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An American biotech company is acquiring Cyclica and Valence Discovery, two Canadian startups in the artificial intelligence (AI) drug-discovery space.

Recursion, a drug-discovery company based in Salt Lake City, will buy Cyclica for $53.4 million CAD ($40 million USD), and Valence for $63.4 million CAD ($47.5 million USD), and expects both acquisitions to be completed in the second quarter of 2023.

Cyclica calls itself a neo-biotech company. The Toronto-based startup has built two products in the digital-chemistry space. One is an AI deep learning engine that carries out drug design. The other is an AI prediction model used to describe molecules.

Cyclica focuses on three therapeutic areas: cancer, diseases of the brain, and inflammatory and auto-immune diseases.

Toronto is home to Recursion’s largest office outside of its headquarters. The teams at Cyclica will be fully integrated into Recursion.

In its quarterly filing, Recursion reported that it completed a prospective, blinded evaluation of Cyclia’s software against its internal programs, which gave Recursion deep confidence in the power of Cyclica’s tools. Recursion said this reinforced its belief that Cyclica’s team could accelerate Recursion’s work across its pipeline and partnerships by rapidly advancing the discovery of novel molecules that could become drug candidates in the future .

Valence Discovery, housed in Montréal’s Mila AI research institute, came out of stealth mode in 2021 and announced $10.9 million CAD ($8.5 million USD) in funding.

The startup partners with leading pharmaceutical and biotech companies, using AI and machine learning to support their drug-discovery efforts.

Joining forces with Recursion’s deep learning research office in Montréal, Valence will become an AI and machine learning research center to be led by Valence co-founder Daniel Cohen with continued advisory from Mila founder Yoshua Bengio.

The small team at Valence has led a massive open-science movement with a network of academic collaborators at the forefront of machine learning, chemistry, and other fields, Recursion noted in its quarterly filing.

Valence’s current and future technology will accelerate Recursion’s across many fields, the acquiring company stated. Valence gains access to Recursion’s wet-lab facilities as well as the company’s extensive datasets. These will help the team with ongoing work building foundation models, large language models, and other approaches that use active learning.

Recursion uses machine learning algorithms to analyze its proprietary biological and chemical datasets. This allows the computer to search for trillions of meaningful relationships among biological and chemical substances while minimizing human bias.

Recursion owns and operates the powerful BioHive 1 supercomputer and claims it is uniting technology, biology, and chemistry to advance the future of medicine.

The strategic acquisitions of Cyclica and Valence will give Recursion “the most complete, technology-enabled drug-discovery solution in the biopharma industry,” said Chris Gibson, co-founder and CEO of Recursion.

The sale of Cyclica and Valence to an American company follows a familiar pattern in Canadian technology. Three-quarters of the patents held by venture capital-backed Canadian startups involved in recent takeovers are now in foreign hands, according to 2021 research by the Innovation Economy Council. Ownership of more than 200 promising young companies, along with a trove of valuable intellectual property, has left the country since 2017, mainly to the US.

Benjamin Bergen, President of the Council of Canadian Innovators, told BetaKit that founders need to weigh many factors when deciding to sell the company they’ve built.

“I’m in no position to second-guess the management team at Cyclica and Valence,” Bergen said. “However, as a country we see this pattern all too often, and policymakers should look to understand why so many promising tech companies choose to sell themselves, rather than scaling up into Canadian juggernauts.”

Cyclica has a staff of around 60, with some 50 programs spread over its three main focus areas. Cyclica has previously raised a $4.65 million CAD Series A made up of an initial $2.25 million in September 2016 and a $2.4 million follow-on in July 2017.

Cyclica received a $2.4 million CAD ($1.79 million USD) grant in 2022 from the Bill & Melinda Gates Foundation to discover new contraceptive options. The startup hopes to develop new, non-hormonal contraceptive drugs, and said the grant enables it to apply its artificial intelligence-enabled drug-discovery platform to the problem.

Recursion said the purchase price in the acquisitions will be payable in the form of shares of Recursion Class A common stock, shares of a subsidiary of Recursion exchangeable for shares of Recursion’s Class A common stock, and the assumption of certain outstanding Valence and Cyclica options.

In certain limited circumstances, Recursion may pay nominal cash consideration to Valence and Cyclica shareholders in lieu of such exchangeable shares or Recursion Class A common stock. Recursion expects no material change to its cash runway as a result of these acquisitions.

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