The company is looking to raise its Series A to fund the trial, an expensive endeavor that will likely take years to prove to the it’s superior to other drugs currently on the market. Only around 25% of drugs make it past phase 3.��

“I think the hardest part of this is being a small company,” said , CEO of RSF Bio, as the company is also known. “Doing a phase 3 really makes you a bigger company just with the amount of money you have to raise. It is what it is.”

Pharma companies usually partner with startups to drive them through clinical trials, but large pharmaceutical organizations have been laying low since the funding downturn. In 2022, merger and acquisition activity in the space was the lowest it had been since 2013, according to . Partnerships, through which pharmaceutical companies fund the development of drugs and commercialize them themselves, was the lowest it had been since 2018. , funding in 2022 was as low as it was in 2020.

“In the downturn, we have a situation where a lot of people would be happy to partner around whatever assets or platforms they have,” said , CEO of . “Beggars can’t be choosers.”

The lack of activity has only strengthened Big Pharma’s place in the biotech ecosystem, and is creating waves across the delicate innovation pipeline. Without being able to scrounge up venture funding or develop strong partnerships, startups are stagnant.

“Without a shadow of a doubt, these are testing times for nurturing and fast-tracking innovation in the sector,” said from consulting firm .��

Startups’ relationship with Big Pharma

It is, in a sense, somewhat surprising that partnership and acquisition activity has been so low. Without large research and development arms themselves, large pharma companies rely on smaller startups to discover and develop new drugs, which they later buy to commercialize, market and patent.

“The biotech companies are bringing innovative assets, which pharmaceutical companies need,” said Mike Ward, an analyst at Clarivate. “For pharmaceutical companies, it’s important that the biotech companies are robust and are going to be around.”

As drug patents expire to make way for generics, pharma companies are constantly on the hunt for new assets to make them money. But funding pharmaceuticals is an expensive and risky business.��

Pharma companies often partner with startups early to develop drugs created out of an already-tested platform, but that comes with regulatory and development risks. They might otherwise acquire those de-risked drugs late in the process at a higher cost.

Last year, Orna Therapeutics announced a partnership with . Merck paid the company $150 million upfront and could pay up to an additional $3.5 billion if Orna successfully develops a handful of vaccines and therapeutics. Xanax, the EpiPen and Concerta have all been developed through a web of partnerships and Big Pharma acquisitions.

Berholtz has talked to large pharma companies before. But by entering phase 3, the company’s drug is more valuable than it has ever been, because it’s less risky and more likely to get the stamp of approval from the FDA.��

“We have had some Big Pharma saying, ‘Well, why don’t you de-risk it a little more? And then we know there’s going to be a New Drug Application, then come and talk to us,’” Berholtz said. “Because Big Pharma has the commercialization, sales and marketing teams.”

Who gets Big Pharma partnerships?

RSF Bio is in what Young calls “no man’s land” in biotech — that phase in a drug’s lifecycle where the startup often has to front the cost of developing the drug and pushing it through regulatory approval at little risk to the pharma company that acquires it.��

“[Pharma companies] have bifurcated, either very early or incredibly, incredibly late,” Young said. “And that’s kind of created this gulf in the middle. …This is where a lot of promising assets, with their associated risks, go to die.”

It’s not easy to scrounge up a partnership deal with Big Pharma. Many of these companies are struggling in the public markets, so they’re focused on very specific, bread-and-butter pipeline drugs that leave a lot of innovative companies out of their scope.��

“When the deals get done, it’s more of a window into what the pharma is thinking,” said Barnes. “It’s less of a marker for how persuasive the biotech has been in persuading them to do something.”

Midsize to small pharma companies are also suffering on the public markets, and their lower market capitalizations make it harder to fund biotech innovation through partnerships.

“The public markets are closed and the private markets are tough,” Berholtz said. “I would think that the dynamic in that collaborative process has shifted in favor of the pharma companies.”

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The San Francisco-based company is throwing its hat into the ring to tackle autoimmune and inflammatory diseases, a broad category of disease for which current treatments don’t fix in full. Most drugs targeted at autoimmune and inflammatory diseases weaken the immune system, which makes patients more at risk of developing infection.

