How Benevolent AI helps drugmakers speed up development: SMALL CAP INVESTING

Fail fast, fail cheap. This is an oft-chanted mantra in drug development borne of decades of experience.

Let’s explain what this means using two salient facts supplied by the Wellcome Trust, Britain’s pre-eminent health research charity.

It estimates that on average it takes 12-15 years and $2.5billion to bring a drug to market. It also notes the discovery process is an ‘increasingly expensive, risky, and time-consuming proposition’.

What ‘fail fast’ suggests is it is better to take your medicine (pardon the pun) upfront when only a small sum has been invested in R&D, rather than missing the target in phase III, when tens of millions of dollars have been spent.

 Benevolent AI has received third-party validation for its approach and technology via partnerships with AstraZeneca and Merck

It should be said right away that this idea of picking up potential flaws in a new treatment early on, before an asset hits the clinic, requires something akin to a crystal ball.

Benevolent AI, which, while not practised in the art of clairvoyance, IS doing something interesting to help mitigate the costs, risks and time involved in drug discovery. It is using artificial intelligence to refine the process.

Benevolent has received third-party validation for its approach and technology via partnerships with AstraZeneca and Merck. The utility of its data and algorithms was proven during the pandemic when they identified an Eli Lilly arthritis drug as treatment for acute Covid which is now FDA approved.

And, over recent years, it has also developed a pipeline of in-house discoveries that it is developing before out-licensing them.

The foundation for this success is the Benevolent Platform, which ingests over 85 different data sources relevant to drug discovery. These are integrated and cross-referenced to break down ‘silos’ that grow around disease types, or scientific disciplines or methodologies.

In doing so, the AI spits out results that help with predicting drug targets, molecules to create drugs, and subtypes of patients that might best respond to those drugs (rewritten in what I think might be plainer English).

It also provides what is called ‘in silico’ experimentation, which takes place on a computer rather than in the lab, along with biomarker assessment and information that might allow a drug company to repurpose one of its products.

From this, Benevolent has created three clear business streams. End-to-end drug discovery – that is collaborating with Big Pharma; the pre-clinical and development pipeline mentioned above; and knowledge exploration income from what’s essentially a SaaS platform.

The first of those three (end-to-end discovery) has been validated via its collaborations with AZ and Merck in research areas such as chronic kidney disease, heart failure, lupus, fibrosis, oncology, neurology and immunology.

These partnerships are wrapped up in upfront fees, milestone payments and royalties on any products that make it to market. BenevolentAI has already generated tens of millions of dollars in revenue from AZ.

Meanwhile, the Merck partnership is potentially worth up to $594million, with Benevolent having received a low double-digit million-dollar upfront payment.

Its in-house pipeline includes potential first-in-class drugs for ulcerative colitis and glioblastoma (a deep-seated cancer of the brain), along with a potential best-in-class treatment for ALS, the degenerative disease that killed the Scottish rugby great Doddie Weir.

Not wanting to shy away from a challenge, it is also working on a ‘neuroprotective’ that could one day help treat the 153,000 people in the UK suffering from Parkinson’s disease, while its research in fibrosis is targeting non-alcoholic fatty liver disease.

Its accumulated data and learning have also allowed Benevolent to create a potentially very sticky product suite of exploration tools. BenAI-Q allows users to investigate, visualise, and analyse data in real time using large language and in-house technologies.

Its BenAI research assistant speeds up the onerous and time-consuming process of reading scientific literature, while it also creates a platform that helps scientists create a go-to-market plan for a drug candidate.

A major landmark for the business came in late 2021 when UK-based Benevolent was listed on Euronext after it reversed into the Odyssey Acquisition, becoming Europe’s biggest SPAC deal.

More importantly, it received Odyssey’s €300million war chest alongside €135million from existing backers such as Singapore government-backed Temasek via a private investment in public equity (Pipe) fundraiser. Other well-known healthcare investors joined this financing, along with AstraZeneca.

One look at the share price reveals it hasn’t been plain sailing for the group – from a capital markets viewpoint at least. Management would likely argue the investment received has been transformational.

Still, at a cut-price valuation of just €100million, it’s fair to say IPO investors aren’t really seeing a payback on their initial investment.

Largely, the reasons for the slump in valuation have been out of Benevolent’s control.

Since the onset of the conflict between Russia and Ukraine, there has been a risk-off attitude towards growth companies of Benevolent’s ilk.

A flight to safe-haven instruments has been exacerbated by investors seeking out higher-yielding assets, which has drained the European equity markets of pools of risk capital for expansion.

The corollary has been a rapid and indiscriminate mark-down in valuations across the mid and small-cap sectors over the last 24 months.

Against this backdrop, Benevolent has made some tough decisions to conserve its cash, meaning it has runway out to mid-2025 (assuming no new revenue).

It’s fair to say if the business was listed on the Nasdaq, the high-tech exchange, it would likely be much larger in market capitalisation terms than it is today.

In the US, access to capital is much easier than it is on this side of the Atlantic, while the investment community is patient and tends to have a greater appetite for risk because it understands the process of growing a med-tech/life sciences business.

A case in point is Recursion Pharmaceuticals, valued at $2.3billion, which is a decent American proxy for Benevolent.

After a difficult period for small and mid-cap healthcare stocks for the sector here in the UK and mainland Europe where the markets have frozen, there are signs of a thaw.

If this is the case, then Benevolent, with two blue-chip partnerships, a strong internal pipeline, and a proven technology bulwark, should be one for the watch list.

This post first appeared on Dailymail.co.uk