TechBio X Drug Discovery: Developing New Drugs Faster and Cheaper

Progress comes at a steep price in the world of drug development. With a 10-year timeline and an average $2.7 billion investment per drug, the journey from lab to market is daunting. Despite high costs and timelines, less than 10% drugs make it through the rigorous clinical trial process. 

Yet, amidst these challenges, a significant shift occurred when, in 2016, AlphaFold revolutionized the landscape by accurately predicting 3D protein structures from amino acid sequences with AI. This breakthrough provided researchers with new insights, enabling more precise drug design and targeted therapies, ultimately reducing development costs and timelines.

Naturally, as AlphaFold showcased the power of combining technology and biology, a new paradigm emerged: TechBio. This concept refers to the integration of data, cutting edge technologies (e.g. AI) and biology to accelerate R&D. At Speedinvest, we believe TechBio insights can revolutionize every step of the drug development process, from initial discovery to market access.

In partnership with Dealroom.co, our TechBio x Drug Discovery report finds that European TechBio companies have raised $1.2 billion in VC funding in 2023, representing half of the $2.4 billion invested in 2023, mostly due to a decline in late-stage funding. 

We break down the three key takeaways and drivers of the industry below, and dive deep into the numbers and trends in the full report, which you can download here.

Most TechBio investments happen in the first phases of drug discovery. Yet, their efficacy in clinical trials still awaits.

AI has proven its value in the drug discovery phase by reducing timelines and costs, yet it has failed so far to create drugs with higher clinical success rates. While a handful of AI-designed drugs have taken their first steps into human trials, it's too early to gauge their true potential. At the moment, AI-designed drugs share the same struggles as traditional drugs in the later stages of clinical trials. Until AI drug discovery platforms improve clinical success rates, pharma willingness to invest could remain constrained. 

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Despite these setbacks, we're not throwing in the towel at all. We're firm believers that data is at the center. We envision a future where advancements in data complexity, longitudinally and quality will pave the way for AI to overcome this hurdle, ushering in a new era of drug discovery with higher clinical success rates.

A good example of this data revolution is our portfolio company, Orakl Oncology. The company is building one of the largest biobanks of tumor avatars to accelerate cancer research. They do so by combining multiple layers of high-quality clinical patient data from Gustave Roussy with biological data from fresh biopsies to cover the full spectrum of cancer complexity. 

Early-stage VC activity in TechBio remains robust and stable in 2023 with the UK attracting most of it. 

Despite a slight decline in funding in 2023, early-stage activity remains robust, matching pre-2022 peak levels with the United Kingdom emerging as a key geography. In fact, the UK attracts more funding than the rest of Europe combined, closely followed by France. 

The majority of funding historically has been allocated to computational tools for chemistry and genomics. On the other side, biomarker discovery companies have been securing the highest number of funding rounds.

While AI and computational tools hold immense promise, challenges remain, particularly in the last stages of clinical trials. Enhancing trial efficiency and success rates is crucial for saving both time and money in drug discovery. Moreover, compliance and market intelligence tools are gaining attention, offering opportunities for further optimization and efficiency in the process.

2023 was a great year for M&A activity in TechBio. However, public market activity was less exciting. 

Public companies have struggled to maintain investor confidence in a volatile market. Over the past 12 months, several prominent TechBio firms have witnessed significant stock price declines coupled with workforce reductions: 

• Exscientia dropped more than 30% over the past year. 
• Recursion saw its stock decline 8%. 
• AbCellera, an antibody discovery and development company, has seen its stock skid 49% over the past year. In June, however, the company said it was moving ahead with its development plan for its Vancouver headquarters. The new campus will create some 400 jobs. 
• Ginkgo Bioworks, a developer of biological engineering products and services, saw its stock plunge 39% over the past year.

On the positive side, pharma, once hesitant about AI, is now increasingly investing in it to drive innovation in drug discovery. Strategic partnerships between pharmaceutical companies and TechBio startups are on the rise, with companies like Sanofi embracing AI to accelerate R&D efforts. Additionally, acquisitions surged in 2023, indicating a growing interest in innovative technologies and platforms.

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A recent headline-grabbing example comes from Recursion Pharmaceuticals, demonstrating the power of AI-driven methods. In just one week, they managed to analyze a staggering 36 billion chemical compounds for potential drug-target interactions. To put this feat into perspective, using traditional methods, it would have taken an estimated 100,000 years according to the company's calculations.

Not only does TechBio offer the promise of accelerating the development of life-saving treatments, but it also holds the key to addressing longstanding challenges within the pharmaceutical industry. With each breakthrough, we inch closer to a future where patients can benefit from personalized therapies tailored to their needs, delivered faster and more effectively than ever before.

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