Zephyr AI, a healthcare technology company backed by blue-chip investors including Michael Milken and the Lerner family, has raised $18.5 million in its latest seed funding round. Although the round is fairly small, the investment illustrates the demand for companies that are innovating around artificial intelligence and healthcare. Milken, who almost singlehandedly created the junk bond industry, is a longtime supporter of philanthropic as well as for-profit cancer research efforts.
Artificial intelligence has gained traction in the financial markets because of its ability to sift through massive data sets and identify patterns. Zephyr AI’s approach is no different — the platform takes swaths of healthcare data and uses machine-learning algorithms to detect patterns and trends.
The company’s goal is to use its findings to make advancements in precision medicine — a healthcare initiative that emphasizes a personalized approach to care and diagnoses and helps develop patient-specific disease risks and treatments — and drug discovery, the process through which new medications are developed and discovered.
David Morgan, Zephyr AI’s chief executive officer, told Institutional Investor that the company wants to provide “predictive analytics” — the process of sifting through patient data and finding patterns or “interrelationships” — to healthcare systems. “Predictive analytics help us make insights that are going to drive us to try different things, whether it’s experiments for drug discovery, or creating inpatient programs, or looking at healthcare costs.”
For example, Morgan said Zephyr is looking at cancer data. Historically, tumors have been understood in relation to cancer type — one tumor is related to breast cancer, while another is connected to lung cancer. Zephyr AI takes a different approach to this data. Instead of categorizing the data by cancer type, it sifts the data into groups based on their shared genetic vulnerabilities. “We didn’t bias what type of cancer it is. We simply input tons and tons of genetic data. And it started to build relationships between all of these vulnerabilities,” Morgan said.
Zephyr AI found similarities in the “vulnerability networks” — the mechanisms in the cell that cause it to change as a result of cancer — between different types. While Morgan said some of these connections are well-documented, others are novel and may lead to more effective treatments.
The recent fundraising round was led by Lerner Group Investments and M-Cor Holdings. Allen Y. Chao, AME Cloud Ventures, BoxGroup, MedStar Health, Roger W. Ferguson, Steve Oristaglio, Verily, and other strategic investors also participated. With the influx of capital, Morgan said that the company will expand its teams, add data sets to the model, build out infrastructure for computing power and storage, enable patent filing, and grow its marketing and public relations initiatives. Specifically, Morgan said the company expects to use the funds raised in this round to double its head count over the course of the next year.
“This successful funding round reflects investors’ collective confidence in Zephyr AI’s world-class data science and future as a much larger business,” Josh Lobel, CEO and CIO of M-Cor Holdings, said in a statement. “Zephyr AI’s vision and expertise promise to transform patient care in critical areas such as diabetes and cancer.”
The company was founded in 2021 by Red Cell Partners, a healthcare technology-focused investment firm, but the groundwork had been laid long before, when co-founders Grant Verstandig and Jeff Sherman [and their third co-founder and executive vice chairman Yisroel Brummer] worked side by side at Audax Health, a personalized and interactive health and wellness platform founded by the then 21-year-old Verstandig. In 2014, UnitedHealth Group acquired a majority stake in Audax, which then rebranded itself in 2017 as Rally Health and was acquired completely by UnitedHealth.
At Rally Health, Verstandig — who was UnitedHealth’s chief digital officer from 2017 to 2021 — and Sherman, who worked as an architect on the platform, used machine learning and AI to predict patient behavior, and this and other similar work continues at Zephyr. “[Our founders] have a unique understanding of machine learning and artificial intelligence,” Morgan said. He explained that Verstandig and Sherman initially conducted experiments on the use of the antibiotic azithromycin as a lung cancer remedy, and that the success of these experiments gave the two men the confidence to expand their efforts and incorporate more data into their experiments.
Today, Morgan said, Zephyr is focusing on refining its models, expanding its research and development efforts, and building out its teams.
