TLDR Biotech sat down with Shlomi Raz and Ken Belotsky, co-founders of Palomar Labs*, a venture studio developing next-generation psychiatric therapeutics that engage serotonin receptor targets without the hallucinogenic effects of classical psychedelics.

Both are veterans of the first wave of psychedelic drug development - Raz as a founder/operator, Belotsky as an investor - and we talked about why the most promising drug candidates are often the ones pharma has been trained to ignore, what it means to develop drugs "backwards," and where the richest seam in neuropsychiatry is right now.

*Formerly known as Negev Labs

Shlomi Raz's origin story starts in a grad school classroom. He was enrolled at NYU to become a psychotherapist when his first assignment landed on his desk: a paper out of Johns Hopkins about the profound effect of a single dose of psilocybin.

That paper kicked off what would become a nearly 15-year journey into psychedelic drug therapy, and Raz eventually founded one of the first companies to pursue psychedelic-assisted treatment through a traditional biotech development pathway.

What he found was that it was fundamentally a last-mile problem. 

"The vast amount of research that took place in the 1960s and 70s already demonstrated the therapeutic value of psychedelic drugs," Raz says. "The question was less 'does it work?' and more about how can we make it a practical, accessible, affordable therapy."

From the vantage point of the early 2010s, convincing the world that Schedule I compounds had genuine therapeutic value was the first chapter.

Ken Belotsky entered as an investor about six or seven years later, just as clinical validation was catching up to what the early pioneers already knew. By then, that first chapter had become more well-established, with companies pushing psychedelics into Phase 3 trials and the first approvals feeling like they were just around the corner, forcing a reckoning with the fact that Schedule I is defined as "no medicinal application," though that’s clearly no longer true.

But Raz and Belotsky like being early, and by the time the first generation of psychedelic therapy was on its way to regulatory validation, they were already asking the next question: what else is out there?

"There's a lot of other gems that are kind of adjacent to psychedelics, but for whatever reason, haven't really received the attention that they deserve from a development perspective and could make a huge therapeutic impact," Raz says. That conviction became Palomar Labs.

The dominant framing for this next generation of therapeutics has been "neuroplastogens", a term coined by Professor David Olson at UC Davis, whose company Delix Therapeutics is pursuing the hypothesis that neuroplasticity is the key biomarker that separates therapeutic serotonin 2A receptor activation from hallucinogenic effect.

Under that framework, if you can find compounds that trigger neuroplasticity without triggering hallucination, you've cracked the code. But Palomar Labs isn’t entirely convinced, skeptical about neuroplasticity being an actual useful guide to development.

"We don't necessarily believe that neuroplasticity is a reliable or potentially even useful biomarker of therapeutic effect," he says, "meaning that there are a lot of drugs that can induce neuroplasticity, but they're not necessarily therapeutic." 

Palomar Labs' approaches this all from a different angle. Rather than starting with a target, screening compounds, optimizing leads, and then moving into animal models and eventually humans as is the standard course for drug development, they’re starting with the human experience and working backwards.

"The model that we pursue for drug development is a bit in reverse or backwards from a traditional approach, where we start with human anecdotes," Raz explains.

"Has someone tried this drug? Is there clinical data of any kind around this drug? And then we proceed to an in vivo validation in a translationally valid animal model. And then we return to the human in the form of clinical trials."

In any other area of drug development, this approach would be unwise if not downright dangerous. But in neuropsychiatry, Raz argues it's actually the best approach, because "the animal models are notoriously limited, especially the more psychiatric the indication is, where it's more about cognition and mood."

Raz argues that animal models of depression or apathy are expensive, difficult to interpret, and questionable in how well they predict human outcomes, so starting with actual human data gives them a head start that de-risks the program before they ever touch an animal model.

This data lives in a variety of forms, ranging from lost/discarded clinical trial reports, traditional medicine use cases, or anecdotal reports from researchers and clinicians.

