Were seeing a new wave of venture investments in healthtech companies especially those with strong artifical intelligence and machine learning components. Led by some of the worlds largest biopharma companies and tech-focused venture capitalists, these investments are backing efforts to speed drug discovery, improve tests and treatments, and further medical research. For now, most of the investment is focused in the diagnostics/tools (Dx/Tools) sector.A Silicon Valley Bank analysis last month found that 44 venture-backed deals raised $2.2 billion between 2015 and the first half of 2017 for Dx/Tools companies that use AI/ML as part of their underlying technology.

The investors are increasingly diverse:

For our analysis, SVB segmented Dx/Tools into three subsectors: Dx Tests (yes/no test results), Dx/Tools Analytics (actionable data analytics to help direct treatment), and R&D Tools (research equipment and services for biopharma and academia). These deals include multi-$100 million financings for three companies: GRAIL, Guardant Health, and Human Longevity.

Tech-focused and healthcare investors view investments in this new subsector through different lenses.

Tech investors tend to see their AI/ML investments in Dx/Tools as a vehicle for tackling big data in the healthcare arena. When that complex problem is solved, they expect the market will be huge as will the exit opportunities. Thus, tech investors are making early-stage bets. For example, they are banding together in AI/ML platform companies like Atomwise, Cofactor Genomics, Color Genomics, Gingko Bioworks, and Neurotrack.

Healthcare investors typically consider regulatory pathway, reimbursement, revenue ramp, and the acquirer landscape as they evaluate investments. While these investors see much promise in AI/ML technologies, so far they have largely remained on the sidelines. AI/ML represents a new paradigm in healthcare company formation, and these early-stage companies are just beginning to address approval and commercialization, and thus are often considered too early for healthcare investors.

Looking ahead, collaboration among tech and healthcare investors seems natural: It would create an enhanced team to take advantage of technology expertise and experience in healthcare market approval and adoption. To date, there have been limited collaborations, such as Guardant Health.

Valuation remains one of the sticking points. Anecdotally, there are numerous examples of healthcare investors being outbid by tech investors. But as early-stage companies mature, we expect to see more activity by traditional healthcare venture investors.

At this stage, there are several key questions that have yet to be answered:

There will be some big wins in this space, but the next financing rounds will serve as a key indicator of investor confidence. Well likely see an investor mix led by new tech investors and biopharma corporate venture arms. And we also expect large tech companies to invest as they continue to expand their healthcare footprint. Again, how big a role healthcare venture investors will play is uncertain.

On the acquisition side, big biopharma will continue to target AI/ML companies. And large tech companies looking to make further inroads into healthcare (such as Google, Amazon, Apple, Microsoft, and Dell) will not likely pass up opportunities to take a stake in this emerging healthcare sector.

As machine learning and artificial intelligence are rapidly commercialized for healthcare applications, we expect healthcare investing to shift paradigms, leading to new waves of investors and opportunities for promising companies.

Jonathan Norris is Managing Director at Silicon Valley Bank.

Link:

Investors bet big on AI for health diagnostics - VentureBeat