Tencent-Backed AI Drug Discovery Startup Xtalpi Files For Hong Kong IPO

Xtalpi, a Shenzhen-based company which uses artificial intelligence to find chemical compounds that could be developed into new drugs, has filed for an initial public offering in Hong Kong.

Xtalpi did not disclose details of its IPO in its filing to the Hong Kong stock exchange on Thursday evening. A spokesperson for the company declined to comment.

Xtalpi said it is the largest AI drug discovery startup by total funding raised, citing consultant Frost & Sullivan, with $732 million scored since its inception in 2015. Xtalpi’s last private fundraising was a $380 million Series D round in October 2021 that valued the company at about $2 billion, according to the prospectus. Its investors include Chinese billionaire Neil Shen’s Hongshan (formerly Sequoia China), Chinese tycoon Tse Ping’s Sino Biopharmaceutical, Forbes Midas Lister Anna Fang’s ZhenFund, American billionaire Jeff Yass’ Susquehanna International Group, Google, SoftBank’s Vision Fund 2 and Tencent, among others.

The biotech company was cofounded by Wen Shuhao, Ma Jian and Lai Lipeng—three Chinese quantum physicists from the Massachusetts Institute of Technology. By combining AI, quantum physics, cloud computing and robotic automation, Xtalpi said it helps increase the efficiency and success rate of identifying novel drug compounds. The company has recently expanded into discovering new chemical compounds for agricultural technology, cosmetics and other applications.

Xtalpi saw its net losses widen to 891 million yuan ($125.7 million) in the six months ended June from 581 million yuan in the same period in 2022, its filings show. The company reported a 86% jump in revenue to 80 million yuan during the same period. Xtalpi said it generates income by providing drug discovery services to more than 100 biotech, pharmaceutical companies and research institutions. Its clients range from global leaders like Johnson & Johnson and Pfizer, to domestic players including Sino Biopharmaceutical subsidiary Chia Tai Tianqing Pharmaceutical Group and CK Life Sciences, the biotech arm of Hong Kong billionaire Li Ka-shing’s CK Hutchison Holdings.

The idea of using AI to speed up the tedious process of finding the next blockbuster medicine has attracted the interests of some of the world’s biggest pharmaceutical companies, including Bayer, Eli Lilly and Roche Holding. Morgan Stanley in 2022 estimated that the use of AI in early-stage drug development could lead to an additional 50 novel therapies worth more than $50 billion in revenue over the next decade.

To be sure, the technology is still nascent and unproven. Some AI drug discovery companies around the world have already begun human trials of their findings. Among them is Hong Kong and New York-based Insilico Medicine, which recently said it had progressed to human trials of a novel therapy to treat idiopathic pulmonary fibrosis, a rare lung disease. Insilico Medicine in June also filed for an initial public offering in Hong Kong, raising an undisclosed amount.

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