According to a recent research report by Morgan Stanley, the healthcare sector is expected to allocate 10.5% of its budget to artificial intelligence (AI) and machine learning (ML) by 2024, a significant increase from the 5.5% in 2022. This growth is driven by the emerging field of AI and its specific implications for the healthcare industry.
AI has already made a significant impact on Wall Street, with OpenAI’s ChatGPT leading the way and resulting in high valuations for chipmakers. Even biopharma companies that have connections to AI have seen benefits. For example, Recursion Pharmaceuticals (NASDAQ: RXRX) experienced a surge in stocks after receiving a $50 million investment from chipmaker Nvidia (NASDAQ: NVDA) in July. Other companies in the industry, such as Abcellera Biologics (ABCL), Absci Corporation (ABSI), Exscientia (EXAI), and Schrodinger (SDGR), also rallied in response.
However, the potential applications of AI and ML in the healthcare sector go beyond drug discovery, as Morgan Stanley points out. The bank highlights a recent survey indicating that 94% of healthcare companies already use some form of AI or ML, yet only 24% of medical devices currently leverage this technology.
Key Areas for AI and ML Applications in Healthcare
Life Sciences Tools and Diagnostics
Diagnostics are expected to be a top priority for AI and ML investments in the healthcare sector. Morgan Stanley suggests that the adoption of AI and ML in advanced diagnostics can be accelerated through a shift to electronic health records and next-generation sequencing (NGS). These technologies can combine genomic data, medical imaging, and other patient health records to improve diagnostics. Leading gene sequencing companies include Illumina (ILMN), Pacific Biosciences of California (PACB), Thermo Fisher Scientific (TMO), Agilent Technologies (A), and QIAGEN (QGEN).
Similar to diagnostics, medical technology is also expected to benefit greatly from AI and ML investments. AI applications can analyze vital signs and assist in detecting and recommending treatments for conditions such as glucose levels, cardiac health, and neurological health. Medical technology products focused on earlier stages of care, such as continuous glucose monitoring (CGM), cardiac monitoring, and neuromonitoring, are likely to harness the benefits of AI. Key players in these areas include Medtronic (MDT), Insulet (PODD), Tandem Diabetes (TNDM), Abiomed (acquired by Johnson & Johnson), Cardiovascular Systems (acquired by Abbott), Edwards Lifesciences, Boston Scientific, LivaNova, and Teleflex Incorporated.
In the field of biopharma, AI and ML have the potential to transform innovation in various areas, including drug discovery, clinical development, manufacturing, and physician-patient engagement. The utilization of AI and ML can lead to shortened development timelines, reduced R&D expenditures, and higher success rates for pipeline programs. Morgan Stanley highlights that the inclusion of AI/ML components in marketing applications for drugs and biologics in the U.S. increased from 14 in the prior year to more than 100. This exponential growth in AI adoption could result in significant value for the biopharma industry. For example, an improvement of 2.5% in preclinical development success rates could potentially lead to over 30 new drug approvals over a decade, while doubling that improvement could result in 60 new therapies and an additional $70 billion in value for the industry. Companies like Ginkgo Bioworks (NYSE: DNA) have already experienced stock surges after announcing AI partnerships.
Healthcare Services and Technology
In care delivery, AI and ML can benefit healthcare providers and patients by shortening the time required for disease detection and diagnosis. This technology can make healthcare more convenient for both doctors and patients, with benefits ranging from accessing effective insurance distribution channels to finding pharmacies with the lowest drug prices. Companies specializing in diagnostics, patient care, and electronic health records, such as GE Healthcare (GEHC), NextGen Healthcare (NXGN), and Cerner (acquired by Oracle), are well-positioned to benefit from AI and ML in this area. For-profit hospital operator HCA Healthcare (HCA) recently partnered with Google Cloud to utilize AI technology for tasks such as clinical documentation, while Teladoc Health (TDOC) teamed up with Microsoft (NASDAQ: MSFT) to automate clinical documentation during virtual medical exams.
In conclusion, the healthcare sector is set to witness a significant increase in AI and ML investments by 2024. These technologies have the potential to revolutionize various areas, including diagnostics, medical technology, biopharma, and healthcare services and technology.