Budgetary allocation to AI, ML in healthcare to hit 10.5% in 2024

The budgetary allocation to artificial intelligence and machine learning in the healthcare sector is expected to reach 10.5% in 2024, up from 5.5% in 2022, Morgan Stanley said in a recent research report, citing industry-specific implications of the rapidly evolving field.

Fueled by the arrival of OpenAI’s ChatGPT, artificial intelligence is making waves across Wall Street, leading to sky-high valuations in chipmakers. Even biopharma firms with AI connections have benefited.

In July, AI-led drug discovery firm Recursion Pharmaceuticals surged after receiving a $50M investment from chip maker Nvidia. Recursion’s rivals in the industry, Abcellera Biologics (ABCL), Absci Corporation, Exscientia, and Schrodinger, also rallied in reaction.

However, the potential use of AI and machine learning could be transformational for the healthcare sector and will not be limited to drug discovery, Morgan Stanley argues.

Citing a recent survey, the bank noted that 94% of healthcare companies employ at least some form of AI/ML, and only 24% of medical devices currently leverage AI/ML technology.

According to MS, when it comes to AI and ML applications, healthcare investors should specifically focus on four key areas: Life sciences tools and diagnostics, Medical technology, Biopharma, and Healthcare services and technology.

Life sciences tools and diagnostics
Morgan Stanley says that diagnostics will be a top priority for AI/ML investments. The firm opines that a shift to electronic health records and next-generation sequencing (NGS) can accelerate the adoption of AI/ML in advanced diagnostics, given the technology’s ability to combine genomic data, medical imaging, and other data with patients’ health records.

Leading gene sequencing companies include Illumina, Pacific Biosciences of California, Thermo Fisher Scientific, Agilent Technologies, and QIAGEN.

In January, Bionano Genomics, which focuses on optical genome mapping (OGM) for genome analysis, partnered with Nvidia to build an acceleration platform for the company’s OGM workflow.

As AI tools allow for early detection and diagnosis of diseases, there will be less demand for products focused on later-stage, more invasive procedures, Morgan Stanley argues.

Medical technology
Like diagnostics, medical technology will also be best positioned to benefit from AI/ML investments. AI applications can analyze the body’s vital signs, and the results from preventative screenings can help detect, recommend treatments, and continuously monitor glucose levels and cardiac and neurological health.

According to MS, MedTech products focused on earlier stages of care, such as continuous glucose monitoring (CGM), cardiac monitoring, and neuromonitoring, will be at the forefront of tapping into the benefits of AI.

The developers of CGM products include Medtronic, Insulet, and Tandem Diabetes.

Companies focused on cardiac monitoring devices include Abiomed, acquired by Johnson & Johnson, Cardiovascular Systems, acquired by Abbott, Medtronic, Edwards Lifesciences, Boston Scientific , LivaNova, and Teleflex Incorporated.

Biopharma
For biopharma, AI/ML could transform innovation in drug discovery, clinical development, manufacturing, and physician-patient engagement. That will shorten development timelines, cut R&D expenditures, and bring about higher success rates for pipeline programs.

Morgan Stanley points out that more than 100 marketing applications for drugs and biologics in the U.S. included AI/ML components in 2021, up from only 14 in the prior year.

“Every 2.5% improvement in preclinical development success rates could lead to an additional 30-plus new drug approvals over 10 years,” the firm’s Head of U.S. Biopharma Research, Terence Flynn, noted.

“Doubling that could yield 60 new therapies approved, translating into an additional $70 billion in value for the biopharma industry,” Flynn explained.

Just last week, shares of drug discovery firm Ginkgo Bioworks surged after announcing a five-year cloud and AI partnership with Google Cloud, a unit of tech giant Alphabet Inc..

“Many health systems have already begun to migrate data from on-premises to the cloud, an important step for capturing the full benefits of AI” Flynn added.

Healthcare services and technology
In care delivery, AI and ML could benefit healthcare providers and patients alike. The tools can shorten the time to detect and diagnose disease, making it more convenient for doctors and other healthcare providers.

For patients, the benefits can range from accessing the most effective insurance distribution channels to locating pharmacies with the lowest drug prices.

Morgan Stanley argues that companies focused on diagnostics, patient care, and electronic health records are well-positioned to benefit from AI and ML.

Leading providers of electronic health records in the U.S. include GE Healthcare, NextGen Healthcare, and Cerner, which was acquired by Oracle in 2022 for more than $28B in cash.

Last week, the largest for-profit hospital operator in the U.S., HCA Healthcare, inked a new partnership with Google Cloud to use generative AI technology to enhance time-consuming tasks such as clinical documentation.

In July, telehealth provider Teladoc Health teamed up with Microsoft to use the power of AI for the automation of clinical documentation taken during virtual medical exams. Seeking Alpha