The Future of Healthcare: Industry Growth and Trends

Healthcare has come a long way from its humble origin as a traditional healing practice. At present it has become one of the world’s largest and most lucrative industries. While the primary goal of healthcare remains the same – to promote and preserve human health – its methods, scope, and significance have dramatically evolved over the centuries.

As one example of this, the Industrial Revolution marked a significant turning point not only for manufacturing and trade, but also for healthcare. The rapid industrialization and urbanization of society led to new health challenges that required a more organized healthcare system. During this period, rapid advancements were made in medical knowledge, including the discovery of germs, the development of anesthesia, and deeper understanding of infectious diseases. Additionally, due to the rise of cities all over the world, hospitals became a crucial piece of infrastructure by providing citizens with a place for organized medical care and training for healthcare professionals. The rise of the healthcare industry was a natural by-product of these developments.  

The industry saw rapid growth as the demand for treatments led to increased capital spending on research and development (R&D),marketing, as well as investment. While originally focused more on impact than profits, in recent decades, the focus in healthcare has expanded to include investment and profit generation. This expansion has been driven by private healthcare providers, hospitals, and patient demand for specialized medical services and care, which has transformed the industry into a profitable business opportunity.

Artificial Intelligence (AI) Technology In Healthcare: Applications and Examples of AI and Machine Learning      

The recent and rapid rise of new technological trends parallel the Industrial Revolution, signaling a possible new turning point in the healthcare industry. Specifically, the rise of Artificial Intelligence (AI) and Machine Learning (ML) has opened a world of opportunities within the sector. The application of AI and ML techniques within the healthcare industry offers the potential for value creation in many areas within the operations and services of healthcare providers and private payers. For example, this may come in the form of creating efficiencies within corporate functions, marketing and sales, and claims management. Eventually even clinical operations may become possible using Generative AI (Gen AI). Within the pharmaceutical product lifecycle, companies could leverage AI and ML’s ability to analyze and learn from data to create efficiencies in drug discovery and development, drug repurposing, drug efficacy, clinical trials, market positioning, and product management. Notably, drug repurposing alone presents a massive opportunity for companies as relaunching an existing drug costs roughly $8.4 million, and automatically qualifies for Phase II clinical trials, compared to the current estimate of time and cost to bring a novel therapeutic to market of approximately 8 years and $2.6 billion, with a fail rate of roughly 90%.


The industry has already seen a profound impact from the application of AI and ML technology during the onset of the COVID-19 pandemic. Specifically, these methods were utilized in the unprecedented development and distribution of mRNA treatments in response to the COVID-19 pandemic. However, this was not the first application of these methods in the sector. In 1995 the FDA approved the PAPNET Testing System - the first ever AI and ML computer-assisted cervical smear rescreening device. Over the years, AI and ML methods have been used in assisting medical device companies in the development of radiology and pathology devices as well as optimizing operating-room scheduling for hospitals.


Both healthcare and technology companies alike are focused on utilizing AI and ML to attain future competitive advantages in the market. For example, to help accelerate drug discovery, design, and development efforts. Namely, Moderna Therapeutics (”Moderna”) has a fully-integrated digital infrastructure that enhances its ability to research and manufacture mRNA medicines at rapid speed. In action, Moderna’s platform accelerated development of Spikevax, the mRNA COVID-19 vaccine; initiating Phase I Trials within 63 days of obtaining the sequence data. This platform, like many others in development, will continually grow in utilization to address an array of seasonal and novel viruses.

Healthcare Industry Growth: Healthcare to Benefit from Demographic and Economic Tailwinds

Aside from the favorable technology trends outlined above, the healthcare industry is poised to benefit from demographic and economic tailwinds. In 2019, the United Nations reported that roughly 9% of the global population was above 65 years of age with estimates that this will increase to 16% (or 1 in 6 people) by 2050. Individuals over the age of 65 spend approximately three times more on healthcare than their younger counterparts. Thus, the aging population trend is expected to significantly increase the demand for organized care over the next several decades. Outside of demographic trends, the economic development of emerging markets will also increase demand for healthcare. On average, high-income countries spend $3,000 per capita on health expenditures whereas low-income countries spend roughly $30 per capita. Specifically, the rising middle-class in China and India will put substantial demand pressure on the sector.  As the socioeconomic status (SES) of the two countries’ populations increases, it is expected government health expenditure will increase as a component of economic development.

Companies within the healthcare industry may also benefit from current macroeconomic conditions. In the near-term, a hawkish Federal Reserve (Fed) seeking to tame inflation, paired with slowing economic growth, and growing geopolitical tensions lead us to believe that equity markets will continue to be volatile. Historically, the healthcare industry is viewed as a defensive sector. This is due to the idiosyncratic nature of drug development and approval, and the inelasticity of demand for healthcare services.  Looking back, the sector holds up well in down equity markets. For example, the MSCI World Health Care Index averages a 47% downside capture of the MSCI World Index returns. With large tech companies (e.g., the “Magnificent 7”) garnering most of the present attention around AI and ML and healthcare valuations remaining depressed relative to other sectors, this may be an attractive entry point for long-term investors seeking exposure.

Note: Past performance is not indicative of future results.

Challenges in Healthcare: Evolutionary Hurdles

Although the healthcare industry presents a ripe opportunity for innovation which may lead to favorable financial returns over the long run, it is important to understand the risks of investing in the sector. For starters, the industry is facing a patent cliff due to the emergence of generic substitutes. One estimate suggests that generic substitutes will lead to an erosion in revenues of approximately $200 billion by the end of the decade. Although collectively healthcare firms have almost $700 billion in dry-powder to deploy for pipeline additives, the likelihood of success for small-cap and private biotech and pharma companies is quite low. Additionally, regulation has historically posed a threat to healthcare companies. One example of this is over concerns of price caps limiting product revenue generation needed to fund future therapeutic R&D costs.

Moreover, AI and ML integration into the sector is still in its early stages with many hurdles and uncertainties that will need to be overcome. For instance, reconciling concerns over IP protection without sacrificing progress/development of AI and ML algorithms via information sharing. Further, the need for education in AI and ML techniques for healthcare professionals will become more prominent. Lastly, the development of prudent surveillance and review practices to monitor data breaches will be required as AI and ML algorithms become a larger portion of healthcare company assets.


Since the 18th century, the world has experienced multiple disruptive iterations of the Industrial Revolution, including 1) steam, 2) electricity, and 3) automated production & information-technology. With the help of AI and ML, it appears cyber-physical systems will be the next. While still in its infancy, AI and ML technology presents a vast array of applications that will only grow as the technology becomes further developed and integrated within our lives. Companies in every sector will have hurdles to overcome as they integrate the use of AI and ML methods within their business models. Specifically, firms in the pharmaceutical and biotechnology industries have concerns over property rights, cybersecurity, and regulatory policy risk. However, given the impact these applications have already had on the industry, the sector may launch into a renewed period of growth supported by strong fundamentals and secular tailwinds.


Richter et al. (2021) Goldman Sachs. Byte-ology: The Convergence of Biotechnology and Technology.


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William J. Reynolds

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