November 2018

Webinar: Innovation within Health Care, Technology and Other Sectors


Key Takeaways

  • Health care companies are addressing unmet medical needs and increasing efficiencies.
  • The technology sector is rewriting the operating system for the entire global economy.
  • Exciting secular trends are creating large multi-year opportunities in Internet, semiconductor and software stocks.

Transcript

Mike McNurney: At Janus Henderson we believe in the power of deep fundamental research. One of the founders of our business challenged our research analysts to know our companies as well or better than anyone. This requires that our analysts are industry participants, and not just simply industry observers. We do not make macro calls. We look at company fundamentals, and we look for secular trends that are driving the market. We scour the globe to gain unique insights.

This deep analysis gives us an information edge to be able to stay ahead of trends, including disruption. We talk about the digital divide and remaining on the correct side of the digital divide, but there are two types of companies that exist within disruption. There are the disruptors and those that are difficult to disrupt. As investors we seek the companies that are difficult to disrupt because they are resilient, but we also seek the disruptors because they can inform us about the companies that are threatened by this disruption, and they create investment opportunities that we can seek to capitalize on.

Today we are going to focus on those disruptors and the companies that are being disrupted, specifically in the dynamic and innovative sectors of health care and technology, but we will also touch on how disruption is affecting other sectors, like industrials and consumer.

Joining me today are two of our Portfolio Managers, Andy Acker and Denny Fish. Andy Acker is the Portfolio Manager of the Global Life Sciences strategy. He possesses a biomedical sciences degree from Harvard and received his MBA from Harvard Business School. Now I do not mention this because his academic credentials are impressive, but because it underscores what is important in assessing biotech companies, as he does – the understanding of both the science and the business of health care.

Also joining me is Denny Fish, the Portfolio Manager of the Janus Henderson Global Technology Fund. Denny also possesses a diverse and impressive academic background, but more importantly, he is deeply ingrained in the culture and business of technology. Denny lives in northern California, and today he is joining us from the Dreamforce Conference in San Francisco.

Today we will discuss innovation and disruption and then spend some time taking questions from the audience, as Jessie mentioned. The first place I would like to start is just setting the stage for us, and Denny, maybe you can walk us through. We have this concept of Moore’s Law. Can you tell us a little bit about what Moore’s Law is, and then why that pertains to the tech sector.

Denny Fish: Yes, it is actually a really good question, Mike, because I think sometimes we forget that Moore’s Law has been around for almost 50 years now, and it is fascinating that every decade it is predicted that Moore’s Law might be coming to an end, but effectively Moore’s Law is the idea that transistor count in semiconductors doubles every 18 to 24 months. So you kind of think about the idea that all things equal on a like for like basis, the ability to process – compute – effectively doubles every 18 to 24 months, and this relationship has held consistent pretty much through the last 50 years. We have had to make modifications over the last 20 years, in terms of incremental technologies that have allowed us to continue to advance that, but importantly we have continued to advance it, and we also now have technology such as EUV, which I will not go into all the details about that, but are really taking the handoff at helping to advance it.

Why that is important is that fundamental premise as it relates to either semiconductors in the logic space, which would be CPUs say from Intel, or GPUs from NVIDIA, or in the memory space from vendors such as Samsung or Micron, for example. This relationship has actually held true. So if you just think, to put it into concept, today a cellphone that sits in your pocket, if you look at the content associated with the CPU in that cellphone, as well as the amount of memory in that cellphone, it actually has about the same compute power that a mainframe computer had in the early 1970s.

When you think about that in concept, with the idea that you combine that with a tremendous amount of compute that is infinitely available now in the cloud, you have two ends of the spectrum that continue to increase the ability for us to apply applications and create new business models, given the power of the device on the edge, as well as the power of the compute that is infinitely available in the cloud now, and that continues to enable, and in some ways, accelerate … and it once again comes back to a fundamental premise around Moore’s Law.

