Investment into artificial intelligence (AI) and successfully implementing it will determine the future winners in the healthcare industry over the next several years.
This is according to Stefan Blum, manager of the Bellevue AI Health fund, who said many of the larger healthcare companies are already implementing AI into their business.
He suggested that the companies that do so successfully will emerge as winners over time, and those which don’t will be left behind.
Danish healthcare firm Novo Nordisk, for example, is widely known for its blockbuster glucagon-like peptide-1 (GLP-1) weight loss drug Ozempic.
However, what is less widely known is how the company is using its windfall profits to invest in advancing its generative AI capabilities.
Data is critical
When it comes to AI, unique data is key for giving models an edge. Blum highlighted that Novo Nordisk is spending huge sums of money not only to gene sequence everyone enrolled in their clinical trials, but also to conduct multiple protein profiles.
“The data generated behind the scenes is enormous,” he said. “This is super expensive – hundreds of millions of dollars just to get data that you then can use in your model and then improve the whole process of drug development.”
He said that while conducting clinical trials for heart disease or for kidney diseases, these trials generate data that can be used for other drug candidates in the same space.
Although Ozempic has been such a successful business for the company, Blum said investors still may be underestimating the level of reinvestment the company is making.
Indeed, only the companies with the free cash flow to spare can afford to make huge investments into AI.
Much of this reinvestment and potential returns, however, cannot be properly accounted for by traditional financial modelling.
Blum said: “The financial model for these companies is relatively straightforward. First, it’s $60bn in sales for GLP-1, then its $100bn, and now I think it’s $160bn. That’s what the models for these companies are indicating.”
“But what is not in the price, is what the reinvestment of the profits can generate in the future.”
He argued that the cash-rich healthcare companies making the investments into generating data and identifying better drugs more efficiently going forward will experience a “flywheel effect” and result in a “very big divergence in shareholder value” within the industry.
Management needs to be committed to AI
Although generative AI has been a hot topic among companies since the world was galvanised by ChatGPT, some companies had already been investing in it for years.
Healthcare insurer and services company United Healthcare, for example, has been investing into centralising its data and AI capabilities since 2017.
Blum said that is important that healthcare companies have either already started investing into AI years ago or are implementing it today.
“You need the management to go all-in, knowing that it is getting measured by what they do with AI,” he said.
“You would be surprised how different the management teams are, and how different the sense of urgency. It is often difficult for them, because it is outside their (typically) biology training.”
He said healthcare companies are addressing the challenge very differently and are setting themselves up for very different outcomes down the line.
This is why he is focused on identifying the healthcare companies that have made generative AI a core element of their business strategy and are investing substantial resources into it.
He said: “Speed matters. Dedication matters. Resources matter. We really expect these to make a dramatic difference in shareholder value.”
Bellevue AI Health fund’s top three holdings are in Ely Lilly, United Health Care Group and Novo Nordisk.
It also has a 5.8% exposure to what the portfolio manager labels as the “picks and shovels” to AI in healthcare: Nvidia, Oracle and Qualcomm.
