Why AI’s rising role in biotech is drawing investor interest

While the technology is being put to use to support drug discovery, measuring its potential success will take time

A laboratory technician conducts AI-based cervical cancer screening at a test centre in Wuhan, China. AFP

The excitement bubbling up around artificial intelligence has been spilling into the biotechnology sector, with a steady flow of stories about how the technology is helping to support drug discovery – from an antibiotic that shows promise against drug-resistant bacteria to a new psoriasis treatment with multibillion-dollar sales potential.

These accounts have piqued investor interest, given claims that AI can speed drug development, reduce costs and improve outcomes.

A Morgan Stanley report last year estimated that AI and machine learning could lead to 50 additional novel drugs worth more than $50 billion in sales over a 10-year period.

The excitement has some merit. AI is being adopted throughout the sector and is showing early signs of its potential.

Covid-19 mRNA vaccines, for example, were developed in record time thanks to AI algorithms that helped design synthetic mRNA, identify drug/vaccine targets and automate quality control steps.

In breast cancer screening, AI-based 3D imaging is improving the chances of detecting invasive breast cancer earlier and reducing the number of images radiologists must review.

And in a recent report, the US Food and Drug Administration said there was a significant increase in drug submissions with AI-based components. It expects the number to accelerate from here.

However, as with any new technology, we believe it is important for investors to remember the bottom line. While AI may appear to be hastening medical breakthroughs, these advances are often rooted in extensive research and development, with AI playing a supporting role.

Moderna, which developed one of the mRNA Covid vaccines, spent years fine-tuning synthetic mRNA and collecting and analysing data that later could be harnessed to fight the virus.

And when it comes to drug development, certain time-intensive aspects will be difficult for AI to change drastically.

These include clinical development (the phase one, two and three clinical trials that test efficacy and safety on patients) and regulatory filings and review, which together can take many years to complete.

Today, it is possible to invest in so-called digital biotech companies that use AI to develop new molecules. And while these companies are making progress in building drug pipelines, it may be many years before the companies bring a therapy to market – even as some of these stocks get lifted by AI enthusiasm.

That said, more tangible progress has been made when it comes to computational tools and methods to help enhance preclinical drug development.

Today, the best biotech companies are taking advantage of these tools, benefitting the companies that provide them.

In short, we believe AI has an important future in biotech, with the potential to speed drug discovery and support effective and specific treatments for patients.

But ultimately, the value of the companies behind the technology will be derived from the products created – the success of which depends on clinical data that will take years to produce.

Until such data is available, we believe investors should approach AI in biotech with caution.

Andy Acker and Meshal Al Faras are with Janus Henderson Investors, a member of The Gulf Capital Market Association