There's no playbook for how to be competitive in artificial intelligence (AI) as a big pharma company, but Eli Lilly (LLY 6.12%) is taking a shot at developing one. With the appointment of a new chief AI officer, Thomas Fuchs, on Oct. 8, it will now have someone with the purview to direct its AI strategy and implementation.
For Eli Lilly, this appointment is bullish, and it's a new reason to consider buying its stock. Here's why.
NYSE: LLY
Key Data Points
AI stands to improve multiple mission-critical activities
There isn't a consensus yet on what a chief AI officer is meant to do, but regardless of the details, it's very likely that Fuchs is qualified for the job. He founded an AI company and holds a PhD in machine learning, and he was the dean of AI and Human Health at the Icahn School of Medicine at Mount Sinai in New York City.
Fuchs also was a research technologist at NASA's Jet Propulsion Laboratory. In short, Lilly picked up a C-suite talent who is both technically skilled and able to look ahead at what tech capabilities will be needed to excel in the near future. There are a number of AI areas that will be under his control, but a few are particularly important for the company's needs today and in the short term.
First, there are its research and development (R&D) activities. Right now, the pharma has around 50 different pipeline programs in clinical trials. In the second quarter alone, it sent two different programs to regulators at the Food and Drug Administration (FDA) for approval, and it terminated three other early-stage candidates.
AI could dramatically streamline time-consuming activities like preparing submissions for regulators. The need for that to be done is the most intensive both before a candidate can enter clinical trials, and before it can be approved for sale at the end of the clinical-trial process.
Assembling regulatory filings is a very burdensome task. It typically requires everyone from the junior research staff to division heads to produce and review technical documentation, all while maintaining a very high standard because the materials could have legal implications.
Drug discovery is perhaps an even bigger time consumer than the regulatory paperwork. Lilly has many projects in discovery phase and in pre-clinical development. The vast majority are not disclosed to the public and will never see the light of day.
AI could help to enhance the discovery process significantly by guiding efforts toward the candidates that are the most likely to succeed. In September, Lilly committed to a collaboration worth as much as $409 million with an AI-enabled drug discovery biotech called Genetic Leap, so it's clear that management is already keen on using AI in that process.
The benefits are only starting to reveal themselves
R&D isn't the only activity where Lilly could stand to benefit a lot from AI. There are likely also ways for it to improve its manufacturing and its clinical trials using AI.
Vast quantities of paperwork that would otherwise soak up a lot of time could be off-loaded to AI. And operational efficiencies could also be derived from automated solutions. Given the company's vast and ever-expanding manufacturing footprint, as well as its many clinical trials, realizing even a small advantage from AI could significantly increase earnings over time.
Shareholders should probably pump the brakes on getting too bullish in the near term about the new AI leader. Fuchs won't start work until late October, and it will probably take him at least a couple of quarters to come up with major efficiencies. Nonetheless, it's reasonable to be optimistic about what he might cook up.
