1. Robots Could Woo Regulators During the Health Crisis
This week UPS and CVS announced a partnership to deliver prescriptions by drones to The Villages, a retirement community in Florida. Drones minimize human contact and enable inexpensive and rapid deliveries. Africa and China have been first movers in drone delivery, while restrictive FAA regulations have held the US back.
The COVID-19 crisis could change this dynamic sooner than expected. Operating in Africa since 2016, drone startup Zipline wants to assist in response efforts to the COVID-19 crisis in the US and is hoping for an accelerated launch. Now seems to be an opportune time to rethink logistics in the US, FAA permitting.
2. The Impending Auto Loan Debacle Could Hit Consumers
ARK values the ~260 million registered vehicles in the US at roughly $2.6 trillion, with $1.2 trillion securitized or backed by loans,1 and the remaining $1.4 trillion on consumer “balance sheets.” ARK anticipates that consumers and others exposed to auto loans will have to write them down.
In April, Manheim reported a record drop in used car prices. This week Hertz seemed to be on the verge of liquidating its fleet of vehicles, depressing used car prices that much more.
Auto loan write-downs could cascade through the US economy. A surge in auto loan-to-value ratios could prevent traditional auto manufacturers from offering inexpensive financing and incentivizing new purchases. Moreover, a haircut to the $1.4 trillion on their balance sheets could lower consumer purchasing power, as trade-ins facilitate 90% of new car sales.
3. Could CRISPR Technology Become the Gold Standard for Virus Detection?
As government officials re-open the US, testing for the COVID-19 virus will be a critical step. A new CRISPR-based test called DNA Endonuclease-Targeted CRISPR Trans Reporter (DETECTR) could help speed the process along.
DETECTR does not require complex laboratory infrastructure, so it will be faster and cheaper than conventional PCR tests. Apparently, it will deliver results in 40 minutes at a cost of $5.90 compared to the 4-6 hours and a $14 price point associated with standard PCR tests. Non-technical staff will be able to administer the test because DETECTR simply flashes a light if patients have the virus and does not flash if not. Moreover, while PCR tests must search for either N or E genes, DETECTR responds positively to both or either of the E and N genes with sensitivity and specificity comparable to the current PCR gold standard tests.
Typically, the Food and Drug Administration (FDA) takes years to review tests but, thanks to the Emergency Use Authorizations for COVID-19, DETECTR could be on track for accelerated approval. It went from hypothesis to development in just three weeks. Perhaps as important, with portable, rapid, and inexpensive testing, DECTECTR could have profound implications for the developing world.
4. Long Read DNA Sequencing Could Predict How Patients Will Respond to Targeted Therapies
Oncologists routinely use next-generation DNA sequencing (NGS) to examine mutations deeply embedded in patient tumors and match patients to targeted therapies. The FDA recently approved alpelisib, for example, to treat breast cancer patients whose tumors harbor a mutation in PIK3CA—a commonly mutated gene. Recently, and as expected, Memorial Sloan Kettering (MSK) researchers discovered that patients with multiple mutations in the PIK3CA gene had a deeper and longer response to alpelisib than those with only one PIK3CA mutation. Patients with a higher tumor mutational burden (TMB) generally respond better to checkpoint inhibitors.
The researchers then used a higher-resolution technique, long-read DNA sequencing, to gain more insight into the tumors with multiple PIK3CA mutations. Although they operate similarly, long read platforms can detect specific genomic phenomena that short read platforms cannot. As shown below, long reads can distinguish between mutations on paternal and maternal copies of the PIK3CA gene—called phasing. Short reads blend the two, sometimes resulting in a loss of analytical clarity.
After in vivo and in vitro experimentation, MSK researchers concluded that patients with double PIK3CA mutations on the same chromosome (cis) respond better to alpelisib than do those with single mutants or trans double mutants. In other words, diagnostics based on long read sequencing discerned which patients were suited best to targeted therapies. ARK believes that, over time, similar studies will accelerate the clinical adoption of long read sequencing in diagnostic testing.
5. Jensen Huang Explains Nvidia’s Decision to Buy Mellanox
As Nvidia’s $7 billion acquisition of Mellanox closed last month, CEO Jensen Huang shared his thoughts on the strategic decision and its impact on the future of data centers.
