Webinar Replay: How Disruptive Technologies are Enabling the Re-Opening Economy

Oct 8, 2020

As governments and business leaders around the world look to re-ignite economic growth in wake of the COVID-19 pandemic, concerns remain around how to safely and responsibly bring people back to offices, schools, and stores. In this webcast, Global X’s thematic research team evaluates the challenges facing the Re-Opening economy and which technologies will play a critical role in the new normal, such as the Internet of Things, Cloud Computing, Genomics, and Telemedicine.

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This information is not intended to be individual or personalized investment or tax advice and should not be used for trading purposes. Please consult a financial advisor or tax professional for more information regarding your investment and/or tax situation.


Jay Jacobs:

Hello, everyone. Thank you for joining us today. We’re very excited to discuss with all of you the re-opening economy and the disruptive technologies that are powering this phase of the COVID-19 pandemic. My name is Jay Jacobs. I lead research and strategy at Global X. I’m joined here by two colleagues of mine, the theme team, Pedro Palandrani and Andrew Little. Between the two of them, they’re both research analysts covering our 20 thematic ETFs.

Very briefly, a little bit about Global X. We are an ETF issuer based out of Manhattan, although like many of you on the call today, probably based all over the country or all over the world during this very unique time. We have more than 70 ETFs covering a variety of different areas but one that is very close to us and actually our biggest suite in terms of assets under management is thematic investing. We have been doing thematic investing for over ten years since the launch of our lithium and battery technology ETF back in 2010. We offer more thematic ETFs than any issuer in the United States. This is a very key part of Global X and an area that we spend lots of time thinking about, researching, and sharing with clients on a regular basis. We’re very excited for today’s webinar.

The plan for today, we’re going to be looking at the COVID-19 pandemic through a thematical lens, identifying where we are in the recovery and the major themes that are enabling economies around the world to advance from where they are today to something that resembles a more normal environment, or what we anticipate will be the new normal economy going forward. To do so, we’re going to take a look at where we’ve come from, predominantly the stay at home economy and looking at some of the disruptive trends that were accelerated in that unique era. Then from the bulk of the presentation, we will look at the differences between the stay at home economy and the re-opening economy, where we are today, by identifying some of the specific themes and technologies that we believe will be critical to this reopening process.

With that kicking it off, as I mentioned previously, we are viewing the COVID-19 pandemic through a thematic lens today. Before we get into the meat of the presentation, just want to make sure we’re all on the same page with respect to what is thematic investing and how it differs from some other investment approaches. Thematic investing is forward-looking investment approach that refers to the process of identifying powerful macro-level trends and the companies that stand to benefit from the materialization of those trends. This is inherently a long-term growth focused strategy, tends to be unconstrained by arbitrary geographic and sector definition. Because these are more concentrated growth oriented portfolios, they tend to have low correlations to other parts of people’s portfolios.

These tend to be relatable concepts. Many of the things that we’ll be talking about today, you’ll be seeing and experiencing in your everyday lives as well, which we think makes thematic investing a very tangible concept, both for portfolio managers as well as their clients. This is different from a lot of other investment approaches. The bulk of investment processes I believe means looking backwards, trying to understand what are the patterns that have developed over the many years that we’ve had data and insights on the market, and trying to extrapolate how those patterns might repeat in the future. Thematic investing is anticipating a world that’s very different. As I mentioned, we’ve been doing this for ten years, but clearly in this era of COVID-19, the world that we’re entering into is going to be very different than the world that came into it. We think thematic investing is really uniquely well suited to this very disruptive environment.

Now, where we look at when we identify powerful level themes at Global X, we follow a three-step process, conviction, investability, and timeframe to land on the 20 thematic ETFs that we have today. Conviction being when we look into a theme, do we have high confidence it’s going to disrupt the global economy or is it more of a passing fad. We, of course, want to find the theme that has very high conviction, will play out the way we expect it to. The second being investability. Because we are launching ETFs, we need to have a good basket of publically traded companies that have high exposure to that theme. We really want to bring out thematic ETFs that are providing pure play exposure in companies that are deriving 50% or more of their revenue from the theme that the ETF is targeting.