McNurney: Denny, one of the things that you and your team talk about is this proliferation of mobile devices. How has that really impacted the tech sector, and is it because of Moore’s Law enabling these devices to become smaller and more powerful and then infiltrate our lives so completely?

Fish: Well, I think it is a combination of a lot. Moore’s Law is helpful in terms of increasing the amount of compute that is available in a finite space, and the amount of memory is equally important, but I think also effectively having that ability to compute at the edge has allowed us to create entirely new businesses and opportunities for companies to connect with their consumers through the device and through applications and the proliferation of two significant platforms globally in the Android and iOS, and the app ecosystem that has been deployed on top of that has just created, effectively, in the western world it has created ways for existing companies to interact with their consumers in new and creative ways, and in the eastern world, in China, it has effectively allowed companies such as Alibaba and Tencent to provide applications. It has allowed consumers to completely skip what might be viewed as a legacy infrastructure in the West around things such as payments or banking or grocery delivery, and it is just a fundamentally new premise, and it really is. It is the power of that device in your hand, as well as the connectivity and the processing power in the background, in the cloud.

McNurney: I think it is remarkable, we are looking at a slide right now that shows the global population in the light gray and then the number of cellphones in the red line, and right there at the end, Denny, it looks like there are more cellphones than people on this planet.

Fish: Yes, a lot of people I work with have two cellphones, and that is probably a lot of them.

McNurney: I guess I am one of those. We have talked a little bit about Moore’s Law and how that pertains to tech, and that is a very obvious application in terms of technology, but talk to us about how does Moore’s Law pertain to health care, specifically genomics?

Andy Acker: Sure. Well, it was only about 65 years ago that Watson and Crick revealed the double helical structure of DNA, and that was considered one of the greatest scientific achievements of all time, but we have really moved well beyond that, and in 1990 we started what was known as the Human Genome Project, which was a global collaboration to sequence the first human genome, essentially to reveal the book of life that makes us all who we are. That project took 13 years to complete and cost $3 billion. Coming back to when I first started at Janus Henderson back in 1999, we were just completing the first draft of that human genome. Now that was celebrated as a great success at the time, but the problem is, for drug development, if it takes 13 years and costs $3 billion every time we want genetic sequence information, it is not very helpful for scientific research.

What has happened since then, and initially on a curve that was very similar to Moore’s Law, but beginning in 2005, accelerating even beyond Moore’s Law, we have made dramatic improvements in the productivity of genetic sequencing, to the point where today we can sequence a human genome for less than $1,000 and do that in one day. What that has meant is, that has been a revolutionary change for scientists that are trying to develop new medicines because now scientists understand the underlying genetic causes of disease, and they are able to develop new therapies that are directly targeting those underlying genetic defects. What that is translating to is many more new drugs that are coming to market, and these new drugs are addressing high, unmet medical needs, which is a key tenet of our investment in the health care space.

On this chart here, we can see that just in the last four years alone there were 154 new medicines approved in the U.S., and that is almost a 70% increase from where we were just 10 years ago, and importantly for investors, this is translating, it is not just the number of products but it is the quality of them, is translating into significant growth of biotechnology sales, which the number of blockbuster biotechnology drugs has expanded from only two back in 1999 to about 50 today, and the sales last year exceeded $200 billion, which is up over thirtyfold since 1999. So this is leading to explosive growth of sales, addressing huge, unmet medical needs for patients.

McNurney: Andy, maybe talk to us, Denny suggested Moore’s Law says that something is going to double every 18 to 24 months. That is really a compounding effect, right? So maybe talk to me about the compounding effect of innovation and how that is helping us identify these new opportunities for unmet medical needs.

