Just over a year ago, AI technology burst into our collective consciousness with the launch of ChatGPT. Generative AI has quickly shown a high potential to change the way we communicate with the digital world – and it can bring a similar potential to other fields, from automobiles to healthcare.
The magnitude of AI’s potential is clear from the estimates: tech experts are predicting that AI’s application to the healthcare market could exceed $100 billion before 2030. The gains will come on the heels of AI’s contributions in the health and medical fields. These contributions include improvements in refined diagnoses, reduced medical errors, and consequently enhanced patient outcomes. AI may even be able to promote lower costs and greater efficiencies.
AI’s growing and varied contributions to the healthcare industry are proving their worth and bringing out a solid set of opportunities for investors willing to go in for the long term on healthcare stocks.
The analysts at Cowen have seen it too, noting: “We are seeing an increase in AI-based clinical trials and a significant increase in the number of partnerships with AI tools players, and we believe that this is only the beginning…”
Moving on to concrete suggestions, the firm’s analysts are pointing to 2 AI healthcare stocks that investors should definitely consider. These are shares that may bring the ‘AI hype’ to the world of clinical trials; we’ve looked up their details and added the Cowen analyses for additional context. Here they are.
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Evotec AG (EVO)
We’ll start with Evotec, a biopharmaceutical and medical biotech company working on a variety of projects, including the discovery and development of new drug candidates, management of clinical trial programs, and the implementation of an innovative disease-relevance assessment designed to facilitate the implementation of patient-specific treatment as early as possible.
The company bills itself as an ‘innovation hub,’ working with partners throughout the biopharmaceutical industry. Evotec, which is based in Germany, exemplifies the international nature of the medical field, with long-term partnership arrangements with Bayer, Bristol Meyers Squibb, Lilly, Sanofi, Takeda – and that’s just a part of the list. The company has described its approach to research and development as building a ‘data-driven autobahn to cures.’
In mid-November, Evotec publicly presented its AI-driven development platforms. The company is leveraging AI-technology to move toward higher capital efficiency, faster growth, and entry into new markets. Short-term, the goal is the creation of better precision-targeted drug candidates; long term, the goal is to improve patient outcomes and achieve higher commercial success.
Getting down to the base, the important factor for investors, we find that Evotec has an extensive pipeline of drug candidates, the company’s ‘product opportunities.’ The pipeline contains projects at every level of the clinical and regulatory process, from early discovery work to pre-clinical research to active human-trial clinical studies. The drug candidate programs target conditions in a wide variety of medical fields, including such ‘hot’ fields as neurology, oncology, immunology, and inflammatory diseases.
All of this forms a sound base for a biotech, and caught the attention Steve Mah. He writes of the company and its variegated research programs, “Evotec has built an ‘innovation hub’ to discover and develop pharmaceutical drugs. The hub leverages the expertise of 3,000+ scientists and drug developers in conjunction with a network of platforms that leverage synthetic biology technologies, integrated analysis of ‘omic’ datasets (genomics, transcriptomics, proteomics, metabolomics), and data-driven AI and machine learning models.”
Tracking forward from here, Mah goes on to outline why Evotec in particular should impress investors, saying, “Differentiated capabilities are at the core of the EVO thesis with their innovative end-to-end process that offers higher probability of success, increased yields, and reduced manufacturing COGS for their pharma partners.”
Mah quantifies his stance on Evotec with an Outperform (Buy) rating, and a $21 price target that points toward ~110% upside in the coming months. (To watch Mah’s track record, click here)
This stock is currently trading for $10.01, and its $16 average price target implies a one-year gain of ~60%. The shares have a Moderate Buy consensus rating, based on 2 recent Buy ratings and 1 Hold. (See EVO stock forecast)
Amgen, Inc. (AMGN)
The next stock we’ll look at, Amgen, is one of the US biotech scene’s largest companies. By market cap, Amgen ranks sixth among US biopharmaceutical firms, and by annual revenue it ranks as number 18 on the global scene. Amgen employs some 5,000 people at its headquarters in Thousand Oaks, California, making it a major employer in its home state. Overall, the company has some 24,000 employees worldwide.
Like most of its peers, Amgen has both approved drugs on the market and a wide-ranging development pipeline for novel drug candidates. This gives the company a solid revenue stream from the marketable products, totaling $26 billion last year. Amgen is expanding its top line this year; for the first nine months of 2023, the company brought in $19.87 billion, achieving a 2.8% increase when compared to the same period last year.
Amgen actively works with AI tech, using AI and machine learning to boost selected development programs. The company’s drug candidate AMG 193 has particularly benefited from this. This candidate, currently at the Phase 1 clinical stage, is a small molecule methylthioadenosine (MTA) cooperative protein arginine methyltransferase 5 (PRMT5) inhibitor, and has applications in the treatment of solid tumors. This program, with its potential for success and gains, is presented by the company has a prime example of how AI and top-end data science can boost biotech research.
Elsewhere in the pipeline, one of Amgen’s most advanced products is Tarlatamab, a BiTE molecule designed to combat various cancers. The drug is currently undergoing a Phase 3 trial as a treatment for small cell lung cancer, and a Phase 1 trial against neuroendocrine prostate cancer. The company recently presented positive data from a Phase 2 trial on the lung cancer track.
Amgen is also aggressively pursuing the treatment of metabolically-related obesity, and has two drugs in the pipeline that show high promise in this area. AMG 786 is a small molecule compound, and AMG 133 is a multispecific molecule deigned to inhibit the GIPR receptor while activating the GLP-1 receptor. AMG 133 is undergoing a Phase 2 study in overweight and obese adults with type 2 diabetes. Study enrollment has been completed, and topline data is expected late in 2024.
Key results from Amgen’s 3Q23 included a total revenue number of $6.9 billion, 4% higher than the prior-year quarter although $45 million below expectations. The bottom line came to $4.96, growing 6% y/y and beating the forecast by 28 cents.
For Cowen’s 5-star analyst Yaron Weber, Amgen presents a compelling big picture. The company makes solid use of AI, and Weber writes of it, “Amgen’s goal is to use AI to build a next-generation research pipeline that is unique in its combination of both computational and wet lab capabilities. The company’s efforts include a balance of internal as well as external partnerships and acquisitions. The company uses the term ‘generative biology’ to describe its integration of protein drug discovery and design with AI and machine learning. Towards this end, Amgen has invested in wet lab high throughput automation and dry lab computational biology, including the Digital Biologics Discovery group, which uses protein structure and function data to train computer models to make proteins with specific structure and function.”
Weber goes on to outline Amgen’s prospects for the near term, writing, “We expect Amgen’s diversified late-stage pipeline and early-stage pipeline powered by their AI/machine learning capabilities should bolster their long-term outlook as early and late-stage clinical assets (including their PRMT5 inhibitor AMG 193, a product of their AI platforms) gain more visibility and advance through clinical development.”
Weber rates AMGN shares as Outperform (i.e. Buy), and he puts a $336 price target on the stock, indicating room for a 24% increase in the coming year. (To watch Werber’s track record, click here)
This stock has a Moderate Buy consensus rating, based on 22 analyst reviews on file that break down to 12 Buys, 8 Holds, and 2 Sells. The stock’s $283.86 average price target suggests a 5% upside from the current trading price of $269.64. (See Amgen stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
