Hello, Reader.
For all that artificial intelligence has accomplished over the last few years, one thing it has not yet achieved is the creation of a new blockbuster drug from start to finish…
Essentially, going from drawing board to pharmacy.
But AI has made major contributions to the drug development process.
A recently approved therapy from one of the world’s largest pharmaceutical companies benefited from such a contribution.
Back in the early 1990s, biopharma firms Eli Lilly and Co. (LLY) and a partner discovered a new drug they called xanomeline. Early tests found this drug was helpful in slowing cognitive decline related to Alzheimer’s. It also reduced the delusions and hallucinations that come with the disease.
There was, however, a major problem. The side effects associated with xanomeline were so severe that more than 50% of Phase 2 study participants dropped out. Xanomeline was eventually shelved.
But that wasn’t the end of the story…
Longtime readers know that AI healthcare is a trend that I’ve been following closely this year. So, in today’s Smart Money, let’s take a look at the rest of this story – and at whether this company should be in your portfolio…
Almost a decade later, the Boston-based biotech company PureTech Health PLC (PRTC) became interested. They realized that xanomeline’s efficacy came from its ability to bind to certain receptors inside the brain, while its side effects were caused by activating receptors outside he brain.
That’s a complex issue, but suffice to say, it meant that the problems with xanomeline were solvable. So, PureTech bought the rights to the drug from Lilly.
The PureTech team went on to identify at least 65 binders and 114 suppressors that could be combined to offset xanomeline’s side effects. However, they knew that testing all 7,410 of those combinations would have been impossible in real life.
To produce a solution, PureTech’s team turned to predictive algorithms, a form of AI.
The details of their process remain a trade secret. But we do know that PureTech’s AI eventually stumbled onto a perfect combination. Even better, it was a molecule named trospium chloride, a generic drug for bladder control that the U.S. Food and Drug Administration (FDA) had already approved in 2004.
Trospium chloride, PureTech’s researchers discovered, could counteract xanomeline’s severe side in patients’ bodies, while leaving xanomeline to perform its work in their brains.
While we still don’t know if this newly created drug can be used to treat Alzheimer’s, PureTech was able to demonstrate its ability to reduce delusions and hallucinations. And that proved useful in treating a separate disease: schizophrenia.
These results were presented in a landmark Phase 2 trial in 2019.
At this point, you might be wondering why we’re still talking about PureTech. With a market cap around $500 million, PRTC is clearly not, as I hinted at above, “one of the world’s largest pharmaceutical companies.”
Well, PureTech had spun out the division behind this discovery as Karuna Therapeutics.
And late last year, Bristol-Myers Squibb Co. (BMY) – market cap: $115.2 billion – acquired Karuna for a stunning $14 billion. In turn, Bristol-Myers finalized approvals with the FDA, which it received last month for schizophrenia.
It’s hard to overstate how important this drug, now known as Cobenfy, will become.
Cobenfy is considered the first medication for schizophrenia with a new form of effectiveness in more than 30 years. Analysts at Cantor Fitzgerald forecast Cobenfy to generate more than $1 billion in annual revenue by 2026.
In addition, Bristol-Myers plans to retest Cobenfy for its original purpose of treating Alzheimer’s, as well as bipolar disorder. Stifel analyst Paul Matteis believes that could help the drug achieve peak annual sales of $10 billion, which would suggest total lifetime sales north of $100 billion.
If that ends up being the case, Bristol-Myers’ initial $14 billion outlay would look like a rounding error.
All this was made possible by AI-powered drug development. And we foresee even greater innovations to come over the next decade as this technology improves.
In Fry’s Investment Report, I frequently recommend AI healthcare superstars like Bristol-Myers, which I added to the portfolio in February of this year. Since my initial recommendation, the stock is up over 10%.
And I continue to keep an eye out for the next generation of AI healthcare winners.
To learn more about all of the AI healthcare stocks I recommend, join me at Fry’s investment Report today.
Now, let’s look at what we covered here at Smart Money this past week…
Smart Money Roundup
What the Data Center Industry Need to Survive – and How to Get In on It
AI does not directly consume water, but the data centers that power AI technologies do. This is primarily through cooling systems that prevent server racks and components from overheating. So, let’s examine the data center industry’s water consumption in the context of global trends and take a look at some of the investment opportunities.
What Trump’s Second Term Means for Energy Stocks
We saw a jump in energy stocks after Donald Trump beat Hillary Clinton in the 2016 presidential race, which was partly due to his stance on energy. But over the next two years, shares of energy firms plummeted, and would continue sliding through the remainder of his presidency. Read on as Tom Yeung discusses how those trends might shape the energy sector under Trump’s second term, and dig up some of the best ways to play it.
Stocks May Be “Melting Up” – but We Can’t Get Careless
There were three catalysts behind the stock market “melt-up” earlier this month: Donald Trump’s election victory… the Federal Reserve’s rate cut on November 7… and an early “January effect.” In this guest issue, InvestorPlace’s Louis Navellier details the third catalyst, why he believes stocks will head even higher in the near term, and the importance of treading with caution.
AI’s Dark Horse Could Become Its Crown Jewel Under Trump
Since Donald Trump took the White House, Tesla stock has surged higher and Elon Musk’s net worth has increased by over $30 billion. These economic gains may just be getting started as the richest man in the world stands to make even more money on xAI, his AI startup. InvestorPlace’s Luke Lango explores the three reasons why xAI’s lead in the race is great news for investors.
Looking Ahead
Stay tuned later this week for your next Smart Money update, where we will continue to look for opportunities in AI and all the other trends we’re following.
Meanwhile, my colleague Louis Navellier has developed a stock grading system to identify stocks ripe for short-term gains, which can then be treated like income.
For example, an initial $7,500 investment in past recommendations paid out a $3,375 windfall in a one-month timeframe… $4,650 in three months… $11,925 in five months… and $16,875 in 11 months.
And his Quantum Cash Project is designed to identify payout opportunities regardless of economic uncertainty, persistent risks of inflation, or any other market condition.
In his recent presentation, Louis introduces this income-generating approach that he projects will identify at least $60,000 in potential income opportunities over the next 12 months.
The system requires no special skills, employs no risky leverage, and can generate income whether you’re working or retired.
To learn more about this tested strategy and how it works, click here to watch Louis’s special presentation.
Regards,
Eric Fry, Smart Money