Acker: Sure. These advances in genetic sequencing have really been driven by some of the improvements in computing power, the ability to store information. So there are three billion base pairs that we can now sequence in one day, and then that genetic information can be shared across networks, but also the advances in our understanding of genetic sequence information has been, in addition to that, we have the ability to manipulate this genetic material. So this is leading to new modalities of treatments. So historically we treated disease with small molecule pills. Then in the ‘80s and ‘90s we started using biologic therapies and monoclonal antibodies that could be more targeted, but now scientists, with our ability to manipulate genetic material, are developing all new modalities.

We now have cell-based therapies, we have gene-based therapies, and even the ability to edit and change genetic material directly, whether inside a patient or outside of a patient, and this is leading to an ability to address previously intractable illnesses, and we think we are really just at the very beginning of this wave. For example, there have been 7,000 genetic diseases that have been identified, fewer than 5% of them today have a treatment, and we are seeing, almost on a daily basis, new companies developing ways to treat these diseases in ways we could not even imagine 10 years ago.

McNurney: One of the ones you talk about is spinal muscular atrophy and the fact that these children do not have the ability to develop musculature and it often shortens their lives quite dramatically. How is gene therapy addressing this disease?

Acker: Sure. So spinal muscular atrophy is actually the leading genetic cause of infant death, and patients that are afflicted with the most severe form of this disease will never even be able to sit upright, and over 90% of them will either die or be on a respirator within two years of life. So this is an incredibly severe disease, but it is caused by a single genetic defect and a missing protein, and so scientists at a particular company called AveXis developed a gene therapy that can actually replace that missing gene and that missing protein, and what they have seen is, in the initial, roughly 12 patients they have treated, 100% of them are now alive and not on a respirator after more than two years, and many of these patients are starting to not only sit, but are actually able to stand and walk.

So with potentially a single infusion, we have the potential to cure one of these really severe genetic diseases, and scientists are moving beyond it. This company was recently acquired by Novartis for almost $9 billion. But we are seeing many other companies addressing these huge, unmet medical needs, and just recently in the last few months, we started making progress with a gene-based therapy that can potentially address muscular dystrophy. We also have others for hemophilia and many other genetic diseases. So we are really just getting started, we think.

McNurney: We talk about innovation and disruption, and you have to keep in mind that the last science class I took was undergrad, so it has been a while, but you are essentially hollowing out a virus, putting in the correct genetic material, injecting that into the body, and “infecting” the body with the corrected genetic material, right?

Acker: Yes, it is like science fiction! It is, and the amazing thing is, about 10 years ago we never would have thought this would work, but now because of our better understanding and ability to manipulate genetic material, we can now make proteins at a 100,000-fold higher levels than we could 10 years ago, and that is really making all the difference. So essentially what we are doing is, we are inserting a gene into a carrier, in this case a viral capsid that has been hollowed out so that it cannot actually replicate in the body, but what it can still do is, essentially infect the cells with this genome construct that we need to make the protein that is missing. So we are essentially turning the cells in the body into a mini factory that will produce the protein that was missing for these patients, and that can essentially solve the functional problems that they had, and so far many of these are lasting for years and could be curative. So it is a really exciting time, and we think we are still in the early stages.

McNurney: Absolutely. Now, Denny, it is pretty hard to follow saving babies, but how is tech enabling companies in all sectors? It is not just the technology sector that is benefiting from advancements in technology, right?

Fish: That is right. What we like to talk about a lot: We really feel like we are in this period of the entire global economy, effectively rewriting their businesses for a digital operating system. And it is a high-level concept, but the reality is that is permeating just about every board room worldwide, in terms of as these companies reflect on their strategies, and that applies to the industrial sector, it applies to the automotive sector, clearly retail, media. It is starting to permeate areas of health care, and so we can talk about a number of different examples of specific industries where this is occurring, but we think a lot about just not only the individual technology components or 100% technology enabled businesses, but also the disruption and whether it is occurring, and the opportunities that are being created for adjacent business models for what have been more traditional businesses over time.