Human Immunology Biosciences is targeting cells like plasma and mast cells that make up the immune system. The startup currently has two drug candidates in its arsenal. One of them, felzartamab, will target plasma cells that are considered the likely drivers of these diseases.��

Precision medicine in biotech

Current autoimmune drugs have two problems: due to their side effects, they can’t be as effective as possible. In order to be as effective as possible, side effects would be severe.��

It’s the problem most drugs face, and that issue has propelled the targeted therapy movement in precision medicine we’ve seen in the last few years. The goal is to create drugs that better target the precise location of the disease and leave the rest of the body relatively untouched.��

Targeted therapies have been popular among cancer startups as a way of killing cancer cells without washing the whole body with radiation or chemotherapy.��

Thanks to advancements in genomics and data collection, precision medicine has taken off in the biotech world. Per Crunchbase data, more than $2 billion has been pumped into drug startups tackling the immune system in 2022 alone. The majority of these companies, like and , are creating targeted therapies.��

On top of its clinical assets, Human Immunology Biosciences is armed with a “toolkit” to identify precise targets in the human body for drugs to swim to. The process involves parsing through genetic biomarkers and using computational data to create these new drugs.��

Artificial intelligence is driving a lot of the innovation in precision medicine. Leveraging a slew of data points, AI can look for more precise targets in the body, allowing scientists to create tailored drugs for each patient’s needs.��

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Biotech upstart announced on Thursday it raised $275 million through equity from previous investors and debt financing from . The company has raised over $1.3 billion, per Crunchbase.�� 

This is a pretty big raise, and for good reason: The Tempus technology targets three niches undergoing the biggest change in data-focused care right now: drug discovery, clinical trials and diagnostics.

Chicago-based Tempus specializes in artificial intelligence and precision medicine for a slew of different use cases. Using AI, the platform can help doctors understand disease progression and what is driving the disease. It can also find the proper patients for a clinical trial. Through genomic sequencing, the platform can analyze patient health at the granular level, enabling physicians to understand why a patient has a disease.��

Earlier this week, Tempus nabbed $70 million from to use their patient data to improve speed and efficiency in clinical trials. The three-year partnership is expected to help GSK enroll new patients and find new drug targets.

Why does this matter?

Decades of research advocating for more precise data collection is now becoming a reality thanks to advances in genomics, AI and computational engineering. Together, they are driving the largest overhaul to the expensive and failure-prone drugmaking and health system.��

We’ve talked extensively about AI in drug discovery and how it’s being used to find new targets in the body for drugs to “stick” to. It’s a booming space—earlier this month saw several funding rounds in this space: raised $125 million to look for cancer targets. raised $121 million to search for novel targets through cell observation. raised $40 million to look for biological patterns that may lead to target identification.��

Then there’s clinical trials, to continue running while remote. Finding patients for clinical trials is difficult because a drug may require a patient with a specific kind of cancer at a specific stage, and the patient has to be within a specific age range to participate. Patient data is being leveraged to find more patients that fit a specific niche to undergo clinical trials and procure more accurate data on drugs’ safety and efficacy.��

Lastly, we have diagnostics. Most technology can’t separate a benign cell from a cancerous cell until much further down the line, but thanks to genomics and artificial intelligence, data is being used to find diseases at an earlier stage. This has the potential to save the health care system billions of dollars, ease demand for health care services at a time when hospitals and clinics are overwhelmed, and look for new targets in disease management. Digital Diagnostics raised $75 million in August as part of a new wave of startups entering the diagnostics space.��

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This story has been updated to reflect how the platform is used.

But the process isn’t something that most people know much about, which makes it hard for the average reader to understand, critique and analyze advancements in the startup space.

Drug development is a slow, capital-intensive process. It takes around 10 years and a billion dollars to get a single drug to market, while 90% fail in the process of trying to reach that goal.

It would be far less risky to invest in almost any other kind of technology. However, over $70 billion has poured into the space so far this year alone (per Crunchbase data).

This is all in the pursuit of creating drugs that, in some cases, .��

But it can be hard to understand or critique the technological advancements we’re seeing in drug development if you don’t know how the process works to begin with. So let’s talk about what’s driving billions of dollars in the most risky startup sector in the world.

