"HKEX's first AI pharmaceutical stock" Why has JingTai Technology been breaking below its issue price for consecutive days?

Less than half a year after its listing, QUANTUMPH-P (2228.HK, hereinafter referred to as "JingTai Technology"), which holds the title of the first AI pharmaceutical stock, has seen its stock price plummet sharply and fall below the issue price.

From September 10 to November 19 this year, JingTai Technology has accumulated a decline of 74%.

On November 20, JingTai Technology's stock price rebounded slightly, closing at HKD 4.37 per share, an increase of 9.25%, but it still has not returned above the issue price.

According to TradeWind (ID: TradeWind01), JingTai Technology's fundamentals remain normal.

This may be influenced by multiple factors.

Trump plans to nominate "anti-vaccine and weight-loss drug" Robert F. Kennedy Jr. as the U.S. Secretary of Health and Human Services, which has caused panic among many biopharmaceutical stocks, leading to declines in the stock prices of several biopharmaceutical companies, including Eli Lilly (LLY.N) and Novo Nordisk (NVO.N).

In the industry, AI pharmaceutical companies in the U.S. stock market are also performing poorly in the secondary market.

This may pose more challenges for future financing of AI pharmaceutical companies.

The Journey of "First 18C" Breaking the Issue Price

In June of this year, JingTai Technology completed its Hong Kong IPO under the halo of being the "first AI pharmaceutical stock on the Hong Kong Stock Exchange" and the first "18C specialized technology company," receiving much market attention.

JingTai Technology issued a total of 187 million shares, with 37 million shares sold in Hong Kong and 159 million shares sold internationally.

The subscription multiple in the Hong Kong market reached as high as 103.35 times.

The issue price of JingTai Technology was HKD 5.28 per share, and on the first day of trading, the closing price rose by as much as 9.85%.

Subsequently, in September, the Nobel Prize awarded to AI-related research boosted market enthusiasm, and after JingTai Technology was included in the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, its stock price peaked at HKD 15.6 per share.

However, this wind seems to have not stayed for long.

Since November, JingTai Technology has fallen below the issue price for the second time since its listing.

Moreover, compared to the peak value on September 10 this year, JingTai Technology's closing price on November 19 has recorded a cumulative decline of 74%.

The current stock price performance of JingTai Technology may also embarrass the institutional investors behind it.

In December this year, the shares of JingTai Technology held by cornerstone investors such as Baiaosaitu (2315.HK), Successful Lotus managed by Li Ka-Shing's son Li Jia-Jie, Haitang No. 1 Limited Partnership Fund, Professor Bradley L. Pentelute, and Mammoth Medical Solutions are about to be unlocked, which may have a certain impact on its stock price.

From a fundamental perspective, JingTai Technology's performance remains normal, primarily providing research and development services for pharmaceutical companies through a combination of AI and robotic automation.

In the first half of 2024, JingTai Technology's revenue was 103 million yuan, a year-on-year increase of 28.3%.

Among them, the drug discovery business grew significantly, generating 61 million yuan, a year-on-year increase of nearly 70% However, due to continuous investment in research and development, XtalPi Technology is still in a loss state, reaching 1.237 billion yuan during the same period, more than doubling compared to the first half of last year.

In the field of drug discovery, XtalPi Technology has indeed achieved certain results, having launched platforms for small molecule drug discovery and drug solid form development, while also making breakthroughs in macromolecule drug development systems.

In October this year, XtalPi Technology signed a cooperation agreement with Janssen Pharmaceuticals, a subsidiary of Johnson & Johnson, to license its self-developed XtalFold™ AI software platform to Janssen for the discovery and engineering design of macromolecule drugs.

The business model of licensing developed AI platforms to large pharmaceutical companies for revenue is indeed a mainstream revenue-generating method for AI pharmaceutical companies.

One of Recursion's revenue sources is helping pharmaceutical companies accelerate drug discovery through AI tools and services.

However, compared to AI pharmaceutical companies like InSilico Medicine Cayman TopCo (hereinafter referred to as "Insilico"), which are still focusing on "pharmaceuticals + CRO," XtalPi Technology is exploring more diversified revenue sources.

At the time of its IPO, XtalPi Technology pointed out in its prospectus that it provides drug and materials science research and development solutions and services for global and domestic companies in industries such as pharmaceuticals and materials science (including agricultural technology, energy, new chemicals, and cosmetics) based on robotic automation and other methods.

In August this year, XtalPi Technology signed a five-year strategic research and development cooperation agreement with GCL Group to provide research and development services for new energy materials in fields such as perovskite, supramolecular, and lithium-ion batteries, with an expected total transaction amount reaching 1 billion yuan.

Two months later, XtalPi Technology delivered a catalyst synthesis workstation to Sinopec Shanghai Petroleum and Chemical Research Institute.

Beyond the pharmaceutical industry, XtalPi Technology is exploring more possibilities.

This may provide XtalPi Technology with more room for performance growth, helping it to get rid of losses as soon as possible.

Financing Challenges for AI Pharmaceuticals?

Globally, AI pharmaceutical companies have indeed performed poorly in the secondary market.

In August this year, Recursion (RXRX.O) planned to acquire Exscientia (EXAI.O) in an all-stock transaction valued at $688 million.

Exscientia was well-known in the industry for launching the world's first AI-designed molecule "DSP-1181," but ultimately the phase 1 clinical trial did not meet its goals and was terminated.

After going public in 2021, Exscientia's market value once reached $3.206 billion, but has since been on a downward trend, dropping to around $500 million just before this acquisition, less than one-fifth of its peak.

Recursion, which was once invested in by NVIDIA (MVDA.O) for $50 million, is also in a similar situation, with a market value of $1.749 billion as of the close on November 18, down more than 70% from its peak.

Whether XtalPi Technology's current stock price performance will pose challenges for subsequent domestic AI pharmaceutical companies in terms of IPO financing may also be an unavoidable issue Before JingTai Technology, EnSilicon had submitted an IPO application to the Hong Kong Stock Exchange, but it has been in the stage of updating financial data.

In this regard, sources close to EnSilicon told TradeWind (ID: TradeWind01) that the IPO is one of the company's potential plans, and a careful decision will be made.

Meanwhile, downstream customers of AI pharmaceutical companies have been facing tough times recently.

On November 14, U.S. President Trump plans to nominate Kennedy Jr. as the Secretary of Health and Human Services.

Kennedy Jr. is known as a "vaccine skeptic," having publicly questioned experimental mRNA vaccines and opposed GLP-1 drugs.

This has triggered market panic.

From November 14 to 18, the cumulative declines of Eli Lilly and Novo Nordisk reached 7.51% and 5.23%, respectively; during the same period, the Nasdaq Biotechnology Index fell by 5.24%.

RBC Capital Markets analyst Brian Abrahams pointed out that Kennedy Jr.'s appointment could have profound and unpredictable effects on the biotechnology industry.

This sentiment has also spread to domestic CRO companies, although the impact is limited.

Despite the continuous decline of the CRO index (8841421.WI) during the same period, it stopped falling on November 20, closing with a gain of 2.92%.

In the long run, AI pharmaceuticals will inevitably be one of the important transformative directions in innovative drug development, but what kind of business model can succeed in the "survival of the fittest" remains to be explored continuously by all parties