Source: Wall Street News

Whether CXO companies with AI wings are expected to take off is receiving attention from the capital market.

On July 12, EST, AI pharmaceutical companies$Recursion Pharmaceuticals (RXRX.US)$Announce,$NVIDIA (NVDA.US)$$50 million has been invested in the form of private equity.

Recursion also announced plans to partner with Nvidia to accelerate its development of artificial intelligence (AI) basic models for biology and chemistry.

“Our partnership with Nvidia represents two great companies working together to help solve one of the world's most difficult challenges in drug discovery. “With our powerful data sets and Nvidia's accelerated computational capabilities, we plan to create groundbreaking foundational models in biology and chemistry.” Chris Gibson, CEO of Recursion, said.

Affected by this news, Recursion closed the day with a sharp rise of 78.17%.

The incident drew attention to AI pharmaceuticals in the Chinese stock market, and the CXO sector related to the concept of AI pharmaceuticals rose collectively.

Closing on July 13, Hong Kong stock CXO companies$PHARMARON (03759.HK)$,$ASYMCHEM (06821.HK)$,$WUXI APPTEC (02359.HK)$with$JOINN (06127.HK)$The increases reached 9.26%, 6.03%, 5.09%, and 2.97%, respectively.

However, some companies told Xinfeng that the current layout in the field of AI pharmaceuticals has not had much success, and there is still uncertainty.

“Because many of our collaborations with AI software companies are currently at the stage of development, that is, whether we can develop one suitable for the actual operation of our company is uncertain. This will have to wait until later if we actually have a relatively successful cooperation, for example, have a preliminary product, then it may be more appropriate to disclose.” Zhaoyan New Pharmaceutical explained to Fufeng.

Transform into a data element?

On July 12, EST, AI pharmaceutical company Recursion announced that it has received a private equity investment of 50 million US dollars from Nvidia. At the same time, the two also announced plans to cooperate in the development of basic models for biological and chemical AI.

“Our partnership with Nvidia represents two great companies working together to help solve one of the world's most difficult challenges in drug discovery. “With our powerful data sets and Nvidia's accelerated computational capabilities, we plan to create groundbreaking foundational models in biology and chemistry.” Chris Gibson, CEO of Recursion, said.

Nvidia CEO Wong In-hoon also said the collaboration between the two could accelerate the development of biomolecular generative AI models.

“Generative AI is a revolutionary tool for discovering new drugs and treatments. We're excited to be partnering with Recursion's world-class team, who are using Nvidia DGX and Nvidia AI software to do pioneering work in digital biology and chemistry to accelerate the development of biomolecular generative AI models and facilitate drug discovery for biomedical companies.” Hwang In-hoon pointed out.

This has drawn the capital market's attention to AI pharmaceuticals.

According to information, currently generative AI is mainly used in the early stages of drug discovery to accelerate the discovery of drug targets and efficiently generate drug candidates.

“Data analysis+generative AI can generate more novel molecules with novel structures and high pharmacogenicity for innovative targets. Through training on massive data such as papers, clinical data, and patents, the AI search depth and breadth will far surpass that of experienced medicinal chemists, accelerating the screening of leading compounds and PCC confirmation. For molecules entering the pre-clinical research stage, AI can accurately identify and predict the pharmacogenicity of compounds.” Wang Ban, chief pharmaceutical industry analyst at Minsheng Securities, explained to Fufeng.

As an essential part of AI pharmaceuticals, CRO companies are being hotly debated.

According to our understanding, the development of generative AI pharmaceuticals requires a large amount of data as a training basis. The partnership between Nvidia and Recursion is to “get what they need.” Using the data set owned by the former as a foundation, plus the latter's supercomputing capabilities, the two may be able to create more powerful biomolecular generative AI models.

In this context, CRO companies that have more drug development data may have more advantages in the field of AI pharmaceuticals.

Sun Jian, a pharmaceutical research analyst at Zheshang Securities, pointed out that CRO's biggest advantage is that it has accumulated a large amount of data through the service drug development process, and has an opportunity to become the biggest winner in the AI+ field.

“CRO's greatest strength comes from rich experimental data. This data includes both successful and failed experiences, and will enable the improvement of the database. Building an intelligent laboratory with high-throughput data generation capabilities will become a core competitiveness.” Sun Jian pointed out, “We believe that AI cannot replace traditional human-dominated CRO in the short term, and with its rich data advantages, CRO may become the biggest winner in the AI+ field.”

Nvidia's entry has made the market re-examine the value of CXO companies, including CROs, in the AI pharmaceutical industry.

“AI+” layout tracking

The “AI+CRO” concept has excited the stock market on the B-side. Not all CXO companies have a presence in the field of “AI to accelerate drug discovery.”

In April of this year, in response to investors' questions, CXO company Gloria Ying indicated that it already has some layout in AI technology.

“In terms of AI technology, the company is committed to process automation and intelligence, production platforms, intelligent processing, operation integration, and active prediction capabilities.” Gloria Ying said.

