Artificial intelligence (AI) is having an unmistakable impact on the stock market, as semiconductor designer Nvidia (NVDA) now has a market cap that surpasses both Alphabet (GOOGL) and Amazon (AMZN). But beyond the universe of specialized AI chips and servers, the technological wave is impacting industries well beyond Big Tech - and healthcare is high on the list.
In fact, Goldman Sachs (GS) analysts recently said they expect AI-driven advancements in healthcare to help add 1.3% to U.S. GDP in the years ahead. Over the long term, the company believes that generative AI will become critical to drug discovery, optimization, and clinical trial design processes, with more than 500 AI-enabled and FDA-approved medical devices already being sold domestically.
In fact, none other than Nvidia itself just disclosed a sizeable investment in one of Cathie Wood's top healthcare picks, which is keeping AI at the core of its R&D. For investors looking to add some exposure to AI-related drug stocks, here are three companies engaged in drug discovery and development that Wall Street analysts expect to rally significantly from current levels.
1. Abcellera Biologics Stock
AbCellera Biologics (ABCL) is a biotechnology company that researches and develops human antibodies for therapeutic purposes. Founded in 2012, they aim to accelerate the discovery and development of antibody-based drugs through their proprietary technology platform. Its market cap currently stands at $1.5 billion.
AbCellera stock is down 11.5% on a YTD basis.
Like many biotechs, ABCL has yet to generate consistent profits, and the company reported a loss per share of $0.16 in the latest quarter - wider than the consensus estimate for a loss of $0.12 per share. Revenues of $9.18 million were down 57.4% year-over-year. However, the company's liquidity position remained solid as it ended the quarter with a cash balance of $780 million. That's well above its long-term liabilities of $216.8 million, and provides some runway for continued investments in R&D.
AbCellera's development goals are threefold, with the most significant being its T-cell engagers platform, involving mechanisms that play a crucial role in the immune response. Requiring significant technological developments and investments, this would give AbCellera a formidable moat, as such a platform remains complex to develop. The second is the G Protein-Coupled Receptors (GPCRs) & Ion Channels Platform, which focuses on important targets for drug development that play several roles in different diseases. Finally, the Pandemic Response Platform is developing therapies for pandemics.
Currently, ABCL has 41 partners, six partner-initiated co-development programs, 12 pre-partnered programs, and nine molecules in clinic trials. Some of these partners include Regeneron (REGN), Moderna (MRNA), Eli Lilly (LLY) and Novartis (NVS), among others.
Ten analysts have unanimously deemed the stock a “Strong Buy,” with a mean target price of $18.11. This denotes an upside potential of about 258.6% from current levels.
2. Schrodinger Stock
Specializing in computational tools and software for drug discovery and materials science, Schrodinger (SDGR) was founded in 1990 and is based out of New York City. Its products include an advanced computational platform for drug discovery and materials science; its enterprise informatics platform, LiveDesign; and its molecular visualization system, PyMOL. Its market cap currently stands at $2.3 billion.
Schrodinger stock is down 28.8% on a YTD basis, with most of that decline triggered by the stock's negative post-earnings reaction today.
In the latest quarter, Schrodinger posted a mixed set of results. Revenue for the period rose 30.4% year-over-year to $74.13 million, and the per-share loss narrowed to $0.32 from last year's $0.39. The quarterly loss surpassed expectations, but analysts were looking for higher revenue of $77.8 million.
The company also guided for lower growth in 2024, with software revenue growth projected to range between 6% and 13%, compared to 17.4% in 2023. Drug discovery revenue is anticipated at $30-$35 million this year, down sharply from $57.5 million in 2023 - which included $25 million in milestone payments from partner Bristol-Myers Squibb (BMY) during Q1.
That said, operating expense growth is also projected to slow considerably in 2024, with management forecasting 8% growth compared to a 28% increase in 2023 - even as cash burn isn't expected to slow until 2025.
Overall, analysts have deemed SDGR stock a “Moderate Buy” with a mean target price of $47.44, which indicates an upside potential of about 86% from current levels. Out of 10 analysts covering the stock, 7 have a “Strong Buy” rating and 3 have a “Hold” rating, with that lineup largely unchanged after earnings.
3. Absci Stock
Founded in 2011, Absci Corp (ABSI) is a generative AI-driven drug discovery company that develops protein-based drugs through a combination of synthetic biology and artificial intelligence. Its primary focus is on biologics, specifically antibodies and other protein therapeutics. It uses its proprietary technological platform to design, test, and manufacture new drug candidates with increased efficiency and speed.
With a current market cap of $435.8 million, ABSI stock has rallied 22.8% on a YTD basis.
In the most recent quarter, the company reported revenues of $744,000, down almost 71% from the previous year. ABSI's loss per share of $0.24 was narrower than the previous year's loss of $0.30 per share; however, both the top line and bottom line fell short of consensus expectations.
In terms of liquidity, the company ended the quarter with a cash and equivalents balance of $113.5 million - and with the shares trading not far from their 52-week highs, management just announced a public offering of 16.7 million shares at $4.50 each, the proceeds from which will be used to help fund R&D.
Notably, Absci's use of synthetic biology with AI at its core allows it to integrate drug discovery and cell line development to accelerate drug development. Leveraging its AI-fueled Denovium Engine platform and the company's in-house lab, it recently achieved a major milestone to that effect.
In late February, the company said it was initiating IND-enabling studies for ABS-101, an anti-TL1A antibody designed using ABSI's generative AI model. They aim to submit an IND in Q1 2025, with Phase 1 studies to follow.
“The progress we have made on this program demonstrates the ability of our platform to create a differentiated antibody drug candidate in less than half the time of industry standards," said CEO Sean McClain.
Analysts consider ABSI stock a “Strong Buy,” with a mean target price of $5.33. This denotes an upside potential of about 3% from current levels, although the Street-high price target of $7.00, from H.C. Wainwright, implies expected upside of 35%. Out of 5 analysts covering the stock, 4 have a “Strong Buy” rating and 1 has a “Hold” rating.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