Drug discovery

The drug discovery process often begins in a university lab, where scientists are nose-deep in petri dishes looking for new strategies to get a drug into the body and test some of the infinite molecular compounds to see which ones could create a breakthrough drug.

Most of this research is powered via the , a taxpayer-funded organization that contributes to .

After a discovery, the university may choose to spin out a startup helmed by the leading researchers who are thrust, often for the first time, into the world of private enterprise where they look to raise their first round of funding.��

Interest in drug discovery has increased since 2017, according to Crunchbase data. Around $1.6 billion has poured into the startup space so far this year, especially as the pharmaceutical industry tries to look for new targets—new parts of the cell for drugs to stick to.��

Artificial intelligence is driving a lot of that startup growth. Leveraging a class of data collection technology that emerged with genomics becoming widespread, AI has the ability to look for new targets and simulate clinical trials, potentially reducing risk in drug investment.

Preclinical trials

Once a startup identifies a handful of compounds that have the best chance of being effective, it moves into testing these compounds in labs and animals.��

During this time, startups are doing IND-enabling studies, which is a formal request to the Food and Drug Administration to start dosing humans. This might also be the time a startup applies for an Orphan Drug or Breakthrough Therapy designation which are given to therapeutics aiming to address a large unmet need in the medical market to fast-track the process.��

Preclinical trials are a necessary step to set dosing requirements and make sure drugs are safe before they enter humans. But they’re also extremely time-intensive for data that isn’t always accurate—petri dishes and animals aren’t the same as people.��

Enter the organ-on-a-chip, a budding class of startups that construct a downsized version of a human liver, mimicking the environment of that organ. One of the largest studies on organ-chips found that , a feat that could prevent death and permanent complications in human clinical trials.��

While still in its early stages, organ-chip startups like and could cut costs and give drugs a better chance of making it through clinical trials. Since 2009, startups in this space have raised around $75 million, according to Crunchbase

This is also around the time startups begin raising early series funding, which is almost exclusively predicated on companies having strong research.��

Clinical trials

Also called the Valley of Death, clinical trials are where most drugs meet their fate.

The time-consuming and expensive process got a much-needed makeover during the pandemic when COVID-19 shuttered clinical trial sites. Participating requires people to travel to clinical trial sites, often during work hours, for years at a time. Patients will drop out part way through studies . If we don’t know how a drug may affect people with different lifestyles, dietary habits and sleep schedules, we can’t truly understand its safety.��

For the first time, pharma companies could conduct clinical trials remotely using a slew of new technology that exploded onto the scene in 2021. Between 2020 and 2021, funding in the space went from $968 million to over $2 billion, according to Crunchbase data, as it became clear remote clinical trials were here to stay. They were by and large more effective, but it will take years before we understand the full scope of the impact.��

Other startups, like , help to find the right patients to join clinical trials. If your drug is meant to treat a specific kind of cancer at a specific stage of the cancer and requires qualifications, it’s difficult to comb through tens of thousands of patients to make sure they’re the right fit for a human study.

FDA review

The FDA approves most drugs based on three criteria: if it’s safe, if it’s effective and if it’s better than something that already exists. Sometimes the FDA will ask for additional studies to be conducted, and will continue monitoring the drug when it’s on the market.��

Many of us take tiny little pills every day without knowing the intense risk that comes with taking them. Advancements in drug development may not sound as cool as consumer-focused technology, but they’re necessary to create drugs that are actually safe, and to do so as quickly as possible.��

Over time, we’ve found the answers to diseases that were previously considered incurable. What’s next?

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Health care-focused led the round with participation from . Altogether, Pleno has raised $55 million in funding, per Crunchbase data.

Pleno’s platform parses through different patterns in biologic information, whether it be the cell, DNA and RNA, or tissue. Using those patterns, it can identify targets for drug development or diagnoses. For example, COVID-19 antibody diagnostics tests often look for the spike protein in the virus, which makes the virus look different from anything else in the body.

“Genotyping and sequencing have enhanced our understanding of the molecular drivers of disease and its response to treatment, particularly in oncology,” said , managing director at Foresite Capital. “Yet the cost and increasing complexity of these centralized measurements cause health care disparities.”

