The Israel Health-Tech and Life Sciences Industry Report for 2025-26, published ahead of IATI’s MIXiii Health-Tech.IL conference in Jerusalem, found that private investments in the sector fell to their lowest level in five years, following a year in which Israeli life sciences and health-tech investments had grown by 25%.

The report comes as Israeli health-tech is increasingly shaped by artificial intelligence, including regulatory efforts to test medical AI in healthcare and new collaborations involving Israeli-founded AI biotech companies, such as Immunai’s drug-discovery partnership with Boehringer Ingelheim.

Overall, approximately $1.6 billion was invested in Israeli life sciences companies in 2025, with more than 90% of the total coming from private investments, the report found. The average deal size also continued to decline, falling below $10 million.

The report painted a mixed picture of one of Israel’s key technology sectors. Investments in medical devices fell by more than 60%, while the biomed sector remained relatively stable and showed greater resilience to geopolitical shocks.

The number of active companies in Israel’s life sciences sector also remained stable, and 2026 began with a company formation rate similar to that of the previous two years.

The report said there are about 1,800 active Israeli life sciences companies, employing some 81,000 people. Biomed companies make up roughly 30% of the sector but employ more than half of its workers.

Tel Aviv remained the leading hub for life sciences companies, with 310 companies, followed by Rehovot and Ness Ziona with 120, Jerusalem with 112, and Haifa with 83.

The report highlighted the growing use of artificial intelligence in drug development and health technologies. Around 30 Israeli companies now operate at the intersection of AI and drug development, and roughly 70% of them are supported by the Israel Innovation Authority.

Globally, approximately 12% of recent collaborations in the pharma-biotech industry are AI-driven, with an aggregate deal value of about $30 billion, according to the report.

In 2025, the Israel Innovation Authority invested approximately NIS 560 million in health-tech, representing about 29% of its total investments. Its Startup Fund allocated more than 45% of its investments to health-tech, totaling about NIS 250 million.

The authority also launched a regulatory pilot in 2026, together with the Health Ministry, to evaluate autonomous AI systems in healthcare.

Despite the funding slowdown, exports remained steady. Israeli life sciences companies exported approximately $1.7 billion in pharmaceuticals in 2025, while medical equipment exports totaled approximately $3.3 billion, similar to 2024 levels.

The report also found continued merger and acquisition activity. It said 2025 was the sixth consecutive year in which at least one Israeli life sciences acquisition exceeded half a billion dollars.

Public-market fundraising, however, weakened sharply. Israeli life sciences companies raised only about $115 million on US stock exchanges in 2025, a decline of more than 80%. No new life sciences IPOs took place on the Tel Aviv Stock Exchange, and total fundraising there was negligible.

Karin Mayer Rubinstein, CEO and president of IATI, said the Israeli high-tech sector was operating through “one of the most complex and challenging periods it has ever known,” citing the security situation, geopolitical uncertainty, reserve duty call-ups, global competition for capital, and the weakening dollar.

She said the life sciences and health-tech sector was facing a difficult funding environment, while also continuing to show stability in active companies, exports, M&A activity, and international interest.

“The main message emerging from the report is that the foundations of the industry are strong,” Mayer Rubinstein said.

She added that IATI was working with the Finance Ministry, the Israel Tax Authority, the Israel Innovation Authority, and other government bodies to improve Israel’s competitiveness and encourage startups to incorporate and remain in Israel.

Dror Bin, CEO of the Israel Innovation Authority, said Israel remains “at the forefront of the global medical innovation revolution,” citing its scientific base, healthcare system, entrepreneurship, and AI capabilities.

“The role of the Israel Innovation Authority is not only to invest in companies, but to build the conditions that will enable innovation to grow,” Bin said.

Omer Gavish, life sciences leader and partner at PwC Israel, who led the preparation of the report, said 2025 was “a significantly challenging year” for private-market fundraising.

Still, he said M&A activity and international interest in Israeli innovation pointed to a foundation for future growth.

A survey of leading venture capital funds in life sciences and health technologies found that 74% identified fundraising as the main challenge for companies in 2025, compared with 52% in 2023. Looking ahead, 57% of funds expected a cautious recovery in 2026, 22% expected a return to growth, and 22% expected stagnation.