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BioXcel Therapeutics’ AI Drug Development IPO

The industry where artificial intelligence has seen the most traction is in healthcare, something we touched upon in our most recent article on 6 AI Startups for Healthcare Management. CB Insights reported that through March of last year, AI in healthcare led all other industrial applications of AI in terms of equity deals, raising $1.8 billion across 270 deals since 2012. Big pharma is paying close attention, and just recently Roche announced plans to acquire big data and machine learning startup Flatiron Health for $1.9 billion. While Flatiron was trying to “fight cancer with organized data”, another exciting application of big data and machine learning in healthcare is that of drug discovery. In April of last year, we sat down with Andrew Radin, co-founder of TwoXAR, to talk about 9 Computational Drug Discovery Startups Using AI. Since then, the number of startups pursuing AI drug development has increased significantly. Just recently one of these companies filed for an IPO – BioXcel Therapeutics.

According to his LinkedIn profile, the Co-founder, Chairman and CEO of BioXcel Therapeutics is a man by the name of Vimal Mehta who has spent the last 12 years building the “first-in-class cloud based pharma big data analytics platform, “PharmGPS” which is just one part of a rather convoluted company and product structure that took some of our best MBAs the better part of an entire afternoon to understand try to understand. With biotech being already difficult enough to understand, it doesn’t help when you try and obfuscate your value proposition with all kinds of nomenclature in the same thread as the Nants and Vants of the world have done.

The basic premise of the company is that AI is being used to identify promising drug candidates in the early stages of development. Given how expensive it is to take new drugs to market, there is value in “predicting market winners in early stages giving 10-18 months’ time advantage” which is what PharmGPS is said to do. Here is their present pipeline:

In a nutshell, the entire platform serves to “reduce the cost and time of drug development in diseases with substantial unmet medical need” with their goal being to “become a leader in the field of neuroscience and immuno-oncology”. Of course they don’t actually own the platform. The filing states “we also rely, in part, on BioXcel and access to EvolverAI, a research and development engine created and owned by BioXcel”. See how confusing this is already? So “BioXcel Corporation” is a parent company that currently owns 93% of “BioXcel Therapeutics” that is the entity which is trying to raise capital through an initial public offering. Why is there a need for this arms length transaction?

In looking further down in the filing, we see that “as of December 31, 2017, BioXcel Therapeutics employed a total of four full-time employees and our parent, BioXcel, has two employees who are leased to us pursuant to the Services Agreement”. Those two employees of BioXecl (the parent company) seem to be the Chief Executive Officer, Vimal Mehta, and a director, Krishnan Nandabalan, who each own 43% of outstanding BioXcel voting stock. This means that these two individuals have 86% ownership of BioXcel which owns 93% of BioXcel Therapeutics.

If we think back to our article on 9 Computational Drug Discovery Startups Using AI, we can see how the route taken by most of these startups was to obtain funding from investors with the goal of seeing an exit that would provide the original investors a return on their investment. We see the involvement of some big names in the pharma industry that are providing funding and validation for these platforms. In the case of BioXcel, we see a convoluted offering that is difficult to make sense of which begs the question of why anyone would feel the need to make sense of it in the first place. Even the company itself noted their problematic corporate structure in the following statements made in their S-1 filing:

  • The assets and resources that we acquire from BioXcel in the Separation may not be sufficient for us to operate as a stand-alone company, and we may experience difficulty in separating our assets and resources from BioXcel.
  • You may have difficulty evaluating our business because we have no history as a separate company and our historical financial information may not be representative of our results as a separate company.

This begs the question as to why BioXcel didn’t just create an IPO around the parent company in the first place instead of trying to carve out this new entity. To make matters worse, there’s actually a third entity called InveniAI which “utilizes all of the advances in Big Data technology, machine learning and artificial intelligence to enable us to define questions accurately so as to seek and find the right answers“. InveniAI was launched by the parent company (BioXcel Corporation) to “accelerate innovation and commercial growth of proprietary AI platforms, EvolverAI and PharmGPS” which are the tools that BioXcel Therapeutics is using. They also have “PharmGPS GO“, “PharmGPS Validations“, “PharmGPS Insights“, and something called “AlphaMeld“. Then there’s Evolvere which is listed under the heading of “Evolver AI bots“:

It’s at this point in time that we have completely lost interest in trying to make sense of something that is so wrapped in marketing nomenclature that it’s nearly impossible to derive the true value proposition on offer here. Whoever they hired to vomit out this incessant cacophony of terms should be taken out and shot told to go back to the drawing board and come back with something that makes sense to the average lay person.

We largely write our articles with an audience of retail investors in mind, and for those retail investors who are reading, we would leave you with this takeaway. Even for those biotech analysts who dedicate their entire lives to finding stocks that will outperform the broader market, the vast majority fail to accomplish that goal. Why would your average armchair retail investor think they would have any better luck trying to do the same? Even if this were a startup with a corporate structure that made sense, a product that was even the slightest bit easier to understand, and some promising partnerships with large pharmaceutical companies, there is still no assurance that they won’t pull a Bind Therapeutics and go bankrupt taking your investment along with them. Why take that risk?

If you want exposure to healthcare as a retail investor, think about picking up some shares in a company like Johnson & Johson (NYSE:JNJ) which has been not only paying dividends but increasing them for 55 years straight. Try and find a fixed income instrument that could even come close to replicating those cash flows. When it comes to AI drug development, it’s pretty safe to say that a $355 billion healthcare company with their own pharmaceutical division and $17 .8 billion in cash on hand could probably pick up any one of the dozens of startups pursuing AI drug development that might turn out to be promising. (Full Disclosure: We hold a meaningful position in JNJ.)

If you read through the S-1 filing for BioXcel and think that you’d like to hop on for the ride, shares will begin trading under the symbol BTAI should the IPO be successful.

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