Then last, from a timeframe perspective, we’re looking out into the medium and long-term. These themes are designed to last for ten years or more, if not being multiple decades or evergreen in nature. This might seem to stand a little bit in contrast with what we’re talking about today with respect to COVID-19 and the re-opening economy. What I want to emphasize is that these are themes that we largely identified prior to COVID-19 that are merely being accelerated by this pandemic. These are not new themes that are just arising because of the specificity of COVID-19 or the re-opening economy. Rather this disruptive environment is standing to accelerate many of the technologies and trends that we already saw playing out prior to the pandemic.

Where are we and where we are going? We believe we are currently in the re-opening economy, which is the third phase of this process. Beginning with the pre-COVID economy where we thought we were starting off the year all good and fine with the US trade deal that clearly, as lockdowns and Wuhan start to shut down air travel and started to become more of a global event, we transitioned into the stay at home economy, which I think everyone is very familiar with. There were lockdowns across the country and across the world where people change their daily habits and routines. We also saw historical levels of support from both essential banks around the world, including the Federal Reserve, as well as fiscal support from the government to now the re-opening economy, a hybrid transitional phase that is involving loosening some of those stay at home restrictions and opening certain aspects of the economy, such as schools, offices, or stores.

This is obviously something that doesn’t just happen on the slide but something that’s happening every day. We see the implementation of some of the COVID prevention techniques listed on the side, from mask wearing to hand sanitizers to implementing different forms of technology to measure and limit the spread. We see changing social norms as we understand how we can see people and interact with them. At the same time, we’re actually seeing an expiration of some of that economy life support that the government had put the economy on during the stay at home economy. The CARES Act expired, replaced with a lighter version. We’re not seeing a ton of progress out of congress on a bigger support package. From a monetary support perspective, the central bank largely hasn’t done much in addition to what we saw during the stay at home economy, the balance sheet being largely unchanged and maintenance of the status quo of low interest rates. This is very much a transition period, balancing the return to some sort of economic normalcy while mitigating the risks of transmitting COVID-19.

Now, this is clearly a step of progress from the stay at home economy, which all of us are deeply familiar with. Reviewing the stay at home economy, the overarching theme here was how to flatten the curve, how to limit COVID-19 transition, and give hospitals time to prepare for rising cases. From an economic perspective, the goal was to just limit collateral damage as much as possible. We saw the Federal Reserve drop rates to 0%, almost a $3 trillion expansion of the balance sheet, and the government passed the $2 trillion CARES Act to support the economy going forward.

One of the unintended consequences of that very disruptive period during the stay at home economy was the acceleration of a multitude of themes at a much faster rate than we had expected previously. When we look at thematic investing, we also like to talk about the adoption curve. We can look at the blue line on that chart. A normal adoption curve is looking at, when you look at it on a specific theme, how much of that theme has already been adopted, how quickly do you think that adoption will continue, and what is the total addressable market for that theme. What we saw during the stay at home economy was many themes really saw both an acceleration and an expansion of that total addressable market.

For example, we saw tons of companies implementing cloud computing solutions overnight during the stay at home economy so that they could continue their business practices. That’s an acceleration of the adoption of a certain technology. We also saw the total addressable markets for a lot of these themes expand as new users came into play who we never thought would be users of these technologies before, such as the Silent Generation becoming users of e-commerce overnight to purchase groceries and home goods and healthcare related products under the stay at home orders. While the focus, of course, was on flattening the curve and keeping the economy going, we saw these huge unattended winners because of that unique environment.

To share a couple slides on that over here, we show cloud computing revenue saw very robust growth during Q2 despite what was otherwise a pretty devastating period for the S&P500 from a revenue perspective. If we extend that to e-commerce, we saw an almost 45% growth in Q2 2020 versus the year prior. As I mentioned before, an acceleration of a trend and an expansion as we saw people who maybe were users of e-commerce were using it much more frequently to order groceries or to order home goods. We saw new people coming into the market using e-commerce who maybe never used it before. Likewise, we saw a huge jump in the penetration of e-commerce versus the broader total retail market spending in the United States. Another theme that got accelerated by COVID-19 and the stay at home economy.

Then the last example here a surge in the revenues of gaming. In video games and e-sports, we saw some of these game developers seeing 25% year over year revenue as people were staying at home and really didn’t have a ton to do. There was no live sports, social activities were fairly limited, there were very few new movies and TV shows coming out, we saw a lot of people channel that energy towards gaming as well.

Now, I think what’s on many people’s minds is were some of these changes that we’ve been talking about during the stay at home economy permanent or were they really a temporary response to the uniqueness of the stay at home economy and something that might refer back to norms in the next few months as we progress. I believe that a lot of these changes really are structural permanent changes with pretty significant downstream impacts. We’re just not going to go back to a lot of the things we saw before the stay at home economy.

