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An Introduction

It costs about $900M over 13.5 years, on average, to developing new drugs the conventional way which has created a huge shortage in drug candidates and programs but that is in the process of changing with the advent of AI which is expected to significantly shortened and cheapened this process by automating that entire process. To capitalize on this transition it is imperative that potential investors understand the drug development process and understand the financial health and market potential of those companies under consideration to make more informed decisions and this article provides such insights.

AI-powered Drug Discovery Growth Projections

According to Grand View Research, the global "AI in drug discovery" market was worth about $1.1 billion last year and is expected to expand by a compound annual growth rate of 30% between now and 2030. That outsized growth is expected to result in approximately 50 novel therapies being brought to market over the next decade, with annual sales in excess of $50 billion by then according to Morgan Stanley.

The 5 Stages Of Biotech Research and Development to FDA Approval

1. Pre-clinical research (3 to 6 years) involves laboratory and animal studies to gather preliminary data on the drug’s safety and efficacy to demonstrate that the drug is safe enough to be tested in humans;
2. Phase 1 clinical trials (to 2 years) involve testing the drug on a small group of healthy volunteers to assess safety, determine safe dosage ranges, and identify side effects;
3. Phase 2 clinical trials (2 to 3 years) involve testing the drug on a larger group of patients who have the condition the drug aims to treat to determine whether the drug has the intended effect on said condition;
4. Phase 3 clinical trials (3 to 4 years) involve large-scale testing on a diverse patient population to confirm the drug’s effectiveness, monitor side effects, and compare it with standard treatments;
5. A New Drug Application (6 months to 2 years) is the final stage and involves the submission to the FDA of a comprehensive data package of all findings from the previous stages for their decision as to whether, or not, to approve the drug for the market. 

As outlined above, the current process takes 10 to 17 years (13.5 years, on average) to bring a drug candidate to commercialization.

There are 6 AI-focused clinical-stage drug discovery currently trading on North American stock exchanges and below are their stock performances so far this month and YTD, a description of their areas of focus, their product pipeline and the latest news, analyses and commentary on each, where pertinent:

The munKNEE AI-focused Drug Discovery Stocks Portfolio

1. Relay Therapeutics (RLAY): UP 34.0% MTD; DOWN 20.6% YTD
   • Area of Focus: specializes in developing an artificial intelligence-driven allosteric drug-discovery platform intended to detect and characterize interactions that occur on a protein of interest and combines computational methods with experimental approaches across the fields of structural biology, biophysics, and chemistry. Its initial focus is on enhancing small molecule therapeutic discovery in targeted oncology and genetic disease indications (see details here).
   • Pipeline: (see here)
   • Latest News, Analyses and Commentary:
     • Roche disclosed this past Tuesday that it is terminating a cancer drug collaboration with Relay Therapeutics that it struck in 2020 which centered on an experimental SHP2 inhibitor the companies sought to pair with KRAS-blocking medicines. Relay had received $75 million upfront from Roche and stood to gain hundreds of millions of dollars more in milestone payments if the collaboration had succeeded. (source)
2. Absci Corporation (ABSI): UP 31.8% MTD; DOWN 3.3% YTD
   • Area of Focus: utilizes a platform to improve upon traditional biologic drug discovery by using AI to simultaneously optimize multiple drug characteristics that may be important to development and therapeutic benefit. (see details here)
     • Pipeline: (see here)
     • Latest News, Analyses and Commentary: None 
3. AbCellera Biologics (ABCL); UP 4.4% MTD; DOWN 45.9% YTD
   • Area of Focus: discovers antibodies from natural immune responses which are pre-enriched for antibodies and then outsources them to their partners, Eli Lilly and Company, Confo Therapeutics and Biogen Inc. (see details here)
   • Pipeline: (see here) 
   • Latest News, Analyses and Commentary:
     • AbCellera Biologics Upgraded to Buy: Here's What You Should Know
4. Recursion Pharmaceuticals (RXRX): UP 6.4% MTD; DOWN 19.1% YTD
   • Area of Focus: engages in the decoding biology by integrating technological innovations across biology, chemistry, automation, data science, and engineering to industrialize drug discovery (see details here)
   • Pipeline: (see here) 
   • Latest News, Analyses and Commentary:
     • Is Recursion Pharmaceuticals Stock a Buy?
5. Schrödinger (SDGR): UP 12.9% MTD; DOWN 39.0% YTD
   • Area of Focus: has developed a physics-based computational platform geared toward the discovery of novel molecules which it leverages to build a pipeline of its own clinical programs in addition to selling access to its platform to other pharmaceutical firms (see details here)
   • Pipeline: (see here) 
   • Latest News, Analyses and Commentary: None
6. Exscientia (EXAI): UP 1.0% MTD; DOWN 19.7% YTD
   • Area of Focus: engages in the design and development of differentiated medicines for diseases with high unmet patient needs and has collaboration agreements with Merck KGaA, Bristol Myers Squibb, Sanofi, the Bill & Melinda Gates Foundation, Charité – Universitätsmedizin Berlin, Rallybio, and GT Apeiron Therapeutics (see details here)
   • Pipeline: (see here)
   • Latest News, Analyses and Commentary:
     • Exscientia Launches AWS AI-powered Platform to Advance Drug Discovery
     • Exscientia Reaches Agreement to Acquire GT Apeiron’s Share of its Oral CDK7 Inhibitor Program

Summary

On average, the 6 constituents in our AI-focused Drug Discovery Stocks Portfolio (averaging $1,175M in market cap) are UP 14.3% MTD but remain DOWN 30.3% YTD.

How To Analyze A Biotech Company’s Financial Health

Going further than the above information, Bill McNarland expands (see here) on the need to analyze cash flow, burn rate, liquidity, working capital, debt levels, and revenue growth, crucial for sustaining lengthy development processes and the need for potential investors to assess the total addressable market, competition, and uniqueness of treatments before making any investment decisions.

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