Written by: Ling Han | AGF Investments
While many of the use cases for artificial intelligence remain quite speculative in nature, the healthcare sector is already benefitting from this widespread technological revolution in two meaningful ways: drug development and diagnostics.
Right now, it costs pharmaceutical companies billions of dollars to develop new drugs. AI provides a direct avenue to cut costs by meaningfully expediting the discovery process while also facilitating the automation of some costly and time-consuming preclinical work.
AI’s impact on diagnostics may be even more profound as it shifts the industry away from old hardware towards interlocking intelligent platforms. Applying artificial intelligence to standard CT scans and MRIs is already helping clinicians detect anomalies and lesions that would have otherwise gone undetected by human eyes.
Surgical robots are another beneficiary of AI as algorithms and data-trained models are improving their perception, navigation, and decision-making. While we are still a long way away from having robots conduct fully autonomous procedures, meaningful advancements are being made in telesurgery—doctors performing operations remotely from somewhere other than the actual hospital.
So, with all these technologies gaining traction at such a rapid pace, where might investors interested in healthcare find opportunities?
We believe one sub-sector to watch could be precision oncology, which is the use of patient-specific genetic and molecular data to improve cancer detection, diagnosis, and treatment. Standardized screening procedures only exist for a few of the 200-plus known types of cancer; there are potential opportunities for AI-powered personalized diagnostics.
The picks and shovels of the drug development space could also be worth watching, particularly life science tool companies that support large data set generation as well as AI model validation across the broader healthcare ecosystem. This represents a more diversified way to gain exposure to the theme, as demand for these services may grow regardless of which developers ultimately prove most successful.
In terms of metrics for analysis, top-line sales growth and margin could remain key differentiators. Return on invested capital has also become increasingly important with the volume and speed of acquisitions trending upward over the past year.
The impetus for this expansion is the revenue cliff that the industry is staring down within the next three-to-five years. It has created a sense of urgency amongst the major players to acquire later-stage biotech companies to help fill that gap, and with pressure comes the potential for overpriced acquisitions that may hurt the bottom line.
While optimism is certainly warranted, the narrative that artificial intelligence will cure all diseases is more of a pipe dream than reality. AI is still largely a research and productivity tool rather than a fully integrated clinical solution. The pharmaceutical industry is risk-averse by nature; extensive data will be needed to drive further adoption.
Still, healthcare is nonetheless one of the economic sectors in which AI is clearly improving businesses. Further implementation may power continued breakthroughs and cost savings for companies in the coming years—and, most importantly, improve medical outcomes for patients around the world.
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