Investors Believe Artificial Intelligence is Ready to Revolutionize Healthcare

Venture firms at the forefront are placing their bets on the potential of artificial intelligence and the widespread interest in ChatGPT to revolutionize the healthcare sector, which has long been a challenging space for Silicon Valley to make significant progress.

Andreessen Horowitz has invested in a steady stream of startups looking to take advantage of the artificial intelligence boom to improve healthcare. These include companies building AI tools to make patient care easier and reduce the burden of clinical note-taking, as well as using AI to discover new drugs faster than traditional methods. Last week, the company led a $200 million round in AI-powered drug development company Genesis Therapeutics. General Catalyst, Menlo Ventures, Lux Capital and others are also investing in AI healthcare startups.

Those investments reflect enthusiasm among major technology companies such as Microsoft Corp., Amazon.com Inc. and Alphabet Inc.’s Google, which are aggressively seeking to expand their footprint in the lucrative health care industry. In July, Amazon unveiled HealthScribe, a generative AI tool that can help healthcare providers summarize doctor visits. Google is also reportedly testing a medical chatbot in hospitals.

But healthcare, heavily regulated and still heavily dependent on faxes, has proven uniquely difficult for tech companies to crack. International Business Machines Corp. sold some of Watson Health’s assets last year, a setback to its goal of using artificial intelligence to help healthcare providers analyze data and revolutionize cancer treatment. Amazon, meanwhile, dropped a high-profile bid to disrupt the industry with JPMorgan Chase & Co. and Berkshire Hathaway Inc. In addition, the large language models underlying generative AI tools such as ChatGPT are known to distort detail, which can be particularly problematic when dealing with complex and demanding situations such as healthcare.

Vijay Pande, managing partner at Andreessen Horowitz, knows that “the AI hype cycle has hit healthcare before,” as he put it in a blog post last month. But Pande, who has been beating the drums about AI’s potential impact on healthcare at the company for nearly a decade, said it’s different now that the technology has improved significantly. He also points out that, like the evolution of the Internet, real change takes time.

“It took 20 years for the Internet to really change everything,” Pande told Bloomberg. He compares the current state of AI in healthcare to where the Internet was in 2005. The Internet had begun to permeate everyday life, but “we weren’t doing everything in our lives on the Internet that we are today.”

While overall investment in AI startups has exploded this year, the situation for AI healthcare startups is more complicated. The category currently lags behind $7.4 billion in funding raised last year and well short of the $10.5 billion raised in 2021, according to data from research firm PitchBook.

“Artificial intelligence has certainly been a buzzword on the tip of everyone’s tongue,” especially in the healthcare industry, said Deena Shakir, managing partner at Lux Capital. Still, he said, “There seems to be a consensus that it’s too early to know what the real impact is.”

Here are some areas of healthcare where tech investors are hoping for the most momentum.

Drug discovery

Big pharmaceutical companies and a host of newer entrants are betting that artificial intelligence will accelerate the discovery of new drugs and treatments by studying and analyzing huge data sets. These efforts predate the rise of ChatGPT and have met with mixed success, but an increased focus on AI and technology development could help accelerate the momentum.

Rezo Therapeutics, a drug development company, raised $78 million last fall from investors including Andreessen Horowitz and will initially focus on cancer treatment. CEO Nevan Krogan, who is also director of the Institute for Quantitative Biosciences at the University of California, San Francisco, said Rezo aims to translate research from about 35 labs into treatments. “One of the things we’re trying to do is blur the lines between academia and biotechnology,” he said.

Krogan said he is preparing to raise a bigger round of funding this year for his company because investors are “huge” about Rezo and all things artificial intelligence. “It’s been heating up in recent months for good reason.”

Other startups are holding off on the AI funding boom for now. Insitro raised about $700 million before ChatGPT’s takeoff and uses artificial intelligence to develop drugs for fatty liver disease and tuberous sclerosis complex, a rare disease that causes neurological problems in children.

Insitro Inc. CEO Daphne Koller said the company has no plans to raise more funding in the near future, with more than $500 million in the bank last year. He’s not worried about trying to capitalize on the AI hype. “I try to think about content,” said Koller, who has worked in machine learning since the 1990s. “I don’t want to think about FOMO,” she added, referring to the fear of missing out.

Paperwork

Generative AI, which can produce written work and images in response to user prompts, has already been used by employees to send emails, summarize long texts, and streamline other routine administrative tasks. Now some tech companies are trying to apply this to healthcare.

Ambience Healthcare, for example, makes an AI-powered “writer” that turns doctor-patient conversations into notes, which the company says saves clinicians about 16 hours a week that they would otherwise spend typing information and referrals. Ambience has raised $30 million from investors including Andreessen Horowitz and ChatGPT creator OpenAI.

A growing list of other startups and larger tech companies offer similar clinical notes, including Microsoft, Amazon and Doximity. However, there are limits. Some AI-powered services have reportedly made mistakes in the process, requiring the intervention of human contractors.

Diagnoses

There is a shortage of doctors in the US, but don’t expect AI to replace doctors just yet. There is concern that over-reliance on AI in triage cases may cause harm to patients by not intervening or misdiagnosing.

Hippocratic AI announced it raised $50 million from Andreessen Horowitz and General Catalyst in May to build large language models — the technology that powers AI chatbots — specifically for the healthcare industry. The company says it’s focusing on tasks like explaining pre-surgery instructions to patients, but it’s staying away from medical diagnoses — at least for now.

“We actually don’t think generative AI is ready to make diagnoses — we think diagnoses will have to come much later when these models are safe,” CEO Munjal Shah previously told Bloomberg. “You have a lot of other roles that are support roles and support workers in the healthcare system that could really benefit from generative AI.”