The one that kind of maybe highlights it is, if you think about Boeing, for example, a company that historically has had a duopoly position worldwide, very healthy industry structure and has had a great business, but what the introduction of digital technologies and what we termed the Internet Of Things, given the ability and the densification of the networks now, and the level of information that can actually be pulled off of what have historically been product-driven businesses, and create downstream, aftermarket models that create a tighter connection between, say, Boeing and its customer base, and creates a virtuous cycle around maintenance and around aftermarket service, which then ultimately keeps planes in the air more efficiently, and also creates a recurring revenue base for these types of companies. So it is an opportunity to remix that relationship with your customers, but then also create revenue opportunities that ultimately investors value more than just plain transactional, product-driven businesses. So that is one example in a specific industry, but we could talk about examples across multiple industries.

McNurney: I think, Denny, one of the things we have talked about in the past, we have a slide up here showing Piccadilly Circus in London in 1900 and 1912 and how the automobile industry was transformed, or I guess how the transportation industry was transformed going from horse and buggy to the motorized vehicle, but we seem to be undergoing a transformational shift, and I think one of the exciting aspects of this, not only in terms of the semiconductor content that is required to do this, but other technologies that are required, the cloud, the ability for cars to become spatially aware, is this autonomous driving vehicles. Where is the opportunity there?

Fish: Yes, I think auto is a really, really interesting example because it is one of the most important industries globally, as you think about contributions to GDP, and if you think about a couple of things that are shaping the automotive industry right now, and kind of going back to your slide here of Piccadilly Circus, the interesting thing is: if we would have gone back to this point in time, we would have said, if we were going to build a car from scratch and you had the option of building a car that had 2,000 parts in its engine versus say 10 parts in its engine, required you to actually use some sort of fossil fuel to actually power the car, that ultimately polluted the planet, had lesser acceleration, required maintenance on an ongoing basis because of the number of parts in the engine, and you just go through a long list of things, differences between an internal combustion engine and where we are at with electronic vehicle technology, there is no way you would choose an internal combustion engine for environmental and just clear cost of ownership issues over a multiyear period.

It is fascinating to think about that because just thinking about that conceptually, meaning if you were developing this industry from scratch at that point in time, you would have never made the decisions that you made, had you had the technologies that are available today. When we see moments like that, that is a fundamental reshaping of the entire industry over the next decade, and that has profound investment implications for numerous sectors.

Then we think about the idea, then you combine that with, we are in the very early stages of autonomous driving, and as we all know, we have assisted driving and safety, we call that ADAS. That is sort of Level 1, Level 2 stuff in terms of adaptive cruise control, and lane correction, and collision avoidance, and things like that that are safety features today, but we are quickly moving on to other levels of autonomous driving, and when you start to think about layering that onto an electric vehicle, and the idea of the amount of, like a good example is, the average car today has 1-1/2 cameras on it, for maybe a backup camera or some sort of frontal camera, or side view, or 360-degree view or something. As we think about fully autonomous vehicles, it is expected those cars enabled to enact machine vision are going to have upwards of 20 cameras, and the amount of content on an autonomous car through sensors, or analog semiconductor content, or a GPU, or a heavy processing unit that is going to actually sit in the trunk of a car, the content is going to be 10 or 20x what it is today. So that has real investment implications in terms of semiconductor content, both on the analog and GPU side, sensors.

It is also going to require, if you think about the latency of communication and the processing ability at the edge, it is going to require real densification of our underlying telecommunications network as well, and we are right on the cusp of actually starting to deploy 5G in small cells. So you have this combination of this much smarter device on the edge, the car. It is highly connected, a densification of the market, and the ability to actually apply artificial intelligence algorithms on top of that, leveraging both the edge device, the car, as well as the back-end processing of the cloud, and all of this comes together to enable the autonomous vehicle as we go forward.

So really, that combination of the electrification of the vehicle and the vehicle going autonomous over the next many years, with electric having the most kind of near-term investment implications, and autonomous longer term, the entire industry is going to be reshaped. I think that is probably the most obvious example to everyone on this call, given most people do own a car or spend a fair amount of time in cars. You can think about how that can kind of reshape competitive dynamics across the auto landscape over the next several years.

