Good day. Sarah Guo, founder of venture firm Conviction, thinks generalist investors as well as entrepreneurs have not fully grasped AI’s possibility in healthcare. Far from being pokey in adopting something as forward-leaning as AI, the healthcare industry seems to be snapping it up, something she calls “the leapfrog effect.”

Conviction has backed AI-pumped startups across sectors, but it was two deals in healthcare, for OpenEvidence, an information provider for clinicians, and Latent, which serves pharmacists, that surprised Guo with their rate of growth, she said.

OpenEvidence, for instance, which offers research-based answers to clinicians’ questions, last month said more than 40% of U.S. doctors were logging into its portal daily. The service is free to healthcare providers and makes money on ads. It raised a $210 million Series B round at a $3.5 billion valuation in July.

For Guo, the reason VCs and entrepreneurs don’t dive into AI health startups is the perception that the sector is “super bureaucratic” and “too slow” in adopting tech. But some industries are so inefficient that they embrace new technologies more eagerly than others, she said.

In healthcare, the AI tech “leapfrogs systems that couldn’t realistically be upgraded, and it’s not about squeezing costs—it’s tackling the shortage of people that’s already blocking access to care,” she said in a LinkedIn post.

A dearth of healthcare providers has been compounded by burnout among doctors and nurses, at times leaving patients with inadequate follow-up care. With generative AI, help could be delivered via voice and without needing to download mobile apps, she said, adding that the arrangement is appealing to both patients and providers.

Even so, for entrepreneurs entering the AI health arena and investors taking the plunge, there’s competition and risk to keep in mind.

OpenAI, for one, is pushing into the sector. The company recently hired Nate Gross, co-founder of Doximity, a publicly traded provider of telemedicine and other tools, to lead healthcare strategy, as well as Ashley Alexander, vice president and co-head of product at Instagram, to become its vice president of health products.

And there’s plenty of risk. Guardrails are paramount, especially in healthcare. AI cannot afford to make the mistakes even humans might make, she said.

“It matters if we are wrong,” Guo said. “It’s kind of like self-driving. It’s not good enough to be as good as human doctors.”

And now on to the news...

Investors spot a healthcare value play in CMOs. Pharmaceutical and biotechnology companies have long turned to contract manufacturers to help them bring medications to market faster and cheaper, and lately private-equity investors see the sector as an investment opportunity. Investors are capitalizing on a drive to strengthen supply chains and shore up domestic production after the Covid-19 pandemic exposed vulnerabilities and overreliance on manufacturing in other countries such as India and China.

• These firms see opportunities in U.S. CMOs that take on the often lengthy and costly lift from drug and medical-device development to commercial production.
   
• But investing in a highly regulated sector fueled by enormous taxpayer-supported payments carries substantial risks.

Eli Lilly said a third late-stage study of its experimental anti-obesity pill hit its key goals, paving the way for the drugmaker to begin regulatory submissions. Eli Lilly on Tuesday said the Phase 3 study of orforglipron in adults with obesity or overweight and type 2 diabetes met the primary and all key secondary endpoints at all three doses, showing significant weight loss, meaningful A1C reductions and improvements in cardiometabolic risk factors at 72 weeks. Eli Lilly said it now has the full clinical data package it needs to initiate global regulatory submissions for orforglipron this year.

The Trump administration’s “Make America Healthy Again” agenda has shaken big food companies already reeling from shifting consumer preferences. States across the country have taken up the MAHA cause, passing laws to restrict the sale of certain foods and, in some cases, investigating food companies’ health claims. Executives at big processed-food makers are trying to determine how much of what Health and Human Services Secretary Robert F. Kennedy Jr. and MAHA want will actually happen, and how it could affect their bottom lines. Their challenge is to balance his push for what he sees as healthier food with their need to make products that consumers will buy.

People

Healthtech-focused venture studio Aegis Ventures appointed John Driscoll and Cris Ross as venture partners. Driscoll was previously at Walgreens Boots Alliance and CareCentrix. Ross was chief information officer at the Mayo Clinic.

Mental healthcare startup Headway appointed Neha Chaudhary as chief medical officer. She previously served as CMO at Modern Health.

Zephyr AI appointed Allen Chao as chief executive officer. The precision medicine startup also acquired Aster Insights, a provider of scientific and clinical intelligence for oncology discovery.

ProVerum, a Dublin-based startup developing novel minimally invasive technologies to treat benign prostatic hyperplasia, closed an $80 million Series B round. MVM Partners led the investment, with Partner Hugo Harrod joining the company’s board.

Vaxxas, an Australia-based developer of a patch for needle-free vaccine delivery, collected about 90 million Australian dollars (about $58 million) in new funding, including A$49.2 million in Series D equity led by Sprim Global Investments.

Eyebot, a Boston-based provider of self-guided vision test kiosks, raised $20 million in Series A funding. General Catalyst led the round, which included participation from AlleyCorp, Baukunst, Village Global and Ubiquity Ventures.

Barti Software, a San Francisco-based startup providing electronic health records and practice management software for eye care practices, landed $12 million in Series A funding led by Five Elms Capital.

Incyclix Bio, a Durham, N.C.-based startup developing precision treatments for advanced and resistant cancer, secured nearly $11.3 million in Series B extension funding from investors including  Eshelman Ventures, Eli Lilly and Cape Fear BioCapital.

Sleep.ai, a Carlsbad, Calif.-headquartered sleep intelligence platform, picked up a $5.5 million investment led by Treasure Coast Ventures.

• CDC Director Susan Monarez Removed From Post, White House Says

• New Covid-19 Boosters Are Coming Soon. Not Everyone Will Be Eligible to Get One.

• Scientists Strip ‘Diversity’ Language From Research to Keep Federal Grants

• The Men Suing Over Their Partners’ Abortions

• Punishing Droughts Put Fresh Pressure on Meat and Dairy Production

• Hamptons Billionaires Call These Doctors for ‘Boat-tox’

• The Most Burdensome Diseases Globally Are the Least Studied, But the Gap Is Narrowing (STAT)
   
• FTC Has Long Said Products Must Back Up Health Claims. A MAHA Lawsuit Would Upend That. (KFF Health News)
   
• The AI Hype Index: AI-Designed Antibiotics Show Promise (MIT Technology Review)

This newsletter was compiled by Matthew Strozier and Zachary Cole.

WSJ Pro Venture Capital is a premium service of The Wall Street Journal. We cover venture capital and the global startup ecosystem. Share your tips, comments and questions: vcnews@wsj.com

The Team: Matthew Strozier, Yuliya Chernova, Brian Gormley and Marc Vartabedian.