Morningside-backed XtalPi raises over $300 million in new funding | Light Moments

On September 28, 2020, XtalPi, an AI-powered drug discovery company driven by digitalization and intelligent technology, announced it had oversubscribed its Series C funding round, raising $318.8 million — a new global record for financing in the AI drug discovery sector.

The round was co-led by 5Y Capital, SoftBank Vision Fund 2, and PICC Capital, with participation from CICC Capital, CMB International Telecommunications Fund, Mirae Asset, Zhongzheng Investment, CITIC Capital, Oceanpine Capital, Shunwei Capital, Fyuan Capital, IMO Ventures, Parkway Fund, and other global investors. Early shareholders including Tencent, HSG, China Life Private Equity Investment Company Limited, and SIG Asia Investments also increased their stakes.

XtalPi Co-founder and Chairman

Shuhao Wen

Q1: Congratulations to XtalPi on completing this new funding round on its fifth anniversary. Five years ago, you and your two co-founders, Jian Ma and Lipeng Lai, founded XtalPi while doing postdoctoral research at MIT. What was your original vision for starting the company?

Shuhao Wen: This is MIT's seal. Below it is the school's Latin motto: "Mens et Manus" — in English, "Mind and hand." It means theory and practice in equal measure. At the time, we wanted to build a company driven by fundamental scientific theory.

Boston is also the Silicon Valley for pharmaceuticals, so we naturally found ourselves drawn into this industry. We discovered that blockbuster drugs generating billions in sales are essentially built on patents for molecular structures. That gave us the initial idea: theoretical physicists using AI and cloud computing to make drugs. We wanted to fundamentally rethink this industry from the ground up.

Q2: Transitioning from scientist to entrepreneur, what has changed most for you, and what has stayed the same?

Shuhao Wen: The biggest change: research used to be something I could do single-handedly, but now I have to build teams and lead people. From PhD to postdoc, research gets more and more specialized — actually narrower and narrower, drilling deeper into a specific academic question. Entrepreneurship requires going broader: product, market, capital — constantly expanding your boundaries in scope.

What hasn't changed: first principles. Whether it's the universe or business, there are fundamental principles at work. As physicists, we're supposed to be the most rational people. Given initial conditions and boundary conditions, we should be able to determine the exact trajectory of evolution. Always start from the bottom layer, from first principles. Argue, debate, then execute — and once you move, you will arrive.

Q3: As one of the earliest pioneers in this space, what changes do you hope XtalPi will bring to the industry?

Shuhao Wen: We want to bring the most accurate physics algorithms, the cutting-edge AI algorithms, together with unprecedented computing power into the pharmaceutical industry, pushing this somewhat conservative sector into a new phase of digital and AI-driven transformation.

Q4: Why did you choose 5Y Capital's investment?

Shuhao Wen: Shared conviction. A shared conviction about fundamentally deconstructing and rebuilding the drug creation and development process from the ground up. With Richard and Xutian, we found alignment on the most foundational level. As they say, a gentleman will die for one who truly understands him — mutual understanding matters enormously.

Two other factors were also critical. First, 5Y's decision speed on this investment — they focused on what mattered, moved fast, and were highly efficient. Second, 5Y's brand. They've proven their investment acumen, track record, and reputation across multiple sectors. XtalPi is honored to stand alongside 5Y's other highly successful and respected portfolio companies, and to have the opportunity to learn from them. These were all important reasons.

5Y Capital Executive Director

Xutian Jing

Q1: Do you remember your first meeting with the XtalPi team? What details have stood out to you through your interactions with them?

Xutian Jing: I first met Shuhao in 2017 and was immediately drawn to the company's technology and its potential to transform the industry. Unfortunately, my own understanding wasn't mature enough at the time, and I worried the field was still too early-stage, so I regretfully missed the opportunity to invest early.

Over the following year, I kept exploring and thinking about this industry. By late 2018, while on a business trip in the US, I finally realized XtalPi was a company I absolutely could not miss. I changed my flight and flew directly to Shenzhen with my partners to meet the founding team. Perhaps it was this sincerity that moved the founders — they were willing to open a special add-on round for us, right after their B+ round had just closed.

A little over a year later, the company's technology has been validated, industry trends are clearer, and the founding team has shown tremendous acceleration. So we didn't hesitate to lead again, and ultimately completed our Series C investment as one of the lead investors.

Q2: 5Y Capital previously completed an add-on investment in XtalPi outside of a formal fundraising window, and now you've led the Series C. Can you share your investment thesis?

Xutian Jing: As AI continues to advance and computing costs decline further with full public cloud availability, the trillion-dollar pharmaceutical market has finally reached a tipping point where quantitative technological change has produced qualitative transformation. Computers and experiments can now be more tightly integrated with rapid feedback mechanisms, significantly improving both the speed and quality of novel drug discovery. In this productivity revolution, XtalPi was the first to effectively combine physics-based computing with AI algorithms, while optimizing computational architecture at the engineering level and establishing real-world iterative systems. It has already demonstrated the feasibility and scalability of its technology. We believe XtalPi will soon become a new generation of critical infrastructure for the drug discovery industry. 5Y Capital has long been bullish on computational science applications in life sciences. We hope the fusion of IT and biotechnology will soon usher human health into a new era.

In 2020, "AI-discovered molecules" was named to MIT Technology Review's list of "10 Breakthrough Technologies." Both AI and the pharmaceutical industry are trillion-dollar sectors; their convergence holds enormous potential. This funding round marks the emergence of MIT-born XtalPi as one of the most influential companies globally in AI-driven pharmaceutical research.

