Key Takeaways:

• AI boosts efficiency in early, high-failure R&D, improving success rates and capital efficiency across biotech and pharma.
• Biotech uses AI for breakthrough discovery, while large pharma scales it to strengthen pipelines and manage patent risk.
• VanEck’s BBH and PPH ETFs provide complementary exposure to AI-driven innovation across healthcare.

How Is AI Changing Drug Discovery and What Does It Mean for Investors?

AI is reshaping drug discovery by improving efficiency in the earliest and most failure-prone stages of development, with implications for both biotech innovators and large pharmaceutical companies.

Drug discovery has traditionally been slow, expensive, and uncertain. Artificial intelligence is now being deployed to improve how potential drugs are identified, designed, and evaluated, long before clinical trials begin. As the Economist recently highlighted in the article An AI revolution in drugmaking is under way, this shift is already altering the economics of research and development across healthcare.

What Problems Is AI Solving in Drug Development?

AI helps address inefficiencies in early-stage drug discovery, where most failures occur and costs are hardest to control.

Historically, companies have relied on trial-and-error approaches that require screening vast numbers of compounds with low success rates. AI tools are now being used to narrow the field earlier and more intelligently.

Key ways AI is being applied in drug development include:

• Identifying biological targets using large-scale genomic and proteomic data
• Designing molecules digitally rather than relying solely on lab-based experimentation
• Predicting safety or efficacy issues before candidates enter costly trial phases

By improving decision-making earlier in the process, AI may help reduce wasted R&D spending while increasing the number of viable drug candidates.

Where Is AI Adoption Happening Across Healthcare?

AI is being adopted across both biotech and pharmaceutical companies, but in different ways.

Smaller biotech firms often lead innovation, while large pharma companies benefit from scale, data depth, and diversified pipelines.

Does AI Reduce Risk in Drug Discovery?

AI does not eliminate risk, but it may improve the odds of bringing a drug to market.

Drug development remains complex, highly regulated, and uncertain. However, even modest improvements in hit rates or development timelines can be meaningful in an industry where returns depend on a small number of successful drugs.

For investors, the key takeaway is not faster blockbuster creation, but better capital efficiency over time.

Why Is AI-Driven Healthcare Innovation Especially Important Now?

AI adoption in the healthcare space coincides with a major wave of pharmaceutical patent expirations.

Large, liquid pharma companies have the scale, clinical expertise, and global reach to participate meaningfully in the next generation of therapeutic innovation, including the expansion of peptide-based medicines. AI assisted drug discovery may also help these firms refresh pipelines more efficiently at a time when the industry is preparing for notable patent expirations.

Patent Expiration Risk for Total Worldwide Drug RX Revenues 2025-2030

Source: Worldwide; Evaluate (EvaluatePharma), as of May 2025 Past performance is no guarantee of future results.

If AI improves efficiency in the critical “0 to 1” phase, it may help established pharma companies refresh pipelines more consistently and respond more effectively to patent turnover.

Related content: Why Are Investors Re-Evaluating Large Pharmaceutical Companies?

How Is the AI-Enabled Healthcare Market Expected to Grow?

The market for AI-enabled drug discovery is expected to grow rapidly over the next decade as adoption expands across research, development, and clinical applications.

According to industry estimates, spending on AI tools in drug discovery is projected to accelerate meaningfully through 2032 as pharmaceutical and biotech companies increasingly embed AI into core R&D workflows. This growth reflects rising confidence that AI can improve productivity in early-stage research, where costs are high and failure rates are steep.

Forecasted Market Growth for Global AI Drug Discovery (2023-2032)

Source: Market.us, as of October 2023. Past performance is no guarantee of future results. Not intended as a forecast or prediction of future results.

This growth underscores why AI is increasingly viewed as a structural shift rather than a niche tool within healthcare R&D.

How Can Investors Access These AI-Driven Healthcare Trends?

Investors can gain targeted exposure through biotech and pharmaceutical ETFs designed to capture different parts of the innovation cycle.

The VanEck Biotech ETF (BBH) offers access to the innovation side of AI-driven drug development:

• Focuses on leading biotechnology companies
• Provides exposure to firms at the forefront of drug discovery and innovation
• Includes companies actively using AI-enabled research platforms

The VanEck Pharmaceutical ETF (PPH) is designed to capture established global drugmakers with scale, diversified revenue streams, and proven commercialization capabilities:

• Highly liquid companies: Tracks the largest most liquid pharmaceutical companies
• Industry leaders: Favors established industry leaders with meaningful scale
• Global scope: Provides exposure to U.S. and international equities for global industry representation

The Bottom Line: Why AI Matters for Healthcare Investors

AI is not transforming drug discovery overnight, but it is steadily reshaping how innovation is pursued.

By improving efficiency at the earliest stages of development, AI may help:

• Increase the productivity of R&D spending
• Support pipeline replenishment amid patent expirations
• Strengthen the long-term outlook for both biotech innovators and pharmaceutical leaders

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