What is the Two Natural Capital covalent inhibitors report about?

The report is an educational primer on covalent drugs — how they work, why they were historically avoided, and why large pharmaceutical companies are now paying billions to acquire covalent-first drug developers. It is not a bearish research report on a specific stock. The central argument is that covalent drugs have become a validated strategy for targeting proteins that conventional small molecules cannot reach.

How does plasma concentration work differently for covalent drugs?

For conventional drugs, plasma concentration over time is a reliable proxy for how much the target is being inhibited — lower drug levels mean less inhibition. For covalent drugs, that relationship breaks down after the warhead has reacted with the target. The protein stays inhibited regardless of what drug levels look like in the blood, until the cell produces a new copy of the protein. Two Natural Capital flags this as a mechanistic distinction that changes how pharmacokinetic data should be interpreted for covalent compounds.

Did Penicillin and Aspirin really work covalently?

Yes. The report notes that both Penicillin and Aspirin act through covalent mechanisms — they form chemical bonds with their protein targets. Neither drug was known to work this way at the time of approval. The report uses this as a historical illustration: covalent drugs have been in medicine for decades, but the mechanism was neither recognized nor intentionally designed for, and known covalent compounds in drug discovery pipelines were historically more likely to be set aside than advanced.

What is the difference between KI and Ki in the context of covalent drugs?

The report flags these as distinct, non-interchangeable terms. Ki (lowercase i) typically refers to the inhibition constant for a non-covalent interaction — the concentration at which a drug occupies half of available binding sites at equilibrium. KI (uppercase I), as used in covalent drug analysis, describes the concentration of drug needed to achieve half the maximum rate of covalent bond formation (kinact). Using the two interchangeably, or comparing a Ki from one compound to a KI from another, produces misleading conclusions about relative potency or selectivity.

Who is Robert Duggan and what is his connection to covalent drugs?

The report mentions Robert Duggan as the biotech executive whose profile was elevated by Ibrutinib, one of the early high-profile covalent BTK inhibitors. Before Ibrutinib brought him prominence in biotech, he had run a bakery business and several other biotech companies. The report points readers to his Wikipedia page and a Wall Street Journal profile for additional background.

Two Natural Capital: Covalent Drugs Cracked RAS After 40 Years of Failure — Here Is the Metric Investors Are Missing When Evaluating Them

The modality spent decades deprioritized over fears of toxicity and off-target effects that last 24 hours or more rather than clearing in minutes. What changed was KRAS: Sotorasib in 2021 and Adagrasib in 2022 were the first drugs ever to bind RAS, using an electrophilic warhead to chemically bond with a cysteine residue on a flat protein surface that gave non-covalent drugs nothing to grip. The pharmacokinetics are also different in a way that matters for investors: once the warhead reacts, plasma concentration stops correlating with drug effect entirely – the protein stays inhibited until resynthesized, a process that can take 24 hours or more. Big pharma's conviction has since moved accordingly: Bayer paid $1.5 billion for Vividion and Lilly is prepared to spend up to $2.5 billion for a single Scorpion candidate. The practical warning Two Natural Capital draws: if a covalent drug developer emphasizes binding affinity alone, treat it as a yellow flag.

Publication: Two Natural Capital
Report URL: https://www.twonaturalcap.com/p/covalent-inhibitors-part-1?ref=shortreport.fyi
Position Disclosure: No position disclosed. The report is an educational primer with no stated financial interest in any specific equity.

Thesis

Two Natural Capital argues that covalent drugs have moved from a historically avoided modality to a validated strategy for both previously "undruggable" targets and more selective versions of existing inhibitors — and that evaluating them requires metrics most investors aren't watching.

The Wrong Metric: Binding affinity (Ki) is not an adequate way to judge covalent drug performance. The metrics that matter are kinact — the maximum rate of covalent bond formation after the initial non-covalent complex forms — and kinact/KI, which describes overall covalent bonding efficiency.
Misleading Selectivity: Pfizer's ritlecinitib (Litfulo), a JAK3/TEC inhibitor approved for alopecia areata, looks unimpressive on Ki alone. When kinact and kinact/KI are applied, per a DrugHunter analysis, its selectivity profile appears substantially stronger. The takeaway the report draws explicitly: be cautious when a covalent drug developer spends too much time discussing binding affinity alone.
Cracking the Undruggable: RAS has been known as a cancer driver since the 1980s. Covalent drugs — Sotorasib (2021) and Adagrasib (2022) — were the first approved therapies to successfully bind it, after decades of failed non-covalent attempts. The mechanism: covalent drugs use an electrophilic warhead to form a chemical bond with a nucleophile such as cysteine, bypassing the need for deep binding pockets that flat protein surfaces lack.
Pharmacokinetics Break Down: For non-covalent drugs, plasma concentration over time tracks drug effect. For covalent compounds, once the warhead reacts with the target, the protein remains inhibited until it is resynthesized — a process that can take 24 hours or more. At that point, plasma concentration stops correlating with drug effect entirely. (Circumstantial; based on mechanistic reasoning in the report.)
Historical Stigma: Covalent drug candidates were historically discarded or deprioritized because of toxicity risks — specifically hapten formation, where the drug-protein complex triggers a large immune response, and long-lasting off-target inhibition. Penicillin and Aspirin both act covalently, but their covalent mechanism was not known at the time of approval.
Sentiment Has Flipped: Bayer acquired Vividion — a covalent-first chemoproteomics company — for $1.5 billion. Lilly is prepared to spend up to $2.5 billion to acquire a single Scorpion Therapeutics candidate, with remaining Scorpion assets spun into a new entity called Antares. The report states such interest "would've been hard to imagine 15 years ago."
Non-Covalent Alternatives Still Rely on Affinity: Competing approaches to undruggable targets — Aktis's miniprotein platform and Revolution Medicines' molecular glue lead candidate — remain fundamentally non-covalent, dependent on generating sufficient binding interactions. Revolution Medicines' earlier-stage pipeline does layer in covalent bonding on top of the molecular glue mechanism.

