The company would be a standalone entity rather than a subsidiary of Baidu, said a person close to the matter. The individual was not authorized to speak publicly about the project.
A number of investors are interested in joining the funding, the person said, adding that they could not disclose more details as talks are still in the early stage.
Reuters first reported the news.
Baidu declined to comment when contacted by CNBC.
The biotech company would focus on using artificial intelligence (AI) and computing to create new drugs and and make early-stage diagnoses of diseases such as cancer, the person said.
Powerful algorithms can be used to scan medical images or help develop drugs faster than humans can.
Baidu’s move comes as China’s technology companies try to boost their presence in healthcare, a move accelerated by the coronavirus pandemic.
Earlier this year, Baidu gave away an algorithm it calls “LinerFold” for free to gene-testing agencies, epidemic control centers and research institutions. That algorithm is designed to identify the genetic make-up of viruses, which could help develop a vaccine.
Baidu, which has typically been an internet search company, has been trying to expand into new areas from driverless cars to health technology, as it faces increasing competition in its core business.
CEO Robin Li is personally involved in the biotech project, said the source who spoke to CNBC.