Please enjoy ARK Disrupt Issue 108. This blog series is based on ARK Brainstorming, a weekly discussion between our CEO, Director of Research, thematic analysts, ARK’s theme developers, thought leaders, and investors. It is designed to present you with the most recent innovation takeaways and to keep you engaged in an ongoing discussion on investing in disruptive innovation. To read the previous issue, click here.
1. The First Human CRISPR Trial in the US Should Begin This Month
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Any day now, the US will enroll its first patient in a clinical trial using CRISPR-based gene editing. The University of Pennsylvania and the Parker Institute for Cancer Immunotherapy are co-sponsoring the study, led by Dr. Edward Stadmauer. The trial will enroll up to 18 patients with various cancer indications including multiple myeloma, sarcoma, and melanoma, the latter two being solid tumors.
Similar to CAR-T therapy, CRISPR gene editing will take place ex vivo, or outside of the body. In 2017, the US Food and Drug Administration (FDA) approved Novartis’sNVS and Kite Pharmaceuticals’GILD CAR-T gene therapies, which manipulate a patient’s own immune system to target and kill cancerous cells. In this trial, CRISPR will make two genetic changes in patients’ immune cells, the first removing gene coding for the PD-1 checkpoint protein that allows cancer cells to evade detection, and the second replacing a regular receptor molecule with a chimeric receptor that detects cancer cells.
While the comprehensive study will take 15 years, reaching completion in 2033, ARK believes that UPenn and the Parker Institute will begin to release data six months after the trial reaches full enrollment. Given the serious unmet need, the trial should populate rapidly, leading to a treasure trove of data.
2. Will Traditional Auto Makers Be Able to Scale Electric Vehicle Production?
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The Detroit Auto Show was replete with news last week. Arguably, FordF and MazdaMZDAF made the most provocative announcements. Ford announced that it would boost its commitment to electric vehicles from $4.5 billion by 2020 to $11 billion by 2022. Mazda moved 180 degrees in the opposite direction, as the head of its technical research center claimed, “I personally don’t think the age for electric vehicles will ever come.”
Based on ARK’s research, Ford is moving in the right direction, though perhaps not as rapidly or accurately enough to get ahead of the curve. If it follows GM’sGM lead and outsources battery production, for example, its production strategy could be flawed. Tesla’sTSLA recent experience with Model 3 production shortfalls highlights that the gating factor could be battery pack production, not just battery cells. Elon Musk, Tesla’s CEO, believes that in the absence of battery manufacturing capability, auto manufacturers will fail in the EV space.
While many analysts believe that traditional automakers will have an inherent advantage over newcomers like Tesla and NIO in scaling the production of electric vehicles, battery strategies would suggest otherwise. The Gigafactory has undermined Tesla’s Model 3 production goals recently, while most traditional auto manufacturers are outsourcing their battery needs. GM is dependent on LG ChemLGCLF for the Chevy Bolt’s battery pack system, which has not hit bottleneck territory yet but, at a 30,000 annual run rate, it is producing fewer than the 100,000+ Model S and Model X units that Tesla produced last year.
Importantly, battery packs have to be customized for different vehicle frames. We are wondering if LG Chem and other battery cell makers will be able or willing to produce battery packs for the plethora of EV models in the pipeline, or if they will avoid such fragmentation by supplying only the cells, forcing traditional automakers to design and produce the battery pack systems themselves. If so, will auto manufacturers be able to scale seamlessly, or will they run into the problems that Tesla is attempting to solve today?
3. Telegram Aims to Develop the Next Big Blockchain Platform
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Telegram, an encrypted messaging service with more than 170 million monthly users, has plans for a record-breaking initial coin offering (ICO). Between an $850 million private token sale and a $1.15 billion public ICO, it hopes to raise at least $2 billion.
According to Telegram, “bitcoin has established itself as ‘digital gold,’ and Ethereum has become an efficient platform for token crowd sales. However, there is no current standard cryptocurrency used for the regular exchange of value in the daily lives of ordinary people.” Telegram Open Network (TON) hopes to serve that purpose. Based on the proof-of-stake system, TON will be a fast, scalable, multi-blockchain architecture that will facilitate payments and micro transactions, serving as a “third generation” blockchain.
While Telegram’s plans are ambitious, and its team talented, the blockchain community has its doubts about this Kik-like attempt. Charles Noyes, for example, comments that TON’s 132-page white paper is “essentially a wish list of things they want to have”.
Regardless of Telegram’s ultimate success, we are witnessing a new wave of blockchain technology proposals seeking to fill roles that first-movers like Bitcoin and Ethereum have left wanting. The odds seem low, but time will tell if this team will be able to penetrate the crypto space, transitioning the network of users on its centralized messaging app to a network of decentralized apps and services.
4. Crypto Mining Powers Growth at TSMC
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Once considered a fringe activity, crypto mining has scaled so dramatically during the past year that it has become a key revenue driver at TSMCTSM, the world’s largest chip foundry. During 2017, TSMC’s revenues increased 9%, powered by strong demand for bitcoin mining chips in the second half of the year. In 2018, according to management, both crypto and artificial intelligence will contribute to an acceleration in revenue growth to 10-15%. Today, crypto mining accounts for 3-5% of TSMC’s revenues, primarily because of long-time customer NvidiaNVDA.
Source: ARK Investment Management LLC
During TSMC’s fourth quarter earnings call, crypto was the most widely discussed topic by far. Management and analysts mentioned crypto more than 40 times, twice the number of mentions for either AI or mobile, as shown above. Having “carefully modeled demand” in the face of recent price volatility, management is confident that orders will be stable in early 2018.
Remarkably, nascent technologies like crypto and machine learning are moving the needle at industry giants like TSMC and Nvidia. With the addition of new blockchains and neural networks almost weekly, this journey still is in early days.
The information provided is for informational purposes only. It does not constitute any form of advice or recommendation to buy or sell any securities mentioned. It is intended only to provide observations and views of the author(s) at the time of writing, both of which are subject to change at any time without prior notice. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on ARK's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Past performance is no guarantee of future results. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. For a list of all purchases and sales made by ARK for client accounts during the past year that could be considered by the SEC as recommendations, click here. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. For full disclosures, click here.