Generative artificial intelligence was a point of emphasis for investors in 2023. That movement is just getting started. One exciting element about AI from an investment perspective is that upcoming advancements could spell opportunity. Part of that conversation should include AI interacts and intersects with other disruptive, innovative industries. Healthcare is included in that group, with biotech representing a potential epicenter of positive disruption courtesy of AI advancements.
Over the long term, that could be good news for assets such as the VanEck Biotech ETF (BBH).
Biotech stocks and ETFs such as BBH have been a source of disappointment for investors over the past several years. But signs are emerging that better things are in store for 2024. For example, BBH is higher by almost 11% over the past month. That could be the beginning of something more substantial for the ETF, particularly if AI advancements further penetrate the biotech space.
Bet on Biotech ETF BBH as Indirect AI Play
As has been well-documented, healthcare is perhaps the most innovative sector after technology, indicating that the former is ripe to benefit from AI advancements. Specific to biotech firms, including BBH holdings, it’s easy to see how AI could lift the industry.
“AI is delivering on the promise of dramatically improving the speed and efficiency of drug development. We are seeing an increase in AI-based clinical trials and a significant increase in the number of partnerships with AI tools players,” according to TD Cowen research. “We believe that this is only the beginning. And we see AI adoption and implementation becoming an increasingly larger part of biopharma industry strategy (our estimates show a doubling of AI focus the next 3-5 years).”
On another note, seasoned biotech investors know that’s essential for companies in the industry to bring new drugs to market. That’s particularly true for the large-cap names dwelling in BBH. While that goal can be accomplished via acquisitions, that can be a risky gambit. But with AI evolving, it’s possible that biotech companies can reduce research and development costs while boosting efficiencies related to bringing new products to market.
“Near term, we believe AI will usher in a new era of drug discovery. This includes enabling the discovery of candidates in ‘hard-to-drug’ indications such as neurology and autoimmune/inflammation and ‘hard-to-drug’ targets, such as ion channels and G-Protein Coupled Receptors (GPCRs), which will manifest in many more drug candidates entering the clinic in the next few years. We believe there is a compelling investment opportunity given recent valuation pullbacks,” added TD Cowen.
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