EXAI - Exscientia Is Worth The AI-Driven Speculation

2023-08-01 18:19:34 ET

Summary

• Exscientia, a pioneer in AI-driven drug development, is using artificial intelligence to accelerate the discovery and preclinical phases of drug development.
• The company's stock traded higher after starting a Phase 1/2 trial for a new cancer therapy, demonstrating the potential of their AI platform.
• The underlying technology, pipeline, and strategic partnerships position Exscientia as a promising candidate for the future of medicine.

Introduction

Exscientia ( EXAI ), a pioneer in AI-driven drug development, leverages artificial intelligence to accelerate the discovery and preclinical phases. The company's generative AI platform aids in identifying potential drug targets, designing novel molecules like EXS4318 and EXS21546, and reducing costs and time in the development process.

Recent developments: Exscientia's stock traded higher after it and partner GT Apeiron began a Phase 1/2 trial for GTAEXS617, a new cancer therapy.

The following article details Exscientia's use of AI in drug development to accelerate discovery and reduce costs, outlining recent achievements, financial performance, and the potential risks and opportunities for investment in the company.

Financial Performance

Let's first look at financials: In Q1 2023, Exscientia reported $7.1 million in revenue, a decline from $8.6 million in Q1 2022. R&D expenses grew to $41.3 million, largely due to portfolio growth, increased headcount, and investment in laboratory equipment. General and administrative expenses rose to $13.5 million, primarily due to growth in personnel costs. Cash inflows were $0.5 million, significantly lower than the $6.3 million in Q1 2022. Net operating cash outflows increased to $53.7 million, and the cash balance was $553.3 million. The company also recognized $1.5 million in net foreign exchange losses. Exscientia's stock showed mixed momentum, with a one-year decline of 24.04%, but positive growth over 3, 6, and 9 months.

The company's market capitalization stands at $908.87 million, with $551.90 million in cash and $24.08 million in total debt.

AI Drug Discovery Advantages & Risks, Exscientia's Pipeline Progress

The theoretical benefits for Exscientia include an increased speed in moving programs from discovery to the clinic, as demonstrated in their recent pipeline advances, and precision in designing high-quality drug candidates. AI has enabled them to initiate unique molecules, enhance collaboration efforts, and even predict specific patient populations that may benefit most from treatment.

However, these advantages also come with potential risks such as data quality and security, regulatory hurdles, and the complexity of integrating AI models with biological understanding. In Exscientia's journey, overcoming these challenges requires a strategic blend of technological innovation, collaboration with pharmaceutical partners, and a focus on patient-centric approaches, as seen in their commitment to personalized medicine and multi-omics capabilities.

Exscientia, in their recent earnings report, showcased a promising pipeline and marked progress in their personalized medicine approach, with a particular focus on oncology. Highlighted advancements include moving two molecules, EXS4318 and EXS21546, into the clinic and advancing the novel molecule DSP-2342 with Sumitomo Pharma. The company also initiated IND-enabling programs for LSD1 and MALT-1 protease inhibitors and made significant strides in validating their end-to-end approach with multiple posters presented at the AACR Annual Meeting.

Exciting new announcements include dosing the first patient in the Phase 1/2 IGNITE clinical trial of EXS21546, the release of two new wholly-owned precision-designed molecules, and progressing towards their target of four candidates in clinical development by 2024. Their collaboration with Sumitomo Pharma led to the third compound, DSP-2342, entering Phase 1 clinical trials. Exscientia also highlighted their AI-driven platform's role in creating a new immunology and inflammation candidate, EXS4318, now in Phase 1 clinical trials in the U.S. with Bristol Myers Squibb (BMY).

My Analysis & Recommendation

Exscientia's progress in AI-driven drug development and a solid commitment to advancing personalized medicine is evident in its recent achievements. The company's strong pipeline, including innovative projects like the Phase 1/2 trial for GTAEXS617, showcases a dynamic approach that leverages AI to its fullest potential. Despite a decline in revenue in Q1 2023, Exscientia's sustained investments in R&D and growth in personnel demonstrate a strategic focus on long-term portfolio expansion.

Investors looking forward to Exscientia's August earnings report should keep an eye on updates regarding their recent clinical trials, progression of IND-enabling programs, and more details on their collaboration efforts. The focus should also be on how Exscientia intends to leverage its substantial cash balance to mitigate risks and navigate complex regulatory landscapes.

Given Exscientia's pioneering role in the integration of AI with drug discovery, the market should expect continuous innovation and potential breakthroughs. While the journey might entail some volatility, the underlying technology, pipeline, and strategic partnerships position Exscientia as a promising candidate for the future of medicine.

Investment in Exscientia, with its focused approach on oncology and unique utilization of AI, represents an exciting opportunity for those looking to diversify a biotechnology-focused portfolio. With a combination of near-term catalysts and long-term potentials, Exscientia is worth the speculation. Thus, my recommendation for investors seeking growth in the biotech space would be a "Buy."

Risks to Thesis

When the facts change, I change my mind.

While I stand by my "Buy" recommendation for Exscientia, I'm mindful of some risks that any potential investor should consider. The integration of AI in drug development is a cutting-edge yet complex approach, and regulatory hurdles could pose challenges. Furthermore, the decline in revenue and increased operating cash outflows in Q1 2023 reflect financial trends ("cash burn") that require close monitoring. The biotechnology sector itself is inherently volatile, and despite promising developments, clinical trials may not always translate into successful commercial products. Lastly, there is no guarantee that AI-inspired drugs will prove any more successful than human-developed drugs.

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