[Managing Editor’s Note: Dylan is away at a conference so we are re-sending this fan-favorite Diary. Please enjoy!]
In today’s video I’m talking about AI in drug discovery.
A sea change is happening right now, in real time – blurring the lines between what it means to be an AI company and a drug company.
There’s some really exciting developments happening here, so check it out.
To show you what I mean, let’s start with Recursion’s (SYM: RXRX) acquisition/takeover of Exscientia (SYM: EXAI).
I’ll take you behind the scenes of this deal – to explain really what’s happening in AI and drug discovery.
---Takeover Alert---
A.I. Drug Gets $4 Billion Takeover
A Big Pharma giant quietly bought one AI-designed drug for $4 billion.
It’s the biggest deal for an AI-designed drug in history.
But very few people even know about it…yet.
And they don’t know that this tiny AI-biotech designed the drug.
Get the name of the stock here >>>
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Now, years ago – before AI was popularized – you had software companies that created a service for big pharma – like Bristol Myers, Glaxo, Sanofi, etc.
They’d help those companies discover drugs.
These big pharma companies would use the technology – computational physics models – to actually discover drugs.
But what’s happening right now – really starting just about a year and a half ago and unfolding in real time…
Is that these AI software companies have been transitioning to software drug discovery companies; put another way: AI biotechs.
So now they’re trading like biotech companies...
You can look at like Schrödinger (SYM: SDGR), the clear leader in this field and one of my favorites...
It’ll pop up to $40 a share and then it’ll just kind of float and drift down until there’s an event. Same thing with Recursion.
What moves these stocks now is their pipelines.
And that’s the real big change that’s happening…
These companies are now looked at as biotech companies, so they’ll be judged based on their pipelines as we transition...
As opposed to software companies selling software to big pharma.
And this “sea change” is happening both ways:
As software companies are doing drug discovery on their own and becoming de facto biotech companies…
Big pharma companies are getting their own software – figuring out how to use AI themselves.
So, we’re seeing a real merging of AI and drug discovery: “bio” + “tech.”
That’s why when you see a takeover like Recursion’s Exscientia acquisition, it makes perfect sense.
As biotechs, now valued by their pipelines, these two companies together have a combined 10 drugs in their pipeline with no overlap.
And 7 out of 10 of these drugs have the ability to achieve peak annual sales of $1 billion!
So these are big drugs.
And importantly for Recursion and the combined company going forward – it cuts costs.
The combined company will have $850 million in cash.
They’ll save $100 million a year in salaries, expenses, etc.
And they’ll have 10 clinical readouts coming within the next 18 months, getting test results on the drugs in their pipeline.
Schrödinger already made this move – from software to biotech.
And it’s why the stock’s been so rocky in the past year.
Investors looked at it as a software company and judged it as such; now Wall Street is starting to look at Schrödinger as a biotech company and saying, okay – what tests have you developed? What drugs are you moving through your pipeline?
So now they’re being valued on that.
And Schrödinger has a bunch of readouts scheduled in the coming months. Recursion has a bunch of readouts.
I have a few predictions about this…
These companies will move more drugs – they’ll be different from traditional biotech companies in a couple of very important ways.
One is they’ll likely discover and move drugs downfield faster.
Second, they’ll probably become like royalty companies…
They’ll develop a drug on their own, and then sell it to say, Bristol Myers, and collect a piece like a 10% royalty or 5% royalty on all sales, or collect $1 billion, $2 billion, whatever it is.
Or they sell it to a Glaxo, Merck, Lilly, Pfizer, etc.
So here we are watching this transition unfold in real time and it is very, very exciting.
(Those of you who know me know I have a special affinity for biotech.)
I’m a big fan of this merger.
It makes complete sense from a “save-cash” perspective, lowering each company’s burn rate…
Plus putting together these two pipelines for one really robust pipeline of unique, lucrative drugs they can march down the field and put up some great numbers on this stock!
To time my biotech entries I use this calendar.
We’re using it with our biotech system to pull gains out of the market with a 75% success rate and 64% average gains across all trades – wins and losses.
Go here to see our next trade >>> 
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