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It's Monday, November 11th, 2019. Please enjoy ARK's weekly newsletter curated by our thematic analysts and designed to keep you engaged with disruptive innovation. Have a wonderful day!

The CMS Expands Coverage for Cancer Testing, With Caveats 

The Centers for Medicare and Medicaid Services (CMS) recently published an updated national coverage determination (NCD) on next generation DNA sequencing (NGS) tests for patients with cancer. NCDs determine whether or not the CMS will reimburse a particular service. The CMS reopened and revised the NCD because of outcries from advocacy groups, diagnostic vendors, and clinicians claiming that it was too restrictive.


A primary concern was that the CMS did not cover NGS testing for patients with early-stage cancers (Stages I-II). The Association for Molecular Pathology (AMP) argued, for example, “NGS-based testing for detecting early-stage germline mutations has broad clinical utility and should not be pigeonholed into an [NCD] that CMS formulated based on evidence for [advanced tumor profiling].” A second concern was that the NCD prevented local Medicare Administrative Contractors (MACs) from covering early-stage NGS testing. AMP again remarked that, “Allowing the MACs to continue to develop local coverage determinations (LCDs) for early stage NGS-based germline testing will reinstate coverage for [patients] that existed prior to the NCD’s effective date.”


ARK believes the revised NCD is a step in the right direction. As it stands, CMS has expanded coverage for hereditary breast and ovarian cancer (HBOC) germline testing to all stages. Curiously, CMS stipulates that NGS-based tests for HBOC also must meet FDA approval. To ARK’s knowledge, the FDA never has approved NGS-based germline tests for HBOC, which likely will be a primary point of contention throughout the comment period. The CMS probably did not intend to remove coverage for HBOC testing.   


The CMS isolated HBOC for FDA approval because the number of evidence-based studies supporting such testing surpasses that for other cancers. The CMS did state that, “For other cancers, the evidence is rapidly developing.” CMS chose to delegate coverage to MACs, freeing them to reimburse early-stage germline testing. This freedom should ensure broader reimbursement as evidence-based studies for other cancer types proliferate.


The public can comment on the NCD proposal for the next four months. Stay tuned to this week’s mARKet update in which we’ll dive into the details.



CRISPR is a Solution to Antibiotic Resistance

While the United Nations (UN) has predicted that by 2050 antibiotic resistance will cause more than 10 million deaths, CRISPR could help save these lives. CRISPR genome-editing also has the potential to change treatments for chronic conditions into cures.


In Nature Communications, scientist David Edgall described how CRISPR could address microbial infections by using its own defense mechanism to self-destruct. In a recent study, Dr. Edgell and his colleagues successfully used a CRISPR-Cas9 to eliminate a species of Salmonella. By programming the Cas9 to view its own bacterium as the enemy, the team forced Salmonella to make lethal cuts to its own genome.

Residential Solar is Five Times More Expensive than Utility Scale Solar 

This week Lazard released an updated Levelized Cost of Energy Analysis which highlighted the cost of generating electricity from various renewable and conventional energy sources. ARK’s two takeaways are 1) that residential solar is five times more expensive than utility solar, and 2) that newly built utility-scale solar is approaching the marginal costs of mature coal plants, as shown below. As battery and utility solar costs continue to decline, renewables should take share from coal in the generation of electricity.

Screen Shot 2019-11-11 at 7.05.20 AM

Interest Rates on Credit Cards Are at All-Time Highs, in the Face of Treasury Yields Near All-Time Lows

Traditionally, credit cards have offered bonuses to attract new users, paying back the ‘marketing expense’ over time. In response to competition, the rewards have increased significantly, extending the time over which banks pay off the marketing expense.


To finance the bonuses, banks have increased interest rates on credit cards, the most significant increases occurring in the last five years. Relative to long term Treasury rates, the average credit card rate has increased roughly 400 basis points since 2014, pushing the premium to 1500 basis points, an all-time high.


As a result, we believe the credit card industry is at risk of fintech disruption. Mobile wallets, for example, are closer to the point of sale and benefit from lower customer acquisition costs thanks in part to their viral business models. According to ARK’s research, fintech companies are able to finance their customer acquisition costs (CACs) in months, compared to years for banks.


Stay tuned for a blog taking a deeper dive into this important shift in the financial services industry! 

Digital Currencies Are Putting Central Banks on The Defensive

After Facebook announced plans to launch a private digital currency, central banks were quick to criticize, if not condemn, its efforts. Highlighted in ARK Disrupt Issue 187, France’s Minister of Economy and Finance, Bruno Le Maire, was the first to reject it, stating that France will halt Libra’s development in Europe because it threatens governments’ “monetary sovereignty”. 


Central banks have been on both the defensive and the offensive since Facebook announced Libra. Reuters reported this week that that the European Central Bank is exploring plans for a European public digital currency. Turkey has announced plans to launch its own currency, with trial runs expected by the end of 2020. China continues to stand firm that it will launch its own digital currency, one in the making for 5 years. And, a new job posted by the Federal Reserve suggests that it too is hiring digital currency specialists.


Before the creation of bitcoin, a non-government backed money seemed neither feasible nor thinkable. Thanks to bitcoin and advancements in private/public key cryptography, however, a global battle between and among monetary systems, both sovereign and non-sovereign, is underway. We believe that political and central bank opposition to Facebook’s Libra, before it sees the light of day, is an early sign of how fierce this battle will be.



Modern AI Training Is Growing at A Rate That We Believe Is 7x the Speed of Moore’s Law

Screen Shot 2019-11-11 at 7.25.10 AM

The computational cost of training deep learning models is doubling every 3.4 months, 7 times the rate of Moore’s Law, according to new figures published by OpenAI. The new data series show that AI development has gone through two phases. During the first phase, from 1950 to 2010, AI complexity doubled every two years, matching Moore’s Law. Since then, spurred by specialized processors and the cloud, it has increased at a much more rapid rate.


According to our analysis, the dramatic acceleration occurred because processing power shifted from local workstations to cloud servers. While early computer scientists relied on a few local computers to train AI models, researchers today harness the public cloud with hundreds of AI processors. As a result, AI training has become much easier and cheaper. Today, for example, any teenager can log onto Google Cloud and train a world-class image recognition model for just $12.60. In the past, that task would have required a supercomputer and a roomful of PhDs.


The key to sustaining this rate of growth is improving the ability of chips to work together. Nvidia’s acquisition of Mellanox—the world leader in highspeed interconnects—makes sense when viewed in this context.

In Other Innovation News

Tik Tok Comes Under Fire From the US Government
The Committee on Foreign Investment (CFIUS) is looking into Tik Tok as a security threat to US citizens. Tik Tok is a short form video app owned by the Chinese internet technology company ByteDance. In 2017, Tik Tok acquired US-based for $1 billion. CFIUS is investigating whether or not the acquisition was legal. If it was not, Tik Tok’s viral growth - more than 110 million downloads in the US - could come to a screeching halt.


What’s With All The Autonomous Fiat Minivans?
Lyft is expanding its autonomous test fleet with Fiat Pacifica minivans. Waymo’s fleet also uses the Pacifica, as does Torc Robotics. Do these minivans offer features like electronic doors amenable to autonomous rides or is Fiat offering the Pacifica at a price too low to pass up?


Tesla’s Autopilot Receives High Praise

Over 90% of Model 3 owners surveyed by Bloomberg said that Tesla Autopilot makes them safer, an exceptional score. For context, a positive net promoter score is above 30%.


ARK's statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. 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.



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