The End of Animal Testing?
Why AI Drug Discovery Stocks Are Poised for a Massive Rerating
🔍 FDA'S LANDMARK SHIFT
In a move that could reshape pharmaceutical development, the FDA has announced a multi-phase plan to reduce and ultimately phase out animal testing as a requirement for drug approval. The roadmap includes:
Immediate acceptance of New Approach Methodologies (NAMs) in Investigational New Drug (IND) submissions
A pilot program focused on monoclonal antibodies to validate non-animal-based strategies
Plans to integrate real-world safety data from other countries to avoid duplicative animal trials
Regulatory incentives for companies that submit robust safety data from non-animal tests
NAMs encompass advanced tools like:
AI-powered biosimulation
Organoids and organs-on-a-chip
Human cell-based in vitro models
Mechanistic and PK/PD modeling
The FDA is collaborating with NIH, the Department of Veterans Affairs, and global regulators to ensure validation and adoption. A public workshop is scheduled later this year to formalize guidance and gather stakeholder input.
This is not an aspirational goal. It is an institutional pivot—one that redefines how drugs will be developed, tested, and approved over the next decade.
🧬 WHAT THIS MEANS FOR THE INDUSTRY
🚫 End of a Century-Old Standard
For decades, animal testing was the gold standard for safety and efficacy in drug trials. But ethical issues, scientific limitations, and cost inefficiencies have accelerated the demand for alternatives.
🚀 Rise of Model-Informed Drug Development (MIDD)
Modeling platforms that can simulate human biology and drug interaction now have regulatory tailwinds. The FDA’s roadmap legitimizes these technologies, which were previously considered auxiliary.
💰 Unlocking Capital Efficiency
AI-driven platforms reduce both time and cost in early-stage drug development. That means:
Faster iteration cycles
More shots on goal
Higher ROI per molecule
⚖️ Regulatory Risk Reduction
The FDA's explicit support of NAMs gives biotech investors greater clarity and confidence in backing companies using these methods.
🧠 10 COMPANIES AT THE CENTER OF THIS SHIFT
Here are 10 public and near-public companies positioned to benefit from the regulatory and technological transformation now underway:
1. Simulations Plus (SLP)
A pioneer in predictive pharmacokinetics, Simulations Plus develops software like GastroPlus and ADMET Predictor that are already integrated into FDA and pharma workflows. The company recently received an FDA grant to enhance its modeling tools for long-acting injectables. With over 200 pharma clients and high-margin recurring revenue, SLP is a foundational player in AI-backed drug testing.
2. Certara (CERT)
Certara is one of the largest providers of biosimulation platforms globally. Its suite of tools—including Phoenix WinNonlin and Simcyp—are already used in over 1,650 regulatory submissions worldwide. CERT is deeply embedded in the regulatory ecosystem, with long-standing FDA relationships and a clear path to benefit as biosimulation moves from complementary to core.
3. Schrödinger (SDGR)
Schrödinger uses physics-based modeling to predict molecular behavior, offering unmatched precision in computational drug discovery. With clients including Bristol Myers Squibb and Novartis, SDGR blends deep science with enterprise adoption. While volatility is a concern, the tech is best-in-class.
4. Recursion Pharmaceuticals (RXRX)
Recursion combines automated biology with deep learning to map cellular responses to thousands of compounds. The company has major collaborations with Roche and Bayer and recently merged with Exscientia, bolstering its AI-driven clinical pipeline. It’s a moonshot—but one with real traction.
5. Absci Corp (ABSI)
Absci focuses on protein-based drug discovery using generative AI and synthetic biology. Though early stage, its partnerships with Moderna and NVIDIA suggest strong institutional interest. If AI-native biologics platforms win, Absci could be a breakout name.
6. Relay Therapeutics (RLAY)
Relay uses motion-based simulations to design drugs targeting dynamic proteins—a layer of complexity traditional screening often misses. Its pipeline includes oncology assets in Phase 1/2 trials. Relay is one of the most scientifically ambitious AI-biotech hybrids in the market.
7. Eli Lilly (LLY)
One of the most forward-looking Big Pharma players, Lilly has invested in or partnered with XtalPi, Insitro, Verge Genomics, and OpenAI. These moves aren’t PR plays—they’re structural bets on AI as a core R&D driver. Expect more M&A from Lilly in this space.
8. AstraZeneca (AZN)
AZN has quietly built a formidable internal AI platform and invested in startups building predictive biology tools. It’s also collaborating with BenevolentAI and others. With a robust biologics pipeline, AZN will benefit directly from FDA shifts, especially in mAb-focused programs.
9. Exscientia (EXAI)
Recently merged with Recursion, Exscientia is one of the few companies to bring AI-designed molecules into human clinical trials. Their platform combines molecular design, lab automation, and patient stratification.
10. Atomwise (Private)
Atomwise built a virtual compound screening platform based on deep learning, with a searchable library of over 3 trillion molecules. They’ve partnered with Merck, AbbVie, and others. Likely IPO or acquisition target in the next 12–24 months.
🧭 THE TAKEAWAY
The FDA’s roadmap is not a tech trend—it’s a regulatory restructuring of how modern drug development will function.
Companies at the intersection of AI, biosimulation, and human-relevant testing methods are no longer experimental side bets. They are becoming central to how drugs will be approved and commercialized in the post-animal era.
Today's move across the AI drug discovery space — from Simulations Plus to Recursion and Certara — is substantial and telling. It’s not just a sympathy rally or a one-off headline reaction. This is the market beginning to price in the structural implications of the FDA's regulatory pivot. Still, chasing vertical moves is rarely a good strategy. Many of these names are up double digits on volume expansions, and entering now without a clear setup or risk-defined level can lead to poor reward-to-risk trades.
That said, this momentum could mark the start of a major rerating in these names. If the strength continues and we get a proper consolidation or pullback, it could offer an excellent risk-adjusted entry. These aren’t just “story stocks” anymore — the regulatory tailwinds are real. So while we don’t chase, we do stay ready. Because when the market gives us a second shot with better risk controls, we want to be positioned without hesitation.
Stay grounded. Stay informed. Stay Bullish
—NS