Healthcare ETFs in Spotlight Amid Eli Lily's $2.8B AI Drug Move

U.S. pharma giant Eli Lilly LLY has just thrust the rapidly evolving field of artificial intelligence (AI)-driven drug discovery into the spotlight, signing a landmark deal worth up to $2.75 billion with Hong Kong-based Insilico Medicine. The agreement, announced on March 29, 2026, grants LLY global rights to develop and commercialize drugs discovered using Insilico’s generative AI platform.

Against a backdrop of rapid AI integration — from diagnostic imaging to personalized medicine — this collaboration reinforces a broader industry trend.

For investors, this move squarely puts the spotlight on healthcare exchange-traded funds (ETFs), particularly those with heavy exposure to pharmaceutical giants like Lilly that are aggressively pursuing this new frontier as a strategic way to capture the upside of the AI-pharma revolution.

Before analyzing the ETFs that offer the best exposure in this case, it is important to understand how deeply AI is being integrated into drug development. The FDA has already noted a significant increase in drug applications incorporating AI components, while the scientific community continues to mark key clinical milestones.

The AI-Powered Drug Market: Eli Lily & Others

With AI being practically woven into the very fabric of the healthcare sector at present, the global AI drug discovery market is projected to skyrocket, with estimates suggesting it could reach $10.3 billion by 2031 (as per Morder Intelligence).

One of the pioneers in the AI-developed drug space is undoubtedly Eli Lily, with the company aggressively integrating AI across its entire R&D pipeline, aiming to transform drug discovery from a slow, linear process into a rapid, iterative, data-driven cycle, to reduce development times and create novel therapeutic candidates. The company recently launched Lilly TuneLab, an AI platform that provides biotech partners with access to proprietary drug discovery models trained on over $1 billion in research data.

Its latest collaboration with Insilico, which has developed 28 AI-driven drugs—nearly half of which are in clinical stages—should help LLY leverage Insilico’s Pharma.AI platform. This enables the company to bypass the slow, trial-and-error nature of traditional chemistry and use generative models to design best-in-class oral therapeutics with greater speed.

Considering the rapidly expanding global AI drug discovery market, other industry titans are following suit. For instance, Pfizer PFE is leveraging AI to shorten clinical trial timelines, while Novartis NVS and AstraZeneca have entered into multibillion-dollar deals to integrate AI into their oncology and immunology pipelines. Merck MRK is using AI to screen vast chemical libraries, simulate molecular interactions, and optimize small-molecule development.

The Case for Healthcare ETFs

Despite the immense potential of the AI-developed drug market, selecting a single winner carries significant idiosyncratic risk.

For instance, a promising AI-designed drug could face a sudden FDA rejection or clinical trial failure, leading to a massive stock slump.

Therefore, by utilizing a "basket approach" through healthcare ETFs, investors can gain exposure to the collective success of the AI pioneers while buffering against the volatility of individual stock picks.

Healthcare ETFs in Spotlight

For investors looking to capitalize on the trend of the healthcare sector’s rapid shift toward AI, the following ETFs offer a great strategic advantage:

iShares U.S. Pharmaceuticals ETF IHE

This fund, with net assets worth $963.3 million, offers exposure to 56 U.S. companies that manufacture prescription or over-the-counter drugs or vaccines. Its top three holdings include: Johnson & Johnson (23.42%), LLY (20.79%), and MRK (4.87%). PFE holds the fifth position in this fund, with 4.69% weightage.

IHE has surged 21.1% over the past year. The fund charges 38 basis points (bps) in fees.

VanEck Pharmaceutical ETF PPH

This fund, with net assets worth $1.26 billion, offers exposure to 26 companies involved in pharmaceuticals, including pharmaceutical research and development as well as production, marketing and sales of pharmaceuticals. Its top three holdings include: LLY (18.64%), NVS (10.78%) and MRK (9.78%). PFE holds the fourth position in this fund, with 5.25% weightage.

PPH has soared 13% over the past year. The fund charges 36 bps in fees.

Vanguard Health Care Index Fund ETF Shares VHT

With net assets of $17.7 billion, this fund offers exposure to 410 companies across health care equipment and supplies, health care services, and the research, development, production, and marketing of pharmaceutical and biotechnology products. Its top three holdings include: LLY (12.54%), Johnson & Johnson (8.76%) and AbbVie (6.09%). MRK holds the fourth position in this fund, with 4.56% weightage.

VHT has gained 2% over the past year. The fund charges 9 bps in fees.

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Novartis AG (NVS): Free Stock Analysis Report

Pfizer Inc. (PFE): Free Stock Analysis Report

Merck & Co., Inc. (MRK): Free Stock Analysis Report

Eli Lilly and Company (LLY): Free Stock Analysis Report

Vanguard Health Care Index Fund ETF Shares (VHT): ETF Research Reports

iShares U.S. Pharmaceuticals ETF (IHE): ETF Research Reports

VanEck Pharmaceutical ETF (PPH): ETF Research Reports

This article originally published on Zacks Investment Research (zacks.com).

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