Caixin
Sep 28, 2020 07:06 PM
BUSINESS & TECH

Firm That Hunts for Drugs With AI and Quantum Physics Sets Funding Record

XtalPi’s record-breaking investment comes as many Chinese drug companies pivot to making innovative drugs. Photo: XtalPi
XtalPi’s record-breaking investment comes as many Chinese drug companies pivot to making innovative drugs. Photo: XtalPi

Chinese pharmaceutical technology company XtalPi Inc. has set a new record for the sector, raising some $320 million as the Covid-19 pandemic has spurred rising interest in faster and cheaper ways of making drugs.

The AI and cloud-based computational technologies specialist’s valuation may exceed $1 billion according to one investor, following the massive series C funding round led by investors including SoftBank Group Corp.’s Vision Fund 2, PICC Capital Investment Management Co. Ltd., and Morningside Venture Capital.

With relatively few domestic competitors, China’s AI-powered pharmaceutical companies are able to take bigger shares of the world’s second-largest drug market than their European or American peers, according to Jing Xutian, executive director of Morningside Venture Capital.

Founded in 2014 by three Chinese physicists at MIT, XtalPi applies quantum physics and AI machine learning technologies to draw conclusions about the structure of molecules and whether they can be used commercially in pharmaceuticals. The crystal structure prediction (CSP) solution developed by XtalPi claims to be able to identify the most stable forms of small drug molecule candidates within two to three weeks, significantly expediting drug development, and reducing associated costs and risks.

Almost all international pharmaceutical giants now seek to employ such AI technologies in the race to be first to market with innovative new medicines.

With research centers in Beijing, Shenzhen and Boston, XtalPi has attracted attention from a slew of leading pharmaceutical companies seeking partnerships, including New York-headquartered Pfizer Inc., and Swiss drugmaker Roche Holdings AG, according to founder Wen Shuhao.

British GlaxoSmithKline PLC has joined hands with XtalPi competitors Insilico Medicine Inc. and Exscientia Ltd. to apply AI in its R&D work, whereas Bayer AG has partnered with Cyclica Inc. and Atomwise Inc., the latter of which secured $123 million in series B funding in August.

XtalPi’s record-breaking investment comes as many Chinese drug companies pivot to making innovative drugs, amid intensifying centralized government procurement efforts to push prices down and squeeze profit margins on traditional drugs.

Beijing is stepping up its efforts to radically overhaul the health care system as China faces an aging population and higher incidence of cancers and chronic ailments. One key aspect of the plan is to drive down prices of off-patent drugs to free up state funds to pay for novel, cutting-edge therapies for Chinese patients.

The aggressive campaign spurred a drastic fall in Chinese drugmakers’ profits last year, and has encouraged foreign giants to focus more on innovative treatments to make up for tumbling sales of their off-patent drugs after local rivals undercut them on pricing.

But a draft policy released by China’s National Medical Products Administration earlier this month will allow one year of exclusive market access for the first generic drugs to hit the market.

Such policies favoring high-end generic drugs will draw more attention from traditional drugmakers to the CSP technology that XtalPi provides, Wen said.

Bloomberg contributed to reporting.

Contact editor Gavin Cross (gavincross@caixin.com)

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