There is an intentional parallel to distressed asset salvaging here. Raz spent time on Wall Street before moving into drug development, and the framework carries over directly. "The term there for these types of assets is distressed assets," he says.

"Things that are kind of stranded that have been neglected for development and for commercialization, but ultimately have value if you just reframe the development, if you take it into a different direction, if you provide sufficient capital."

The reason so many of these drug candidates were stranded in the first place comes down to a concept Raz calls anti-targets, where there are receptors that pharma selectively ignores and screen out of any development pipeline, regardless of potential therapeutic value.

To demonstrate this with a few examples, serotonin 2A receptor activation has been an anti-target for decades because it's associated with hallucination, while serotonin 2B receptor activation has been an anti-target since the fen-phen recall, when the weight-loss drug was pulled due to cardiac complications linked to 2B activation. Any drug candidate that interacts with these receptors gets thrown out during screening, even if there's evidence suggesting clinical value.

"Because we're not constrained by those anti-target biases," Raz says, "because we're kind of open-minded and we believe that may have been an overly conservative approach to identifying promising candidates, all of a sudden we can see opportunities where others can't look."

This edge has led them to drug candidates in areas with massive unmet need. In Parkinson's disease, where virtually every existing therapy works by modulating dopamine receptors or blocking dopamine reuptake, Raz says they've found what could be "the first therapy that potentially has significant therapeutic value in Parkinson's without directly activating a dopamine receptor".

In Alzheimer's-related aggression and agitation, current treatment relies on atypical antipsychotics that are effective but heavily sedating. "The question is, yes, the patient isn't aggressive, isn't agitated, but are they living?" Raz asks. "Or are you essentially sedating them so much that they're easier to manage, but is that something we really want to be targeting?"

And then there's apathy and motivation, where Raz explains that "treating apathy or modulating motivations, without the side effects traditionally associated with drugs like psychedelics or amphetamines, is where we think the richest seam to mine is.”

Belotsky is careful to frame all of this as complementary rather than competitive with the first generation of psychedelic therapy. For conditions rooted in trauma - PTSD, trauma-driven depression, substance use disorders - classical psychedelics remain uniquely valuable.

"During the psychedelic trip, you release this trauma, and you can live with that. That's why they're so beneficial for people," he says.

But for conditions that don't stem from a discrete traumatic event, "psychedelics are not the best treatment, and it's not convenient to have this treatment every three months or every six months. You just need some time to fix the issue."

As a venture studio operating in a harsh funding environment for early-stage neuropsych, Palomar Labs has to be ruthless about capital allocation.

"We can't fall in love with our molecules," Raz says. If a promising candidate requires significantly more capital or time to reach proof of concept than another candidate in the portfolio, it gets shelved, as what happened with their ophthalmology asset, which Raz had worked on for a long time but ultimately deprioritized in favor of neuropsych candidates with stronger human evidence bases.

The goal is to get each program to proof of concept within one to two and a half years, then spin it out as a standalone company and hand it off to a pharma partner or traditional VC-backed management team for late-stage development. Everything in the venture studio is structured around that handoff point.

Raz's closing thought is one that has been hardened by years of both financial (from his Wall street days) and drug development experience, in that equanimity is the highest virtue. "Don’t get too high when you get a good preclinical result, don’t get too low when you get a bad preclinical result, just keep the faith and keep moving forward."

And what sustains that faith, he says, is starting with the human experience. "We already know something that we traditionally don't know in drug development, which is we have this human anecdote. We have this human experience that tells us something really valuable."

Drug development is its own precarious, messy process, but Palomar Labs thinks they’ve found something unique - when you start from a place where you already have reason to believe you're developing an actual medicine, it changes the character of the whole endeavor.

"That faith, based on the human experience, is the thing that makes this whole area special," Raz says. "It's not as speculative as other areas."

You can learn more about Palomar Labs at https://palomar-labs.com/.