Notable Details

Irreversible covalent inhibition lasts until the target protein is resynthesized — "24 hrs plus" — versus minutes to single-digit hours for standard small-molecule inhibition. That duration gap is both the core appeal and the historical source of risk.
Penicillin and Aspirin, two of the most widely used drugs in history, both act through covalent mechanisms. Neither was known to work that way at the time regulators approved them.
The report notes that KI and Ki are not interchangeable terms — a technical distinction that matters when comparing data across covalent drug candidates, and one that a footnoted paper explicitly flags.
Lilly's willingness to spend up to $2.5 billion for a single Scorpion candidate — while the rest of the company's assets were spun into a separate entity — illustrates how selectively and aggressively large pharma is now pricing individual covalent programs.
Revolution Medicines, whose chief innovation is described as the molecular glue approach, is already adding covalent bonds to its earlier-stage candidates — suggesting even companies built around other modalities see covalent chemistry as a performance enhancer.

"We've known RAS to be a cancer driver since the 80s, so it's fairly big deal that covalent drugs were the ones to crack the code after decades of failed efforts!"

From Two Natural Capital's "Covalent Inhibitors Part 1," used to frame why the 2021–2022 KRAS approvals represent a genuine inflection point for the modality.

FAQs

What makes covalent drugs different from regular small-molecule drugs?

Standard small-molecule drugs bind to their protein targets through temporary, non-covalent interactions — the drug floats away and the target is free again. Covalent drugs include an electrophilic "warhead" that forms a permanent chemical bond with a nucleophile on the protein, typically a cysteine residue. That bond holds until the cell synthesizes a fresh copy of the protein, which can take 24 hours or more — far longer than the minutes-to-hours window of conventional inhibition.

What are kinact and kinact/KI, and why do they matter for covalent drugs?

For non-covalent drugs, binding affinity (Ki or IC50) is the standard measure of potency. For covalent drugs, that metric captures only the first step — how well the drug positions itself near the target. kinact measures how quickly the covalent bond actually forms once the drug is in position. kinact/KI describes overall covalent bonding efficiency across both steps. Two Natural Capital argues these are the metrics investors should demand from covalent drug developers, not binding affinity alone.

Why is Pfizer's ritlecinitib used as an example in the report?

Ritlecinitib (brand name Litfulo), Pfizer's approved treatment for alopecia areata, is a covalent JAK3/TEC kinase inhibitor. The report cites a DrugHunter analysis showing that the drug looks poorly selective when evaluated on Ki alone, but appears substantially more selective when kinact and kinact/KI are applied. Two Natural Capital uses this to illustrate why binding affinity can give a misleading picture of a covalent compound's quality.

Why was RAS considered undruggable, and how did covalent drugs finally crack it?

RAS proteins have been known as cancer drivers since the 1980s, but their surface is relatively flat with no obvious binding pockets for small molecules to grip. Without a deep cavity to anchor into, conventional drugs couldn't generate enough non-covalent interactions to inhibit the target effectively. Covalent drugs bypassed that constraint — instead of relying on binding affinity, they use a warhead to chemically bond with a cysteine residue on the KRAS G12C mutation. Sotorasib (approved 2021) and Adagrasib (approved 2022) were the first drugs ever approved to bind RAS.

Why did drug developers historically avoid covalent drugs?

Two concerns dominated: toxicity and off-target effects. If a covalent drug's warhead bonds to the wrong protein, the effect can last 24 hours or more rather than clearing within minutes. That sustained off-target inhibition is more dangerous than with conventional drugs. There was also the risk of hapten formation, where the drug-protein complex is recognized as foreign by the immune system, triggering a large immune response. As a result, compounds known to be covalent were often discarded or deprioritized in development programs.

What deals show that big pharma now believes in covalent drug development?

Bayer acquired Vividion Therapeutics, a covalent-first chemoproteomics company, for $1.5 billion. Separately, Lilly agreed to spend up to $2.5 billion to acquire a single candidate from Scorpion Therapeutics, with the remaining Scorpion assets spun out into a new entity called Antares. Two Natural Capital describes this level of big-pharma interest in covalent-first platforms as something that "would've been hard to imagine 15 years ago."

How does Revolution Medicines fit into the covalent drug story?

Revolution Medicines' lead candidate is described as a molecular glue — a compound that brings proteins together to alter their behavior. Molecular glues act non-covalently, meaning they rely on binding interactions rather than forming a permanent chemical bond. However, the report notes that Revolution Medicines' earlier-stage pipeline includes candidates that combine the molecular glue mechanism with a covalent bond, suggesting the company is layering in covalent chemistry to improve performance beyond what non-covalent interactions alone can achieve.

Disclaimer: This summary is not primary research and does not constitute investment advice. It is a brief overview of a detailed equity research report authored by the firm, organization, or source referenced in this article or at https://www.twonaturalcap.com/p/covalent-inhibitors-part-1?ref=shortreport.fyi, which contains extensive evidence, regulatory filings, and analysis; readers are encouraged to review the full report there for a comprehensive understanding. The content provided in this publication is not authored or originated by us — we act solely as a distributor and do not endorse, verify, or take responsibility for the accuracy, completeness, or reliability of the information presented. This publication is for informational purposes only and should not be construed as legal, business, investment, or tax advice. Always conduct independent due diligence and consult qualified professionals before making any decisions based on the information contained herein. We disclaim all liability for any loss or damage arising from reliance on third-party content, and the views expressed are solely those of the respective source and do not necessarily reflect our own.