One of the biggest stories of the year has been the rise of AI in every industry. This trend will hit biotech stocks no less than any others.
Already, cutting edge healthcare stocks are getting into the AI boom. Medical science has much to gain from AI innovation. AI is bringing the ability to test and study drugs in ways never thought possible. Also, it provides the ability to process enormous amounts of data to synthesize a conclusion.
The best cutting-edge healthcare companies have a long history of using machine learning to quicken drug development. And AI is just the next stage of machine learning. So, for an investor who wants to gain from the inevitable future of AI in biotech stocks, explore three transformative stocks to buy this year.
Recursion Pharmaceuticals (RXRX)
Recursion Pharmaceuticals (NASDAQ:RXRX) has built one of the world’s most advanced AI-powered platforms to help decode human biology.
RXRX gathers data and experiments on millions of biological and chemical interactions. From those results, it has built its “Recursion OS,” a platform that teases apart every relational variable from those millions of experiments. AI and machine learning then distill this data to find novel drugs. In fact, the platform can be used to test those drugs “in silico,” weeding out bad ones and focusing on good ones, before even bringing any of them into the clinic.
The potential of Recursion OS has not gone unnoticed. Pharma giant Bayer (OTCMKTS:BAYRY) signed a deal with RXRX in November to test Bayer’s drug library using Recursion’s platform. This makes RXRX eligible for milestone payments of up to $1.5 billion dollars. And, it shows that AI in biotech is already paying dividends.
As for Recursion Pharmaceuticals itself, those milestone payments will be welcome indeed. The company’s most recent earnings report shows $387 cash and cash equivalents, with a net loss of $93 million. RXRX is operating in a highly competitive space, but cash injections from Bayer and other partners should see it through into profitability. Because the AI revolution will further accelerate, Recursion Pharmaceuticals should be at the top of your list.
AbCellera (ABCL)
AbCellera (NASDAQ:ABCL) has developed an engine combining machine learning, big data, and high throughput microfluids to discover and characterize antibodies.
Also, the company’s platform has plenty of interested customers. Prelude (NASDAQ:PRLD), Incyte (NASDAQ:INCY), and Regeneron (NASDAQ:REGN) have all announced collaborations to use AbCellera’s platform for drug discovery. Since antibodies can be specifically targeted, they have the potential to deliver treatments in ways that no other molecule could. Therefore, AbCellera’s engine is a synthesis of both the antibody and the AI revolutions.
Understandably, AI in biotech can take time to reach profitability. Most tech companies expect to spend years burning cash before getting into the black. AbCellera’s earnings in particular have been “chunky” due to staggered royalty and milestone payments. While last year AbCellera posted a profit, their most recent earnings report shows a loss of $29 million. With cash and cash equivalents of $387 million, AbCellera isn’t in danger of bankruptcy. Yet, earnings have not moved in the right direction.
However, those earnings are based on royalty and milestones. And this year, AbCellera signed collaborations to achieve those future benchmarks. True, 2023 was difficult for AbCellera, but their technology is still incredible. Thus, turning that technology into profit makes them one of the highest potential AI/biotech stocks to find.
Ginkgo Bioworks (DNA)
Ginkgo Bioworks (NYSE:DNA) began as part of the synthetic biology revolution. Promising to make products more cheaply than any competitor, they hoped to license the technology from their Foundry much like drug companies license drugs. But, a new partnership with Alphabet (NASDAQ:GOOGL, GOOG) has shown their potential as an AI company.
As a synthetic biology company, Ginkgo Bioworks has created and tested an incredible amount of genes, proteins, and organisms. From this data, it has built a platform showing the interactions of genes, proteins, and organisms. Then, it has built an AI which can design new interactions as needed.
As Ginkgo Bioworks’ database grows, the AI will continue to learn workable methods and solutions, guiding the design process to a successful product. That can bring huge savings, as testing and altering designs is the greatest expense in synthetic biology.
DNA’s cutting edge AI in a burgeoning industry can bring big dividends. But Ginkgo Bioworks needs to survive to make that happen. A most recent earnings report shows cash and cash equivalents of $1,049 million and a net loss of $303 million, so survival isn’t guaranteed. But the company has cut its net loss in half since 2022. So, if it can survive and prosper, it will become the centerpiece of the AI in biotech revolution.
On the date of publication, John Blankenhorn held a LONG position in GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.