Jan 9, 2025 - Technology

Investors get pickier with AI-fueled health deals

Caitlin Owens

Illustration of a robot hand holding a stethoscope. — Illustration: Gabriella Turrisi/Axios

Investors may have flocked to health care AI companies in recent years, but funding has leveled off and backers are "becoming more selective and emphasizing clinical validation and solid business models," a new PitchBook report concludes.

Why it matters: AI has certainly received a lot of hype in health care, and its theoretical benefits are enormous. But it still hasn't fully proved itself in the real world and is facing several challenges.

"In pharmaceuticals, success hinges on the clinical validation of AI-discovered drug candidates," the report says.
"In medtech, companies must overcome regulatory challenges around data quality standards, while healthtech solutions face the ongoing challenge of establishing clinical confidence and efficacy."

By the numbers: VC deal activity in the space peaked in 2021 at $22 billion. Last year, it reached $10.5 billion.

Between the lines: Some of the biggest risks to the sector have to do with the commercialization of new AI-driven technologies, and "proving clear clinical superiority remains an uphill battle," the report says.

Those risks are paired with increased competitive pressure, especially from large tech companies.

Go deeper: Read the report

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Investors get pickier with AI-fueled health deals

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