Finding the cure

Indeed, the lack of available targets in diseases has brought drug making to a standstill. Most pharmaceutical companies are working to create drugs based on targets discovered years ago, often by accident, that haven’t quite worked out. And there are still diseases for which we don’t know of any targets, making it impossible to treat them.��

Pleno leverages the “omics,” a broad range of biological sciences such as genomics, transcriptomics, proteomics or metabolomics. These fields of studies are treasure troves of data, and this data can be tapped to reveal patterns in diseases at earlier stages so they may be detectable and treatable earlier. Thanks to the broad application of genomics, data collection in the biotech space has exploded—between 2017 and 2018, funding in data-focused drug discovery startups increased 190%.��

Artificial intelligence also is playing a big role in this space. Leveraging data and machine learning, AI platforms can scan for these patterns and pluck out targets scientists can then use as their North Star for a drug to attack.

“There’s so many undruggable targets, it’s crazy,” said , a biotech investor and managing general partner at . “It’s over 90% of targets that are undruggable, and through AI maybe we’ll be able to figure out how to actually drug them and how to actually treat them.”

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Very little about drug development is efficient. The failure rate for drugs making their way to commercialization is 90%, after which more than around $1 billion and 10 years is sunk into each one on average.

But technological advancements in data collection are propelling artificial intelligence in drug discovery, which may unlock the ability to find cures for diseases that evaded the scientific community for centuries.��

So far this year, startups in drug discovery raised more than $1.4 billion, according to Crunchbase data.

One of these startupsthem is , an AI drug discovery platform founded by Jacob and in 2018.

“There are thousands of problems sitting out there that we don’t know the answer for. Thousands and thousands,” said Berlin. “So having a platform that lets us go faster, be precise and scale can really transform the opportunities in front of us.”

How drug discovery currently works

Current processes of drug discovery are long and tedious. Scientists in academia or pharma make molecules. They look for “targets” (like proteins) the molecule can swim to in the body and deliver therapy.��

To do that, scientists need to make sure the molecule doesn’t mistake a healthy protein for a target, otherwise a drug swimming around in the body may attach to and kill a healthy cell—amounting to poison. Once scientiststhey get a target, it’s taken out of the body and tested against molecules in the lab to see what will stick.��

But as clinical trials continue, several of those drugs fail due to unintended toxicity in the rest of the body, or the drug itself working in the lab but not in humans. With those failures, it sinks millions of dollars and years of research are lost..

“It’s just this huge funnel where stuff can drop out at any point in time,” said , a partner at who invests in health startups. “And I think that the problems are very much at the very, very, very beginning of this process.”

Terray and platforms like it work differently. Terray compares molecules against targets, and the AI assesses what parts of the molecule correlate strongly with the target. Terray can then make new molecules that correlate even more strongly, refining it.��

Through leveraging data, drug discovery platforms can better predict outcomes of drugs at the start of the process. AI matches molecules with targets and simulates how it will work in the body, giving it a better chance of surviving clinical trials and lowering toxicity rates in patients.

“At the end of the day, it’s about innovation and trying to find interesting, novel ways of treating some really unmet medical needs,” said , a biotech investor and managing general partner at .

Pharma bets on early-stage technology

AI drug discovery is still nascent, and will require interdisciplinary knowledge of chemistry, computational engineering, machine learning and biology. Data collection in drug development only became popular in 2017, a shift we see in funding: Between 2017 and 2018, funding increased by 190%.�� 

“The foundational layers in terms of data generation were just not there for a long time,” Choi said. “In the last few years we have not seen the breadth of it. We’re just starting a data revolution.”

Nevertheless, large pharma companies like are betting big on this tech to accelerate the pace of drug development, raising profits and getting medicines into the market faster. Many pharma companies partner with AI drug discovery platforms. For example, Earlier this year, and .��

“The molecules that come out of the drug discovery as a result of AI, there’s only a few in clinical development right now,” Crean said. “It sounds kind of Star Trek-y. Yes, it sounds exciting, but I think we just have to try and manage our expectations.”

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