The Sam Altman-backed biotech is creating a new way to finance medicines, targeting the expensive clinical trials that prevent promising treatments from reaching patients.
The pharmaceutical industry has become increasingly good at discovering potential medicines. Getting those medicines through clinical trials remains a far more expensive problem.
Formation Bio, a New York startup backed by investors including Sam Altman, Sequoia Capital and Andreessen Horowitz, has launched a $600 million investment fund to tackle that bottleneck.
The fund will acquire or license drug candidates that have already entered clinical development, then finance their progression through additional trials using Formation's technology and operating teams.
The company plans to acquire between 10 and 15 drug programs over the next three to five years.
Unlike a conventional venture funding round, the $600 million is not new equity capital invested directly into Formation Bio. It represents commitments to a dedicated fund that will finance individual drug development programs.
Investors include research foundations, institutional endowments, hospitals and philanthropic organizations.
Formation will manage the fund through a wholly owned subsidiary and invest some of its own capital alongside those limited partners.
Ben Liu, Formation Bio's co-founder and CEO, encountered the problem while studying computational biology at Oxford.
He had been developing ideas for treatments targeting neurological diseases and approached pharmaceutical companies about pursuing them.
The response was revealing: drug companies already had more candidates than they could afford to develop.
Discovering a promising molecule was not necessarily the hardest part. Financing the trials needed to establish its effectiveness was.
Liu founded the business in 2016 with Linhao Zhang, initially under the name Trialspark.
The company began by developing technology and operational infrastructure to make clinical trials more efficient.
It later shifted toward acquiring drug programs itself, taking responsibility for advancing medicines that other companies were not prioritizing.
That model requires substantial capital. Clinical development can involve recruiting hundreds of patients, managing research sites, collecting medical data and satisfying regulatory requirements over several years.
A drug can look promising in an early trial and still fail when tested more extensively.
Formation wants to spread that financial risk across a portfolio of medicines.
The new structure separates individual drug investments from the company's existing shareholders.
Each acquired program will be housed in its own corporate entity, with Formation providing clinical development services, technology and scientific oversight.
That allows investors to participate in the economics of specific medicines without purchasing shares in Formation Bio itself.
The company typically targets Phase 1 and Phase 2 programs, where initial human testing has begun but additional evidence is needed to establish clinical effectiveness.
Its goal is to reach significant clinical milestones within approximately two to four years of acquiring a program, depending on the drug.
If a medicine demonstrates sufficient promise, Formation could partner with a larger pharmaceutical company to continue development and eventually commercialize it.
The model also avoids building a separate administrative organization for every drug.
Instead, multiple programs share Formation's existing teams and technology infrastructure.
Formation is pursuing a different strategy from AI biotechnology companies primarily focused on discovering new molecules.
Its technology is intended to improve the work required after a potential treatment has already been identified.
That includes organizing trial data, developing protocols, supporting patient recruitment and handling regulatory documentation.
The company has also developed AI tools to help automate parts of clinical operations.
In theory, shared infrastructure and AI-assisted workflows could reduce the time and expense of running trials.
But efficiency improvements cannot eliminate the biological uncertainty involved in developing medicines.
A faster clinical trial can determine that a drug doesn't work sooner. It cannot make an ineffective medicine successful.
Formation's challenge is showing that its approach produces meaningful improvements across a portfolio rather than isolated trials.
The company has previously raised approximately $615 million in venture funding and was valued at $1.8 billion, according to Forbes reporting earlier this year.
The new fund gives it access to a separate pool of development capital without requiring another equity financing of comparable size.
That distinction matters as Formation attempts to expand its drug portfolio while managing the enormous financial risks associated with pharmaceutical development.
For investors, the attraction is access to a diversified collection of individual drug programs supported by one development organization.
For Formation, the opportunity is to become a pharmaceutical company that can advance more medicines without rebuilding the infrastructure for every new candidate.
Whether that model produces successful treatments will ultimately depend on the clinical evidence, not the size of the fund.
Sources: Formation Bio announcement · Forbes · The Wall Street Journal