First, we’ve seen preferences change. If you ask the Millennials about their post-pandemic activities, a lot of them are going to continue their heightened levels of shopping online, as some of you indicated, one of the more adopted technologies. Exercising from home, using mobile payments, working from home, a lot of these trends that we saw really accelerated during the stay at home economy, people believe are going to continue going forward. There’s also more permanent changes that we can already see today, 26 retail bankruptcy in 2020. This is a direct result of that e-commerce trend, putting effectively the nail in the coffin for many of these retailers who failed to adapt to a digital world. We’re seeing some of those bankruptcies and maybe more micro changes in the economy turn into more permanent changes in the labor markets as well. Even as we see unemployment starting to fall from the March highs or April highs, we’re seeing the amount of permanent job loses increase, which means we’re really starting to see those structural changes affect not just retailers going bankrupt but companies across the economy that are really thinking who they need for what jobs. A lot of these changes we think are not just going to be flashes in the pan that happened during the stay at home economy but those that will really continue going forward. As preferences changes, the economy changes and the labor market changes.

That brings us to the last slide here in the introduction around the re-opening economy. This is the phase we see ourselves in today, which is really a transitional phase between that stay at home economy and the new normal economy, whatever that new normal looks like. It really is a transitional economy. It’s really trying to balance those bringing up economic activity some return to normalcy while also preventing the further transmission of COVID-19. We’ve seen other countries around the world struggling with a similar transition period. Some key considerations that we need to think about during this environment is that, of course, COVID-19 is not eliminated. It’s continuing to flare up around the world. We have not seen a huge renewed momentum in Washington to pass further fiscal stimulus to the economy. We’re effectively starting to unplug the economy from some of that life support. We’re seeing new rules regarding social distancing and density, hygiene mask wearing. These are being implemented in different ways in different localities. People are responding to it differently but these changing social norms are having an impact on everyone as we try to understand what these rules look like today and what they might evolve going forward.

Companies and people are remaining generally risk adverse. Even if we’re starting to see the re-opening economy, that doesn’t mean everyone or every company is going to jump in with two feet and try to reopen offices and reopen schools overnight. This is very much a tentative period for everyone. Travel bans and compulsory quarantines are still very much in effect, meaning that simply looking at airlines or hotels as a bellwether for the re-opening economy, I don’t think makes a ton of sense in this environment because we’re still seeing very limited travel. I think the longer that goes, the longer that’s going to have an impact on how we think about travel going forward. Finally, there’s still plenty of uncertainty around school reopening. For anyone with a family, the uncertainty around school reopening has a lot of downstream impacts with respect to office reopening and store reopening as people really try to understand how we can be in this environment where we might be learning from home, learning from distance, while still trying to resume our everyday lives in the offices.

What does this all mean? At the end of the day, this very tentative transitional period of the re-opening economy is uncertain. It may be nonlinear. We may be taking two steps forward for every one step backward. We believe that the themes that are really going to be well positioned during this new phase and probably going forward into the new normal economy as well are those that put an emphasis on personal safety and allowing for flexibility. This is different from the stay at home economy which was very much just everybody stay at home and don’t do anything. Just entertain yourselves from your couch. This is a new area where people are going outside but are going to need to be implementing safety measures. There’s going to need to be tons of flexibility in the economy to allow for that two steps forward, one step back process.

Which of the themes stand to benefit from the re-opening economy? I’ll shortly be turning it over to our experts, Pedro and Andrew, to be deep diving into which themes we think are the best position. The four that we’ll be talking about today, beginning with cloud computing as one of those themes that’s really allowing flexibility in the workplace and in schools and in medicine as we try to allow for more flexibility. The internet of things, which is introducing technological devices that are going to be measuring people’s distancing and temperatures and overall safety. Genomics, which is at the cutting edge of testing and vaccines, which of course has been key throughout this entire process but is going to become even more important as we start the re-opening process. Finally, with telemedicine, a new form of medicine and hospital care that we think is really starting to accelerate due to this unique environment. With that, I’ll turn it over to Pedro to dig into the cloud computing theme and how it may benefit from the re-opening economy.

