ark disrupt issue 85

ARK Disrupt Issue 85: VR, ICOs, EVs, and Health Care

Please enjoy ARK Disrupt Issue 85. 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. 

1. Could VR Headsets Go Mainstream?

The demand for virtual reality (VR) headsets has been limited by three factors: cost, content, and convenience.  As for the last obstacle, most headsets are tethered to a computer or smartphone, often plugged in to offset high battery consumption and processing requirements.

This week, Taiwan-based HTC announced a partnership with Qualcomm to address both tethering and cost. HTC is releasing a non-tethered, standalone VR headset for the Chinese market based on Qualcomm’sQCOM Snapdragon 385 processor.  This processor has found success in flagship phones such as the SamsungSSNLF Galaxy S8, the Sony Xperia XZ Premium, and the OnePlus Five.

As shown below, HTC aims to bridge the gap between expensive, hardware-dependent systems such as the Oculus Rift and the budget friendly GoogleGOOG Cardboard, with its Vive VR system.  Earlier this year, HTC announced a partnership with Google to create standalone headsets for the North American market based on the Google Daydream platform.

Perhaps a lower cost standalone system will help solve the chicken and egg problem, encouraging developers to create mainstream content and, at the same time, attracting more users to VR.  Clearly HTC’s price point will be important…so stay tuned!

ARK Disrupt Issue 85Source: ARK Investment Management LLC, Superdata Year in Review 2016, Prices from Amazon and Google

2. The SEC Has Decided to Regulate Token Sales On a Case-By-Case Basis

On July 25th, the Securities and Exchange Commission (SEC) announced that developer teams must register token sales with the SEC, in the absence of a valid exemption. In other words, it did not issue blanket regulation for initial cryptoasset offerings (ICOs) but will evaluate them on a case-by-case basis. The critical variable for an exemption is whether or not an ICO or token has utility value, or a digital use case, as opposed to investment value.

Faced with mixed reactions, newly appointed Chairman, Jay Clayton, issued a statement focused both on its responsibility to protect investors and on its intention to nurture innovation in blockchain technologies. He summarized this point of view as follows:

“We seek to foster innovative and beneficial ways to raise capital, while ensuring — first and foremost — that investors and our markets are protected,” SEC Chairman.

3. Amazon Makes Moves Into The Health Care Space

According to a CNBC report this week, “AmazonAMZN has started a secret skunkworks lab, dubbed 1492, dedicated to opportunities in health care.”  Apparently, the team is focused on hardware and software projects, including electronic medical records as well as telemedicine, and the ways in which Amazon Echo and Dash Wands can insinuate their services into the health care process.

ARK anticipates that Amazon is primed to disrupt pharmaceuticals, delighting consumers as it enters the health care space.  Initially, it probably will focus on lowering high-deductibles and giving individual consumers greater control over their health care.

Japan seems to be pointing the way forward. According to the Japan Times, Amazon is “sell[ing] category No. 1 drugs, which require consultation with a pharmacist before purchase.  Before placing orders, patients must communicate their symptoms and medical history via a form on Amazon’s site.  Items will be delivered only after approval by a pharmacist.” 

The health care industry is ripe for disruption given the need for efficiency and cost-savings. Pharmacy benefit managers, middlemen in the pharmaceutical space, seem to be most at risk.

4. Toyota Is Hedging Its Bets Between Hydrogen Fuel Cells and Batteries

ToyotaTM is having a hard time installing hydrogen fuel cell infrastructure in California. Air Liquide, Toyota’s partner, has been caught in complicated negotiations among station developers, city government, and utility companies. While some of the controversy stems from hydrogen-related safety concerns, ARK’s research suggests that a more important consideration might be the cost of installation.

The cost to build a hydrogen fuel station is roughly $2 million, nearly ten times the $270,000 cost of a TeslaTSLA supercharging station for electric vehicles. Moreover, because owners cannot fuel hydrogen cars in their garages, hydrogen fuel stations would have to proliferate to support a network of Toyota Mirais.

Perhaps most important, fuel cell cars are uncompetitive based on price points relative to horsepower. ARK estimates that hydrogen fuel’s prohibitively high capital requirements and poor price to performance ratios will preclude its widespread adoption in the United States. In Japan, while subsidies could stimulate hydrogen-based fuel cells, and therefore Mirai sales in the short term, electric powertrains should dominate the global vehicle fleet in the short term.

Interestingly, Toyota recently announced plans for a new electric vehicle (EV) using solid-state batteries in 2022. While skeptical of Toyota’s ability to produce solid-state batteries at scale, ARK will be monitoring its moves closely.

According to ARK’s research, an EV will be cheaper than a gas-powered car at some point during the next five years obviating the need for a solid-state battery. In our view, the economic case for EVs will trounce that for hydrogen powered vehicles during the next five to ten years…

5. CRISPR Edits Disease Out of Human Embryos

In a news release reported this week in the MIT Technology Review, a team of researchers led by Shoukhrat Mitalipov in Portland, Oregon, edited the first human embryo in the United States.  As the news went viral, critics declared a national crisis and began the fight against “designer babies,” commenting that, “The creation of gene-edited persons could be attempted at any moment, including IVF [in vitro fertilization] clinics operating facilities in countries where there are no such legal restrictions.”

Most interesting to ARK, the researchers claimed that they witnessed little to no off-target effects, or mistakes, and edited out inherited diseases “success”[fully] from the embryonic genome.

ARK remains somewhat skeptical of these results, particularly because they have not yet been published in any peer-reviewed journal and were released by “scientists close to the experiment.” Without an understanding of the methodology, we find it difficult to believe that designer babies are about to make their debut.

The U.S. National Academy of Science laid out its view on genome-editing in February. They separated the types of genome-editing into three buckets:

  1. basic research on human genome editing,
  2. the use of such editing to treat diseases in living people, and
  3. its use to change the genomes of embryos that could be inherited in future generations.

While they contended that the first two applications of genome-editing may have had favorable benefit-risk ratios, they also concluded that embryonic editing will require extensive ethical discussion.

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