The AI Wave Sweeps the Healthcare Industry! Big Mo: AI Spending to Account for 11% of Healthcare Budget by 2024

According to Dolphin Research, Morgan Stanley stated in a recent research report that the budget allocation for artificial intelligence and machine learning in the healthcare industry is expected to increase from 5.5% in 2022 to 10.5% in 2024. It also pointed out the specific impact of this rapidly developing field on the industry.

Driven by the arrival of OpenAI ChatGPT, artificial intelligence has caused a stir on Wall Street, leading to a surge in valuations of chip manufacturers. Even biopharmaceutical companies associated with artificial intelligence have benefited from this trend.

In July of this year, Recursion Pharmaceuticals (RXRX.US), an artificial intelligence-driven drug development company, saw its stock price soar after receiving a $50 million investment from chip manufacturer NVIDIA (NVDA.US). Competitors in the industry, such as Abcellera Biologics (ABCL), Absci Corporation (ABSI), Exscientia (EXAI), and Schrodinger (SDGR), also experienced a rise in their stock prices.

However, Morgan Stanley believes that the potential applications of artificial intelligence and machine learning may have a revolutionary impact on the healthcare industry, extending beyond drug development.

The bank cited a recent survey indicating that 94% of healthcare companies have adopted some form of artificial intelligence/machine learning, while only 24% of medical devices currently utilize these technologies.

According to Morgan Stanley, healthcare investors should pay particular attention to four key areas when it comes to the application of artificial intelligence and machine learning: life science tools and diagnostics, medical technology, biopharmaceuticals, and healthcare services and technology.

The company states that diagnostics will be a top priority for investment in artificial intelligence/machine learning. Morgan Stanley believes that the shift towards electronic health records and next-generation sequencing (NGS) can accelerate the application of artificial intelligence/machine learning in advanced diagnostics, as this technology can integrate genomic data, medical imaging, and other data with patients' health records.

Leading gene sequencing companies include Illumina (ILMN), Pacific Biosciences of California (PACB), Thermo Fisher Scientific (TMO.US), Agilent Technologies (A), and QIAGEN (QGEN).

In January of this year, Bionano Genomics, specializing in optical genome mapping (OGM), partnered with NVIDIA to establish an accelerated platform for its OGM workflow.

Morgan Stanley believes that due to the early detection and diagnosis of diseases made possible by artificial intelligence tools, there will be a reduced demand for products focused on later-stage and more invasive surgeries.

Similar to diagnostics, medical technology will also benefit from investments in artificial intelligence/machine learning. Artificial intelligence applications can analyze vital signs of the body, and the results of preventive screenings can help detect diseases, recommend treatment methods, and continuously monitor blood glucose levels, as well as the health of the heart and nervous system. According to MS, MedTech products that focus on early-stage care, such as Continuous Glucose Monitoring (CGM), cardiac monitoring, and neural monitoring, will be at the forefront of leveraging the advantages of artificial intelligence.

Developers of CGM products include Medtronic, Insulet (PODD), and Tandem Diabetes (TNDM).

Companies specializing in cardiac monitoring devices include Abiomed (acquired by Johnson & Johnson), Cardiovascular Systems (acquired by Abbott), Medtronic (MDT.US), Edwards Lifesciences (EW.US), Boston Scientific (BSX.US), LivaNova (LIVN), and Teleflex Incorporated (TFX).

For biopharmaceuticals, artificial intelligence/machine learning can bring innovation to drug discovery, clinical development, manufacturing, and doctor-patient interactions. This will shorten development time, reduce R&D expenses, and increase the success rate of pipeline projects.

Morgan Stanley pointed out that by 2021, over 100 marketing applications for drugs and biologics in the United States included artificial intelligence/machine learning components, compared to only 14 the previous year.

Terence Flynn, Head of US Biopharmaceutical Research at the company, stated, "For every 2.5% increase in preclinical development success rate, there will be over 30 new drugs approved within 10 years."

He further explained, "If this number doubles, there will be 60 new therapies approved, bringing an additional $70 billion in value to the biopharmaceutical industry."

Just last week, drug development company Ginkgo Bioworks (DNA) announced a five-year cloud and artificial intelligence partnership with Google Cloud, causing its stock price to soar.

It is worth noting that "many healthcare systems have already begun migrating data from local to cloud, which is an important step in harnessing the full advantages of artificial intelligence."

In terms of healthcare services, artificial intelligence and machine learning can benefit healthcare providers and patients alike. These tools can shorten the time for disease detection and diagnosis, making it more convenient for doctors and other healthcare providers.

For patients, the benefits range from accessing the most effective insurance distribution channels to finding the lowest-priced pharmacies.

Morgan Stanley believes that companies focusing on diagnostics, patient care, and electronic health records are well-positioned to benefit from artificial intelligence and machine learning.

Leading electronic health record providers in the United States include General Electric Healthcare, NextGen Healthcare, and Cerner, the latter of which was acquired by Oracle for over $28 billion in cash in 2022.

Last week, HCA Healthcare, the largest for-profit hospital operator in the United States, signed a new partnership with Google Cloud to use generative artificial intelligence technology to improve time-consuming tasks such as clinical documentation.

In July of this year, telemedicine provider Teladoc Health (TDOC) partnered with Microsoft (MSFT.US) to automate clinical documentation during virtual medical examinations using the power of artificial intelligence.