Pedro Palandrani:

Thanks, Jay. Good afternoon, everyone. Starting with the cloud computing theme, I think it has been clear at this point that it’s been a phenomenal year for cloud computing companies as we enter that work from home economy. That’s not new news anymore. What we’re going to talk about today is the relevance of cloud computing as we reopen our economies and enter that new normal in the next few months or quarter. As we go through this transition, it is important to understand that cloud computing companies have become extremely ingrained in our way of working, in our way of studying, and even allowing us to maintain our social interactions. Before we get into the meat of cloud computing, we wanted to start with segments that represent the theme as a whole and that we include in our cloud computing ETF.

These five segments that we list here are software as a service company, platform as a service company, infrastructure as a service, data center REITs as well, and then the companies that build or manufacture the components that make remote connectivity possible. Without digging too deeply, it is clear that businesses and individuals rely on cloud infrastructure and software as well more than ever. In fact, almost every organization and individual use some form of cloud computing solution these days. This really doesn’t mean that we have reached peak adoption. If we look at the right side of the slide, we can see that surveys show that companies plan on increasing their cloud spend in overall adoption in the near future. We would expect these trends to even further cloud computing companies business model, which as we can see in this slide, is one of the primary reasons why we have seen and expect to see growth in the theme.

Their business models are usually characterized by some form of subscription base with a strong generation of recurring revenue, meaning that these companies usually charge a monthly, quarterly, or annual subscription fee per user, which then leads to business visibility and also greater retention rates. At the same time, I think this is probably the most important thing is that customers achieve huge return on investments as a result of a few things, ease of management, interoperability, less upfront investment on things like hardware maintenance, IT personnel training. That’s the iceberg that we can see here because companies are really saving money on all these fronts by relying on cloud computing solutions. It’s really easy for customers to get on these platforms but it’s very hard to get out because once you have the integrated software to your business processes, it could be costlier to even switch providers. It’s very sticky and that’s why retention rates tend to be very high. It’s also important to understand that these companies tend to have fixed cost. If we look at Salesforce latest earnings release, for example, we can see how the company grew their top line revenue by 29% but earnings actually jumped 118%. I think that highlights that for software as a service companies, it’s very easy to get on board many new customers without having to increase your costs. So the cost structure remains almost flat.

And clearly at the onset of the pandemic, we saw drastic uptick in interest around remote working and related services as it is evident by this chart. On the top left chart, we clearly saw a huge pickup in data usage during the first half of the year. The bottom left chart shows upstream data traffic growth, that’s data that users are uploading to the cloud, which again, reinforces the fact that we all have had to increase the use of cloud video conferencing, cloud based VPN to securely access a shared file in our company’s cloud, and even this webinar today is happening over the cloud. All of these growths have been reflected in the company’s recent results. If you look at the chart on the right, we can see that for the software as a service company, the quarter over quarter and year over year sales growth actually exceeded by far the rest of the growth in the S&P500. I think that as investors, we all want to better understand at this point what the future may look like.

The new normal, as it refers to working conditions, it’s most likely going to be on a hybrid way with employees working remotely more often and more meetings are likely to be held over cloud platforms. I think that employers are offering some flexibility that didn’t exist before. Looking at what we know about the future, we can see that many companies have already announced that they will allow employees to continue to work remotely. One group actually told employees that they could work from home until 2021. Here we can see six high profile companies with about 300,000 employees, and this includes Google, Warner Music, Amazon’s corporate office as well and a few others. Then we have another group that actually told employees that they could work remotely permanently. Just these six companies have about 70,000 corporate employees. This is a small sample size but combined, these companies have about 400,000 employees and are expecting to continue at some degree their remote operations. Again, these are high profile companies but many other companies have approached the working situation in a similar fashion. We would expect to see in the future a hybrid work environment.

This is something that employees actually have shown preference for. In the chart on the right, we can see the results of a recent survey that shows that employees showed an increase in the willingness to work from home post-COVID-19. Before COVID-19, employees were asked about their preferences to work from home, and these results were compared with a survey post-COVID. There are significant chances. For example, prior COVID-19, 9% of employees wanted to work from home five days per week, so the full work week. That number increased to 16% post-COVID-19. The greatest delta can be seen in the hybrid approach that I just mentioned. If we look at the number of employees that prior to COVID wanted to work from home two and three days per week, they accounted for approximately only 10%. Post-COVID-19, the story changed completely with 40% of employees having a preference to work from home two and three days per week showing how sticky these behaviors can be.


