Exscientia’s lucrative entry onto the Nasdaq last week demonstrated investors are still excited by efforts to use artificial intelligence to fuel drug discovery, with global tech investors often taking the lead.
The Oxford, UK-based company Exscientia has one of the most mature artificial intelligence (AI)-focused drug discovery pipelines, alongside companies like BenevolentAI in the UK, as well as Aria Pharmaceuticals and Atomwise in the US.
In May this year, Exscientia entered phase I trials with a small molecule for psychotic symptoms resulting from Alzheimer’s disease. This drug, co-developed with the Japanese firm Sumitomo Dainippon Pharma, is the third program identified by the company to enter human testing. Another drug developed by Exscientia and Sumitomo Dainippon went to clinical trials last year for the treatment of obsessive-compulsive disorder and a cancer immunotherapy developed with the German company Evotec began phase I testing in April.
Exscientia’s total winnings from the Nasdaq initial public offering (IPO) and a private placement led by the tech-focused investor SoftBank were an impressive €442.1M ($510.4M). This took the company’s valuation to €2.5B ($2.9B).
In May this year, the firm raised €435M ($525M) in the largest single venture capital raise for any company in the AI-assisted drug discovery space. Over the last few months, Exscientia has been using the cash to scale up its technology, expand its workforce, and build automated laboratory facilities in Oxford.
Tech venture capital investors have been branching out into the biotech sphere for years to back companies tapping AI, an umbrella term generally referring to self-adaptive machine learning algorithms for data analysis.
Drug discovery in particular has been a big draw, with startups eager to show they can adopt techniques from other sectors to accelerate, improve, and lower costs over traditional approaches. This has especially been the case during the pandemic, where AI-driven drug discovery companies have had the chance to prove the worth of their strategies against Covid-19 by taking years off the process of drug discovery.
Companies tapping AI for drug discovery worldwide are set to break funding records this year; they have collectively raised €1.8B ($2.1B) in the first half of 2021 alone. But only a minority of the 10 biggest venture financing rounds for AI-drug discovery companies since 2018 had a biotech-focused investor leading the round.
The top rounds are also dominated by fundraisers in North America, with only Exscientia and BenevolentAI in Europe and Insilico Medicine in Asia.
While several companies have drug candidates identified using AI in human testing, BenevolentAI is unique in having clinical results supporting its AI-guided drug discovery approach.
BenevolentAI’s achievement stems from its prediction in February 2020 that Eli Lilly & Co’s approved rheumatoid arthritis drug Olumiant (baricitinib) would be effective in treating Covid-19. The US FDA granted Lilly an emergency use authorization for the therapy in November following promising phase III data in hospitalized Covid-19 patients. Although the drug failed to meet the trial’s primary endpoint — reducing the risk of the disease worsening — there was a significant reduction in mortality from any cause.
Repurposing old drugs or chasing validated targets is just the first step for these companies. David Grainger, a co-founder and Chief Scientific Advisor at venture capital firm Medicxi, says AI is already well established in small molecule discovery for known targets, where it has been making substantial contributions for 20 years. The big bet comes in developing AI approaches for identifying new drug targets. “That’s the only question in modern drug discovery that isn’t commoditized,” says Grainger.
It’s tricky, Grainger adds, because confirmation of a novel target hypothesis via clinical trials can take a decade – something lost in the hype from tech investors. AI approaches may indeed continue to improve discovery, but Medicxi has not been convinced by any company with AI discovery platforms as a core competency. “My guess is, they will be incrementally better – not a revolution,” says Grainger.
Some traditional biotech backers have not had the same hesitation. For example, Blackrock joined Exscientia’s €82.8M ($100M) Series C round in March this year, as well as a €101.9M ($123M) Series B for Cellarity (a Flagship Pioneering startup) in February. And in May last year, OrbiMed co-led a €87.0M ($105M) Series B for Canada-based AbCellera, months before the company raised €458.7M ($555.5M) in an IPO in December.
While conventional biotech investors know what they’re getting into, Grainger thinks tech investors have looked at the space and come away with the mistaken impression that AI approaches successful in other industries can be plugged into drug discovery. “I’m a critic of the unthinking hype,” he says.
Exscientia’s CFO, Ben Taylor, says new approaches are needed to improve on biopharma’s 95% failure rate, and tech investors are not jumping in blind. “Some of the most in-depth and insightful biotech questions [we’ve gotten] actually came out of firms who were traditionally considered tech investors,” he says.
In addition, although the convergence of technologies has expanded the understanding among biotech investors in recent years, Exscientia was looking for a balance of specialists and long-term backers. “It was important to bring in investors who not only shared our vision, but also had the ability to support us for many years while we executed on our plan,” says Taylor.
Softbank, which led Exscientia’s private placement last week in addition to its mega-round in May, is one of the most prominent tech investors to delve into AI drug discovery, alongside Atomico, B Capital Group, The Chartered Group, Bulba Ventures, Drive Capital, and Koch Disruptive Technologies. It led or participated in other major rounds in the space including XtalPi, insitro, Relay Therapeutics, and Deep Genomics — all in North America. Nonetheless, SoftBank’s recent focus on Exscientia could bode well for other European players – few of which have announced major venture rounds to date.