1

Vision: A Drug for Every Patient

"Over the past few years, we have focused on building and refining our self-developed ID4 intelligent drug discovery platform. Through partnerships with major pharmaceutical companies and biotech firms worldwide, we have continuously validated ID4's advantages and enormous potential in cost, speed, and success rate, achieving multiple milestone breakthroughs," said Shuhao Wen, XtalPi co-founder and chairman. "As advocates and pathfinders in AI drug discovery, we are honored to receive growing recognition from investors for our technology, team, and social impact."

Wen also noted: "This is a technology with warmth. Our vision is 'a drug for every patient' — five simple words expressing our most fundamental wish: that all individuals suffering from disease, regardless of age, nationality, skin color, or wealth, can receive treatment equally, with access to good drugs they can afford. But this is not easy. The widespread resonance of the film Dying to Survive reflects this very reality. Among top pharmaceutical companies, R&D returns on new drugs have fallen below 5% since 2015[i]; rising failure rates and costs make good drugs increasingly expensive. Meanwhile, many diseases still lack effective treatments. That's why AI is held in such high hope — using algorithms, computing power, and data to improve drug discovery efficiency and success rates, reduce costs, explore vastly larger chemical spaces, and ultimately benefit patients worldwide with more breakthrough therapies."

2

Building AI-Powered Digital Drug Discovery Infrastructure

This funding round will support the further development of XtalPi's intelligent drug discovery system, building AI-powered digital drug discovery infrastructure across three dimensions — computing power, algorithms, and data — to serve global pharmaceutical companies, biotech firms, and partners, meeting the industry's urgent need for greater efficiency and speed.

Algorithms: XtalPi has built a dual-core foundation of physics-based and AI theories, with over a hundred algorithms in reserve. Its physics framework spans algorithms from quantum to classical mechanics, constructing multi-scale, multi-dimensional models that can accurately describe drug-protein interactions from the most fundamental level. Its AI framework has established reinforcement and cross-validation models mapping various feature vectors to key drug properties. Going forward, XtalPi will build a digital twin R&D system tightly integrating modern laboratories with digital platforms, enabling efficient iterative interaction between experimental exploration and drug simulation algorithms.

Data: XtalPi uses data lakes as its primary data governance approach, ensuring that massive volumes of computationally generated data serve not only as direct outputs but also feed into data analysis and machine learning applications. Through specialized data strategies, XtalPi has accumulated extensive foundational data on drug molecular chemical spaces through quantum mechanical calculations. Its data reserves now approach petabyte scale. As the digital twin R&D system deploys and computational volume continues to grow, XtalPi will use rich real-world drug discovery data to support continuous algorithm innovation and upgrades, tackling more R&D bottlenecks and solving critical pain points in the industry.

Computing power: XtalPi has built a globally schedulable, massively scalable computing platform across multiple public clouds including AWS, Tencent Cloud, and Google Cloud, based on a multi-cloud architecture. Leveraging cloud computing's elastic scaling and parallel processing capabilities, the platform can spin up a supercluster of nearly a million computing cores within hours. This enables XtalPi to simultaneously run ultra-large-scale drug molecule discovery and screening projects, supporting the scalable application of its AI-driven drug R&D technology.

The COVID-19 pandemic has profoundly disrupted lives and economies worldwide, prompting governments to prioritize public health system construction and accelerating the need for more efficient drug discovery systems. Recently, Qiushi magazine published an important article by General Secretary Xi Jinping, "Building a Strong Public Health System to Provide Solid Guarantees for Safeguarding People's Health," which emphasized that "people's security is the cornerstone of national security" and called for "concentrating efforts on core technology breakthroughs" and "accelerating efforts to address shortcomings in life sciences, biotechnology, and medicine and health." Following this funding round, XtalPi will fully deploy AI-powered digital drug discovery infrastructure, driving the pharmaceutical industry toward more intelligent R&D models, helping more global pharmaceutical and biotech companies use AI to develop more effective drugs for patients worldwide, and contributing to China's AI-driven digital transformation in pharmaceuticals.

[i] Deloitte Center for Health Solutions. (2019). Ten Years on Measuring the Return from Pharmaceutical Innovation 2019. https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/life-sciences-health-care/deloitte-uk-ten-years-on-measuring-return-on-pharma-innovation-report-2019.pdf

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5Y Capital is one of China's earliest venture capital firms focused on early-stage investing, currently managing both USD and RMB funds with assets under management totaling several billion dollars. Its limited partners include internationally renowned sovereign wealth funds, family offices, fund-of-funds, and university endowments.

Having worked together for nearly two decades, the 5Y Capital team seeks out, supports, and inspires visionary founders who are often alone in their journey, sharing their exceptional foresight and providing our insights, industry experience, and comprehensive operational support — from the spiritual to the practical — throughout their entrepreneurial endeavors.

5Y Capital's successful investments include Sohu (NASDAQ: SOHU), Trip.com Group (NASDAQ: CTRP), The9 (NASDAQ: NCTY), China Distance Education (NYSE: DL), Focus Media (SZ: 002027), Xunlei (NASDAQ: XNET), Phoenix New Media (NYSE: FENG), UCWeb (Alibaba, NYSE: BABA), JOYY (NASDAQ: YY), Didi (DiDi), Musical.ly (ByteDance), NYSE: ZEPP (NYSE: HMI), TAL Education (NYSE: ONE), Huya (NYSE: HUYA), Xiaomi (HK: 0181), Viomi (NASDAQ: VIOT), Kingsoft Office (688111.SH), Lizhi (NASDAQ: LIZI.US), Agora (NASDAQ: API), and Xpeng Motors (NYSE: XPEV). The portfolio also includes high-growth companies such as Kuaishou, WeDoctor, SenseTime, Souche, Horizon Robotics, Bigo, Aihuishou, Xiaozhu, Maimai, Smartmi, Pony.AI, and Keep.