Healthcare companies employing artificial intelligence (AI) look set to be increasingly attractive investment options as technology advances, rising data generation, the growing number of deals and the competitive advantage AI can provide all combine to raise the potential performance of these business and the returns investors can expect.
These are the conclusions of a new research report, ‘Rude Health’ on the AI in Healthcare sector, by leading adviser and broker to ambitious growth companies, finnCap Group plc. The report outlines the firms that the authors believe are employing AI to its best advantage and where its application should have a meaningful business benefit.
AI has potential applications across the entire life sciences value chain, including drug discovery, clinical trials and patient-care, in addition to potential improvements in speed and efficiency of company operations. The global market was worth $2.1bn in 2018, with exponential growth to $36.1bn predicted by 2025, at a CAGR of 50.2%.
However, AI presents various new challenges, and the pharmaceutical industry has highlighted many technologies in the past that promised to drive productivity, but nothing has yet worked on a large scale. Nevertheless, the authors believe that AI is likely to become a greater differentiator in the next 5-10 years and the report presents case studies and real-world examples of the benefits it could provide.
The healthcare sector is particularly primed to benefit from AI because it deals with large amounts of data on a daily basis – in 2020 the amount of health data is expected to double every 73 days.
The report’s authors outline four key factors why they consider the AI in Healthcare sector to be an attractive one for investment. First, is the advances in computing power and decline in hardware cost, which will continue to increase the capability of AI and reduce the costs of its implementation. Second, the continually increasing size of data sets generated in the healthcare field, which AI can allow for improved processing and management of data.
Third, is the number of cross-industry partnerships and collaborations in the healthcare sector which have grown and are expected to continue to do so. All of the main Big Pharma companies have either expressly collaborated with or acquired AI technologies to take advantage of the opportunities AI brings to the table. Fourth, is the competitive advantage which AI offers in terms of processes and efficiency to the companies employing it, over the companies that are not yet implementing the technology.
Companies should begin building their AI infrastructure now or risk falling behind. As the report notes, AI-experts are not an unlimited resource, especially given that most of the talent in this sector naturally gravitates towards traditional IT and technology companies. Even in companies dedicated to AI in healthcare, AI-experts typically only comprise c. 15% of staff.
Another important motivator which the report notes for healthcare companies building AI infrastructure now is the entry of Big Tech into the healthcare field. The report highlights how Google, Microsoft, Amazon, Apple and Facebook have already announced different initiatives to enter the healthcare space – companies which will have fundamental advantages in terms of AI capabilities.
As such, the report concludes, waiting for more examples of AI’s efficacy is not advisable and companies should build their AI-capabilities now. In particular, companies where big data is prevalent and that are not developing AI solutions and articulating the way in which they are being deployed in their businesses will be competitively disadvantaged in the mid to longer term.
Among the areas where AI will provide the most benefit is drug discovery, where companies will see their drug designing phase being reduced significantly to weeks whereas at the moment the process takes circa 2 years. Looking too at clinical trials, the success rate would improve substantially. Currently, most trials fails because the intervention does not demonstrate efficiency or safety. AI has the potential to save billions of dollars by increasing the efficiency of the trials.
Companies to watch in these areas are: Sensyne Health (LON: SENS), DeepMatter Group (LON: DMTR), 4D Pharma (LON: DDDD), Integumen (LON: SKIN), Fusion Antibodies (LON: FAB), RenalytixAI (LON: RENX), Diaceutics (LON: DXRX), Oxford Biodynamics (LON: OBD), e-therapeutics (LON: ETX), Medica Group (LON: MGP).
AI has the potential to transform clinical decision-making, through utilising the vast amounts of genomic, biomarker, phenotype, behavioural, biographical and clinical data generated across the health system. Business to monitor are: Cambridge Cognition (LON: COG), Ixico (LON: IXI), Horizon Discovery (LON: HZD). AI will also affect Patient Assessment as well as Contract Research improving the process and making it more cost effective. Companies to watch include: Ergomed (LON: ERGO), Open Orphan (LON: ORPH).
Providing a positive broader backdrop, the report notes that the AIM Healthcare Index rose by 13% in 2019, once again out-performing the AIM All Share, which rose by 12%.The AIM Healthcare Index has also outperformed all comparator indices over the past six years, rising by a CAGR of 11%, which compares with 4% for the AIM All Share and the FT All Share, 7% for the FT All Share Health and 10% for the World Pharma/Biotech Index.
Even more impressively there were 17 of the 50 key life sciences stocks that finnCap follows, which exhibited double-digit percentage increases in the past 12 months, and a further four that exhibited triple-digit percentage increases. They were: Silence Therapeutics (+503%), Shield Therapeutics (+482%), ReNeuron (+184%) and Ergomed (+126%).
Mark Brewer, Research Director, Life Sciences, at finnCap Group plc, commented:
“As a backer of ambitious growth companies, we were fascinated to uncover the extent to which the AI in Healthcare sector is advancing. In sharing case studies and real-world examples in our latest quarterly report, we want to better inform companies and investors of the opportunities that exist given the expected inflection points and superior growth which we expect the sector to experience in 2020.”
News & Analysis