What's more cool than a biotech company developing cutting-edge cures for intractable maladies? A biotech company developing cutting-edge cures using artificial intelligence (AI), of course. Exscientia (EXAI 1.00%) is one such business undertaking this effort, and it's worth adding to your watch list today.
Off to a running start
Much like the other biotech businesses hoping to use AI for drug development, Exscientia believes that its AI-based platform can shorten development timelines, reduce failure rates in pre-clinical and clinical trials, and lower costs for drug makers.
Solid evidence supporting those claims may be a ways off and might not be available for years, as all of its pipeline programs are in either pre-clinical stages or in early-stage clinical trials. That means they have a long way to go before the possibility of approval and commercialization.
But if the advancements that information technology delivered in terms of bolstering pharmaceutical discovery and design are any indication of what this next tech revolution could do, the benefits AI could eventually bring to the process could be significant.
Exscientia's flagship program is cancer treatment candidate GTAEXS617. It's currently in phase 1/2 trials to investigate its usefulness in treating non-small cell lung cancer, colorectal cancer, breast cancer, and ovarian cancer, among other indications. In total, management thinks that its addressable market could be roughly 75,000 patients annually in the U.S. alone, under the right conditions.
These trials are expected to wrap up sometime in mid-2028. There's not yet any data to analyze, but if -- and it's a big if -- the candidate is ultimately commercialized for just a couple of the indications on the table right now, it could potentially rake in billions in sales annually.
This company is making the right friends
Exscientia doesn't yet have any sources of revenue outside of the occasional cash injection it earns from reaching a collaboration milestone. Therefore, it's in a race against time to get one of its first treatments out the door before it runs out of money, and before its partners get to thinking that they'll have better success rates on their collaboration programs by working with a competitor instead. For that reason alone, this is a risky biotech stock.
Nonetheless, at this early stage, Exscientia has plenty of resources on hand, and it could also access even more in the future via its collaborations. According to management, the company's $448 million in cash, equivalents, fixed-term bank deposits, and short-term investments should be enough to cover its costs through the start of 2026. Based on its trailing 12-month operating expenses of $208 million, that estimate looks correct.
German pharma giant Merck Kommanditgesellschaft auf Aktien (which is not the same as the U.S.-based drugmaker with a very similar name) is among the most notable businesses collaborating with Exscientia, hoping to make use of its AI-based drug discovery methods for three projects in oncology and immunology. If the partnership goes as planned and those three programs end up being commercialized, the biotech could net as much as $674 million in milestone payments, $113 million of which would be disbursed for meeting discovery-stage goals. For now, it only has a $20 million upfront payment in hand, and it might take years before that changes, assuming it ever does.
Exscientia also has ongoing agreements to co-develop drugs with Bristol Myers Squibb and Sanofi. While it doesn't appear to have a privileged status with either of the two giants, as cash outlays and direct investment have remained limited so far, that could change with time, especially if its platform technologies yield the drug discovery leads that those partners are seeking.
So on the basis of the above, should you buy this stock today? Probably not. The company is a long way from becoming self-sustaining, and it may not ever get there. Still, its balance sheet and roster of benefactors are positive early signs that could become the pillars of any future successes.
Add Exscientia to your watch list and keep track of it for the next couple of years. If the AI in its platform can do what management believes, more pharma players and biotechs will likely come knocking. That would be a signal that the technology is mature enough to be worth making an investment.