That is just one more tail wing that could propel the growth in the cloud computing theme. The left chart shows here the expected revenue growth for the cloud computing theme as a whole in some of the segments that we talked about before. As we can see, the total market growth is showing a 6% growth expectation for this year, still ahead of the general economy. This comes as a result of some concession that software as a service companies have made this year onboarding clients at a much lower rate during the first year or so but still onboarding clients. As relationships tend to show a high degree of retention, this is expected to result in greater growth in the following years as prices can be hiked or if possible to upsell as well to the same customers. Because of that, growth is expected to quickly rebound to a double digit growth rate over the next two years as you can see here. Historically, as revenues grow, there has been positive correlations with margins, as we can see in the right chart. Like we mentioned in the Salesforce example, these companies can grow revenues and maintain costs fixed which allow them to see margin improvement as they scale their operations.

We actually have current estimate at about three to four connected devices per person but we can see here that it’s easy to think about five or more connected devices per person. In the future, it’s actually looking better than that. Here in this chart, we can see that we’re expecting to see nine devices per person just in the next few years. Starting at a high level, IoT, or internet of things, refers to the idea that everyday devices can be connected to the internet and be smart. Without getting too deep into the definition, we can see here that many estimates have connected devices reaching about 75 billion by 2025 from just about 20 billion last year. That is a 3x growth in a period of six to seven years. This high growth is expected to be supported by a few things that we list here as current drivers. That is rapidly failing costs and I’m going to talk about that in just a second.

We also have a growing commercial adoption even outside the industrial segment. Now we see cheap semiconductors and microprocessors in multiple devices from multiple industries, like microwaves, light bulbs, doorbells, robotic surgeries, autonomous and electric vehicles and the list goes on. We also have consumer behaviors that are changing in favoring smart and connected devices and given that the cost differential between a smart product and a non-smart product is very low, it’s making the decision easy for consumers to tilt their behaviors to favor smart and connected devices. Of course, improved connectivity with the 5G rollout that we’re going to see, that we’re seeing actually this year, is expected to be another tail wing for IoT. As we look at the sub segments that could potential benefit from this proliferation of connected devices, we have identified that connected device manufacturers that could include smart equipment, vehicle, and infrastructure manufacturers also together with semiconductor companies and networking companies, may be the best exposed companies to capture the growth opportunity in these theme.

The chip in this slide is a Wi-Fi chip that you may find in any number of different household smart devices. That same chip was used in the first iPhone back in 2007 and it cost about $7.40 per unit. Fast-forward 13 years, the same chip costs about $0.10. That is almost a 90% decline in cost. The image below shows a dime compared to the size of this chip. Of course, these images aren’t to scale but essentially that Wi-Fi chip is one tenth of the size of a dime. As you might have guessed, this is Moore’s law in action. Now, the question is how all of this tech talk relates to the re-opening economy. To answer that, we have put together this table on the right because since now is possible to have connectivity in many devices. We have noticed that connected devices are playing a very important role in the re-opening economy. As they’re used to measure occupancy, density, take temperature readings, and even detect early signs of COVID-19 infection while allowing data to be stored and analyzed in the cloud so organizations can keep track of all this data and prevent spread by taking immediate action. These technologies include sensors, wearables, drones, and robots.

Now we wanted to explore a few of these use cases into integrated detail, these use cases that are helping reopening efforts. If we look at wearables, there’s a large number of physiological metrics currently capable of being measured from commercial wearable sensors. The power of wearable devices is that changes in these physiological metrics can actually be read by an early detection algorithm for COVID-19 monitoring. Essentially, we have programs, such as the one from Fitbit where over 100,000 Fitbit users across the United States and Canada signed up to allow the wearable device to detect and inform users for early symptoms of COVID-19. That single study from Fitbit showed that the wearables detected nearly 50% of COVID cases at least one day before participants reported symptoms. Imagine how important this is by allowing people in organizations to take quick action and identify at risk communities.

