Deal focus: XtalPi takes big pharma into the cloud

The average cost of taking a drug from molecule to marketing approval is just under $2.6 billion, according to the Tufts Center for the Study of Drug Development. The process is also fraught with risk and characterized by frequent failure. When starting it out, it is impossible to know exactly how the key properties of a treatment – stability, toxicity, and solubility – may vary later on in development.

XtalPi, which was established by a group of Chinese scientists at the Massachusetts Institute of Technology (MIT) in 2014, believes it can empower drug developers to act with greater conviction. The start-up's technology provides accurate predictions regarding the physiochemical and pharmaceutical properties of small-molecule drugs, offering insights into how treatments are likely to evolve. It means product pipelines can be tailored and costs minimized.

"Drug development is so expensive, it takes so much time, it's very manual, and it requires a lot of testing. Companies are very much in need of new tools and faster iteration processes," says Olivia Wang, who heads up cross-border investment at ZhenFund. "That's a theme I have been investing in across the board in the US and China."

ZhenFund participated alongside FreesFund in XtalPi's pre-Series A round and then re-upped when Tencent Holdings led a Series A in late 2015. This was followed by two quick-fire Series B tranches: one in January when Sequoia Capital China led a $15 million investment that also featured Google and Tencent; and another last week, when China Life Insurance was the main contributor to a $46 million commitment alongside SIG and Yael Capital.

The XtalPi team's core offering is an algorithm that predicts the crystal structure of drugs. This is woven into a cloud-based platform that utilizes quantum physics, computational chemistry and artificial intelligence (AI) to give not only predictions but also computer-aided rational drug design, whereby structures can be tailored to come up with the optimal combination of properties.

The new capital will go towards upgrading XtalPi's technology and cloud capabilities as well as introducing new applications to the platform. The latter initiative dovetails with a research partnership with Pfizer that will build upon crystal structure prediction technology and create other AI-enabled tools for drug discovery and development. "Based on our interaction with pharma partners, we know our technology can have a much wider application," says a company spokesperson.

Wang notes that a lot of seed-stage companies have emerged in the AI for drug discovery space over the last couple of years. XtalPi's advantage is not just its head-start on the rest of the field, which has enabled the business to recruit a large and talented interdisciplinary team. It is also manifested in the breadth of technology the company has at its disposal.

"A lot of companies just try one technology to help pharma companies do drug discovery, for example, AI and machine learning," Wang adds. "XtalPi also has a strong engineering team leveraging really good hardware, software and 3D modeling and an understanding of chemistry and technology."

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• Topics
• Greater China
• North America
• Healthcare
• Early-stage
• Technology
• China
• Pharmaceuticals
• Sequoia Capital
• ZhenFund
• Frees Fund
• Susquehanna Asia Investment
• China Life
• Tencent