Last year saw major breakthroughs for artificial intelligence (AI), and applications in healthcare were no exception.

AI has a wide range of use cases in healthcare, from drug discovery and drug development to medical imaging and diagnostics, as well as predictive analytics, remote monitoring, and so on. As these products and solutions mature, come out of the experimental phase, and reach commercial level, M&A activity in the field is increasing, dealmakers told Mergermarket.

Europe, including Israel, logged 27 AI-related healthcare deals in 2023 with total deal volumes of EUR 1.26bn, according to Mergermarket data. Deal activity in the field has been showing a clear upward trend in the past few years, from eight deals with total volumes of EUR 103m in 2018.

Among relevant deals from 2023, BioNTech [NASDAQ:BNTX] acquired UK-based InstaDeep for a GBP 362m (EUR 423m) upfront consideration, in order to build capabilities in AI-driven drug discovery and development. Meanwhile, Telix Pharmaceuticals [ASX:TLX] acquired Lightpoint Medical, a UK-based radiopharmaceutical-guided surgery business with AI capabilities; and Envision Pharma acquired UK company OKRA.ai, which uses AI to provide insights and predictions to commercialise pharmaceuticals.

Eveline Van Keymeulen, Partner at Latham & Watkins, has especially noticed US companies acquiring AI-related medical device companies in Europe. “Around 80-90% of the medical device deals I’ve been involved in during the last couple of years have had an AI component”, she said.

When it comes to AI-powered drug discovery, there is still some hesitation from investors, as they seek proof that AI is going to have an impact in this field in the long term, Van Keymeulen said.

M&A is happening on a global scale, with many transatlantic transactions, Philipp Dohnke, Partner at Freshfields Bruckhaus Deringer, agreed. Acquirors are most often US-headquartered when they are tech companies, while in the world of big pharma, Europe-based companies equally appear on the buy side, he said.

Collaborations turned M&A deals

M&A deals in this space often have their origins in collaboration deals, Van Keymeulen and Dohnke said. Such was the case with InstaDeep/BioNTech, for instance, Van Keymeulen added.

There is tremendous interest for AI from big pharma and biotech companies, such as AstraZeneca [LON:AZN], Sanofi [EPA:SAN], and Roche [SWX:RO], which have collaborations with small AI companies, Van Keymeulen said.

Nearly every big pharma has had some relationship with AI companies, and we are at a turning point where we more often see these relationships turn into M&A, Van Keymeulen said.

There are some challenges and trust issues in the field that can hinder M&A deals, and collaborations help eliminate trust issues so that deals can be signed, she said.

For example, there can be question marks around how solid the dataset used to train the AI system is, whether the target company has all copyrights to the dataset, and whether patients have given consent for the use of their data, Van Keymeulen said.

There are also advances on the regulatory side, which can bring more confidence to do deals, said Philipp Roos, Principal Associate at Freshfields Bruckhaus Deringer.

Until recently, regulation has been focused on protection of patient health data, privacy laws, and anonymity, but in the last couple of years there is generally growing confidence around these requirements, Roos said. He pointed to the EU’s General Data Protection Regulation (GDPR), which has been in force since 2018 and is becoming an international standard.

Legislators now also focus on how data can be used, for example for scientific purposes, and in this vein, the EU has politically agreed on a regulation for a European Health Data Space (EHDS), which aims to improve individuals’ control over their personal health data, while also enabling data to be used for public interest, policy support, and scientific research purposes, he said.

Looking ahead, Mergermarket’s experimental generative AI function identifies 64 companies in the field, which have the backing of venture capital (VC) firms. Nuritas of Ireland, which has developed an AI-powered peptide discovery platform, is an example. It raised USD 45m in 2021.

Proprietary intelligence

Deciphex (15/03/2024)

Irish Deciphex, a developer of digital pathology services fuelled by AI, plans to raise at least EUR 20m in a Series C round this year, founder and CEO Donal O’Shea said. The EUR 7m-revenue company will sell a minority stake in the round, which it intends to close later in 2024, O’Shea said. The EUR 20m figure is a conservative estimate, given the high level of investor interest in the round, he said. Deciphex would particularly welcome healthcare technology venture capital investors based in the US and Canada as it expands into those markets, he said.

