It’s not treason if you win. ― Lisa Shearin, Bewitched & Betrayed
Today, we put Exscientia (NASDAQ:EXAI) in the spotlight for the first time. The developmental biotech concern has a fairly unique method of drug discovery and is headquartered across the pond. The shares came public less than a year ago but are not in ‘Busted IPO‘ territory. What lies ahead for Exscientia? An analysis follows below.
Exscientia is located in Oxford in the United Kingdom. The company is focused on developing small molecule drug candidates. Exscientia’s AI developmental platform enables it to design candidate drug molecules, as well as to provide patients with drug therapies. The firms provides end-to-end solution of AI and technologies for target identification, drug candidate design, translational models, and patient selection. The stock currently trades under $13.00 a share and sport a market capitalization just under $1.6 billion.
The company is bringing together a team of industry scientists and technologists which are looking to streamline the drug discovery process by extensively using AI to design and develop better molecules.
In fact, the new partnership with Sanofi is the biggest news around Exscientia so far in 2022. This agreement provides for the development of up to 15 novel small molecule candidates across oncology and immunology in early January.
The deal provided a $100 million upfront payment to Exscientia which it recorded in April. The company can also earn up to $5.2 billion in additional milestone payments as well sales royalties in the high-single-digits to mid-teens. The agreement also provides an option for clinical co-investment by Exscientia to increase the royalty rate up to 21% on net sales of co-funded products. As can be seen below, this is one of many collaboration deals the company has in place.
Analyst Commentary & Balance Sheet
Despite a market cap north of one and a half billion dollars, the company gets little intention from Wall Street. Most likely because of an overseas domicile. On June 13th, Morgan Stanley maintained its Equal Weight rating on the stock and lowered its price target a buck a share to $20. A month prior, Goldman Sachs had reissued its Buy rating and $20 price target on EXAI. That is the only analyst ratings I can find on the stock so far in 2022.
Just over two percent of the stock’s outstanding float is currently held short. The company ended the second quarter with nearly $720 million in cash and marketable securities after posting a GAAP net loss of -£0.41 a share in the quarter. The company only burned through a bit over $10 million in cash to fund all operations during the last quarter.
The current analyst consensus has the company losing 90 cents a share on $69 million in revenue in FY2022. In FY2023, losses are expected to increase to nearly $1.50 a shares as revenues fall. It should be noted, that few firms have projections on Exscientia’s and there is a very wide range to earnings and revenue estimates. Given that all revenues in coming year will come from either developmental milestones within existing collaboration deals or upfront payments from new collaboration agreements, one can’t blame analyst firms for having a very difficult time modeling future revenue streams.
The company has made some good progress in showing that its AI enabled platform can more effectively identify promising early stage drug candidates. This is a key reason it has garnered an impressive list of collaboration partners.
The problem as can be seen above is that while the company has a deep stable of potential drug candidates, all of its potential pipeline assets are in extremely early stage development. As such, the company is many, many years from potential commercialization. Until then, Exscientia will have to lean on its cash hoard and milestone payments to advance its pipeline on multiple fronts.
Therefore, EXAI is at best a ‘watch item’ position for very long term investors that want some exposure to AI development in the biotech space. That said, I look forward to circling back to this interesting story in 18 to 24 months to see how its pipeline is developing.
Treason is an easy word to speak. A traitor is one who fights and loses. Washington was a traitor to George III. ― Thomas Dixon Jr.