Now, if we look at the other example, looking at sensors, we need to realize that despite the fact that many employees may continue to work from home more often, as we talked during the cloud computing theme, for many others, it’s simply impossible to change their workplace. If we think about factories, warehouses, frontline workers, remote working is simply not possible, and more so as we reopen our economy. What we’re seeing is that we’re implementing solutions that combine contact tracing with user level alerts to contain exposure and empower workers to maintain distance within businesses. Proximity sensors are actually being used in our offering a solution to many companies that simply cannot have their workforce at home. Basically, employees can receive an alert if they have been too close to other employees for about one minute or so. This is allowing not only the employees to take action but also management teams to better manage employee data about physical proximity and ensure workers are working under a safe environment and it’s allowing employers to tell employees basically here’s what we’re doing in the building so we can make it safer for you. Really, there’s so many other examples that are using these aggregated data, of course, by leveraging AI technology to identify areas where illness levels are unusual high engage whether measures taken are working to slow the spread.

This is important to understand. IoT is not simply that sensor or that wearable that is collecting data 24/7. It’s really the combined power of very inexpensive sensor devices, very inexpensive remote networks. That’s a rise of a cloud storage combined with increasingly sophisticated algorithm that can analyze all the data that’s being gathered. Now we really have the ability to track a correlation of change that let us predict what could happen in the future. I really think this is transformational as we reopen our economies.

As a final example, we wanted to show the use of temperature sensors, especially in high throughput areas, like businesses, airports, and schools. In businesses, temperature checks kiosks are now the norm. It’s really helping organizations to prevent the disease. Actually, in our main office in midtown Manhattan, for example, these checks are already in place. I’m sure many of you can say the same. In airports, there are applications that combine temperature information from thermal cameras and crowd density measurements from lidar and combine that with flight information and passenger flows and basically these systems can detect passengers with high temperatures and alert the airport operations to control potential contaminated areas. They can quickly redirect passenger flows. They can quickly reposition flights, close infected areas, and relocate staff. For schools, the situation is similar. Only now, countries, large cities, and organizations are already integrating these applications to mitigate COVID-19 and we really think that IoT would not only serve to help with the current pandemic but also is going to help to prevent future outbreaks.

Andrew Little:

Genomics generally, just as a theme, we think of the pandemic as something that really accelerated a trend that was already somewhat in the making, fueling and really starting the current and probably future growth, in our view. Many pandemic mitigation strategies rely on or are even rooted in genomics, but again in-the-weed science applications can get lost.


What is it? Genomics is the study of genetic material or the makeup or order of that material. Living things have genomes. Some nonliving things have genomes. A virus has a genome. COVID-19, or SARS-CoV-2, the virus behind COVID-19, has a genome. It’s an RNA virus so you can get insights by sequencing that RNA or that genetic material. We’ve bucketed genomics into these four sub sciences that you can see on the left. Genomic sequencing, that’s a process of really ordering, finding the exact order of genetic material, the building blocks of one’s genome. You have computational genomics, that’s using data analysis, any kind of computation statistics to decipher insights from genome sequences. You can use this for a multitude of different purposes, diagnostics, surveillance, treatments. We’ll get into that. Gene therapy, those are genetic medicine based and therapy based in genomic data, the genomic science trying to find cures and treatments for diseases using that. We also have gene editing, which we like to categorize it as its own sub science. It’s definitely applied to all of the above just in terms of the way that it can be used for treatments, for diagnostics, for sequencing. All really interesting sub sciences that have direct applications. Recent attention has really brought genomics into the spotlight. As I said, it’s a long-term theme. We really have conviction in for a while. It really started to take off in recent years. When we think about this trying to think why has it taken off. First, way cheaper than it used to be to sequence a genome. In 2003, the first human genome was sequenced for around $2.7 billion and that took 15 years to complete. It’s called the human genome project. Today, we can sequence a genome for under $1,000. Looking at the chart on the right there, you can see that sequencing costs are dropping faster, even the cost of computing interpretation of Moore’s law, just the drastic drop off right around 2007, 2008, if you’re looking on the chart.

Next, information from genomic sequencing can help us address previously incurable conditions. We also see increased demand for catered health solutions, also known as precision or personalized medicine giving custom tailored treatments designed for you or those with similar conditions or genetic makeup to you. Also for pharmaceutical companies and healthcare providers, genomic data can be extremely valuable in helping them with R&D, exploring how to treat patients with different types of genomic data. Next slide we’re going to dig into some of this, especially the cost improvement there on the left, also the total addressable market. Once you have the cost improvement and evolution sequencing comes from the advent of what’s called next generation testing, NGS. We’re going to be using that acronym a little bit today.

