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It's Monday, January 27th, 2020. 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 Coronavirus Highlights the Role of Genomic Technologies in Controlling Disease

Follow Simon on Twitter @sbarnettARK


A newly identified pathogen, 2019-nCoV, is spreading throughout Asia-Pac, Europe, and North America. Compared to SARS in 2003, this coronavirus seems to be more contagious, though less fatal, in these early days. ARK believes that similar outbreaks will increase as globalization increases travel and climate warming.


Fortunately, the convergence of DNA sequencing, machine learning, and gene editing may make these pathogens easier to control. Unlike in 2002-03 when China suppressed information about SARS for three to four months, Chinese researchers sequenced 2019-nCoV within days of the outbreak, yielding key insights into the transmission and prevention of the disease. Then, last week the Coalition for Epidemic Preparedness Innovations (CEPI) awarded Inovio Pharmaceuticals (INO) a $9 million grant to develop a vaccine for 2019-nCoV. Using the 2019-nCoV sequence, Inovio will leverage its computational biology platform to identify potential immunotherapies which will prevent contagion. Thus far, 2019-nCoV has killed 56, or nearly 3%, of the roughly 2,000 cases identified, compared to the 9-10% fatality rate in the roughly 8,000 SARS cases identified in 2003.


Nations have to secure blood supplies during outbreaks of infectious diseases, as infected donors can transmit pathogens rapidly. Typically, blood centers turn away most donors as a precaution, causing systemic blood shortages. Developing and licensing tests to screen for novel pathogens can take years. ARK believes that proactive approaches, such as pathogen inactivation, are important to ensuring the safety of the world’s blood supply. Cerus’s (CERS) INTERCEPT system eliminates blood-borne pathogens, preventing diseases from spreading through blood transfusions.


Square Crypto Unveils the Lightning Developer Kit

Follow Yassine on Twitter @yassineARK


Square Crypto, a Square subsidiary focused on open source Bitcoin development, has unveiled its first product: “Lightning Development Kit” (LDK). The Lightning Network is a second layer Bitcoin solution enabling rapid and low cost transactions, including microtransactions.


According to Square, “For bitcoin to become a widely used global currency — one that can’t be stopped, tampered with, or rigged in anyone’s favor — improvements to Bitcoin’s UX, security, privacy, and scaling are required.”


LDK will give Bitcoin application developers a convenient way to create a custom Lightning Network experience and integrate it into any bitcoin wallet. Obviating the need for a separate wallet, LDK will enable a wallet provider to integrate Lightning capabilities and support multi-device, multi-application access.


Square Crypto’s decision to pursue this project highlights several of its objectives: to make an outsized impact on non-custodial bitcoin, meet an underfunded need in the Bitcoin developer community, and bootstrap a self-sustaining project that will attract developers worldwide, enabling bitcoin transactions of all sizes.


LDK is a testament to Square’s willingness to forego short term profits to attain potentially significant returns long term. In our view, Bitcoin’s success will be Square’s success.


Square Secures Patent for a Crypto-to-Fiat Payment System

Follow Max on Twitter @mfriedrichARK


Earlier this week, Square won a patent for a technology that allows parties holding different asset types to transact in real-time. The most likely use case probably will be crypto to fiat transactions, in which one user will pay another in bitcoin, but the recipient will receive fiat currency. According to Square, transactions will incorporate not only crypto and fiat currencies but also commercial paper and securities.


Square argues that long transaction times, price volatility, and anonymity have slowed the adoption of cryptocurrencies in retail, peer-to-peer payments, and payrolls, issues that its new technology will solve. The patent details scenarios in which merchants or employees accept only US dollars but users of “mobile wallets” like Cash App pay with bitcoin which Square then converts automatically into US dollars. Its ecosystem of merchants and consumers will be able to transact without banks and other intermediaries, a boon not only for them but also for Square. According to a recent Jefferies survey, Square Payroll is the second most popular payroll software for small and medium sized businesses in the US, suggesting that SMBs might become more willing to accept bitcoin for purchases to meet payroll if the conversion to fiat is automatic.


This capability also could blaze a trail for Square’s international expansion, especially in regions like Africa and Latin America with unstable economies and currencies. Interestingly and perhaps more than a coincidence, Square CEO Jack Dorsey plans to spend several months in Africa this year.


Amazon Music Is Nipping at the Heels of Apple Music

Follow Nick on Twitter @GrousARK


Earlier this week, the Financial Times reported that Amazon Music has eclipsed 55 million global subscribers, increasing ~71% from 32 million subscribers in just six months. Amazon Music is now the third largest music streaming service, trailing the 60 million and 130 million subscribers at Apple Music and Spotify, respectively.


What is driving Amazon Music’s remarkable growth?


We believe Amazon’s main advantages in the highly competitive music streaming space are its Prime and Alexa ecosystems. Amazon has offered discounts to both groups since it launched the default Alexa music streaming service in 2016.


As shown in the below chart, ARK’s research suggests that the global audio streaming market could grow 32% at a compound annual rate during the next five years, from $13 billion in 2019 to roughly $54 billion in 2024.


Audio Streaming Graph | ARK Invest


Source: ARK Big Ideas 2020


In Other Innovation News

Bakkt’s Consumer Facing App

Speaking at the World Economic Forum in Davos, President Adam White provided color on Bakkt’s consumer facing app which will support a merchant portal and a variety of digital assets including cryptocurrencies, equities, and loyalty rewards points. According to White, it "would make the app more similar to a traditional fintech product like PayPal than a crypto-native offering". We will experiment with Bakkt’s consumer app when it is released this year to learn how it incorporates a variety of financial products into one application.



Battery Shortages May Force Mercedes to Downsize Its EV Production Schedule Again

Last year, while Daimler’s goal was to sell 25,000 of its new EQC electric vehicles (EVs), battery shortages limited it to production of only 7,000. This week, Manager Magazin reported that it has slashed its production target for this year from 60,000 to 30,000, once again because of a shortage of battery cells at LG Chem, an allegation that Daimler denies. In our view, one of the reasons Daimler is struggling to meet battery demand is because Tesla bought German based battery automation specialist Grohmann Engineering in January, 2017. Mercedes had hired Grohmann to build its battery manufacturing capacity, but Tesla halted production for competitors including Mercedes and BMW in April 2017 to focus on Model 3 production.


Tesla’s purchase of Grohmann Engineering reminds us of Amazon’s purchase of Kiva Robotics for $775 million in 2012. Amazon pulled the rug out from other Kiva customers. Traditional retailers didn’t understand that online retail was going to put many of them out of business. With Grohmann Engineering, Tesla may have done the same to the auto industry.


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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