The Medical Innovation Inflection - Executive Summary

Since launching Sage Road, we have had this report in mind—a deep-dive exploration of medical innovation and how AI could accelerate already promising progress towards extending global healthspans. One day this spring brought it to the top of our research agenda. On May 7^th, the Financial Times published an article breaking down the Iran war equity rebound that began in late March, which had “been driven by the smallest number of stocks on record, pushing US market concentration to an all-time high.” Just five tech stocks—Alphabet, Nvidia, Amazon, Broadcom, and Apple—had accounted for more than 50% of the market’s gain. Meanwhile, on that same day, the Wall Street Journal published an article about GLP-1s and the YTD stock performance of Eli Lilly and Novo Nordisk. Both had seen pullbacks as investor concern about GLP-1 pricing power increased. Yet, as the WSJ noted, investors were neglecting a key part of the GLP-1 story: “There are more than one billion people in the world with obesity. And right now, the two companies together are treating less than 2% of them.” Novo Nordisk’s international sales spiked 44% in Q1. Lilly’s spiked 400% when compared to 1Q25. To again quote the WSJ: “Investors need to remember a simple idea: The desire to lose weight isn’t exclusive to Americans.”

Source: Morgan Stanley

As we’ve argued often in our reports, the market’s myopic fixation on the builders of the AI revolution has led to widespread neglect of both obvious beneficiaries of AI’s capabilities and return-defining megatrends outside of AI. Medical innovation and the quest to extend healthspans in an aging world falls into both categories. Across all three fronts of care—biomedical science, patient care, and health systems—medical innovation has been accelerating and now, AI is poised to supercharge that acceleration.

This year has sent routine reminders that the rate of medical progress is accelerating. Here are three marquee developments just from recent months—breakthroughs that could reduce the mortality rate of America’s two leading causes of death, heart disease and cancer:

• Lilly released results of its Phase III trial of its next-generation injectable GLP-1, retatrutide, finding that it led to far greater weight loss and inflammation reduction than obesity drugs already on the market.
• RevMed released a study showing that its breakthrough pancreatic cancer drug, daraxonrasib, delayed painful symptoms for months, in addition to nearly doubling survival.
• The Mayo clinic released results of a study into AI’s power to diagnose pancreatic cancer, noting that the “AI model can help specialists detect pancreatic cancer on routine abdominal CT scans up to three years before clinical diagnosis.”

Despite compelling signs that accelerating innovation is likely to lead to accelerating profits for healthcare companies, healthcare stocks have lagged the broader market. Yes, there have been bright spots. In our very first report, which focused on “Deregulation” and was released last July, we made a bullish call on biotech and since, the State Street SPDR S&P Biotech ETF has jumped over 80%. Yet, looking more broadly at the healthcare landscape, sentiment has remained depressed. In 2025, healthcare relative valuations matched their deepest discount in the past 30 years (chart below on the left). Even with periodic performance rebounds this year, the punishment has nonetheless continued. As of writing this, the State Street Healthcare Select Sector ETF (XLV) had trailed the S&P 500 by nearly five percentage points YTD. And it’s not just public markets where depressed sentiment is evident. Last year, private equity and venture capital-backed funding rounds in US biotechnology dropped 8.19% YoY to $13.3 billion, the lowest total in five years, according to S&P (chart below on the right).

Macro factors have contributed to investor concern. This includes the regulatory and funding uncertainty brought by the Trump administration. It includes rising inflation threatening higher debt costs. It includes increasing competition from China. And it includes a continued hangover from excessive pandemic-era enthusiasm that led to biotech company failures and investor losses. Nonetheless, the discrepancy between investor enthusiasm and the rate of healthcare innovation remains stark.

Given global demographics, medical innovation is not only a life-saving good, but a fiscal and social-stability imperative. Today, roughly 71% of the global population lives in a country with a birth rate below replacement level. The OECD’s dependency ratio—the number of seniors relative to those working age—increased from 19% in 1980 to 31% in 2023 and is projected to reach 52% by 2060. Today, there are more than 850 million people aged 65 or older globally, roughly 10% of the total global population. By 2050, the UN expects that total to double, with seniors accounting for one in six people worldwide.

As the world has aged, healthcare costs have skyrocketed. As is well known, the US is the epicenter of that problem. US healthcare costs as a percentage of GDP exceeded 18% in 2024, up from just over 13% at the turn of century and 5% as of 1960. But it’s not just the US. Healthcare as a percentage of GDP now sits at just under 11% in Japan, up more than four percentage points since 2000. For Europe, that number is 10%, up roughly three percentage points since 2000.

