AI drug development startups raised $2.1B in 1st half of 2021

By Ulrik Kristensen, PhD, The Science Advisory Board contributing writer

July 19, 2021 -- The market for artificial intelligence (AI) in drug development and discovery has been red-hot in recent years. The potential impact that AI can offer to human health and pharmaceutical development has grown in concert with the enabling technologies in computer processing and digitization, as well as new breakthroughs in machine-learning research.

A new analysis from Emersion Insights details the progress the industry has made in the first half of 2021.

What has happened in the industry this year?

As the confidence in AI for drug development grows, new partnerships between AI specialists and pharmaceutical companies are announced daily. This year has already offered major headlines about new collaborations and milestones from existing partnerships. Here is a selection of main developments during the first half of 2021:

  • AbCellera and Gilead Sciences announced a new multitarget antibody discovery collaboration building on their previous infectious disease partnership from 2019. AbCellera is now starting to reap the fruits of its labor, as its successful antibody discovery programs earned the company $203 million in revenue in the first quarter of this year, including $178 million in milestones and royalties.
  • Gilead Sciences also announced a very interesting partnership during the first half of 2021, this time with Gritstone Oncology to create a vaccine-based immunotherapy as a cure for HIV. Under the terms of the deal, Gilead is paying Gritstone $30 million upfront and a $30 million equity investment, and potentially an additional $725 million in regulatory and commercial milestones and royalties on net sales.
  • BenevolentAI and AstraZeneca have been collaborating closely since 2019 to use AI and machine learning for the discovery and development of new treatments for chronic kidney disease (CKD) and idiopathic pulmonary fibrosis (IPF). In January, AstraZeneca announced it has selected a novel CKD target to advance to its drug development portfolio, making it the first AI-generated target from the collaboration to enter the company's portfolio.
  • Another major announcement this year came from Exscientia, which initiated a multitarget, AI-driven drug discovery collaboration with Bristol Myers Squibb. The agreement included up to $50 million in upfront payments; up to $125 million in near to midterm potential milestones; and additional clinical, regulatory, and commercial payments that take the potential value of the deal beyond $1.2 billion.
  • CytoReason, an Israeli company developing a computational model of the human body for faster drug discovery and development, announced a collaboration with Ferring Pharmaceuticals, which aims to establish new treatment options for patients with inflammatory bowel disease. CytoReason's approach to expedite clinical and preclinical drug development programs is already in use by some of the largest pharmaceutical companies, including Pfizer, Sanofi, and Roche.
  • Insilico Medicine discovered a novel preclinical candidate addressing IPF. Often found implicated in a wide range of diseases and multiple organs -- such as the lung, liver, and kidney -- IPF addresses a broad medical need that affects hundreds of thousands of individuals worldwide.

Investors remain bullish in 2021

2020 was a fantastic year for funding in AI drug development. Although the number of funding rounds peaked in 2018 and has been decreasing since then, the total annual investment value reached new heights in 2020. In fact, the average funding size increased from $10.7 million in 2015 to $51.7 million in 2020.

Investment rounds are becoming fewer, but bigger, and the high levels of investment activity we saw last year continued into the first half of 2021. During the first half of 2021, the investment value has already reached $2.1 billion, or 71% of last year's total value.

Some of the major series A and B fundings this year included Cellarity ($123 million), Dyno Therapeutics ($100 million), Enveda Biosciences ($51 million), Engine Biosciences ($43 million), and BigHat Biosciences ($19 million).

Series C and D funding rounds in the AI drug development industry are on average 3.5 times bigger than series A and B funding rounds. Series C and D fundings therefore contribute significantly to the total investment value in the industry. Some of the most prominent series C and D funding rounds in the first half of 2021 included Insitro ($400 million), Insilico Medicine ($255 million), and Exscientia ($100 million). Exscientia's series C was followed by a series D, with an additional $225 million and access to a further $300 million at their discretion.

With a total of $11.8 billion funding in the industry and $2.1 billion invested already this year, 2021 is well underway to become a landmark year for AI in drug development. The investments can be categorized into three areas: insight engines, drug design, and clinical trials.

Chart showing AI in the drug development market broken down by insight engines, drug design, and clinical trials

Insight engines are AI platforms that aggregate and analyze information and real-world evidence from multiple sources, such as scientific literature, patient data, and clinical trial information, to find new associations and guide drug discovery or clinical trial optimization. Some of the insight engine vendors funded this year include Aetion, Cellarity, Causaly, and Elucidata.

Drug design applications are using AI to develop new molecules, predict and optimize drug specificity and efficacy, or select drug repurposing options for existing drugs. Some of the drug design vendors funded this year include Insitro, Exscientia, and Insilico Medicine.

Clinical trial applications help optimize the clinical trial process by improving patient stratification with finer nuances to get the right patients for the right trials. They also optimize enrollment and retention and, in some cases, help reduce the number of patients needed for a successful trial. Some of the vendors funded this year include Medable, Mendel.ai, and Novadiscovery.

What can we expect from the rest of 2021?

This year already offered a glimpse of what's coming next, as significant strategic developments occurred in the first six months. Initial public offerings (IPOs), acquisitions, and technology partnerships between AI specialists were all represented.

Although only a few startups in this industry have gone public, IPOs are occasionally announced. This year, Adagene closed an IPO raising $161 million in gross proceeds, and the Danish AI-immunology company Evaxion Biotech raised $30 million on its IPO on Nasdaq.

Ulrik Kristensen, PhD
Ulrik Kristensen, PhD.

In the coming years, we will likely see the leading AI specialists acquire smaller players to strengthen their overall offering as part of a long-term contract research organization (CRO) strategy. The intent is to become best-of-breed partners to the pharmaceutical industry in a specific area, and then gradually broaden their scope and capabilities to become preferred industry partners across multiple areas. At this point, only a few companies have the scale to apply this strategy.

During the last six months, Exscientia acquired personalized medicine AI company Allcyte, and Relay Therapeutics acquired ZebiAI in an $85 million acquisition. Also, PrecisionLife announced that it had acquired its long-term technology development partner GenoKey, continuing its expansion as an AI-enabled precision medicine company.

A couple of development partnerships between AI specialists were also announced in the last six months. Cyclica established partnerships with PrecisionLife and South Korean Oncocross, and Qiagen, in the AI world best known for its ingenuity pathway analysis and digital insights portfolio, formed a partnership with GNS Healthcare.

As the industry matures, we can expect to see more series C, D, and E funding rounds being announced in the next six months, likely making this year's total investment value exceed last year's record. Further development partnerships between AI specialists will be established, and some of the already existing partnerships will result in mergers and acquisitions as the consolidation in the industry continues.

Acquisitions by big pharma will most likely remain relatively sparse in the short term; however, in the coming months, we may see further acquisitions by large drug discovery CROs and AI specialists going for a long-term CRO strategy.

Ulrik Kristensen, PhD, is founder and principal analyst at Emersion Insights.

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