AI is coming to biotech in a big way. From protein folding to drug screening, from studying cells to studying populations, the AI boom has long been an asset to biological research and drug discovery. Now investors are also waking up, and Biotech AI stocks could skyrocket as their potential becomes fully realized.
The best AI boom stocks will often be providing a product that is not only improved by AI, but also is recursive enough to improve its own AI. Data from the outputs can be fed back into the inputs, and so an AI algorithm to predict drug targets for example will get better as new data is added. That means that the AIs of today are only a fraction as accurate as the AIs of tomorrow will be. And so the future will belong to the people building AI algorithms right now, as theirs will be the ones that benefit most immediately from new data.
While the big tech companies are still grabbing the most headlines in AI, AI in biotech stocks has the potential to provide some of the biggest gains. Biotech AI stocks have quietly been building products which are more than just interesting anomalies, but also provide direct benefit to patients and customers. These offerings don’t always catch headlines, but you’ll want to be aware of them if you’re investing in biotech AI stocks.
So for an investor with an eye towards the future and an appreciation of biotechnology, here are 3 stocks that will benefit from the AI boom.
Recursion Pharmaceuticals (RXRX)
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Recursion Pharmaceuticals (NASDAQ:RXRX) leverages AI and machine learning to revolutionize the discovery of drug candidates. They analyze vast amounts of biological and imaging data from assays, and train models to identify drug targets and predict their efficacy. They are even exploring drug repurposing, in which FDA-approved drugs are studied for their efficacy against new diseases. It’s a lot easier to repurpose an approved drug than to get approval for a new drug, so Recursion has the potential to add enormous value to the drugs already on the market.
One of Recursion’s highlights is their AI-driven image analysis. Their large catalogue of experimental images map cell-drug interactions during disease states. AI analysis allows them to model the complex biological processes which underlie these interactions. That lets them understand their drugs and drug targets without having to incur the cost of human clinical trials. This data was even shown off during the COVID-19 pandemic, and Recursion’s datasets were used by researchers around the world.
Recursion is also expanding its biotech AI offerings. It has recently sought to acquireCyclica and Valence, two AI-driven drug discovery companies. By choosing to bet big on AI in drug discovery, Recursion is setting itself well for the future of drug development.
Recursion’s Q1 2023 earnings show revenue as small but growing fast, growing from $5.3 million to $12.1 million year on year. With a net-loss of $65 million, Recursion is still an unprofitable, speculative play. But their $492 million in cash and cash equivalents means they can continue speculating for some time. Ultimately a bet on Recursion is a bet that AI really will be as transformative as we all hope it will be. So if you’re investing in biotech AI, this is one to keep on your watchlist.
Veracyte (VCYT)
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Veracyte (NASDAQ:VCYT) has positioned itself at the forefront of precision medicine through AI tools and molecular profiling. Their genomic testing and diagnostics give patients a precise understanding of their diseases outcomes. They use predictive algorithms based on oncogenic markers, and with every new patient their dataset gets larger so their algorithms get better. This puts them at the crossroads of both AI and precision medicine, and that crossroads could be very lucrative.
One of Veracyte’s key technologies is their AI-powered tools such as the Biopharma Atlas. This Atlas contains data from statistical analysis of thousands of patients. Analyzing it with AI let Veracyte better predict disease outcomes and drug responses. They also use it to find new drug targets for patient diseases.
Veracyte’s earnings report for Q1 2023 shows revenue growing strongly year on year from $56 million to $72 million. Net loss decreased year on year from $14 million to $8 million. Veracyte is moving towards profitability, and could be there very soon. Not only that, their offerings are likely to improve rapidly over the coming years. Better AI models will mean better accuracy of Veracyte’s models. And as more patients use Veracyte models to inform their choices, more data can be collected by Veracyte to further improve the models. This virtuous cycle is part of what makes AI stocks such a booming area of investment. And is why any investor in biotech AI stocks should give Veracyte a look.
AbCellera (ABCL)
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AbCellera (NASDAQ:ABCL) has revolutionized the field of antibody discovery through their Antibody Discovery Platform. Their platform uses an array of biochemical assays to identify antibodies for use as drug therapies. Their drug discovery pipeline is also powered by AI to enhance the data collection and processing of their assays.
AbCellera’s greatest strength is their network of partnerships. For instance they inked a deal with AbbVie (NYSE:ABBV) to discover new antibodies for use as drugs. Such partnerships like this have already borne fruit. In their partnership with Regeneron, (NASDAQ:REGN) Regeneron exercised its option to use an AbCellera antibody to target an unnamed G-protein coupled receptor. As the antibody proceeds through clinical trials, the deal entitles AbCellera to further payments.
AbCellera’s pipeline is being used by some of the biggest names in drug discovery, and new deals should continue to bring new revenue. AbCellera’s revenue has been “chunky” and somewhat sporadic. In Q1 2022 they had received $307 million dollars in royalty payments, bringing revenue to $316 million. In Q1 2023, no such revenue was reported and so total revenue was $12 million. Revenue from AbCellera’s business model tends to be erratic in this way, as payment is dependent on specific milestone criteria.
However on a long-term basis AbCellera is well-positioned with its continued focus on new partnerships. Royalty revenue will likely continue as milestones are met.
On the date of publication, John Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
John Blankenhorn is a neuroscientist at Emory University. He has significant experience in biochemistry, biotechnology and pharmaceutical research.
