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Brendan Frey says the predictive power of algorithms are key to how Deep Genomics will serve its clients.Matthew Sherwood/The Globe and Mail

The Canada Pension Plan Investment Board is backing one of the largest financings by a Canadian artificial intelligence company, its second investment in the country’s biotechnology space.

Deep Genomics, led by University of Toronto biomedical engineering professor Brendan Frey, said on Tuesday it had raised US$180-million led by Softbank’s Vision Fund 2 to bankroll its efforts to discover and develop drugs using AI. In addition to CPPIB, Fidelity Management and Research Co. LLC, plus past Deep Genomics investors True Ventures, Amplitude Ventures, Khosla Ventures and Magnetic Ventures backed the deal.

AI startup Deep Genomics lands financing as it aims to ‘flip medicine on its back’

Deep Genomics has 10 drugs in pre-clinical development, four of which are set to enter human trials by mid-2023. By then, it expects to have 30 drugs in pre-clinical research. The company is also working with BioMarin Pharmaceutical Inc., to identify drug candidates for rare diseases that the San Francisco Bay-area biopharmaceutical company will advance to clinical trials in exchange for undisclosed upfront and future payments to the Toronto company.

“These are all new chemical entities that would not exist” without Deep Genomics’ AI technology, Dr. Frey said in an interview. “We’re at the point now where we want to scale,” with an eye toward going public as early as 2023.

The financing is a rare investment by a Canadian institutional investor from outside Quebec in the country’s small but fast-growing biotechnology sector, and follows CPPIB’s investment last year in Fusion Pharmaceuticals Inc. of Hamilton. Deep Genomics is also one of several Canadian AI-driven companies to raise C$100-million or more in a single financing, following autonomous driving startup developer Waabi Innovation Inc. and AI semi-conductor makers Tenstorrent Inc. and Untether AI Inc. this year.

CPPIB has taken a global approach to biotechnology, meaning it doesn’t favour investments just because they are Canadian, said Paul McCracken, managing director of thematic investing with the pension giant. But his team, which has focused on companies that use AI to transform health care, has “always identified Deep Genomics as being a world-class machine learning team,” he said. “They’ve developed a very coherent strategy, a pipeline, a very interesting partnership [with BioMarin], and I think they were well positioned to evolve into a drug discovery and development company.”

It is Tokyo-based giant SoftBank’s second investment in Canada, after its US$100-million financing of Clear Finance Technology Corp. this month. “The life sciences companies of tomorrow will be technology companies that happen to work in biology,” said Deep Nishar, senior managing partner with SoftBank. Deep Genomics’ AI technology “is now fleshed out, the platform is working, it’s obviously a work in progress, but enough of it has been built that we have a confidence in the platform and its ability to deliver.”

Deep Genomics is one of several startups, including Atomwise Inc., Recursion Pharmaceuticals Inc. and CPPIB-backed Insitro Inc., all U.S.-based, plus Canada’s Phenomic AI Inc., Cyclica Inc., and Valence Discovery that use the computational advantages of AI to discover and develop drugs that have historically been beyond the grasp of conventional research methods.

“I think you’ll see every pharma company will be using some form of AI inside their development pathway,” said Amplitude partner Dion Madsen. “The difference with Deep Genomics is that it’s integrated into everything they do.”

Dr. Frey studied at U of T in the 1990s under AI deep-learning pioneer Geoff Hinton and helped found Toronto’s Vector Institute for Artificial Intelligence.

He came up with the idea of using AI to improve human health in the early 2000s after researchers sequenced the human genome. Despite that breakthrough, Dr. Frey told The Globe and Mail in 2017 he felt no human could understand it because it was too complex. With more data and faster computers, he believed self-teaching algorithms could fill that void by searching troves of data for common patterns in biology. As data and computing power caught up, he spent 13 years with his research group at U of T publishing several high-profile scientific papers on the subject, before founding Deep Genomics in 2015.

The company uses AI to sift through vast amounts of data on novel compounds and genetic mutations and zero in on potential drug targets, using simulations to make billions of predictions across the human genome. Deep Genomics says it can simplify and speed up the search for drugs, and do so continually. Many targets will be complex diseases caused by multiple genetic mutations, Dr. Frey said.

He has said his company’s machine-driven AI system determined that the first drug target should be Wilson’s disease, a rare and often fatal genetic disorder that leads to buildups of copper in the body, as well as the compound to fight it. Other Deep Genomics drugs set to enter human trials aim to treat frontotemporal dementia and a life-threatening genetic disorder called Niemann-Pick disease Type C that leads to abnormal accumulation of fatty substances in human tissues.

The company has also added veteran pharmaceutical executives to its leadership team in the past year. “Brendan not only brings massive credibility around AI, but he’s a very compelling visionary and leader who works well with his board and investors to help grow this company” and attract top talent, Mr. Madsen said.

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