disease. Meanwhile, Axsome’s fast-acting antidepressant Auvelity came on the market in late 2022. The drug is also in a phase three trial to treat Alzheimer’s Disease agitation and the results should come out in the second quarter, said Leerink’s Goodman. He has an outperform rating and $100 price target on the stock, which implies almost 8% upside from Friday’s close. “We’re highly anticipating that data,” he said. “They’ve been pretty positive. So if this one’s positive, they’re going to file and get that approved for a new indication, and that is a big, exciting new deal.” UBS is also bullish on Axsome, initiating coverage of the stock earlier this month with a buy rating and $111 price target. “We believe Auvelity could become a leading brand in depression, generating $1bn in sales by 2030,” analyst Ashwani Verma wrote in a Feb. 6 note. Positive phase three data in Alzheimer’s agitation and narcolepsy could also drive the stock higher, Verma said. “AXSM stock is benefitting from renewed investor interest in CNS [central nervous system] therapy area, following [the] strategic exit of Karuna/ Cerevel; we believe this is a sticky trend that provides [a] favorable backdrop for the stock,” Verma said. The one Goodman has his eye on right now is Intra-Cellular Therapies . The company is looking to expand is Caplyta drug, which treats schizophrenia and bipolar depression, into major depressive disorder, also known as clinical depression. Goodman is optimistic about the efficacy of Caplyta to treat depression. Two of the three ongoing studies are expected to report data in the first and second quarter, he said. In late January, he boosted his price target to $82 from $70, implying 8% upside from Friday’s close. Meanwhile, Relmada Therapeutics is still working on its major depressive order drug, REL-1017, also known as esmethadone. The NMDA receptor channel blocker failed its first two phase three trials because it did not show statistically significant improvement in depression symptoms compared to the placebo. The results from its latest study should be released sometime in the next six months, Goodman said. “I’m really a believer that this drug can work,” he said. There are also names that are a play on epilepsy but they are also looking into using the drugs to help with depression, Goodman said. Xenon Pharmaceuticals has phase three trials underway for XEN1101, a Kv7 potassium channel opener, for epilepsy. However, it is also studying the drug for major depressive disorder. The company completed phase two for depression and said it saw promising topline results. It expects to start phase three this year. BioHaven has a Kv7 drug it is working on for epilepsy as well, and has also started studying it for major depressive disorder. When it comes to schizophrenia, Karuna and Cerevel aren’t the only ones developing drugs that target muscarinic receptors. Neumora has one in a phase one trial. Neurocrine Biosciences, which Goodman rates outperform, has a drug in a phase two trial. “If big pharma is acquiring two other muscarinics, anybody who is a muscarinic is obviously going to benefit from that,” Goodman said. Neurocrine Biosciences shares have added almost 12% since AbbVie said it would acquire Cerevel on Dec. 6 and Goodman thinks it has more room to run. His price target of $160 suggests about 21% upside from Friday’s close. Neurocrine Biosciences also has a drug, Ingrezza, that treats tardive dyskinesia, which is a movement disorder usually caused by long-term use of antipsychotic drugs. Meanwhile, Acadia Pharmaceuticals also has a schizophrenia drug and a drug for Parkinson’s disease psychosis in the pipeline , but right now investors are focused on whether it gets the first-ever drug approval for Rett syndrome, a rare genetic neurological disorder, Goodman said. Finding value Meanwhile, valuations are largely compelling for small- and medium-cap biopharma stocks, said David Song, an investment partner and head of life sciences at Tema ETFs. His firm recently launched the actively managed Tema Neuroscience and Mental Health ETF (MNTL) , which invests in companies involved in combating neurological diseases and psychiatric disorders. “The core of what we invest in is small-, mid-cap biotech companies,” he said. “They’ve just come out of a really difficult bear market.” “Investors get compensated for trying to, in my view, invest in breakthrough therapies and pay reasonable valuations for that,” he added. Included in the funds holdings are Neurocrine Biosciences, Intra-Cellular Therapies, Acadia Pharmaceuticals and Axsome Therapeutics. It also has assets in the services and technology side, including Acadia Healthcare , which specializes in behavioral health treatment facilities, and a small holding in online therapy company Talkspace . One name it doesn’t hold is Teladoc , which has a direct-to-consumer mental-health business with BetterHelp. The stock surged during the pandemic as Americans flocked to virtual health services, but fell flat as the economy reopened. Shares are down 93% from their all-time high of $294.54 hit on Feb. 8, 2021. The average analyst rating is a hold, according to FactSet. However, Canaccord’s Close rates the stock a buy thanks to the company’s success on driving profitablity and cash flow, he wrote in a note Thursday. BetterHelp is now approaching $1 billion in revenue this year, he told CNBC. His $34 price target suggests nearly 62% upside from Friday’s close. Venturing into psychedelics Johnson & Johnson stands out as one big pharma name that has said it is committing research and development into neuroscience. It has turned to psychedelics to treat depression. The company’s nasal spray, Spravato, is esketamine, which is made from ketamine. The drug launched in 2019 and got off to a slow start, but that has changed. Spravato brought in $689 million in global sales in 2023, an 84% increase from the year prior, Johnson & Johnson reported in January. “Spravato has had a really good run over the past year or two, and is starting to change people’s attitudes,” said Goodman, who doesn’t cover the stock. “A lot of investors in the investor community are like, ‘okay, maybe the psychedelics are potential moneymakers.'” The big debate now is whether the psychedelics that require controlled supervision can be successful or will the ones that don’t require observation be better, he said. Patients who take Spravato have to be monitored by a health-care provider for at least two hours after taking the drug. More M & A ahead? With big pharma stepping up with two planned acquisitions this year, many on Wall Street believe more will follow eventually. “There’s going to be more M & A because there was such a long period of time where people were not investing in neuroscience,” said Leerink’s Goodman. Blair’s Minter also sees more deals ahead as big pharma tries to gain exposure to neuropsychiatry through these companies developing the products. “If you can build out the sales force, you have pathways to billion-dollar-plus products,” he said. In particular, he thinks Axsome Therapeutics, Neumora and Intra-Cellular Therapies are all attractive as potential acquisitions. “You are seeing a lot of these products build out as pipelines,” he said. “What really matters to [big pharma] is: What am I buying 10 years down the track and is this going to be a blockbuster for us?” Deloitte also sees new business models emerging where companies form an alliance to work together on a drug, rather than merge companies. “M & A sometimes doesn’t happen as quickly as people would like,” Micca said. “Sometimes taking a therapeutic class or drug to market requires a different form of strategic alliances.” — CNBC’s Michael Bloom contributed reporting.