Key to Nvidia’s success has been the transformation of a fixed-function, commodity component—the video graphics adaptor—into a programmable processor with a rich software stack—the GPU. By making GPUs programmable, Nvidia has expanded its addressable market, and by building its own software stack, it has cultivated its own developer base.
We believe that Nvidia acquired Mellanox with the same playbook in mind. Today, the majority of Mellanox’s revenue base consists of fast—but industry standard—ethernet adaptors and switches. In recent years, however, it has been making its network products more programmable, taking over tasks like compression, encryption, and de-duplication from the CPU. Already on the right track, Mellanox should benefit from Nvidia’s software expertise and developer ecosystem, which could turn the network processor into the “third” essential chip of the data center.
At a strategic level, owning the interconnect could be Nvidia’s strongest move yet to compete against Intel. We believe that Nvidia is unlikely to build a CPU better than Intel’s. Instead, Jensen is attacking from the flanks. Moving the most demanding work to the graphics and network adaptors, Nvidia could diminish the CPU’s importance, relegating it from the brain of the computer to a task administrator over time.
6. We Are Nearing The ‘Metaverse’
What is the metaverse? The vision for the metaverse is a virtual universe, a goal to which gaming is making some progress.
Each day, hundreds of millions of people interact in digital worlds. Online games, in particular, are morphing slowly into the metaverse. Take Fortnite as an example. In 2017 the game launched as a first-person battle-royale shooter. Three years later, Fortnite is hosting virtual concerts for millions of players and has opened a new space for users to lay down their virtual guns and party.
Fortnite is not alone in its vision. Across the board, developers are shifting from traditional gameplay and opening up their digital worlds for users to explore.
If online games lead the digital world into the metaverse, gaming IP, developers, and players could exploit some outsized opportunities. Popular game Animal Crossing is seeing early signs of the potential leverage: recently, its central bank cut interest rates from .5% to .05%. In the future, the metaverse and its accompanying digital economy could create fortunes in the gaming industry.
7. Another Incumbent Bank Shuts Down its Digital-Only Offering
Royal Bank of Scotland is shutting down Bó, a digital bank it launched only six months ago in response to Monzo, Revolut, and other successful UK banking startups. Bó’s wind-down comes after JP Morgan Chase shut its millennial-focused banking app Finn in June 2019. Like Bó, Finn had difficulty attracting users, ranking at #264 on the iOS App Store while Square’s Cash App and PayPal’s Venmo held the #1 and #2 positions.
According to its CEO, RBS had to prioritize investment decisions in response to the COVID-19 crisis. RBS originally hired consultant Oliver Wyman and spent £100 million on the venture but attracted only 11,000 users, RBS CEO Alison Rose describing them as friends and family. During the COVID-19 crisis, incumbents have been unable to justify risky, albeit important, long-term investing, giving challengers like digital wallets the opportunity to gain share.
Digital wallets appear to be gaining traction around the world. Square’s Cash App signed up record numbers of new users in mid-March, climbing further up the App Store’s download rankings.
In Argentina, Google search interest for MercadoPago, MercadoLibre’s digital wallet, almost doubled after the Argentinian government used it to distribute COVID-19 relief payments: on a year over year basis, the number of unique users on MercadoPago surged 110% in late March.
8. Next Generation Real Estate Platforms Could Compress Commissions
During the tech and telecom bubble in the late nineties, one of the promises was a compression of the 6% real estate commission thanks to the internet. While they have compressed by more than 10% on average, in our view, commissions have room to drop by another 20-40%.
Traditionally, seller agents and buyer agents have ‘matched’ buyers with sellers, splitting the commission. In our view, real estate commissions have not declined more because of a flaw in the model. If a selling agent lowers the commission on a listing, buying agents have less incentive to show prospective buyers the listing, leaving the property on the market longer than otherwise would be the case.
Zillow reported that virtual tour creations increased 408% during the last week of March compared to the average week in February, primarily because the coronavirus has limited in-person tours. Expanding the top of the prospective buyers’ funnel, virtual tours could play an important role in lowering commissions as buyers sift quickly through homes and zero in on those of most interest at any time of the week, day or night. Historically buyers have sifted through homes during time- and labor-intensive open houses on weekends. Virtual tours also should benefit real estate agents by making them more productive.
In our view, virtual tours could realign the incentives between and among real estate agents, sellers, and buyers, facilitating lower commission structures and increasing liquidity and transactions in the real estate market.