Gloria Yingxiang confirmed to Fufeng that its AI's “active prediction capability” does not cover the field of drug discovery.

“Because our main business mainly focuses on pharmaceutical process development and the final stage of commercial production, what we call intelligent manufacturing depends on process development in this kind of laboratory, as well as process improvement, and future manufacturing. We have almost no drugs to discover this business.” Gloria Ying told Fufeng.

CXO company Zhaoyan Xinyao, which has a presence in the field of generative AI, admits that it has not yet launched a landing project.

In May of this year, Zhaoyan New Pharmaceutical also expressed optimism about AI to the outside world.

“The company is optimistic about the application of AI technology in the field of drug development. Currently, the company is also actively cooperating with AI software companies to improve the efficiency and accuracy of future tests. At the same time, the company is also actively applying for national topics related to the application of AI technology to help develop new drugs.” Zhaoyan New Pharmaceutical said.

However, Zhaoyan New Pharmaceutical also told Xinfeng that it has not produced any more implementation results so far.

“Because many of our collaborations with AI software companies are currently at the stage of development, that is, whether we can develop one suitable for the actual operation of our company is uncertain. This will have to wait until later if we actually have a relatively successful cooperation, for example, have a preliminary product, then it may be more appropriate to disclose.” Zhaoyan New Pharmaceutical explained to Fufeng.

According to industry insiders, the layout of CXO companies in the field of AI pharmaceuticals can achieve the effect of “eat more with one fish.”

On the one hand, after generative AI improves the efficiency of target discovery, the R&D efficiency of related pharmaceutical companies is also expected to be accelerated. This has undoubtedly boosted the prosperity of the entire innovative pharmaceutical industry, which in turn has encouraged pharmaceutical companies to outsource R&D and other processes to CXO companies.

In fact, due to the decline in orders related to R&D due to COVID-19, many CXO companies have already lowered their performance expectations for 2023.

According to the 2022 report, Yao Ming Kangde's operating income and net profit were 39.355 billion yuan and 8.814 billion yuan respectively, up 71.84% and 72.91% year-on-year respectively. It expects revenue growth to be as high as 7% in 2023.

The newly revealed results seem to confirm this expectation. Yao Ming Kangde's operating income and net profit for the first quarter of 2023 were 8.964 billion yuan and 2.168 billion yuan respectively, up 5.77% and 31.97% year-on-year respectively. Among them, revenue growth slowed by 66.01 percentage points compared to the first quarter of 2022.

Gloria Ying, whose revenue and net profit grew at 121.08% and 208.77% year-on-year respectively in 2022, also admits that there is a lot of pressure to grow in 2023 results. In anticipation of this year's overall growth situation, revenue from last year's big orders was even excluded.

“Looking ahead to the whole year, with a large performance base last year and large orders being delivered one after another, the company's performance is facing certain challenges.” Gloria Ying said, “However, we are still confident that the small-scale CDMO business will continue to grow at a record level excluding large orders, as well as a strong growth trend in emerging businesses.”

On the other hand, some CXO companies chose to participate in AI pharmaceutical companies, and at the same time became suppliers to the latter to win more orders.

“AI accelerates target discovery, but that doesn't mean that using AI for drug development does not require clinical trials, so it is possible that this part will still have to be entrusted to CXO companies to complete, so if AI pharmaceutical companies launch, there will also be more CXO orders, which is equivalent to bringing more customers to themselves.” A person from a private equity agency in Beijing said.

You can also get a glimpse of the importance of CRO services from AI pharmaceutical companies' prospectus. Insilicon Intelligence, a generative AI pharmaceutical company that has submitted an IPO application to the Hong Kong Stock Exchange, and its generative AI drug development platform “Pharma.AI” uses the services of CRO companies to continuously enhance systematic learning capabilities.

In addition, CXO companies also provide pre-clinical testing, compound synthesis, and manufacturing services to British Silicon Intelligence.

In 2022, British Silicon Intelligence purchased US$21 million in technical services from related CRO A companies.

“CRO A is our affiliate because its affiliated companies own more than 5% of our issued share capital. As far as we know, with the exception of CRO A, our other four suppliers during the business record period were all independent third parties.” British Silicon Intelligence pointed out.

Various indications suggest that CRO A may be Yao Ming Kangde, an indirect shareholder of British Silicon Intelligence. As of the filing, Pharmaceutical Kangde held 6.45% of the shares of Yingxi Intelligence.

However, since the world has not yet welcomed the launch of the first AI drug, the potential of AI pharmaceuticals still needs to be verified by actual implementation projects.

This means that the performance expectations brought by AI pharmaceuticals to CXO companies need time to be fulfilled.

“Whether the results can be fulfilled is not easy to say now, because there are no drugs that have been implemented; in fact, I haven't seen many benefits released domestically. But it is true that sometimes stock prices are always ahead of performance.” A private equity fund manager in Beijing told Xinfeng.

Editor/jayden