AI Pharma Pioneer Dives into New Energy

In mid-September,at the 10th anniversary all-staff meeting of XtalPi Technology (02228.HK),Wen Shuhao,the co-founder and chairman of XtalPi Technology,posed a question: What has been the most important thing we have done in the past decade?

His own answer was: "Doing difficult but correct things."

What are the correct things?On September 26th,in an exclusive interview with Economic Observer Network,Wen Shuhao explained that the correct things are those with universal value,such as solving diseases,energy issues,and hunger.

At the aforementioned meeting,Wen Shuhao also told his colleagues: "We must ensure the best delivery to top-tier clients."

Who are XtalPi Technology's top-tier clients?Those familiar with XtalPi Technology would know that this company,known as the first AI pharmaceutical stock in China,has clients including Pfizer,Eli Lilly,Johnson & Johnson,and Merck,all of which are multinational pharmaceutical giants.Over the past decade,cooperation with these clients in the biopharmaceutical field has built a moat for XtalPi Technology in the pharmaceutical industry.

The story has changed.At this all-staff meeting of special significance,"correct things" not only included the field of diseases but also energy and agriculture.When emphasizing delivery,there was also a brand-new member in the list of top-tier clients,which is not a biopharmaceutical company but a company with a say in another new field: the leading Chinese new energy company,GCL Group.

At the end of August,XtalPi Technology announced its cooperation with GCL Group in its first half-year report after going public.This cooperation lasts for 5 years,with a total cooperation amount of about 1 billion yuan.Calculated at an average annual revenue of 200 million yuan,this single order alone can almost match XtalPi Technology's current annual revenue— in the first half of 2024,XtalPi Technology's revenue was 103 million yuan.Moreover,compared with biopharmaceutical business,the cash conversion cycle for material field orders will also be faster.

"The cooperation with GCL Group has brought an important new growth curve to XtalPi Technology," Wen Shuhao told Economic Observer Network.

After the official announcement of the cooperation with GCL Group,XtalPi Technology's stock price once surged by 150% in 7 trading days,with a market value exceeding 50 billion Hong Kong dollars.Subsequently,the stock price fell,and as of September 28th,the market value was about 43.7 billion Hong Kong dollars.

XtalPi Technology's original business was almost entirely in the biopharmaceutical field,and the cooperation with GCL Group was seen by the outside world as a huge cross-industry move,with many doubts.However,in Wen Shuhao's eyes,the story began three years ago or even ten years ago."Innovation is always questioned,and I have never been afraid of skepticism.In fact,I quite enjoy the moment when I can present tangible results after being questioned," said Wen Shuhao.The attitude of XtalPi has always been to solidify technology and respond to the market with the final delivery.

Why was XtalPi chosen by GCL?

In the fierce competition among well-known giants such as Huawei,Tencent,and iFLYTEK,it was quite a surprise that XtalPi managed to break through and secure an order from GCL Group.

What is less known is that XtalPi has been focusing on the energy industry for some time.As early as July 2023,XtalPi had reached a strategic cooperation with Yanyi New Materials,which focuses on lithium battery functional materials.In addition,its subsidiary,Xinshengtai,had also collaborated with the Guangdong Academy of Sciences Institute of Chemistry for AI-based research on bio-based materials and obtained experimental verification from the latter.

According to Wen Shuhao's observation,the photovoltaic industry where GCL Group is located faces significant cost challenges and urgently needs the support of new technologies.This is similar to the opportunity he saw in the biopharmaceutical field ten years ago,when the annual return on investment of large pharmaceutical companies was declining year by year,and new breakthroughs had to be sought.

At the SNEC 17th International Solar Photovoltaic and Smart Energy Conference in June 2024,GCL Group Chairman Zhu Gongshan also stated that the photovoltaic industry is facing the strongest "involution" in history.He believes that companies must address these issues through technological innovation and structural adjustments.

In a complex environment characterized by supply and demand mismatch,price declines,technological bottlenecks,and market barriers,photovoltaic companies urgently need to find new ways out,and AI may help optimize new materials such as perovskite.

XtalPi seized this opportunity.According to the contract,over the next five years,XtalPi will provide GCL Group with customized services for the research and development of high-tech new energy materials in the fields of perovskite,supramolecular,lithium-ion batteries,cathode materials,and carbon-silicon materials,using artificial intelligence (AI) and robotic automation technology.Together,they will develop a series of differentiated new materials with industry competitiveness and industrial application potential.

