For investors not wanting to wait for 100 clinical readouts from "techbio" companies, what are leading indicators about whether ML is making a dent in the biotech space?
This was a question asked during the 'ROI for AI in Healthcare' panel at the TD Cowen conference last week.
I answered it briefly then, but here are a few more thoughts about one place to look.
There could be significant creative destruction in the services strata of biotech, specifically in biologics (first).
Biotech is built on a foundational layer of services companies (CROs, CDMOs, etc). Some are large and general, others are small and specialized. This space has produced some big outcomes.
Money flows from biotechs/pharma companies to these services companies via small upfront cash fees, technical/commercial milestones, and royalties on sales.
This is also a place where new, ML-enabled companies are appearing left and right. Why?
Well, a lot of these companies spun out of academia or large ML research groups at big tech companies. Almost invariably, these groups raised because the founders contributed to key, open-source releases that gained traction across the ecosystem.
These v.1 tools were helpful and generally most successful in the biologics sphere - as with designing or optimizing antibodies, for example.
Quickly, and at an uneven pace, these v.1 models are turning into v.2 and v.3 models, often becoming closed-source in the process. At the same time, many ML-enabled companies in this group are building ancillary models and/or infrastructure.
When you tape together multiple, single-point software solutions into a workflow, you have something that resembles a digitally-enabled service.
Biotech and pharma pay way more for services than they do software. It requires internal talent/bandwidth at biotech to use software effectively, which is a distraction from what biotechs are usually good at. Services are titratable, variable costs and they allow all parties to focus on where they have a unique advantage.
The difference from the old vs. the new guard of biotech service providers (CROs) is that the new ones may have a wildly different cost structure. ML is a force multiplier. You need far, far fewer people to do the same amount of work.
Sure, the models aren't quite there yet or stitched together correctly quite perfectly. But in 12 months? 24 months? Who knows.
With little to no overhead or fixed CapEx outlay, how will the economics change? Will ML-enabled CROs be able to deliver a similar product (e.g., affinity maturation of an antibody) at 10x the speed? Will they be able to hit new targets/problems in a 0-1 sense?
If so, will they keep this margin and become vastly more profitable? How will traditional CROs react?
Sure, these ML-companies will need to acquire data. They'll maybe have a tiny lab in an active loop or they'll partner with a CRO (ironic) to get it. Some may have grand ambitions and others won't.
Traditional CROs also aren't standing still. If data is the rare, valuable thing (and I believe it is), then maybe we'll see these companies transform wholesale and jettison their physical infrastructure over time to resemble more like the ML-enabled players trying to usurp them.
Business transformation like this isn't easy, though. The innovator's dilemma is real with companies that have inertia.
I don't think anyone is exactly sure how this might all play out, but we certainly have opinions and I'm sure you might also. All I do know for sure is that the services industry in the life sciences will look very different in five years, up and down the stack from pre-clinical discovery to clinical development.