AI Biotech Valo Health Secures $3 Billion Partnership with Merck Following $4.6 Billion Deal Earlier This Year

On November 20 local time, Valo announced a strategic partnership with Merck Germany to advance the discovery of treatments for Parkinson's disease and related conditions. Under this collaboration, Merck will leverage Valo’s AI biology platform to identify and validate new disease targets, as well as utilize Valo’s closed-loop discovery platform to rapidly generate preclinical compounds. The collaboration is valued at over $3 billion, including upfront payments, potential milestone payments, royalties, and R&D funding.

Valo was founded in 2019 and officially launched by Flagship Pioneering in September 2020. The company leverages data and AI to develop next-generation drug discovery platforms, with a pipeline covering multiple therapeutic areas including cardiovascular/metabolic/renal diseases, cancer, and neurodegenerative disorders.

Valo's core platform is the Opal Computational Platform (Opal). The Opal platform, based on longitudinal datasets from thousands of sources, can not only predict molecules that can be used as new drugs but also forecast how these drugs will affect patients' bodies. Behind the platform's capabilities lies a vast accumulation of underlying data. Between 2019 and 2020, Valo acquired AI drug discovery company Numerate and biopharmaceutical firm FORMA Therapeutics, gaining assets such as two early discovery laboratories and an R&D library. Among these, Numerate’s platform includes over 30,000 models, 70 trillion molecules, and more than 25 drug projects. These assets form the cornerstone of the Opal platform's growing strength.

To further enhance data accumulation, in December 2020, Valo announced a partnership with genomics company G3 Therapeutics. Through this collaboration, Valo gained access to G3 Therapeutics' aerobic metabolism database, which also aids Valo in discovering disease-related biomarkers and targets, thereby accelerating the drug development process. To further improve the efficiency of drug discovery, Valo's Opal computational platform integrates human data rather than mouse cell data, which has been commonly used in the industry. This approach makes drug development faster, more efficient, and reduces costs.

In addition, the end-to-end design of the Opal computing platform has also significantly accelerated the speed of drug development. At the same time, the data uses a single integrated architecture, allowing for data and information sharing throughout the entire drug research and development process, which provides new methods for the development of disease treatments. Compared with traditional methods, the Opal computing platform can perform computational and empirical screening of trillions of molecules within weeks, thereby identifying new target areas for development.

However, even though Valo was incubated by the well-known venture capital firm Flagship and possesses strong underlying data and algorithm logic, its development process has not been smooth sailing.

In January 2024, David Berry, who had served as CEO since Valo's inception, announced his resignation. The company subsequently appointed Vice President and Chief Financial Officer Graeme Bell as interim CEO. Graeme Bell stepped down just six months into his tenure, shortly before the release of critical Phase II clinical data for Valo’s core pipeline drug, OPL-0401 (in September 2024). As expected, the clinical data for OPL-0401 later revealed significant issues. At the end of 2024, Valo announced the topline data from the Phase II SPECTRA study of OPL-0401 in patients with diabetic retinopathy (DR). The results showed that the study did not meet its primary or secondary endpoints, and development of the drug has been suspended.

Fortunately, OPL-0401 did not come from Valo's AI discovery platform but was acquired from Sanofi. In 2021, Valo licensed the ROCK inhibitor from Sanofi. Previous clinical studies on the drug were mainly conducted by Sanofi. Since OPL-0401 is not a self-developed drug by Valo, the failure of this drug has little impact on its technological platform, allowing Valo to continue promoting its "AI story." Moreover, after the failure of this pipeline, Valo promptly adjusted its development strategy, stating that its future focus will be on the AI drug discovery platform Opal. The company will use real-world data to develop new drugs through AI-driven closed-loop small molecule design based on this platform.

Despite Valo's consecutive "disappointments" in internal personnel changes and clinical pipelines, it has been continuously "successful" in external BD.

In fact, this is Valo's second major deal with an MNC this year. As early as January, Valo announced an expanded agreement with Novo Nordisk to discover and develop new treatments for obesity, type 2 diabetes, and cardiovascular diseases based on Valo's extensive human datasets and artificial intelligence computing. Under the terms of the agreement, Valo was entitled to receive upfront payments, equity investments, and potential near-term milestone payments totaling $190 million. It is now eligible for milestone payments for up to 20 drug projects, plus nine additional new drug projects, amounting to approximately $4.6 billion in total.

The reason it is called an expanded agreement is that Valo and Novo Nordisk had already reached a collaboration in September 2023. The previous collaboration showed that Novo Nordisk would leverage Valo's technological accumulation in human data and genetics to gain a foothold in cardiometabolic diseases; in return, Valo could receive an upfront payment totaling $60 million along with potential near-term milestone payments. Additionally, Valo is eligible for milestone payments across up to 11 programs, with a total amount as high as $2.7 billion, plus research and development funding and potential royalties.

Not only Novo Nordisk and Merck are making inroads into the AI pharmaceuticals field, but in recent years, giants such as Eli Lilly, Roche, Novartis, Genentech, and Gilead have also heavily invested in this area. The high-value BD deals continuously emerging in this field are driven by the significant application value that AI can bring to drug research and development.

Specifically, for AI pharmaceutical companies,Collaboration with MNCs represents an opportunity to acquire necessary resources, accelerate the drug development process, and expand the scope of business. AI pharmaceutical companies often excel in a specific technology or disease area. If an AI pharmaceutical company possesses unique technology that addresses the pain points of MNCs and can help them understand the technical advantages of the AI drug discovery platform, it will often gain favor from MNCs.

For MNCs,They generally have a positive outlook on the application of AI in drug development, viewing AI as a key tool to enhance efficiency, reduce costs, and accelerate the time to market for drugs. Meanwhile, multinational corporations (MNCs) have the capital, data, and extensive experience in drug research and development, but MNCs usually do not develop all tools themselves. In most cases, they prefer to use tools developed by specialized companies.

But as the industry gradually advances, we also need to face the current situation and pain points of AI pharmaceuticals. That is, AI pharmaceuticals have moved past the early stage dominated by discussions of technology and concepts, and started to become more pragmatic, increasingly focusing on products and pipelines with stronger industrial certainty. How to enable AI at this stage to completely overcome the high risks and long cycles of new drug development, and successfully bring a commercialized product to the industry, is the next challenge we must confront.