McNurney: Denny, I drive about the most analog car in the world, I drive a Jeep Wrangler, and what I am waiting for is that Level 5 automation, the full autonomous experience. How long do I have to wait for that?

Fish: That is a little uncertain. We are probably, realistically, if I had to draw a line in the sand, I would say you are still five years away from that, but there are going to be iterations of that as, today, for example, you can actually get into a fully-autonomous rideshare, Waymo vehicle from Google in Phoenix and take a taxi around, and it is autonomous, Level 5. It is relatively controlled because you do not have the same inclement weather that you might get in other areas, it is relatively flat, and it is only in certain parts of the city that you can do it, but it is there.

One of the challenges is, you need to get over the technology hurdle, but then you also need, it is kind of the chicken and the egg problem in that as the world gets more autonomous with cars, the cars are smarter, they are more efficient and more alert than human drivers, hence in a world where the entire fleet is autonomous, you are going to have far fewer accidents and fatalities than you would otherwise, and so it is just going to take time, and it is going to also take consumer perception and the idea of, for people like us, it is going to continue to be relatively uncomfortable to drive around without sitting in the front seat, without a driver, and self driving, but for someone who is 10 years old today, by the time they start driving, we might be fully autonomous at that point and fully accepted, so then you just have generations that follow on that do not even know a world without autonomous driving, and that is how quickly things can change.

McNurney: I guess when I was a kid the Jetsons promised me flying cars, and so I am a little disappointed, but I guess that disappointment is assuaged a little bit by the fact that maybe my car will drive me to work in a couple years.

Now, Andy, Denny just talked about doing things smarter and more efficient and fewer fatalities, and I guess that maybe leads me to my next question, and making a pretty broad jump here, but this year we have seen some pretty major breakthroughs in the fight against cancer, and not necessarily where we thought we would find them. Tell me what is happening.

Acker: Yes, cancer is one of the biggest unmet medical needs, it is the #2 cause of death worldwide. We are spending almost $900 billion per year treating it, and 40% of us will be diagnosed with cancer at some point in our lifetime. So this is a scary disease. Generally when it gets to be late stage, stage IV metastatic disease, it becomes virtually incurable. One of the problems with cancer is that cancer cells are abnormal cells that start growing out of control, and for decades our best way of treating them has been through chemotherapy, and the idea with chemotherapy, it is a little bit barbaric, but the idea is to try to attack and kill any cell that is dividing, and the hope is because cancer cells divide rapidly, that we are going to kill more cancer cells than healthy cells, but it is not really a very targeted way of treating it, but that is essentially the best thing we have had for more than 40 years.

It is only very recently that we have started to understand how to harness the power of the immune system to attack and kill cancer cells, and these cancer cells, because they are unusable and they have mutations, they should be expressing proteins on their surface, or what are called antigens, that should be recognized by the immune system, but unfortunately the cancer cells have found a way to hide from the immune system, and we had a picture here of a chameleon. … Essentially a cancer cell has a way of pretending that it is not there or pretending that it is a normal cell. So now, with these new therapies, which have only been approved in the last few years, we can now unlock the brakes and essentially allow the immune system to identify and attack and kill these cancer cells, and this is resulting in dramatic improvements.

Really for the last 20 years or so, as we have been investing in the health care space, even with targeted therapies, the goal has been to improve median survival, and often that is measured in months, and so we can tell a patient with stage IV lung cancer, for example, that instead of dying, on average, in eight months, they are going to die, on average, in 10 months. When we think about that for a friend or a family member, that is not very satisfying, right, because essentially we might live a few more months, but most will still succumb to the disease. But now, by identifying and using the immune system to attack cancer cells, we are leading to, in some cases, dramatic improvements where we can actually, at least for a subset of patients, lead to long-term functional cures, and essentially put the cancer into remission, and just recently, just in the last few months, for lung cancer, which is the leading cause of cancer death (this represents about half of cancer deaths worldwide), by combining the old chemotherapy with these new immunotherapy drugs, we can cut the risk of death in half.

