Investors double down on AI drug development

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

January 25, 2022 -- Funding for artificial intelligence (AI) in drug development hit $4.1 billion in 2021, a 36% increase from the year before, according to Emersion Insights. The AI drug development industry has gained a lot of attention from investors, venture capital firms, and corporate investment funds in recent years.

AI in drug development market.
Image courtesy of Emersion Insights.

Prior investment activity is now culminating in a total investment in the industry exceeding $13 billion, and many pharmaceutical partnerships are ensuring promising revenues in the coming years.

AI drug designers continue to receive the largest proportion of funding in the AI drug development industry. These applications are using AI to develop new molecules, predict and optimize drug specificity and efficacy, or to select drug repurposing options for existing drugs. Some of the AI drug designers that received funding in 2021 include XtalPi ($400 million), Insitro ($400 million, Exscientia ($265,000), and Insilico Medicine ($255 million).

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 in 2021 include PatSnap ($300 million), iCarbonX ($151 million), Paige ($125 million), Cellarity ($123 million), and Aetion ($110 million).

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, optimize enrollment and retention, and, in some cases, help reduce the number of patients needed for a successful trial. Some of the clinical trial vendors funded in 2021 include Medable ($382 million), PathAI ($165 million), and Athelas ($72 million).

Ulrik Kristensen, PhD
Ulrik Kristensen, PhD.

Although initial funding rounds still exist in the industry, investors are increasingly doubling down on their existing portfolio companies. Already successful and well-funded vendors are now frequently receiving larger proportions of the new funding, indicating an increasing consolidation of investments in the industry. The average funding size jumped from $51 million in 2020 to $79 million in 2021, an increase driven by some very large series C and D funding rounds.

Clinical trial AI solutions also received more funding in 2021. One consequence of the COVID-19 pandemic is that clinical trial speed and efficiency have become favorite topics around the dinner table. The importance of optimizing this crucial step in the drug development process is now widely understood.

And as the technologies to support these processes have gained strength, so, too, has financial support from health and tech investors. The annual funding for clinical trial AI technologies jumped from $255 million in 2020 to $704 million in 2021, while the average funding size in this category increased to $64 million.

Over the next 12 months, we will continue to see massive funding rounds in this industry as it matures. A large proportion of these investments will come from corporate investment funds placing strategic investments in their AI partners.

A few large pharmaceutical deals are expected to reach clinical milestones this year, which will result in sizable milestone payments to AI specialists. Vendors reinvesting these funds in creating multitherapeutic platforms, corresponding to their pharmaceutical partners' product portfolios, will be able to strengthen their competitive position and build on existing partnerships in the pharmaceutical industry.

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

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