Roche (Roche (RHHBY)) is making a big bet on artificial intelligence in medicine. On Wednesday, the Swiss pharma giant said it will acquire PathAI, a U.S. company that uses AI to analyze pathology slides, in a deal worth up to $1.05 billion.

Here's the breakdown: Roche will pay $750 million upfront, with up to $300 million more in milestone payments. The deal is expected to close later this year, and PathAI will become part of Roche's diagnostics division.

This isn't a blind leap. Roche and PathAI have been working together since 2021, and they expanded their collaboration in 2024 to develop AI-powered companion diagnostic algorithms — tools that help determine which patients are likely to respond to specific drugs. So Roche knows what it's getting.

Digital pathology is exactly what it sounds like: instead of squinting at a glass slide under a microscope, pathologists look at high-resolution digital images on a screen. AI can then help spot patterns, flag abnormalities, and generally speed things up. Roche says PathAI's Image Management System, called AISight, will plug into its oncology diagnostics platforms, making the whole workflow faster and smarter.

But the deal isn't just about diagnosing patients faster. PathAI's tools are also used in clinical trials and translational research — basically, helping drug companies figure out which biomarkers matter and which drug targets are worth pursuing. Roche says this will complement its existing companion diagnostics business and help biopharma companies develop more personalized treatments.

In other words, Roche is betting that AI can help find the right drug for the right patient more quickly, and it's willing to pay over a billion dollars to make that happen.