As the cliché goes, “demographics are destiny,” and the world’s destiny is a skyrocketing health burden without the working-age population necessary to service that burden (the WHO has projected a global shortfall of 11 million healthcare workers by 2030). That is, unless innovation dramatically reduces the burden of disease. As the CDC has estimated, chronic diseases account for 90% of the US’ $5.3 trillion in healthcare costs, and when considering for lost tax revenue and reduced employment, that cost rises to 9% of GDP annually.

To date, the gap between healthspan and lifespan has only widened as biomedical science has advanced, with the average person spending longer in ill health before death. In 2000, the gap between healthy life expectancy and life expectancy sat at roughly eight years. Two decades later, that gap had increased to nine years (charts below). If that trend persists, it will only further balloon costs and constrain labor supply.

Closing the healthspan/lifespan gap will require significant advancement across four key fronts: earlier detection, more accurate diagnosis, greater optionality for individualized treatment, and greater system efficiency that enables more high-touch care. Progress is underway on all four fronts, but AI remains the great hope for a true paradigm shift.

AI’s potential is already manifesting. Study after study has shown AI’s ability to assist physicians in coming to more accurate diagnoses. For context, each year, there are more than 12 million “serious diagnostic errors” just in the US, costing the US health system an estimated $100 billion annually, according to the National Academy of Sciences. Meanwhile, AI has already transformed medical devices. The FDA has cleared more than 1,300 medical AI and machine learning devices since 2015, with 331 cleared in 2025 alone, according to Blackrock. It is also transforming drug discovery. In January, ISM8969—a drug for treating neurodegenerative disorders, including Parkinson’s disease—became the first ever drug designed entirely using AI to receive clearance from the FDA to enter human clinical trials. In total, there are 173 AI-originated drug programs currently in clinical development. And finally, AI is altering how care is delivered. According to survey results released in March by the American Medical Association, roughly 80% of physicians now use AI professionally, with medical visit documentation and creation of discharge instructions top use cases. AI is reducing the administrative burden on healthcare workers, allowing more time to care for patients.

Yet, even those examples are just scratching the surface. From wearables to genomics to robotic surgery to CRISPR and even drug and device manufacturing efficiency, AI promises step-changes in efficacy and accessibility. It could empower patient control over their own health while finally enabling the healthcare industry to achieve the transition so many have long called for, from “fee-for-service” care to “value-based” care.

As we detailed in our “GenAI & Productivity” report, we see compelling reason to doubt AI’s ability to deliver transformational change at the scale and on the timeline the market currently expects across sectors. We do not have the same skepticism about the impact it will have on healthcare. Yes, healthcare has long lagged other sectors in technological transformation, held back by a combination of bureaucracy, profit seeking, personal privacy concerns, and the life-and-death consequences of misguided implementation. Those issues are already dragging on and will continue to drag on AI integration in healthcare. However, we also see AI’s strengths as so obviously well-matched to so many existing healthcare shortcomings, its impact can still be game-changing even if constrained.

Of course, that optimism does not mean healthcare will prove an easy path to alpha generation moving forward. Deep-research-driven expertise will be essential to recognizing return-defining dynamics, from scientific viability to regulatory barriers to the evolving competitive environment globally. Just last year, healthcare had the second highest stock dispersion of any Russell 1000 sector, trailing only the AI-driven dispersion of the information technology sector (chart below). As always, healthcare returns will hinge on effective stock picking.

Yet, equity opportunity is not the sole motivator for us writing this deep-dive report. A medical innovation inflection could realign dynamics in sectors far beyond healthcare, exerting influence over everything from consumer spending patterns to the shape of labor markets to fiscal deficits and monetary policy. Look no further than GLP-1s for an indication of why now more than ever it’s essential for all investors to understand the pace and nature of healthcare innovation to come. According to RAND estimates from last year, roughly 12% of Americans have now used a GLP-1. This has already caused the obesity rate in the US to fall, with 37% of Americans qualifying as obese in 2025 versus 39.9% three years earlier. According to research by Cornell University, within six months of starting a GLP-1 medication, households reduce their grocery spending by an average of 5.3% and their restaurant spending by as much as 8%. Which begs macro-relevant questions: As GLP-1 usage continues to accelerate, especially with pill-form proliferating, will it exert downward pressure on food inflation? Will it eventually pull down healthcare inflation?

Looking far beyond GLP-1s, we dug into research across biomedical science, patient care, and health systems. We focus on three key areas: drug discovery, devices, and care delivery. We then dive into the macro implications of accelerating healthcare innovation. The report is obviously not a holistic encapsulation of every innovation underway or on the horizon, but rather a roadmap to recognizing the innovation trends that are likely to drive the future of healthcare value generation, not to mention quality of life improvements across the global.