Some experimental drugs that have shown potential in early research or clinical trials struggle to progress because their developers lack the funding and resources needed for further testing. As such, pharmaceutical companies and biotechnology startups finding the resources and discovering more potential medicines to move drugs through development remains a major challenge.
Formation Bio, an AI-native pharmaceutical company, is looking to address this gap with a new $600 million investment fund dedicated to acquiring and developing clinical-stage drug programmes.
Announced on October 28, the Formation Bio Drug Development Accelerator Fund will finance the acquisition and development of 10 to 15 drug programmes over the next three to five years.
The company plans to combine the fund’s capital with its artificial intelligence (AI) platform, pharmaceutical expertise, and clinical development infrastructure to advance promising medicines through clinical trials.
The fund has attracted capital commitments from research foundations, institutional endowments, hospitals, as well as philanthropic organisations. Formation Bio will also contribute its own capital and serve as the fund’s general partner through a wholly owned subsidiary.
Why Formation Bio Is Investing in Clinical-Stage Drugs
The fund comes as the pharmaceutical industry faces a growing challenge in translating drug discovery into approved treatments.
According to Formation Bio CEO Benjamine Liu, the number of drug candidates discovered over the past decade has doubled, while annual drug approvals have remained relatively flat. This creates a growing gap between the number of potential medicines being identified and the industry’s capacity to develop them.
In a blog post announcing the fund, Liu explained that pharmaceutical companies, AI drug discovery startups, and biotechnology firms often lack the capital, experienced teams, and clinical development resources to advance every promising drug candidate in their pipelines.
This means some drug programmes with potential may remain underdeveloped because their original developers cannot commit the resources required to move them forward.
Formation Bio believes its combination of dedicated funding, AI technology, and pharmaceutical expertise can help address this problem by giving more candidates an opportunity to reach important clinical milestones.
How the $600 Million Fund Will Work
Unlike conventional biotechnology investment funds that primarily invest in companies, Formation Bio’s new fund will take another shape by financing individual drug programmes.
Each programme will be housed in a separate company, commonly referred to as a NewCo. These companies will receive funding to advance their respective drug candidates through clinical development, while relying on Formation Bio’s existing development organisation and operational infrastructure.
This arrangement allows each drug programme to maintain separate financial arrangements without requiring every newly established company to build its own research, clinical operations, and administrative teams.
Formation Bio will also combine its own investment with capital from the fund for each acquired programme. This structure is designed to give the company greater financing flexibility while allowing external investors to participate in the development and potential returns of individual drug assets.
For pharmaceutical and biotechnology companies with promising candidates they cannot independently advance, the arrangement could also provide an opportunity to license their programmes and receive upfront payments, alongside potential future milestone payments and royalties.
In addition, Formation Bio has already licensed two drug candidates through the new fund, although it has not disclosed the identities of the programmes. CEO Benjamine Liu told Forbes that the company is also exploring opportunities in areas including muscle and bone health, ophthalmology, as well as neurological and psychiatric diseases
Formation Bio Targets Phase 1 and Phase 2 Drug Programmes
Formation Bio is primarily focusing on acquiring or licensing Phase 1 and Phase 2 drug candidates from pharmaceutical companies and biotechnology startups.
The company will be prioritizing programmes targeting diseases with substantial unmet medical needs but limited ongoing development activity across the industry. It will also look for candidates with a clear path towards clinical proof of concept.
Depending on the programme, Formation Bio aims to reach major clinical milestones within two to four years of acquisition, especially as its AI systems support different stages of this process, including identifying promising drug candidates, selecting suitable disease indications, designing clinical trials, and improving how development programmes are executed.
Following meaningful clinical progress, Formation Bio also expects to partner successful programmes with pharmaceutical companies for commercialisation or shared commercialisation.
What the Fund Means for Formation Bio’s Growth
For Formation Bio, the $600 million fund provides an additional way to expand its drug portfolio without relying entirely on conventional equity fundraising at the parent-company level.
CEO Benjamine Liu said the structure would allow the company to pursue more promising medicines, create additional opportunities for investors, and potentially lower its cost of capital over time.
The company also sees the fund as part of its broader ambition to build an AI-native pharmaceutical business capable of developing more medicines efficiently.
However, the success of this approach will depend on whether Formation Bio can identify promising drug candidates and move them through clinical development.
