Artificial intelligence (AI) is already having a mind-blowing impact on society.
We’re already seeing its impact with education, finance, military, cybersecurity, you name it.
But this is just the start.
Big tech is investing billions in AI. In fact, according to CNBC, AI is now the biggest expense for about half of all tech companies.
But again, this is just the start.
According to Next Move Strategy Consulting, the AI market – currently valued at about $100 billion – could grow twenty-fold by 2030 to more than $2 trillion. All while the technology massively disrupts everything about everything.
That includes healthcare and medical technology.
For example, according to analysts over at BlackRock, “The greatest surge of new retirees in the nation’s history is fast approaching, and the AI healthcare market, worth $9 billion in 2022, is forecasted to skyrocket to $188 billion in 2031.”
Better, “With the implementation of AI in healthcare, it was forecast physicians would be able to spend almost 20 percent more of their time on patients because the time burden of administrative tasks would be reduced,” as noted by Statista.
Look at drug discovery, for example.
At the moment, it can take 10 to 15 years, and upwards of $2 billion to develop a new drug.
Plus, designing new drugs isn’t easy.
When creating a new drug, you need to identify a molecule that balances a large number of anti-correlated properties, including potency, selectivity, solubility, bioavailability, clearance/ half-life, permeability, drug interactions, and synthesizability.
Even then, drug development has a high failure rate of 90% — which is ridiculously high.
However, with artificial intelligence (AI) the rate of failure could drop, and the design of new drugs could become far easier.
According to Pfizer, AI could assist pharma companies in getting medicines to market faster. AI today not only does flashy gene-sequencing work, it’s being trained to predict drug efficacy and side effects, and to manage the vast amounts of documents and data that support any pharmaceutical product.
Even more impressive, according to Fitch Solutions:
“Within cardiovascular care, AI can be used as a tool to monitor vital signs of patients such as pulse rates, respiration rates and blood pressure (blood pressure is not considered a vital sign, but is often measured along with the vital signs). These indicators can detect signs of heart failure, or other instances in which a patient should be referred to a healthcare professional for further treatment or care, or to diagnose a heart condition.”
But wait, there’s more.
The budgetary allocation to AI and machine learning could explode to 10.5% in 2024 from just 5.5% in 2022, according to Morgan Stanley.
All of which should have a substantial impact on Life sciences tools and diagnostics, Medical technology, Biopharma, and Healthcare services and technology.
Look at Schrodinger (SDGR), for example.
Schrödinger is transforming the way therapeutics and materials are discovered, already counting Bill Gates and Cathie Wood as some of its biggest fans.
The Bill and Melinda Gates Foundation Trust, for example, owns 11% of SDGR.
To date, the company has pioneered a physics-based computational platform that enables discovery of high-quality, novel molecules for drug development and materials applications more rapidly and at lower cost compared to traditional methods.
At the moment, its AI-powered software technology uses physics-based modeling and machine learning (ML) algorithms to help companies identify which molecules can help treat specific ailments. Better, its programs can help predict behavior of molecules and possible outcomes.
It also allows for faster and cheaper discoveries of novel molecules, with a higher rate of success than traditional research methods.
And more than likely, it won’t have a failure rate of 90%.
Even better, its platform can evaluate molecules in just hours, rather than weeks in a lab. Plus, the software can look at billions of molecules in a single day.
Meanwhile, a typical lab would be lucky to look at a thousand inside of a year.
According to a published report in the Journal of Chemical Information and Modeling, “Schrödinger’s drug discovery group used these tools to design inhibitors of cyclin-dependent kinase 2 (CDK2) as a proof of concept. The team was able to explore more than 300,000 ideas and identify more than 100 ligands — among them, four unique cores — that are predicted to meet key parameters (including an IC50 <100 nM). A process that would have otherwise taken years was completed in under a week using Schrödinger’s drug discovery platform.”
We also have to consider its long list of clients including Pfizer, Merck, AstraZeneca, Glaxo, Sanofi, and most recently Eli Lilly & Co.
Just as impressive are its earnings.
