AI injects a growth
opportunity forpharmaceuticals
industry
From virtual assistants such as Siri and Alexa to navigation apps thatplot journeys based on real time traffic data, AI (Artificial Intelligence)is part of most of our everyday lives. But what about the pharmaceuticals
industry? Is AI widely used, or are there opportunities waiting to becapitalised on? What are the physical, legal and ethical implications ofthe use of AI in healthcare? We asked our Pharmaceuticals Sector Experts
for their insights and opinions on how AI is and will impact the industry.
By its very nature, the pharmaceuticals industry is disruptive. It invests heavily in R&D andworks every day at the cutting edge of science and innovation. In this context, it is perhaps
surprising that the industry has been a fairly slow adopter of AI technologies. To date themost common applications are found mainly in monitoring and medical imaging. This isdue to a range of reasons but are most commonly thought to include the regulatory burdensof securing authorisation from legislative bodies, as well as concerns over safety and the risks
posed to health by the use of inaccurate data.
However, things are now changing. Today Big Data and AI present a significant growth
opportunity for the entire industry and the potential to drive efficiency in R&D. It is estimatedthat pharmaceutical companies spend on average 25% of their revenues on R&D. It can takemore than a decade to bring a drug to market, often with a failure rate of 90% during the clinical
trial period. However, AI has been successful in reducing the time it takes to commercialise adrug, while also cutting down the failure rate. It is not just about speed. AI and machine learning
also offer the potential to devise more tailored and personalised approaches to treatment.

AI with major growth potential in the healthcare sector
The global artificial intelligence in healthcare market size wasestimated at USD 15.1 billion in 2022, and is expected to amountto more than USD 185 billion by 2030, growing at a compound
annual growth rate (CAGR) of 37%.
USD Billions
200

187.9

150

136.8
99.6

100
72.6
50
15.1

20.7

28.2

38.7

2022

53.0

2026

2030

Source: Precedence Research.

According to research by Morgan Stanley, the pharma sector
could spend about USD 50 billion a year on AI to speed up
drug development within the next decade. The time it takes
novel drugs to move from inception to market presents one of
the industry’s greatest risks. With the prospect of significantly
reducing this, AI and Big Data promise (if successful) torevolutionise the industry. In addition to the potential for
growth in profits for the industry players, this could alsodeliver new and innovative therapies and health solutions
for patients in a way that is faster and better than ever before.

Is there increased use of AI in the pharmaceuticals industry?
There are signs that the use of AI in pharmaceuticals is
gaining momentum. In China, for example, there were
nearly 80 pharma start-ups by the end of 2022. Investmentin the industry as a whole hit a bump in the road due tothe economic slowdown caused by the zero-Covid control
policies. Atradius Pharmaceuticals Expert for the AsiaPacific, Judy Ji noted: “In 2022 investment in China’s
pharma industry was CNY 179.83 billion (USD 25 billion),
down from CNY 329.25 billion (USD 46 billion) in 2021.
However, following the re-opening of trade across China,
growth is expected in 2023.”
How common are collaborations between pharma andtech companies?
The current trend, particularly in the west, is for collaborations
or partnerships between pharma businesses and companies
specialising in AI or Big Data. In Europe and the US it isincreasingly common to see partnerships between traditional
pharmaceutical companies, AI-powered healthcarecompanies and technology leaders. Patrick Scardina, Atradius
Pharmaceuticals Expert for the Americas said: “In recentyears the US-based Amazon Web Services (AWS), Pfizer, Merckhave partnered with European AstraZeneca and Israeli Teva
Pharmaceuticals, announcing the launch of AION Labs in2021 to produce AI and computational ventures and develop
new pharmaceutical therapies. AWS also recently announced
a USD 100 million initiative, called the AWS Generative
AI Innovation Center to accelerate enterprise generation AI
adoption.”
That said, some top pharmaceutical companies are electing
to hire their own in-house AI teams to create the datasystems and help keep the proprietary data machines outof the hands of competitors.

We will see more shuffling ofthe industry in China movingforward. External investors willplay an important role as well as
the entrance of new players thathave traditionally not worked
in pharmaceuticals in the past.
Judy Ji

Of course, Amazon is a giant with a track-record in theadoption of AI technologies for its consumer-orientatedactivities. But this is a space increasingly populated by startups and smaller businesses. The start-up, ChatGPT, whichdeveloped a natural language processing tool driven by AI
recently raised USD 175 million to help transform healthcareand science. The tool is so robust that it can reportedly pass
the United States Medical Licensing Exam according toresearchers from Massachusetts General Hospital and Ansible
Health. In fact, Ansible Health is itself a healthcare start-up
that provides tech-enhanced home-based healthcare services
for patients with COPD.