So this is pretty dramatic benefit. This was just approved in the U.S. less than, really just a few weeks ago, and in Europe just about one week ago, from Merck in this case, and to give you a sense of the sales potential, although these therapies have only been approved in the last few years, last year they sold over $10 billion, and this year we expect them to sell over $15 billion globally, and this is still expanding very rapidly, and with these new approvals and these dramatic benefits for patients, we expect this to be rapidly adopted as a new standard of care.

McNurney: But at the outset of the year, if investors would have talked to me, I would have said that the real promise is, we have these immunotherapies but the combination of these two therapies, or what they call IOIO treatments, right, but it looks like Merck’s discovery here, or their real disruption is in immunotherapy combined with that more, what you called barbaric therapy of chemotherapy. So why is it that we had this shift in terms of where the innovation is coming from?

Acker: Yes, so initially we came out with single agents, one IO, or immuno-oncology agent, and then the hope is that, and that works very well. So for example, Keytruda is a member of a class called a PD-1 inhibitor, which stands for Programmed Death. This is something that you can remove the brakes, it is a checkpoint that turns the immune system off. By removing the brakes on the immune system, you can attack and kill these cancer cells, but generally that was working only for a subset of patients that over-expressed this protein called PD-1, which is about 20-30% of cancers. The hope would be that by combining one of those agents with another immuno agent, we could expand and broaden the efficacy.

So far the initial results from that approach have been disappointing, but I do not think we are done yet. There is tremendous investment here. Merck alone is funding 850 clinical studies that are looking at different combinations, and I do think chemotherapy now, because of the incredible results we just saw a few months ago, will probably be part of this solution, but ultimately we are looking at what other agents can be added. For example, can we remove another brake on the immune system, or actually hit the gas, hit the accelerator in different ways that can further expand the immune response and control these cancers. So I think we are still in the very early innings of what we are going to be able to do to address many of these cancers.

McNurney: OK. Now shifting gears. Denny, maybe back to technology. One of the things I was anxious for you to talk about a little bit was Blockchain, but you just had one of your analysts come back from a conference that was related to artificial intelligence, and just looking at his research notes, got really excited about the impacts of AI. Can you talk about where are we seeing disruptive tech innovation right now?

Fish: Well, I think this is another area where AI … it is one of these things that it is going to permeate just about, every industry is going to figure out how to implement AI to improve their processes, or someone else is going to figure it out against them, and it is kind of one of these forces of gravity right now, and you can either fight it or you can go with it.

I think some specific examples – I will give you kind of a scary one and I will give you a very world healing and helping one. The scary one is, maybe the most outsized implementation of AI in the world right now is this idea of what is going on in China, where the government is effectively in the early stages of attempting to apply a social credit score to each consumer, and the way they actually do this is in a number of ways, and one is actually using upwards of what might ultimately be about 500 million cameras in the country. (Remember, in areas like China, versus the U.S., there is a different expectation of what data privacy means as consumers there, and as citizens you just accept that your data privacy protections are much lower than they are in the west.) As a result, this idea of creating a social credit score and effectively monitoring the behavior, the movements of individuals using facial and body recognition, and layering on AI, and pulling in inputs from every mobile transaction, as I mentioned earlier, they skipped a step and most people transact through things like Alipay and Tenpay. Having access to that information, having access to movements, having access to credit, and then actually effectively rating their citizens based on their social score. As resources become scarce or even the smallest things, such as a reservation at a restaurant, all the way through to getting a mortgage, people are prioritized based on their social standing and their social credit that has been defined by the government and the amount of information they have collected and applied algorithms against. So that is sort of like the big scary, big government, putting a number on everybody’s head use case of AI, and I just highlight it because it is something that is actually in the early stages right now, that is actually occurring.