Owkin, (13/03/2024)

Owkin, a French/US developer of diagnostics and therapies using AI, is looking to raise USD 50m (EUR 46.1m) to bankroll a potential acquisition ahead of an eventual exit, likely via an IPO, co-founder and CEO Thomas Clozel said. The business, which is valued at USD 1.4bn, has turned down offers from would-be buyers, the CEO said. It plans to raise around USD 300m over the next three years to fund growth, he said.

Healthy.io (12/03/2024)

Healthy.io, an Israel-headquartered digital health company, will consider acquiring companies which can provide complementary technology and products, while it keeps the door open to investors that can assist strategically to drive global growth, CEO Geoffrey G. Martin said. The company’s two main products are a clinical grade, at-home digital urinalysis kit for early detection of chronic kidney disease (CKD), and a computer vision and smartphone-enabled wound image technology that digitises the management of chronic wounds, allowing clinicians to monitor their patients remotely. It will consider adding more products via acquisitions, the CEO said.

Medial EarlySign (07/03/2024)

Medial EarlySign, an Israel-headquartered clinical AI platform for early disease detection, will likely seek an exit once it becomes profitable, which is expected next year, co-founder and acting CEO Ori Geva said. Ahead of this milestone, the company is seeking to raise a small Series C round of USD 5m-USD 7m, which it aims to close by summer, and would consider using a financial advisor to help with the raise, the CEO said. EarlySign is currently making annual revenues of “a few million” USD and expects to reach break-even this year. Its investors would want to exit once they see an opportunity to monetise, Geva said. EarlySign already received buyer approaches around 18 months ago, he said.

Gleamer (23/02/2024)

Gleamer, a French medtech company that develops AI software for radiologists, will be opportunistic on tech acquisitions in the next two years, co-founder and CEO Christian Allouche said. The company will be looking at European AI-based software developers, Allouche said, adding he already has targets in mind. Gleamer is in a good financial position with enough cash to finance potential acquisitions, and expects to be cashflow positive in 2025-26, he added. The company generated EUR 11.1m in annual recurring revenue in 2023 and plans to double those revenues in 2024, he said. It does not rule out a new financing round of several million euros by 2026, he added.

Nanox (Nano-X Imaging) (22/02/2024)

Nanox (Nano-X Imaging) [NASDAQ:NNOX], an Israel-headquartered medical-imaging technology company, is in continual conversations with potential acquisition targets, CEO Erez Meltzer said. Targets of interest could have AI capability, or add value to the company’s existing customer base in other ways; or can strategically assist Nanox to build its medical imaging product, Meltzer said. Potential targets would most likely be based in Europe or the US, he added. The business aims to offer a comprehensive solution that connects medical imaging solutions from scan to diagnosis.

Aiforia Technologies (14/02/2024)

Finnish Aiforia Technologies [HEL:AIFORIA], which is developing a cloud-based microscopy platform to analyse medical images, could consider acquiring software providers to help it grow, CEO Jukka Tapaninen said. The business could look at making acquisitions in two or three years’ time. Preferred targets would help add to and increase the scope of its AI-based offerings in pathology. Aifora’s market cap is around EUR 100m, and this would be the maximum size of any potential acquisition, the CEO said.

Ultromics (13/02/2024)

Ultromics, a UK-based provider of AI-powered heart disease diagnostics, plans to kick off a Series C fundraising in mid-2024, COO Amir Hasan said. The company aims to raise USD 30m-USD 50m, required to execute its commercial growth plan in the US, Hasan said, adding that the intended size of the raise has yet to be finalised by the board. Ultromics will seek investors in the UK and the US, among other geographies. The company has received interest from strategic investors in the medical device, diagnostics, and therapy areas, as well as from hospital groups, the COO said.