AI Pharma Startup METiS Raises $150 Million. IPO In Sight?

Key takeaways:

• METiS Pharmaceuticals has completed five funding rounds since its establishment in January 2020, including the latest two worth $150 million
• The company was incubated by AI pharmaceutical unicorn XtaiPl, whose most recent valuation exceeded $2.05 billion

By Molly Wen

Biomedicine is a hot emerging area, as is artificial intelligence. But what happens when these two hot properties combine? The result is a new crop of start-ups specializing in AI-assisted medical services such as AI imaging, AI robots and AI drug development, many of which are soaking up hundreds of millions of dollars in the private equity market.

AI pharma companies are a subset of this group, whose position at the intersection of AI and drug development has made them new investor darlings for both sectors. Their commercialization prospects are still unclear, but that hasn’t stopped them from attracting major funds hoping to be ahead of the curve in the cutting-edge field.

One such company is METiS Pharmaceuticals, which announced the completion of two new funding rounds worth $150 million combined last Wednesday, just over two years after its establishment. Its backers read like a who’s-who of investors, including PICC Capital Investment Management and China Life Capital, which led the latest rounds. Other investors include Sequoia Capital China, CMBI, Lightspeed China Partners and FreeS Fund.

The company has finished an impressive five financing rounds since its establishment in January 2020. It was reportedly already worth $600 million as of last November, even more than many listed biotech companies. The two recent rounds probably boosted its valuation further still, and there’s a good chance we’ll see it take a shot at an IPO, perhaps in the not-too-distant future.

The company focuses on AI-assisted drugs formulation and drug delivery systems, and says it’s the first in the world harnessing AI technologies to optimize drug formulation, improve the performance and efficacy of existing drugs and enhance the efficiency of drug development.

It uses a self-developed high-throughput automated experimentation platform to obtain large amounts of physical parameters and data on drug dosage formats and delivery pathways, then uses the data to understand how molecules interact with adjuvants and delivery agents as well as their scalability in human bodies. And it employs data-driven AI algorithms to build models and predict physical and biological properties of small molecules and nucleic acid drugs in specific micro-environments, which can help formulate complex molecular drugs in a faster, smarter and more comprehensive way. 

CEO Lai Caida said in an interview that optimizing drug formulation is like designing rockets:  molecules that are the active ingredients are the explosives that need to be moved to the area where illness occurs without endangering any healthy tissue along the way. Accordingly, the process of effectively formulating such drugs entails using other agents to create a sort of high-precision rocket that allows the “killer” molecules to safely reach their destination.

Low costs and short development periods

Compared with inventing new drugs from scratch, drug formulation using existing agents is less costly, takes less time and involves fewer risks, given that it is characterized by improvement of drug delivery methods or repurposing existing drugs. METiS says it has applied for multiple patents for its technologies and has a rich pipeline of small molecule and nucleic acids drugs in development, including some that could be ready for key clinical trials as early as 2023.

The company’s success in attracting investors so early in its life has a lot to do with its prestigious founders and management team. CEO and founder Lai Caida previously worked at Novartis’ (NOVN.SWX) R&D center, where he was an expert in drug development and digitization of new drug development. The head of the company’s U.S. operation, who also serves as head of drug development, is Chen Hongmin, who is a member of the U.S. National Academy of Engineering and was previously chief technology officer of Kala Pharmaceuticals KALA, which he helped to take public on the Nasdaq.

METiS also has a strong lineage in its incubation by the AI pharmaceutical unicorn XtalPi Inc., which provides pharmaceutical support to the company with concept formation, evaluation (including evaluation of underlying algorithms) as well as platform development. XtalPi was founded in 2014 and focuses on AI-enabled drug molecule discovery. It secured its own $400 million in series-D financing last August, valuing it at over 13 billion yuan ($2.05 billion).

As AI-assisted drug development emerges as a promising new field, most major drug companies have formed partnerships with different related startups. METiS Pharmaceuticals has joined hands with a number of such drug companies in China, including Zhejiang Huahai Pharmaceutical (600521.SH), Porton Pharma Solutions(300363.SZ) and Honz Pharmaceutical (300086.SZ) to assist in their drug formulation and prescription development.

But most of China’s AI pharmaceutical companies are still in the investment and development stages, since creating pipelines for generics, original drugs and innovative drugs is quite expensive. According to iResearch Consulting Group, these companies will only be able to developed limited pipelines of products in the next five years, though some of their products will be quite lucrative. And iResearch pointed out that some companies stand to at least double their revenue as their drug development efficiency improves and milestone tasks are completed.

It estimates that China’s AI pharmaceutical market will grow from a relatively modest 81.63 million yuan in 2020 to 774 million yuan in 2025, equating to an average compound annual growth rate of 56.8%.

In fact, AI has already delivered some initial results in terms of drug repurposing. The British AI pharmaceutical company BenevolentAI noted that its proprietary AI platform discovered that the drug Baricitinib might be effective in treating Covid-19, according to a paper published in the medical journal Lancet in February 2020. In July 2021, the U.S. Food and Drug Administration modified the drug’s emergency use authorization to allow for its treatment of severe Covid-19 cases.

New AI drugs still works in progress 

The U.S.-based Schrödinger SDGR became the first AI pharmaceutical company to go public with its IPO in February 2020. Its shares rose by 68.47% on its trading debut and have continued to climb since then. It reached a high of $117 in March 2021, representing a six-fold increase from its IPO price of $17. The company has not turned a profit yet and has a lofty price-to-sales (P/S) ratio of 17 times.

No Chinese AI pharmaceutical company has gone public yet. But many companies in other more-developed fields including AI imaging and AI medical data have been listed in Hong Kong, such as Yidu Tech (2158.HK), which provides digital medical services to hospitals, and Beijing Airdoc Technology (2251.HK), which provides AI medical imaging services. Both stocks have been trending down since their IPOs, but still have relatively high P/S ratios of about 16 times, showing the market sees the group as promising. METiS has yet to disclose any sales or other data on its operations, making it difficult to assess its fair market valuation.

Despite the big hopes for AI, not a single AI-discovered drug has been successfully launched yet. That means it will be up to companies like METiS to show whether their high valuations are really justified by their ability to deliver drugs with real market potential.