Three MIT PhDs Launch IPO: XtalPi Secures Support from Eight Cornerstone Investors

Image Source: Visual China

Reporter Shao Yuting from Blue Whale Finance

On the evening of June 3, "AI pharmaceutical unicorn" XtalPi (02228.HK) announced that the company will offer shares for subscription from June 4 to June 7, 2024. It plans to globally distribute 187 million shares, with each share priced between HK$5.03 and HK$6.03, aiming for an official listing on the morning of June 13 at 9:00 AM.

Currently, only Black Sesame Technologies and XtalPi have submitted listing applications under the "Chapter 18C" new rules. XtalPi is the first company to pass the hearing and launch its initial public offering. If it successfully goes public on June 13, the company will become the first special technology stock in Hong Kong.

Three 40-Year-Old MIT PhDs Lead XtalPi to an IPO

At just 42 years old, Wen Shuhao may not have expected that the company he founded could become "the first special technology stock in Hong Kong."

Dr. Shuhao Wen, a Ph.D. in Physics from the Chinese Academy of Sciences, has conducted postdoctoral research at the University of California and MIT, and also serves as an adjunct professor at Zhejiang University. After June 13, Dr. Wen may embrace a new title — Chairman and Co-founder of a Hong Kong Stock Exchange-listed company.

In 2015, Wen Shuhao, along with two MIT Ph.D.s, Ma Jian and Lai Lipeng, co-founded XtalPi, focusing on innovative R&D in quantum physics, artificial intelligence, and robotics for the biomedical field, as well as developing a platform for solid-state drug research.

Currently, XtalPi's businesses include two segments: drug discovery solutions and intelligent automation solutions. The former covers the entire process of drug discovery and research, while the latter mainly provides solid-state research and development services and automated chemical synthesis services, offering standard or customized solutions to pharmaceutical companies.

In simple terms, XtalPi is an AI pharmaceutical company that provides outsourcing services to traditional pharmaceutical companies or other firms, using AI technology to offer clients corresponding drug R&D testing and other services.

In 2016, XtalPi's crystal structure prediction platform demonstrated its accuracy in a blind test hosted by Pfizer, leading to a successful collaboration with the company. After gaining recognition, XtalPi established an AI research and development center, various drug discovery platforms, and intelligent robotic wet labs. It launched the brands "XtalPi Drug Discovery" and "XtalPi Intelligent Automation," further advancing the application of AI in new drug development and new materials.

XtalPi's clients include 16 of the world’s top 20 biotechnology and pharmaceutical companies, with collaborations established alongside leading groups and institutions such as Pfizer, Johnson & Johnson, Merck Group, and CK Life Sciences. XtalPi's customer retention rates are 67.5%, 51.4%, and 64.9%, respectively.

Currently, XtalPi's two business segments are advancing in parallel. In 2023, the revenue share of drug discovery solutions was 50.3%, with 81 revenue-generating projects, while the revenue share of intelligent automation solutions was 49.7%, with 423 revenue-generating projects.

XtalPi stated that it plans to evolve its business model into "one integrated platform and two key pillars" in the future. The two key pillars, namely intelligent automation solutions and XtalPi R&D solutions, are expected to serve as two driving wheels to enhance commercial prospects and the functionality of the integrated technology platform.

Therefore, in this IPO, XtalPi intends to use the proceeds to enhance its R&D capabilities and solution-providing abilities; improve commercialization capabilities both in China and internationally, and allocate funds for working capital and general corporate purposes.

However, so far, there has not been a single AI-developed drug in the industry that has successfully reached the market, with commercial progress being slow. Seeking new opportunities in the capital market has become a challenge faced by all companies in the industry.

Hong Kong Stock Market's "18C" New Rule Aids "Top Fundraiser" IPO

AI pharmaceuticals industry has high R&D costs, and most companies struggle to achieve commercialization; XtalPi is no exception.

Currently, XtalPi is still in a loss-making state. The post-hearing data shows that from 2021 to 2023, the company's revenues were RMB 62.799 million, RMB 133 million, and RMB 174 million, respectively; net losses were RMB 2.137 billion, RMB 1.439 billion, and RMB 1.906 billion, respectively; adjusted net losses were RMB 271 million, RMB 437 million, and RMB 522 million, respectively.

The reason why XtalPi has the opportunity to go public in the capital market this time is mainly due to the new "Chapter 18C" added to the Main Board Listing Rules by the Hong Kong Stock Exchange on March 31, 2023. The new regulations provide a new listing pathway for specialized technology companies that have not yet commercialized.

On November 30, 2023, XtalPi applied for listing in Hong Kong under "Chapter 18C". It passed the hearing of the Hong Kong Stock Exchange on May 26, and if successfully listed on June 13, it will become the "first special technology stock in Hong Kong".

"Chapter 18C" has relaxed the revenue threshold but imposed regulations on companies' R&D and daily operational funds, requiring a minimum market capitalization of HKD 100 billion.

From 2021 to 2023, XtalPi's research and development expenditures were RMB 213 million, RMB 359 million, and RMB 480 million, respectively. As of the end of 2023, the company held cash and cash equivalents of RMB 711 million, time deposits of RMB 1.251 billion, and had short-term bank loans of RMB 60 million, with a relatively abundant cash balance.

Despite years of losses, the company has managed to maintain sufficient cash reserves primarily through financing. Since its establishment, XtalPi has been hailed as the "financing king" in the AI pharmaceuticals field. In 2020, it completed a Series C funding round worth $289 million, setting the record for the highest financing amount in the global AI drug discovery sector.

Before the IPO, XtalPi completed a total of 8 rounds of financing, accumulating $732 million in funding. The last round was completed in July 2021, with a post-investment valuation reaching $1.968 billion (approximately HK$15.35 billion).

Among XtalPi's investors are well-known technology companies such as Tencent and Google, top-tier investors like SoftBank Vision Fund, Sequoia China, OrbiMed, FiveYan Capital, and Mirae Asset, and even support from "national team" players such as China Life Insurance and China Biologic Products.

In this IPO, XtalPi has introduced eight cornerstone investors who have collectively subscribed to shares worth over 337 million yuan, accounting for 29.89% at the upper limit of the fundraising. Among them, an investment company personally held by Li Jiayi, Chairman and Managing Director of Henderson Land Development, subscribed for 40 million yuan; domestic private equity investment company Guosheng Capital subscribed for 12 million US dollars; Ginkgo Fund, an investment company under Gong Hongjia, subscribed for 10 million US dollars. Other cornerstone investors include Biocytogen and Fosun Capital.

       Title: Three MIT PhDs Lead to an IPO, XtalPi Supported by Eight Cornerstone Investors