McNurney: Denny, do the Chinese people have transparency into their social score?

Fish: Yes.

McNurney: Is it something like a credit agency where I can learn my credit score?

Fish: It would be like getting a FICO score here in the U.S., except the number of inputs that go into this social credit score are far broader and far more dynamic than the simple financial attributes that go into our financial credit score here in the U.S. Obviously criminal activity, social behaviors that are being monitored and being scored by the government, all of this goes into their algorithms. So that is, like I said, kind of the big brother, but the reality is, just to put it into context, it is estimated they are going to deploy something like 500 million cameras across the country to be able to do this. The entire PC market is only 300 million units annually, so twice the entire size of the global PC market will be deployed in cameras in China to actually pull this off. It is only made possible because all these technologies are now, these four mega-themes that I think I had talked about earlier – IoT, 5G connectivity, artificial intelligence and cloud – you need all four of those elements to pull something like this off.

Then I think about the more sort of heartwarming applications with AI. If we think about what is going on in agriculture right now, and the idea of getting sensors closer to agriculture and being able to more distinctly target pesticides where it is not organic, in terms of individual plants. More importantly, managing the amount of water that actually can be individualized to certain crops, implementing weather data to actually predict what we are going to need to be able to actually apply. All of that just leads to more efficient use of resources on the planet and more efficient yields of crops, and it just kind of creates a significant societal benefit through the application of AI.

So those are sort of two ends of the spectrum. I think about AI, in some ways, as Andy was talking about, through genomic sequencing and cancer research and what is going on, and hopefully we are able to apply increased algorithms there as well, to improve society. A lot of implications from the implementation of AI over the next several years.

The interesting thing about AI is the majority of the algorithms that are actually being deployed and used are open source, and so as a result it is all of this enabling technology around AI and understanding how AI is changing business models. I am here at the Salesforce.com Dreamforce conference, one of the product lines they are highlighting incrementally is something called Einstein. It is their AI assistant within their product that is allowing them to kind of rethink all of their different clouds, whether it is sales, service, marketing, or platform, and infuse AI into it, and hence that allows them to then extract more value and they can sell more SKUs to their customer base.

And why are they able to do that? It is because they have a really broad and robust customer base and a tremendous amount of data from those customers that they can leverage through their algorithms. The other examples of direct ways to play AI, maybe the most obvious example to everyone here is Alexa … and the idea of the connected home and the power of what Amazon is doing there. Whether it is Amazon or whether it is Google or Apple, in terms of the connected home, that is just a trend that is going to continue to get stronger and stronger, and sort of the closed loop nature as you start implementing replenishment into your household, as well as playing music or controlling temperature, whatever it may be. Lots of ways to think about investment opportunities from here, but investing in just AI is really tough. There is not really an arms dealer for AI, but there are a lot of ways that these algorithms are being implemented.

McNurney: Thank you, Denny. Now we have talked a lot about technology and health care. Andy, help us blend the two. Is there a place where health care is leveraging technology to become more effective or more efficient?

Acker: Yes, absolutely. One of the areas where we are really seeing technology having an impact is diabetes. Diabetes is another one of the huge, unmet medical needs globally. It affects more than 400 million people, and that number is growing every year, especially around the world in emerging markets, and we are spending $800 billion per year treating this.

The management of diabetes. … When a patient has diabetes, it means they can no longer control the levels of glucose in their blood. This is really important because that glucose has to be exquisitely controlled, and if the glucose levels get too high, then the patient can be at risk of developing heart disease, and diabetics are at threefold higher risk of dying from cardiovascular disease. If those levels get too low, then they get what is called hypoglycemia, as opposed to hyperglycemia, and that can also lead to patients getting hospitalized and also can lead to death. So these patients live in fear their entire life of having to manage that glucose level very closely, and essentially everything they do, from walking up a flight of stairs to eating a banana, will impact these levels. So especially for type 1 diabetics who have essentially no control of their glucose, they need to monitor that very closely.

