Key Takeaways
- • Formation Bio raised a $600 million "drug development accelerator" fund, according to Axios, to address the clinical development bottleneck in AI-driven drug discovery.
- • Formation Bio is a biotech startup, not a venture capital firm, but operates a fund structure with itself as general partner (including carried interest) and an LP base composed mostly of university endowments, foundations, and hospitals.
- • The fund will acquire molecules and drug programs, which Formation will then advance through development; each acquired company becomes its own NewCo, with early successes intended for sale to Big Pharma.
- • CEO Ben Liu's stated goal is to build a large pharma company comparable to Eli Lilly or Sanofi, and he says Formation has no plans for another venture round.
- • Formation claims its AI and centralized clinical research model can cut drug development spend by 30% to 50% by reducing CRO margins, which Liu estimates account for nearly half of development costs.
Summary
Formation Bio has raised $600 million for a "drug development accelerator" fund, according to Axios, aimed at addressing what the publication describes as the stubborn bottleneck in AI-enabled drug development. Axios notes that AI has so far been considerably better at discovering drugs than at developing them.
Formation Bio is a biotech startup backed by investors including a16z, Sequoia Capital, and Thrive Capital, and was valued at $1.7 billion when it last raised funding in 2024. Although it is not a venture capital firm, the structure resembles a VC fund: Formation serves as general partner, including carried interest, and its limited partners are largely university endowments, foundations, and hospitals, several of which are also LPs in Formation's venture backers.
The fund will purchase molecules and drug programs that Formation will then help move through development. Each acquired company will become its own NewCo, with early successes to be sold to Big Pharma. CEO Ben Liu described this as a short-term strategy to lower the company's cost of capital, adding that the company has identified a category it plans to hold longer term, which it will disclose in a couple of quarters. Liu says the structure allows Formation to "take more shots on goal" without diluting existing shareholders through additional equity raises, and that his goal is to build a large pharma company on par with Eli Lilly or Sanofi.
Liu argues that Formation's edge lies in using AI and centralization to build a more efficient clinical research organization. He contends that nearly half of drug development costs stem from CRO margins driven by billable hours, and Formation believes it can reduce spend by 30% to 50%. Liu criticized the incentives of CROs, saying manufacturing costs are hard to reduce but redundant headcount, extra site visits, and similar inefficiencies can be cut.
Axios concludes that Formation and other CRO startups may or may not solve the problem, but that the effort is worth pursuing.
Formation Bio is a biotech startup backed by investors including a16z, Sequoia Capital, and Thrive Capital, and was valued at $1.7 billion when it last raised funding in 2024. Although it is not a venture capital firm, the structure resembles a VC fund: Formation serves as general partner, including carried interest, and its limited partners are largely university endowments, foundations, and hospitals, several of which are also LPs in Formation's venture backers.
The fund will purchase molecules and drug programs that Formation will then help move through development. Each acquired company will become its own NewCo, with early successes to be sold to Big Pharma. CEO Ben Liu described this as a short-term strategy to lower the company's cost of capital, adding that the company has identified a category it plans to hold longer term, which it will disclose in a couple of quarters. Liu says the structure allows Formation to "take more shots on goal" without diluting existing shareholders through additional equity raises, and that his goal is to build a large pharma company on par with Eli Lilly or Sanofi.
Liu argues that Formation's edge lies in using AI and centralization to build a more efficient clinical research organization. He contends that nearly half of drug development costs stem from CRO margins driven by billable hours, and Formation believes it can reduce spend by 30% to 50%. Liu criticized the incentives of CROs, saying manufacturing costs are hard to reduce but redundant headcount, extra site visits, and similar inefficiencies can be cut.
Axios concludes that Formation and other CRO startups may or may not solve the problem, but that the effort is worth pursuing.
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