Sanger sequencing, that’s the old school way of sequencing invented in the 1970s is what was used to sequence the whole human genome for that really expensive, really arduous human genome project. Slow, labor intensive, and it’s really what the old style of genomic medicine, even before it become really an industry it was so slow and laborious that that’s what was going on and what they were using. NGS, again, there’s that acronym, that’s the new school method of sequencing, came to be in early to mid-2000s, right after the human genome project. It was actually starting to see some development right around then. Sequencing many fragments of genetic material in real time and uses technology to determine the order of that sequence.

Next, we’re going to take a look at the ability to address currently or incurable or unaddressed conditions. We think this is a really compelling driver for genomics and has been for the recent past. Goldman Sachs estimates that the genomics total addressable market could be around $4.8 trillion with much of that coming from yet to be addressed conditions. You can see that on the chart on the right and you can see the orange segments of those bars are represented the newly addressed conditions. A lot of potential there. Good example right now in action is Editas Medicine in Allergan’s recent work trying to use gene editing to cure childhood blindness by using what’s called CRISPR technology to take out that aspect of one’s genome. Right now, that’s in clinical trial. That’s actually not sci-fi futurist. That’s real and it’s happening right now. That’s something to keep track of, definitely interesting. We’re seeing an uptick of genetic therapies that would be included in this addressable market just every year, new clinical trials initiated being developed with genomic information just based in that science. That stuff is picking up.

Now looking at why it’s become so important during the pandemic. Sequencing, NGS, there’s that acronym again, in particular was really important in terms of first identifying the virus as a novel pathogen at the end of 2019, beginning of 2020. For context, the SARS virus in 2003 took a little under 70 days to sequence. The virus behind COVID-19, SARS-CoV-2, sequenced way faster – full genome for the virus was published in under ten days. The actual sequencing itself was likely even faster than that. That’s when it started to pop up on the internet and be shared and collaborated with international scientists. This type of sequencing is also really important for tracking the transmission and evolution of the virus. Looking at the map on the right, you can see the way they were able to map how it spread after initial infection. You’re really able to look at the genome of the virus, small changes in the genome of the virus as it occurs over time, on average around two changes in base pairs. That’s the really granular level of genetic material changing in a month. If someone in one region is infected with the virus that shares the same genetic code or a small alteration from someone in another region, you could really track and see how they’re connected.

The genetic information they got from those NGS sequences is really important for developing the first RT-PCR tests. Those are the nasal swab tests I’m sure many are familiar with at this point. I’m also giving a general understanding just about the virus. Some of those insights were also important for figuring out some of the information around the structure and mechanism of the virus also very vital to reopening. From this type of information, we’re able to develop antibody tests, antigen tests, which along with PCR tests can allow us to figure out whether or not someone’s been exposed, antigen testing presence of the virus, antibody testing presence of the immunoreaction to exposure to that antigen, not necessarily meaning immunity, just exposure.

As we continue to reopen, countries have really increased testing to help us get to a new normal, reach that new normal that Jay was referring to earlier that we’re really striving for. Interestingly, sports leagues are doing the same very much acting in ways that their countries are. After months of closure when tests weren’t really being conducted as much, they’re now testing as much as possible to keep players safe and continue operations. NBA has their bubble where they use antigen tests. I know that’s well documented and it’s really interesting case study about how we could reopen in certain instances. NFL just started up with their testing protocols, and MLB, which actually releases their testing data on a regular basis, has really ramped up testing, too. We show this in the bottom right, the blue line showing MLB testing through mid to late August. Their policy is essentially to test 60 players on 30 teams tested every other day. Just a lot of testing going on there.

Beside diagnostics and surveillance, it’s really put a central role in the development of vaccines and treatments. COVID-19 mobilized the global medical community in a way that rallied around genomics in a way that’s really not been done before. This is really evident by the pure range, the vastness in the range of treatments and vaccines currently in development. The diversity in genomics research as a foundation for a lot of them, there are definitely treatments and vaccines being developed outside of the genomic sub sciences, but many use them as a core tenant. You have RNA vaccines and DNA vaccines, other using genomic derived information about proteins, virus post interaction, to try and limit the spread and impact of infection. On the bottom left you can see the chart that we have there showing just the expansion and the vastness of all of those different types of treatments and vaccines. You can really see in such a short amount of time, we’re really covering all of our basis in terms of all the different types of treatments and vaccines being explored.

