Chinese AI Biotech Sector Faces Downturn as Another Startup Struggles

When the Hype Fades, Only Fundamentals Remain

In mid-2022, Ailomics Therapeutics, based in Shanghai, emerged with bold ambitions: fuse cutting-edge AI with experimental biology to revolutionize drug discovery. The startup, backed by reputable investors and founded by a team with deep pharma roots, seemed well-positioned to ride the AI biotech wave that had captured global investor attention.

But now, a whistleblower who sent an email to CTOL.digital about various the internal struggles of Ailomics Therapeutics, claims Ailomics is quietly shutting down. No formal announcement has been made (yet), but the silence itself speaks volumes—and it comes amid a growing list of AI biotech companies struggling or shuttering. What’s going wrong in a sector that just two years ago was flush with capital and expectations?

As the so-called "biotech winter" deepens, the situation at Ailomics offers a critical lens into the fault lines of an overcapitalized but underproven sector.

The Rise and Stall: Inside Ailomics’ Brief Journey

Founded: July 2022
Location: Zhangjiang Pharma Valley, Shanghai
Focus: AI-driven discovery of novel drug targets, particularly in immunology and oncology
Technology: Multi-omics analysis, deep learning, organ-on-a-chip models
Funding: Multi-million USD angel round led by Qiming Venture Partners
Team: Ex-GSK, Roche, Amgen; founders with over two decades in computational biology and antibody development
Partnerships: Yan Molecular (AI R&D cloud platform)
Progress: By mid-2024, had built five core platforms and was advancing toward preclinical candidate selection

Ailomics positioned itself at the nexus of machine learning and high-resolution biology. Its integration of AI with human-derived models and single-cell data analysis reflected a sophisticated approach—one meant to solve the translation gap between early discovery and clinical success. The startup showed early momentum with platform development and preclinical pipeline formation. Yet, even that wasn't enough to safeguard its future.

Why It Matters: Industry Context and Investor Implications

The alleged shutdown of Ailomics is more than a single data point—it’s part of a broader structural shakeout that is redefining how AI biotech companies are funded, evaluated, and scaled.

1. The “Biotech Winter” and Capital Recalibration

AI biotech flourished during the pandemic-driven capital boom. From 2020 to 2022, valuations soared and funding rounds closed in record time, often on vision more than data. But by late 2023, macroeconomic tightening, rising interest rates, and disillusionment with underperforming assets led to a sharp downturn.

Global funding for AI drug discovery dropped 42% between 2022 and 2023. Angel and early-stage rounds—the lifeblood for companies like Ailomics—became harder to secure. Burn rates remained high, while the revenue horizon for most was still distant. For many startups, the math simply stopped working.

2. No AI-Designed Drug Has Yet Been Approved

Despite aggressive timelines and ambitious claims, no drug fully designed and developed through AI methods has received regulatory approval. Several clinical candidates have stalled or failed trials, and the supposed acceleration benefit of AI has yet to result in faster approvals or significantly higher success rates.

The promise of AI as a transformative force remains intact. But its actual utility—currently more augmentation than replacement—has led to a recalibration of investor expectations.

3. Market Signals: From Optimism to Consolidation

The Ailomics story echoes moves seen across the sector:

Exscientia terminated a Phase I/II program, cut 25% of its workforce, and was later acquired by Recursion.
BenevolentAI faced a major clinical failure, prompting mass layoffs and a pivot away from software.
Absci, Pear Therapeutics, and others have either slashed staff or filed for bankruptcy.

These are not isolated incidents—they’re indicative of an industry that scaled too quickly on technical narratives without sufficient downstream validation.

Stakeholder Impact: What's at Risk and What’s Next

Investors: From Hype-Driven to Milestone-Based

For VCs and PE firms, a company like Ailomics represented a promising frontier: sophisticated AI capabilities applied to the high-value world of immunotherapy and oncology. But early-stage optimism is giving way to rigorous demand for clinical proof. Investor appetite is shifting toward companies that demonstrate concrete milestones—such as IND submissions or early clinical data—over technical sophistication alone.

Strategic Partners: Re-Evaluating Risk

Partners like Yan Molecular, which collaborated with Ailomics to enhance AI-based R&D, may need to reassess their exposure and risk tolerance. This could accelerate the industry’s consolidation as larger pharma firms become more selective in partnerships, gravitating toward companies with validated tech stacks and a clear regulatory pathway.

Talent and Technology: A Redistributive Moment

If Ailomics does indeed shut down, its team—comprising seasoned experts from top pharma companies—will likely be absorbed by more stable organizations. For acquirers, this is an opportunity to gain IP and know-how at a discount. For the broader ecosystem, it may seed the next generation of ventures—but with more realism and tighter business models.

Long-Term Implications: A More Mature AI Biotech Sector

The struggles of Ailomics are not a repudiation of AI in drug discovery—but they do highlight the need for strategic patience, better integration between tech and biology, and more sustainable financing structures.

Key Trends Emerging from This Shift:

Survival of the Proven: Companies with clinical-stage assets and diversified pipelines will gain greater access to capital.
Platform Rationalization: Overbuilt platforms without near-term commercialization pathways will be de-prioritized or shuttered.
Tighter VC Screens: Investors will demand clearer go-to-market plans and milestone-based tranches, avoiding over-dependence on speculative tech.
Corporate M&A Surge: Pharma giants will accelerate acquisitions, not just for products, but for proprietary AI platforms and skilled teams.
New Diversification Plays: As some AI-biotechs pivot to areas like materials science or diagnostics, capital will follow proven traction, not just ambitious slide decks.

The End of One Story, the Beginning of Industry Maturity

Ailomics Therapeutics may have entered with strong credentials and a credible vision, but in today’s capital environment, execution trumps potential. Whether or not the company’s closure is formally confirmed, the message is clear: the AI biotech sector is exiting its exuberant phase and entering an era where only clinical progress, capital efficiency, and pragmatic innovation will sustain companies.

For investors, now is the time to apply rigorous filters, prioritize data over demos, and view AI not as a silver bullet—but as a powerful tool in a still-fragile pipeline economy.

Chinese AI Biotech Sector Faces Downturn as Another Startup Struggles