While the majority of artificial intelligence-driven pharmaceutical firms concentrate their efforts on drug discovery, the biotech startup Formation Bio is wagering that clinical trials represent the true operational hurdle. Backed by a newly established $600 million fund designed to acquire or license stalled pharmaceutical assets, the company is positioning itself to validate this core thesis.

Ben Liu, cofounder and chief executive officer of Formation Bio, maintains a distinct perspective on the intersection of artificial intelligence and pharmacology. While identifying novel compounds attracts significant attention, the protracted, rigorous, and financially burdensome phase of clinical development accounts for the majority of drug attrition—and represents the arena where artificial intelligence can deliver the greatest impact. Liu has successfully organized a $600 million investment vehicle to test this proposition.

“There are increasingly more good discovered drugs, and the fundamental bottleneck is how do you show they work in the clinic. What this allows us to do is to take more shots,” Liu remarked.

Through this newly minted fund, management aims to secure between 10 and 15 compounds over the next three to five years, leveraging machine learning to expedite their progression through clinical evaluations. Given that a single day of delay in clinical testing can incur millions of dollars in costs, efficiency offers a major strategic advantage. Financial backers of the initiative comprise research foundations, academic endowments, healthcare institutions, and philanthropic organizations.

“Our thesis is that you are going to have a logjam of beautifully designed drugs, and you’re not going to know if they work for diseases until they go through the trials,” Liu noted.

Liu and cofounder Linhao Zhang launched the enterprise, originally operating under the moniker Trialspark, back in 2016. Since inception, the venture has secured a cumulative $615 million from prominent backers including Andreessen Horowitz, Sequoia Capital, Thrive Capital, Kleiner Perkins chairman John Doerr, and OpenAI leader Sam Altman, achieving a valuation of $1.8 billion.

The organization primarily targets candidates that have not yet advanced past phase 2 trials. Although these early-stage evaluations carry a heightened risk of failure, they also offer substantial upside potential if optimized via machine learning. Even prior to establishing this dedicated fund, the firm had already acquired or licensed five promising candidates, encompassing an osteoarthritis treatment for knees and a therapeutic agent targeting ulcerative colitis.

Expanding the Pipeline and Leadership

Designated as the Formation Bio Drug Development Accelerator Fund, the new financial vehicle has already secured licensing agreements for two therapeutic candidates, though management has chosen to keep their identities confidential. The organization is actively evaluating opportunities spanning muscle and bone preservation, ophthalmology, as well as neurological and psychiatric conditions. Liu expressed particular enthusiasm for upcoming therapies carrying preventive wellness properties capable of enhancing overall human vitality rather than merely prolonging lifespan.

In July, Formation Bio recruited Michael Ehlers to serve as chief scientific officer and head of research and development. Ehlers previously held roles as executive vice president of research and development at Biogen, entrepreneur partner at biotech investor MPM Impact, and chief scientific officer for neuroscience at Pfizer. Over the course of his professional tenure, Ehlers successfully steered six medications through regulatory approval and advanced 40 clinical programs.

By establishing an off-balance-sheet investment vehicle rather than deploying corporate reserves directly, Formation Bio achieves a more cost-effective capital structure without inducing equity dilution, according to Liu. While the company has contributed its own capital to the fund—with the exact figure remaining undisclosed—it will also act as the general partner, entitling it to a portion of the investment returns. The operational architecture is purposely structured: an independent corporate entity is established for every individual drug, enabling the original developer, the fund backers, and Formation Bio to all share in the financial upside if the therapy succeeds and undergoes ultimate commercialization, licensing, or sale.

Liu envisions this $600 million fund as the inaugural member of a broader series of investment instruments. “We think it’s a unique structure that’s going to be really important as AI transforms drug discovery. There’s not only going to be a clinical bottleneck, but a capital bottleneck,” he stated.

Industry Developments: Research Models, Oncology, and M&A

Beyond artificial intelligence applications, the broader pharmaceutical landscape continues to navigate complex logistical challenges. The supply chain for research primates—essential for evaluating complex biologics due to close genetic alignment with humans—has experienced severe disruption since China halted exports in 2020. Addressing this shortage, billionaire Palantir cofounder Joe Lonsdale’s venture firm 8VC deployed $20 million into Safer Human Medicine, contributing to a total funding round of $28 million.

Simultaneously, oncology collaborations are demonstrating notable clinical progress. Major pharmaceutical players Merck and Moderna reported encouraging data from their collaborative melanoma cancer vaccine, indicating that patients who received the treatment post-surgery experienced a 42% reduction in tumor recurrence risk.

In the biotechnology M&A sector, fertility startup Gameto—whose ovarian cell technology originated within the laboratory of renowned Harvard researcher George Church—finalized an acquisition agreement with European pharmaceutical leader Ferring Pharmaceuticals valued at up to $1.4 billion. Additionally, an experimental ovarian cancer therapy developed by Danish biotech firm Genmab demonstrated a 57% reduction in mortality risk and a 71% decrease in disease progression compared to standard chemotherapy in advanced patient cohorts.