Investors Navigate Promise, Hype, in Funding A.I. for Healthcare

From a venture investment perspective, digital health is having a record year—one that has come as something of a surprise against the backdrop of federal policy uncertainty. But is investor interest extending into artificial intelligence applications for healthcare?

That’s a topic we’ll explore at Xconomy’s Healthcare + A.I. Northwest event in Seattle on Nov. 9 with some of the region’s leading healthcare investors and entrepreneurs, including Peter Neupert, the founding CEO of Drugstore.com, now on the boards of biotech and healthcare companies including LabCorp and Adaptive Biotechnologies. He will lead a discussion with healthcare-focused investors Kirsten Morbeck of SpringRock Ventures, Jens Francis of AngelMD, and Matt Holman of Echo Health Ventures. [Limited seats remain. Find more details and registration info here.]

One of our goals will be to separate the A.I. substance from the hype—no easy task. In the words of the digital health-focused investors at Rock Health, summarizing a top takeaway from their annual summit earlier this month: A.I. is “the most over hyped AND the most promising technology in healthcare.”

In its third-quarter report on digital health funding, Rock Health tracked some $4.7 billion invested in 268 digital health companies so far this year. Both numbers already exceed the record-setting full-year totals for 2015.

Third-quarter deal activity has moderated some after a gangbusters second quarter, which had prompted Rock Health founder emeritus Halle Tecco and researcher Megan Zweig to observe: “Though uncertainty around national healthcare reform has dominated headlines, political volatility has not abated investor appetite for digital health.”

(Rock Health’s numbers take in only U.S.-based digital health deals of $2 million or more, leaving out activity in healthcare services and biotechnology. It breaks down activity by category—consumer health information, electronic health records, and clinical workflow, for example—not necessarily by technology, so it doesn’t provide a clear view on A.I. in healthcare. At least not yet. The company plans to provide a more nuanced look at each deal beginning next quarter, breaking down deals in its database by technology, clinical indication, customer, end user, and other factors.)

In its latest quarterly Venture Monitor report issued earlier this month, PitchBook notes excitement among early-stage investors in A.I. And the two largest A.I. investments the Seattle-based investment data firm recorded in 2017 were in early-stage healthcare businesses: genomic sequencing analysis company WuXi NextCODE raised $240 million, and Human Longevity, maker of diagnostic intelligence tools, raised $200 million.

“We believe the healthcare A.I. space will continue to see an outsized allocation of capital as the A.I. approach to healthcare gains traction and more operators adopt these services,” PitchBook analysts write in the third quarter PitchBook-NVCA Venture Monitor report.

Xconomy recently talked with Todd Cozzens, co-founder and managing partner of Leerink Transformation Partners, a Boston-based healthcare investment firm, that recently raised $313 million for its first growth equity fund.

His view of A.I. in healthcare?

“Every year we’ve got the buzzword, and all of a sudden, everything that we used to call analytics or business intelligence or whatever is now called artificial intelligence,” Cozzens says. “Machine learning is table stakes now.”

He goes on to describe specific applications that analyze data and automate workflows with software, building up “closed-loop care processes”.

“But I wouldn’t say there is a particular thesis around artificial intelligence,” Cozzens says. “It’s like mobile or cloud—it’s more of a platform that future developments in software will be built upon, than it is a theme in itself.”

Benjamin Romano is editor of Xconomy Seattle. Email him at bromano [at] xconomy.com. Follow @bromano

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