If pharmaceuticaland healthcarecompanies do notinvest in AI, they
will face an uphillchallenge in keeping
investors motivatedand bringing
drugs to market.
Patrick Scardina

Could AI be used to create new competition in thepharma industry?
AI is already creating new and increasing competition for
the traditional players in the pharma industry. Wearable
devices monitoring everything from blood glucose levels
to heart rate are already available. Much of these are frommanufacturers and vendors that are new to the pharma
industry, including retail and tech giants such as Googleand Amazon.
AI is only one area where non-pharma businesses are
increasingly entering the industry. Real estate developers
are building hospitals, home appliance manufacturers areproducing medical equipment and internet giants from
Alibaba and Tencent to Amazon are increasingly selling
medicines. Telecom companies are offering or supporting
telemedicine and even health insurance (finance)companies are offering preventative healthcare options
for their customers.
Are there regulatory hurdles ahead?
Most jurisdictions do impose restrictions and regulationsin the use of AI in healthcare applications and development.
That said, like the technology itself, this is an area thatis continuously developing. Last year, China removed
previous restrictions on AI-assisted diagnostic technology,

enabling the tech to be used more widely beyond a hospitalsetting. However, according to Judy Ji: “Restrictions on AIassisted treatment technology have been retained in China,indicating uncertainties and high risk in the field of AIassisted treatment, which the authorities believe still needs
supervision.”
In March 2023, the U.S. Federal Drug Administration (FDA)
proposed draft guidance proposing a science-based
approach that aims to increase patients’ access to safeand effective AI/MI-enabled devices. Patrick Scardina
said: “This will allow the regulatory process to be more
adaptive given the rapid evolution of new data.”
Rubén del Río Hernández, Atradius Pharmaceuticals Expert
for Europe pointed out that EU authorities already control
the use of AI in most applications, including pharmaceuticals.
He said: “EU concerns are based on privacy issues in AI
training (inputs), and biases in AI decisions or suggestions(outputs).” He also noted differences between jurisdictions.
For example, UK authorities appear fairly relaxed about
the development, use and implementation of AI, whereas
Swiss authorities are apparently waiting on final decisions
by the EU and other international organisations before
implementing a framework. He added: “I estimate the Swiss
AI framework will be halfway between the EU’s and UK’s.”

What are the risks posed by the increased use of
AI in pharmaceuticals?
Investing in new technology can be very expensive in theinitial stages, which will pose a challenge to many businesses.
Patrick Scardina said: “The most recent collaborations in
the AI space in the US have been in the ‘nine-figure’ range.
What’s more, the price tags are only becoming more
expensive, thereby essentially taking smaller firms out of
the mix for material AI investments unless they have strong
investor backing.”
He also warned: “The success of AI is slowing down thetimeline for the next fundraising round so investors are
motivated to require AI capabilities before infusing capital.
As a result, smaller pharma companies without AI will
have a harder time finding capital resources and will leadto bankruptcy events or the wind-down of operations.”

Small companies face a clear
disadvantage in AI and Big
Data implementation, because
getting a large enough amount ofquality data can often be beyond
their budgets or knowledge.
Rubén del Río Hernández

Although smaller businesses may lack the deeper pocketsof large organisations, they can be agile. In China, Judy Ji
said: “AI may force smaller businesses out in the long run,but not in the short term as AI is still in its early stagesof application in the pharma industry.” She added: “Smallerbusinesses can still work in their traditional fields.”
Looking at the industry in Europe, Rubén del Río Hernández
is more cautious in his outlook and suggests mergers andacquisitions may be on the horizon. He said: “Companies
that haven’t enough resources to fully embrace AI, but still
have good business potential, are likely to be acquired bya major pharmaceutical company. Those with low potential

could be driven out of the market. The entrance of players
from outside the sector, particularly the tech giants anddisruptive start-ups, also presents additional competition,risks and challenges to the industry. Healthcare is
an attractive sector for new entrants to get into because,
as a universal and a recurrent human need, it represents
a sustainable market. We all want to live better andfor longer, and we will all need several treatments andmedicines throughout our lives.”
Non-pharma businesses that are increasingly exploring
the sector include food corporations, beauty and cosmetics
producers (for health and wellness), telecom companies(telemedicine) and financial institutions (including those,which have started offering health insurance, along with
schemes offering preventative healthcare such as gym
membership).
These non-pharmaceutical companies are especially focusedon healthcare, so for the time being they are not serious
competitors for pharmaceutical companies. However, someof those corporations have large amounts of cash, so they will
be able to acquire pure pharmaceutical or biotech companies(up to medium sizes). This creates an interesting synergy
between technology and drug development, which could be
an important competitive factor that major pharmaceuticalcompanies should be alert to.

Our Trade Sector Experts
The Americas: Patrick Scardina, Atradius’ Manager,
Regional Underwriting in Irvine, California, USA
Asia Pacific: Judy Ji, Atradius Senior Underwriterin Shanghai, China

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Europe: Rubén del Río Hernández, Team Leader
Large Buyer Unit at Atradius, Madrid, Spain

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