In its third quarter, the company saw total revenues of $42.6 million, as compared to $37 million year over year. Software revenue jumped to about $29 million from $24.7 million. Drug discovery revenue was $13.7 million from $12.3 million. Software gross revenue came in at 72% from 72% year over year, as well. And, at the end of its quarter, the company had about $503 million in cash, as compared to the $456 million it had at the close of 2022.
KeyBanc also just initiated coverage of SDGR with an overweight rating, with a $38 price target.
Or, look at Exscientia (EXAI).
Exscientia (EXAI) bills itself as an AI-driven precision medicine company that’s engineering future drugs to help revolutionize drug discovery.
Its patient-first Ai-driven platform allows for a highly efficient and accelerated drug discovery process, which significantly reduces time and costs associated with typical drug discovery methods. All through the use of patient tissue data to “define optimal profiles for research, improve experimental assessment during design and improve outcomes in a medical setting.”
Even more impressive, EXAI just partnered with Merck KGaA for Ai-powered drug discovery.
“The multi-year collaboration will utilize Exscientia’s AI-driven precision drug design and discovery capabilities while leveraging Merck KGaA, Darmstadt, Germany’s disease expertise in oncology and neuroinflammation, clinical development capabilities and global footprint,” as noted in the press release.
It’s also working with Sanofi – which put up $100 million to work with EXAI. All so Sanofi can use EXAI’s “AI-based capabilities from target identification through to patient selection on up to 15 small molecules across oncology and immunology,” according to FierceBiotech.
Even better, EXAI’s EXCYTE-1, which is evaluating the potential of Exscientia’s functional precision medicine platform in a solid tumor indication, continues to progress in ovarian cancer.
“The outcomes from this study could have broad implications for how we evaluate drug candidates and support clinical practice in the future,” said Dr. Nikolaus Krall, EVP of Precision Medicine at Exscientia.
“If established, a robust correlation between our platform’s results and clinical outcomes will support the greater use of human tumor samples in the preclinical development of new drug candidates and translational cancer research. This has the potential to overcome the limited clinical relevance of mouse and other animal models that are presently used.”
Earnings have been just as impressive.
Revenue for the three and nine months ended September 30 came in at $10.8 million and $21.6 million respectively, compared to $7.7 million and $24.9 million year over year. R&D expenses for the three and nine months ended September 30, were $39.8 million and $120.9 million respectively, as compared to $44.9 million and $113.9 million year over year, as well.
Recursion Pharmaceuticals (RXRX)
There’s also Recursion Pharmaceuticals (RXRX), a clinical stage TechBio company that’s “decoding” biology to industrialize drug discovery with the help of its Recursion OS.
Consider this.
That operating system has been designed to run experiments on a database of human genes to test and predict how clinical compounds would affect and impact those genes. Boosting this potential even more, RXRX is now working with Nvidia, which just invested $50 million in it to create AI models and software to discover new drugs.
That could become a mind-blowing interaction.
RXRX is also working with Bayer to accelerate drug discovery for oncology.
In fact, according to a company press release, the “Drug discovery research collaboration may initiate up to seven oncology programs and further strengthens Bayer’s early pipeline in precision oncology. Recursion is eligible to receive up to $1.5 billion in potential development and commercial milestone payments plus royalties.”
At the same time, RXRX is also working on potential treatments for neurofibromatosis, familial adenomatous polyposis, mutant cancers, ovarian cancers and cancer immunotherapy. Even better, Cathie Wood’s ARK Investment has been loading up on RXRX shares. Since the start of November, for example, the fund bought just under three million shares.
Earnings haven’t been anything to write home about just yet. But the potential for massive revenue is there – especially with its $50 million investment from an AI powerhouse.
BONUS TRADE IDEA
While the three stocks above are certainly red-hot opportunities, you can also diversify at a lower cost with an ETF. Look at the ARK Autonomous Technology and Robotics ETF (ARKQ).
With an expense ratio of 0.75%, the ETF offers exposure to stocks that will benefit from the development of new products, services, technological improvements etc. with a broad range of industries including healthcare, and surgeries.
That includes holdings in Intuitive Surgical and Nvidia, for example.
