‘ChatGPT for Doctors’ Startup Doubles Valuation to $12 Billion as Revenue Surges
The Takeaway
- OpenEvidence valuation in talks to double valuation to $12 billion
- Annualized advertising revenue has reached $150 million, tripling since August
- OpenEvidence chatbot is used by 45% of U.S. physicians, OffCall survey says
If the deal closes, the Miami-based company will become one of eight AI application developers to both reach a valuation higher than $10 billion and generate annualized revenue of more than $100 million, according to The Information’s Generative AI Database. It makes money by selling advertising space on its chatbot to pharmaceutical companies, similar to the way Google sells ads on its search engine.
That business is growing quickly. OpenEvidence is generating around $150 million in annualized advertising revenue, which implies it’s currently generating more than $12 million in revenue per month, the person involved in the deal said. That’s up three times from the advertising revenue it was generating in August.
OpenEvidence has told potential investors that it’s only selling one-tenth of its ad inventory, suggesting it could generate more than $1 billion in annualized revenue if it sold the rest.
The company’s gross profit margin is currently higher than 90%, putting it above many other AI startups in that regard. Gross margins measure how much companies earn from their sales after subtracting the direct costs of serving its revenue-generating products, known as cost of revenue. OpenEvidence’s costs of revenue include what it pays to run servers, including AI models that power the product, and money it spends to license content from medical journals, the person said.
The round comes as consumers increasingly use chatbots to look up medical information. That’s driven chatbot-makers to put resources towards healthcare-related features. OpenAI, for instance, hired longtime Facebook executive Ashley Alexander in August to develop health-related products.
OpenEvidence targets physicians, not consumers, who use its chatbot to answer medical questions or analyze peer-reviewed studies. The company has said its chatbot is more accurate than general chatbots such as ChatGPT because it was developed using information from medical journals whose content it licensed, such as the New England Journal of Medicine. It’s not clear whether OpenAI has similarly struck licensing agreements with medical journals.
OpenEvidence can also use user feedback to improve the ranking of its search results, the person involved in the deal said. It can also reach out to users who are physicians and experts in niche fields to help it train its AI to respond more accurately to niche questions, they said.
The company’s product uses open-source AI models to search through medical journals and return useful information and citations, as well as models it trains for tasks like retrieval and search ranking. It also uses AI from Google, OpenAI and other providers to summarize its chatbot’s responses, the person said.
OpenEvidence’s chatbot seems to be catching on with physicians. According to an October survey of 1,000 U.S.-based physicians by OffCall, a company that allows physicians to compare their salaries, around 45% of physicians use OpenEvidence, compared to 16% for ChatGPT and 5% for medical scribe startup Abridge, the next most popular healthcare-specific AI product. (There are about 1 million physicians in the U.S. total, according to the Federation of State Medical Boards.)
The company’s chatbot answers around 20 million questions from U.S.-based physicians per month, according to the person involved in the round.
OpenEvidence previously raised more than $500 million in funding from investors including GV, Sequoia Capital and Kleiner Perkins. Its CEO and cofounder, Daniel Nadler, previously sold an AI startup to financial research firm S&P Global for hundreds of millions of dollars in 2018.