Private Equity
Andrea Alms Video: Money In Motion 162 - Revenue Models Of The AI Drug Development Process Part 1
June 2025 - Private Equity
Andrea Alms Video: Money in Motion 162 - Revenue Models of the AI Drug Development Process Part 1
TRANSCRIPT Hello, my name is Andrea Alms I'm technology investor and financial manager and this is your money in motion. What is the revenue model for AI development? AI development is a multi-stakeholder process for early stage AI startups. It is imperative they work with relatively large and established companies. Here are four general models describing these partnerships in the order of increasing risk.
One. Software as a service. The hands free model where ML tools, that is, machine learning tools are made available through the web and users interact with them much like other software products. These typically involved an annual license fee based on number of users. This model is best suited for a highly specific ML task. For example, a microscope image analysis tool that detects and counts different types of cells to allow for some level of customizations.
Developer may introduce bespoke options such as no code interface to train your own ML model. Two. Consulting ML startups and larger biotechs may also engage in one off consulting agreements. This is where the technology is stressed, tested, and is often considered a precursor to more involved potential owner partnerships down the road. For example, Pharma X might have a specific problem at hand, and the startup Y promises its ML technology can solve within a year or so for a lump sum payment of $1 million.
The additional income may help get the start of off the ground and serve as proof of their ML technology. Has utility partnership. These typically come after a couple of successful one off consulting jobs. It is where risk is truly shared among the parties. Partnerships are open ended exploration. Then, while working on a general question for a number of years, it may involve in-licensing a drug or unleashing the ML platform to help discover treatments for an indication area that the pharma company has expertise in.
These come in the form of initial payment, together with milestone payments based on success for partnerships. As the startups grow to take on more risk, they may enter partnerships where they have more ownership. This can come in the form of royalties on future drug sales. If the program is indeed successful. This is a great way for pharma to de-risk the deal and share it with the startup, and delay some expenses until actual revenues come in.
While the rewards for the startups may be significant, they lose out on immediate revenues. Choice of model will depend largely on how far the startup is in its journey. The nature of the deal and what each party's expecting to get out of it. They also present options for startups to diversify their revenue streams, especially startups that are not venture backed.
This graph shows AI startups disrupting drug discovery. On the horizontal axis, is value captured. On the vertical axis is a type of business model. We will explore more of this on the next sode. Thank you. This is your money. Your money in motion.