The U.S. Food and Drug Administration (FDA) announced its plans to end the mandatory animal testing of new drugs, a move that sent AI-enabled biotech companies such as Recursion Pharmaceuticals Inc. (NASDAQ:RXRX) and Ginkgo Bioworks Holdings Inc. (NYSE:DNA) rallying last week.
What Happened: On Thursday, the new FDA commissioner, Martin Makary, announced a major reform to its drug evaluation standards. As per the agency’s press release, mandatory animal testing is no longer required for monoclonal antibody therapies and other drugs, and it would instead be replaced with “more effective, human relevant methods.”
The agency lays out several approaches to replace animal testing, such as AI-based computational models of toxicity, cell lines, and organoid toxicity testing in a laboratory setting.
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Calling it a “win-win for public health and ethics,” commissioner Makary adds that drug manufacturers have performed animal testing of drugs longer than was necessary, especially those “drugs that have data in broad human use internationally.”
The move sent Nvidia Corp.-backed (NASDAQ:NVDA) Recursion Pharmaceuticals, along with Ginkgo Bioworks, Absci Corp. (NASDAQ:ABSI) and Schrodinger Inc. (NASDAQ:SDGR), all techBio or AI-enabled biotech companies, rallying 27.72%, 11.23%, 23%, and 27.42%, respectively, following the announcement.
On the flip side, however, companies operating in the preclinical laboratory services industry, such as Charles River Laboratories Inc. (NYSE:CRL) and Inotiv Inc. (NASDAQ:NOTV) witnessed a steep pullback of nearly 28%, and 44%, respectively, being major legacy players in the contract research organization (CRO) space.
Why It Matters: Leading biotech analysts have, however, expressed mixed views on the FDA’s announcement, with Leerink Partners analysts referring to it as “more public relations than a change in policy,” adding that they expect minimal near-term impact on preclinical testing, as reported by BioSpace.
Analyst Rick Weissenstein of TD Cowen had a rather optimistic take on the announcement, stating to Axios that the initiative “combines deregulatory themes and cutting-edge technology,” in service of a broadly popular goal of reducing animal testing.
Weissenstein further adds that the FDA’s plans could help accelerate drug development with the use of AI and by leveraging computational models, resulting in lower costs and improved safety.
Despite its rally over the past week, shares of Recursion Pharmaceuticals don’t score too well on Benzinga’s Edge Stock Rankings, but what about Ginkgo Bioworks and Schrodinger? Sign up for Benzinga Edge Stock Rankings today for more such insights.
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