How the experts are investing in healthcare-related AI and biotech

"May you live in interesting times" is often viewed as a curse, but how lucky we are when it comes to the healthcare sector. 

We live in extraordinary times for biotechnology; there are companies that have cures in sight for cancer, companies that were able to rapidly develop the COVID-19 vaccines and companies using AI to transform diagnostics.

As HB Biotechnology's Charlie Williams put it in Part One of this healthcare deep-dive, biotechnology is truly in a golden age of innovation.

If you missed it, I spoke to Wilsons’ Dr Shane Storey and HB Biotechnology’s Charlie Williams about why the healthcare sector underperformed last year, the prospects of a continued surge and where to hunt for value.

In this instalment, I'll explore the big trends, from how AI is changing biotechnology to the great innovations to watch across the industry.

Forget ChatGPT; AI and healthcare are set to be huge

There are a range of drivers across the healthcare industry; for example, an aging population in developed nations is seeing increasing government and institutional spending, but technology is a major driver and enabler across the sector for innovation. 

Interest in AI has taken a massive shift in recent times, as Williams shares.

“Two years ago, Nvidia presented on the final day of the JP Morgan Healthcare Conference. It wasn’t well attended and people wondered why they were there. They presented on Day 1 in January this year and it was absolutely packed,” he says.

Williams sees the potential from AI and machine learning in terms of aiding companies in narrowing down the permutations and variations of molecules to test, or as a tool to save human specialists time in pinpointing issues. It’s not necessarily changing what biotechnology companies do – but augmenting it and increasing efficiency.

An example of this is Schrodinger (NASDAQ: SDGR), which creates chemical simulation software for use by biopharmaceutical and industrial companies, academic institutions and other laboratories. The company has been in operation for 30 years, but machine learning has meant the processing speeds of existing technology has increased significantly.

A local example is Pro Medicus (ASX: PME), which is currently going through approvals for an AI algorithm to interpret diagnostic images, whilst Enlitic (ASX: ENL) is aiming to standardise medical imaging data for radiology exams using AI.

The innovations to watch

Barely a few years back, one of the biggest topics was genome sequencing – it was a starting point, and the trends across the biotechnology industry today are practically science fiction come to life. 

Storey points to precision medicine and connected care as favourite areas. It's worth noting how AI and machine learning are really supporting the acceleration of development on this front.

Precision medicine refers to targeted treatments for complex and difficult diseases by examining genetics, environment and lifestyle factors.

“Look at Neuren’s (ASX: NEU) stunning success last year in Rett and Phelan-McDermid syndromes. Or CSL’s emergence as a global biotech player with Garadacimab and HemGenix. Immutep’s (ASX: IMM) Eftilagimod doubling overall survival on non-small cell lung cancer is another example,” Storey says.

Connected care is very broad. To put it simply, it’s real-time electronic care for a patient, which could mean anything from medical devices pairing with enterprise software to improve care (such as remote patient monitoring and wearable devices) or telehealth.

Both ResMed and Impedimed (ASX: IPD) are examples of connected care.

Within precision medicine, both Storey and Williams like radiopharmaceuticals.

Radiopharmaceuticals are groups of pharmaceutical drugs containing radioisotopes – which are used to image and treat cancer. They also typically act in conjunction with other treatments like chemotherapy and immunotherapy.

“Developers like Telix Pharmaceuticals (ASX: TLX) and Clarity Pharmaceuticals (ASX: CU6) design new drug-radioisotope ‘conjugates’ that attach to those targets and enable either imaging or treatment of those cancers. As an example, Telix uses the same targeting drug for its two kidney cancer products, using 89-zirconium for imaging and 177-lutetium for therapy,” says Storey.

One of the big trends Williams is monitoring is therapeutics – many large pharmaceutical companies have been acquiring companies on this front. Narrowing in on this, Williams is particularly excited by protein degradation.

“Antibodies and small molecules typically work as a lock and key. It finds a receptor on or inside a cell, binds to it and drives the cell to behave in a certain way. Most diseases are an aberrant expression of proteins.

The body has its own method of cleaning up and removing protein expression on cells called the ubiquitin-proteasome system. Instead of trying to bind to a receptor and drive a result, this class of drugs simply tags the protein of interest for enzymatic removal by the proteasome, thereby removing the problematic protein by 'degrading' it back into its amino acid building blocks,” says Williams.

What makes this particularly incredible from Williams’ perspective is that, since this technology simply activates the body's natural protein cleanup and recycling machinery, it has the potential to target diseases that were previously thought to be 'undruggable' using traditional methods, all in a simple, oral route of administration.

While there are no ASX-listed companies that take advantage of this technology, and one of the reasons Williams invests globally and not just locally, he points to the NASDAQ listed company Kymera Therapeutics (NASDAQ: KYMR) as one of the leaders in Protein Degradation drug development.

Final words of note

Biotechnology can be a long game, when you consider the length of time to develop drugs and test them, and there’s no guarantee of success – after all, CSL112 took 20 years to develop – so it’s an area where having expert advice to sift out prospects can be beneficial. 

Investors hoping to hit it big with an investment could find themselves in trouble if a major trial fails - it's a case where looking at diversified pipelines and sources of revenue within stock selection can be useful.