With a new $255M megaround in hand, Alex Zhavoronkov has big plans for Insilico. Are they feasible?
If you take Alex Zhavoronkov at his word, it won’t be long until he rules over biotech’s AI drug discovery arena from atop his perch as Insilico CEO.
On the heels of a megaround announced Tuesday morning, the media-savvy exec outlined a vision of the not-so-distant future where AI-focused companies crash and burn akin to the dot-com bubble in the early 2000s. Zhavoronkov likened the current environment to 1998, when there was a glut of biotechs that soaked up capital but proved unable to deliver on their promises, he opined to Endpoints News.
Once that happens, he claims, Insilico will be primed to emerge as the field’s Amazon or Google.
Zhavoronkov has made blustery claims before, though, generating controversy back in 2019 with a paper claiming he “discovered” a drug in just 21 days. And he’s far from alone in seeking to emerge as the winner of the first era of machine learning life science startups: Blue-chip biotech investors such as GV, ARCH and Casdin Capital have thrown hundreds of millions of dollars behind Insitro and Recursion. SoftBank alone recently wrote Exscientia a check for up to $300 million.
First, the nitty gritty of the raise: Zhavoronkov pulled in a huge $255 million Series C for Insilico on Tuesday, by far the biotech’s biggest raise and more than 300% oversubscribed, he said. The funds will be used to push forward Insilico’s slate of 16 preclinical programs, including its lead compound for idiopathic pulmonary fibrosis, which they will try to put in the clinic by the end of 2021.
As he has in the past, Zhavoronkov kept much of the product candidate information — things like drug targets and indications — close to the vest. In addition to the fibrosis lead, he said only that “more than half” of the 16 programs will be in oncology, with Insilico also focusing on metabolic diseases, immunology, CNS and Covid-19.
He declined further comment on whether the raise represents a precursor to an IPO, though he noted given the size and investors involved (Tuesday’s lead is Warburg Pincus, with notable participation from Lilly Asia Ventures, OrbiMed and Deerfield) it would be “logical to assume” Insilico has plans for a potential future exit.
But most of the excitement driving the massive raise, Zhavoronkov says, has been the way Insilico has built out its other services. Whereas biopharmas traditionally prefer to keep their preclinical biology and chemistry work in-house, Insilico has contracted out most of these efforts to about 80 CROs, the chief told Endpoints. It’s allowed for a “frictionless” business model where the biotechs can do many things all at once that bigger companies usually perform sequentially.
“It’s saved a lot of time, a lot of cost, and increased the probability of success,” he told Endpoints. “We don’t have to wait for one experiment to conclude and we can do some in parallel, and if it fails we’ll learn.”
On top of that, Insilico has started selling its software to other pharma companies and opening its discovery platform up for annual subscriptions. Zhavoronkov says he prefers when others can utilize Insilico’s IP because it helps bring more attention to the AI space as a whole while democratizing R&D capabilities.
If one were to indulge Zhavoronkov in his grandeur, he’d describe how “dozens” of companies are already trying to copy how Insilico operates. There have been several instances, he claims, of people attending the biotech’s presentations solely to take pictures of their slide decks. Rather than fret over losing company secrets, Zhavoronkov says this is “a wonderful thing.”
There’s a reckoning coming for the AI space, however, that will likely result in significant consolidation, he says. As investor appetite for the area has heated up, it’s suddenly become much easier to launch a company and raise lots of money, compared to where Insilico was seven years ago when Zhavoronkov got started.
Whereas Insilico struggled to initially drum up cash, nowadays there are people who have “just quit an internet firm and suddenly get $100 million,” he says. It’s only a matter of time before the bubble bursts, he added.
“Some companies just start, get a huge amount of money, and what they start doing is they start hiring, they start inflating the salaries,” Zhavoronkov said. “And that’s a bad thing. At some point in time, it needs to correct. The question here is when, and the question here is when will the less sophisticated investors stop funding this sector.”
Whenever this happens — Zhavoronkov estimates signs will start to appear within the next 12 to 24 months — Insilico is preparing to jump at some of the talents that will end up on other companies’ chopping blocks. If Zhavoronkov has his way, the tendrils he’s laid out will continue to evolve and push into new sectors past just software offerings. In this way, he likens Insilico to Amazon, a company that has its hands in everything.
Whether or not this future comes true remains to be seen. It’s impossible to predict how the market might move or react to any given phenomenon. And despite the company’s prominence in the space, Insilico is still waiting on that first clinical trial.
But Zhavoronkov believes he’s in position to take advantage of whatever might happen.
“If the investors wanted us to just become a pharma company, I imagine I would not still be at the helm of the company,” Zhavoronkov said. “We want to have our AWS, and not just be a bookstore. We’ll have our Prime and Prime Entertainment, we need to branch out and become even bigger to dominate. It cannot just end at the bookstore.”