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goetzpartners securities Limited
Evotec AG (EVT-DE): Early adoption of AI in drug design and beyond
21-Feb-2019 / 07:54 GMT/BST
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*Published to the market and investors on 21st February 2019 @ 7.47am (GMT).*
*Evotec AG (EVT-DE): Early adoption of AI in drug design and beyond*
*Recommendation: OUTPERFORM*
*Target Price: EUR25.00 *
*Current Price: EUR20.61 (CoB on 20th February 2019) *
*KEY TAKEAWAY*
The availability of large, diverse datasets ("big data") in the past 5 - 10
years, coupled with the exponential growth in computing power, increasingly
sophisticated algorithms and major advances in experimental techniques for
structural biology have firmly propelled artificial intelligence ("AI") into
drug discovery ("DD"). A variety of machine learning ("ML") tools are now
available across all stages of DD and development. This has led to the
emergence of many AI-driven tech players looking to capitalise on biopharma's
appetite to incorporate AI into the R&D process, with many partnerships being
forged. Through its collaboration with Exscientia, Evotec has been using
advanced ML tools to gain operational efficiencies in drug design, reduce the
overall time it takes to take a drug candidate from discovery to first in
human studies, and increase the chance of success. The first drug candidate
may be ready to enter the clinic by YE2019E, when it can potentially be
partnered with a biopharma company. Evotec has also recently entered a
collaboration with Immuneering to use AI for ligand identification in the
field of hereditary metabolic diseases. We reiterate both our OUTPERFORM
recommendation and EUR25 target price.
*Big data the fuel for machine learning, the current form of AI*
AI refers to systems able to think, behave and perform functions that require
human-like intelligence, e.g. decision-making, problem-solving and learning.
While the fundamental ideas on AI date back to the 1950s, progress was
initially slow due to the lack of data and limited computing power. The
availability of large data sets led to a rebirth of AI in the form of ML, the
current form of AI where algorithms allow computers to perform tasks
intelligently and carry out complex processes by learning from vast amounts of
data and examples without the need to rely on hard-coded rules which set out
how to solve a problem step-by-step. The better and more comprehensive the
data, the higher the predictive power and accuracy. This is because machines
can identify complex patterns and relationships in large amounts of
unstructured data derived from a variety of sources. The explosion of "-omics"
data - particularly genomics, transcriptomics and proteomics - have been a key
driver for ML to enter DD.
*ML tools have permeated every step of the drug R&D process*
It takes 10 - 15 years and up to $2.6bn to develop one successful drug - up
from c.$800m ten years ago and c.$50m in the 1970s. R&D productivity has been
declining for years and the current model of passing on the rising costs to
patients, insurers and governments is not sustainable. Success rates remain
strikingly low, with only one in ten drugs in Phase I likely to succeed, and
approx. 70% of drugs fail late-stage clinical trials due to lack of efficacy
or side effects. This has led the traditionally conservative biopharma sector
to embrace AI in all aspects of drug R&D, ranging from target identification
to molecular design and both site selection and patient stratification for
clinical trials. In the DD space, laborious and time-consuming steps such as
the analysis of the scientific / medical literature, chemical library screens,
as well as drug design and synthesis are being enhanced by in silico processes
that can be carried out in less time and at a lower cost whilst yielding
potentially better molecules. Leading players in the field aim to cut the drug
discovery process to 1 year from the current 4 - 5 years.
*Evotec is implementing Exscientia's algorithms in drug design*
In April 2016, Evotec signed an explorative collaboration with UK company
Exscientia, a world leader in applying AI to molecular design consisting of an
experienced team of seasoned big pharma drug hunters with computational
chemistry backgrounds, to enhance the work done by its large team of medicinal
chemists in the field of drug design, the process of applying chemical
transformations to an initial "hit" molecule to optimise factors such as
activity, selectivity, physical properties, disposition, half-life and safety.
The partnership has been going from strength to strength and prompted Evotec
to make a first equity investment in September 2017. The first molecule, an
immuno-oncology drug candidate, is expected to enter the clinic by YE2019E -
less than four years after the deal was first signed.
Kind regards,
Brigitte de Lima | Analyst
goetzpartners Healthcare Research Team | Research Team
goetzpartners securities Limited
The Stanley Building, 7 Pancras Square, London, N1C 4AG, England, UK.
T +44 (0) 203 859 7725 | brigitte.delima@goetzpartners.com /
healthcareresearch@goetzpartners.com
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February 21, 2019 02:54 ET (07:54 GMT)