In addition,XtalPi will also create a material field large model-driven AI+ automation digital intelligent manufacturing system for GCL Group,realizing rapid design of new materials/composites,high customization of functional materials,and efficient development and application of processes,helping GCL Group become a new type of energy company driven by artificial intelligence.The two parties also plan to jointly establish a new material research institute in the Shenzhen-Hong Kong cooperation zone.

Sun Le,the product manager of a leading photovoltaic manufacturer,analyzed to the Economic Observer Network that the entire industry is currently seeking solutions to the long-term stability issues and high decay rates of perovskite materials,which make it difficult to scale up and promote applications.XtalPi's understanding of compound research may bring new research concepts and technical research directions to GCL Group.For example,GCL Group can leverage XtalPi's research experience with more compounds to develop new types of perovskite materials.Although biopharmaceuticals and new energy are different fields,both involve fundamental research on compound materials,and the principles are interconnected."In the vertical domain,it's not about who has more money or who has greater influence; what's required is true delivery," Wen Shuhao explained.To achieve optimization of new materials like perovskites,it's not enough to simply understand AI; one must also possess capabilities in physics,chemistry,materials,AI,and even experimental and process development.Algorithms and companies that can solve this problem are rare on the market,but XtalPi's technological and talent reserves happen to be able to address this issue.

According to Economic Observer Network,compared with XtalPi,large factories like iFlytek,Tencent,and Huawei may have more advantages in general AI models and platforms,but in terms of algorithms and practical applications for new materials and new molecules,XtalPi has more vertical laboratories and experience.

Wen Shuhao introduced that in terms of order delivery,from the large models of delivered materials to the automated full-process experimental systems,coupled with R&D services,the path is clear.XtalPi has an underlying system that uses AI to generate materials,formulas,processes,and even the preparation and iteration of devices.

On the talent front,the personnel supporting new material projects will differ from those supporting biopharmaceutical projects.Wen Shuhao explained that both drugs and new material projects like perovskites involve crystal issues,and the personnel needs for the automated system are generally similar,accounting for two-thirds of the talent.For the preparation of devices and the final performance of the devices,one-third of new talent is needed.

Treating new materials as a second venture,Wen Shuhao said,"Our cooperation with GCL Group is a very important step for us in the field of new materials." Globally,XtalPi is also the first AI company to receive such a heavyweight order in the field of new materials.He revealed that recently XtalPi has been negotiating cooperation with new material companies in other countries and regions.

Wen Shuhao regards the entry into new materials as his second venture.The cooperation with GCL Group was not a decision made on a whim,nor was it due to the arrival of a winter in biopharmaceuticals.Three years ago,XtalPi began to plan and prepare at the grassroots level for development in the field of new materials,already possessing the corresponding technical foundation and reserves.This high-value signing with GCL is "heavenly timing,geographical advantage,and harmonious people," and now,it happens to coincide with the cycle in which the new material field needs to break the deadlock.

"The changes AI will bring to the new energy field will surprise everyone," Wen Shuhao believes that on several dimensions,the addition of AI can bring disruptive changes to the new energy field.For example,by improving material performance,optimizing production processes,extending material life,and accelerating development speed,the cost of new energy materials like perovskites can be reduced.He revealed that in the next year or two,many results will gradually be seen by the outside world.

Wen Shuhao said that many people simply regard XtalPi as an AI pharmaceutical company,but from its establishment,the company's self-positioning has been a company at the physical foundation,driven by AI and robotics,developing molecular structures with specific properties and functions,focusing on the fields of life sciences and new materials.

The backgrounds of Wen Shuhao and the other two co-founders,Chief Executive Officer Ma Jian and Chief Innovation Officer Lai Lipeng,are all in physics.Wen Shuhao is a Ph.D.in physical chemistry from the Chinese Academy of Sciences,Ma Jian is a Ph.D.in physics from Zhejiang University,and Lai Lipeng is a Ph.D.in physics from the University of Chicago.After obtaining their doctoral degrees,all three entered the Massachusetts Institute of Technology for postdoctoral research.During their time at MIT,they often communicated together and ultimately decided to co-found XtalPi,supported by first-principles calculations based on quantum physics and artificial intelligence capabilities,seeking to change the design and discovery methods of drugs and new materials at a speed and scale that exceeds traditional alternative methods.In their eyes,biopharmaceuticals are a type of material,and perovskites are also a type of material."The business of a company always becomes more in-depth and extensive as it progresses," said Wen Shuhao.While exploring broader business spaces,XtalPi will continue to delve deeper into the field of biopharmaceuticals,which remains the core business of the company.Although the research and development of biopharmaceuticals requires a long period of clinical trials and approval processes,and the cycle for reaping substantial sales revenue is lengthy,it holds immense market value and social value.