For decades, the standard of care has been strips and meters using finger sticks. So these patients had to stick their finger five to eight times a day, every day for their entire lives, in order to get a reading on where their glucose levels were. But the problem is, that is only a static reading, so they do not really know what the trend is. Advances in sensors and algorithms and wireless transmissions have now allowed a much-improved modality. So now we can use a continuous glucose monitor that can be essentially inserted and require no finger sticks. So we are going from five to eight finger sticks a day for life to zero finger sticks. And on top of that, now we can get a reading every five minutes on our iPhone. So for patients, this is absolutely transformative. Think about for parents of a diabetic, they can get a reading on their own iPhone. They can get alarms if their child’s glucose is getting too high or too low. So this is, we think, a really transformative therapy for these patients. So diabetes is one area, and this was just approved a few months ago.

Another area we think is being transformed is telemedicine. So this, again, is using the power of computing and improved memory and networking and mobile communications. Now, instead of a patient having to go into the emergency room when they get sick, which is extremely costly to the health care system and not very convenient for the patient, a patient can access medicine or access a physician either on their iPhone or at home on their computer, and literally get in touch with the doctor within minutes.

We see this as a win-win-win for all involved. For the patient, it is obviously much more convenient to access health care from their own home; for the physicians, this can be a source of additional income, and it also allows them to basically do a house call from their own home. Then for the employer that has to pay for it, this is a much lower, much cheaper way and more efficient way to access the health care system. We are very early in the adoption of telemedicine, but this is growing rapidly, and is really enabled by technology and we think a better way to access the health care system for many patients.

McNurney: One of the questions we got from the audience actually is related to Teladoc, the company that is providing one of the solutions for telemedicine, and their company provides them access to this. What do you think the opportunity is? Are we in the early innings in terms of growth in this particular industry?

Acker: Yes, we are in the early innings. I think they have 65-70% market share, and they are growing their revenues over 40%, but you are right, the penetration is still extremely small.

McNurney: Now for my last question before we get to the audience questions: I want you guys just to maybe look on the horizon and tell me within your own sectors, and Denny we will start with you. What type of disruption do you see on the horizon of the technology sector? What are you most excited about?

Fish: This intersection of the four mega-themes. The reason I say that is because having followed tech for many years, I remember sitting around as a group and talking about what the implications of the cloud could be about 10 years ago. This would have been, call it the 2007 time frame or so, and thinking about the implications. It is not that frequently that we can identify a tech trend, fast-forward 10 years, and feel like we are still just at the tip of the iceberg in terms of what the implications could be from continued adoption.

That is actually where we are at. It is like the last 20 years, going back to the late ‘90s, we have fulfilled the promise of the prior dot-com bubble, in terms of what the promise of the Internet was. We have now laid down this underpinning of the cloud and people are comfortable with it. Now we have the intersection of these three other mega-themes of AI, IoT (you know, highly connected devices) and then importantly, the densification of the telecom networks that are coming. It is this intersection of all four technologies that is going to create a really, really virtuous cycle over the next 10 years, I believe, and create a lot of really interesting opportunities in tech, as well as other sectors, as we talked about as well, given these trends permeate just about every industry.

McNurney: Andy, how about yourself?

Acker: I am really excited about gene therapies, and I think we are really just very early in it, and the ability to potentially cure a disease with a single infusion is really revolutionary. Another area I think is extremely exciting would be personalized cancer vaccines. We have started to develop some targeted therapies, but the idea that we can actually take a patient’s individual cancer, sequence it, and then find out which specific mutations any individual has that is leading to their cancer, and then develop a vaccine that actually directly targets those particular mutations that an individual has, and then be able to produce that vaccine and maybe combine it with these other immuno agents, and potentially lead to curative therapies. I think that is really exciting.

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