These discovered efforts aren’t really fruitless either. On the right, you can see, August 21st, I’m sure some of the data here has changed since the 21st. As of the 21st, we had a large number of treatments and vaccines moving into later stage clinical trials and many in phase one and two. Also that’s not to count the large number of treatments and vaccines that were in pre-clinical trial moving into those phases. Hopefully, all of this will be done in a safe way and we see full blown FDA approval. I think that these are going to be really important just in terms of limiting the impact of the virus and mortality and also just making sure that we are reopening safely. Those are all of the applications of genomics and really think this is a theme that, again, has been a long time coming but COVID-19 has mobilized the medical community and just the scientific community around this theme in a way that we previously hadn’t before.

Next, we’re going to cover telemedicine and digital health. Definitely become top of mind for many during the pandemic, including investors. Stay at home orders as many individuals relied on virtual healthcare for doctor visits and to get health information. Health providers relied on it to continue doing their job in an especially irregular environment. Looking at some definitions, we looked at the theme through four key segments. We have telemedicine. That’s just virtual healthcare, video, chat, over email. I’m sure many have, at this point, used telemedicine. The data points to that in terms of adoption, which we’ll get into in a second. Connected devices, many of those can be those that Pedro mentioned for his survey and for the polling question and for his case study examples. You have healthcare analytics where you are actually taking the data from digitized healthcare information and the different data taken from wearables, telemedicine platforms, self-reported mobile health apps. You’re really taking that, analyzing it, and using it to derive new insights, new outcomes and treatments. Then administrative digitization, that’s making electronic records, health records digital, keeping them, of course, within compliance with regulations and also structuring the type of data that’s up there so that it’s actually useful.

While attention and general use has been really positive for the industry, there are a number of drivers that we see as really positive for the theme that we think that the theme can really address in a positive way. There are addressable health conditions and disparities all around the world. Around 15.6 million [0:54:02] deaths occurred in low to middle income countries in 2016, definitely something that we think that technology and telemedicine digital health can address. Current and future of longevity, the age 60+ population by 2100 is expected to be 28%, up from 13% in 2017. We have extremely inefficient healthcare systems throughout the world. The OECD estimates that $1.3 trillion dollars, or one fifth of annual healthcare expenditures, come from systemic inefficiencies. Then also just the fact that we had technologies scale up in the recent years to the point where it can really support ubiquitous telemedicine and digital health.

Why do we think technology can address all of these points? Telemedicine and digital health brings healthcare to those who may not have geographic access to it. As you can see by the chart on the left, the disparity is massive and there are many who could benefit from access to these type of services. Looking at the low GDP per capita bucket, very low average position density per 1K population there. Before the pandemic, we saw examples of telemedicine adding value in sub-Saharan Africa, but now it’s even more valuable. We see electronic ICU, or electronic intensive care units, that have connected devices ranging from ventilators, monitoring systems to track vitals like temperature, heart rate, blood pressure, all from afar limiting the risk of infection for doctors and for other patients. Then also when we’re thinking about the ability of this theme to play off of drivers, there are many out there who can’t get the care they need because they can’t afford it or if they spend money on it anyway they go into poverty. A hundred million people each year go into poverty due to health expenses. Telemedicine digital health is much more affordable in terms of cheaper care and travel savings. Payers are embracing them. The Center for Medicare and Medicaid Services approved 80, at least on a temporary basis, 80 new services related to telehealth since the pandemic started.

The charts here really show the adoption of this type of technology in action. We look at medical claim lines in the US in 2019 and 2020 to get a sense of how it shifted. This is a good way to do it, it’s about volume, it’s not just binary have or haven’t used. What we see is telehealth related claims going from well below half percent to a 13% max in April, and even then since, it still makes up a substantial portion. If you go to FAIR Health, you can actually track these claims on a regular basis. There is a little bit of a lag so you don’t get to see the data as soon as it’s released. Looking at May still very sticky and we think this is going to continue moving forward, especially because patients, providers, payers all are really benefitting from this. With all this digitization comes more healthcare data and with better and more data technology like AI can use it to automate or improve processes. Really quickly on the right, you see the chart of FDA approved AI algorithms that continue to grow over the past four to five years really spiking in 2020 where you can start to see the slope steepen. On the bottom right there, the approval is broken down for this, many are tangentially or directly related to COVID-19, especially those helping with the diagnosis of the lungs and heart.

We’ve also seen some of the transformative power of this technology in healthcare come to life, especially in the digital health space during the pandemic. Telemedicine and remote monitoring, that means more resilience systems. You aren’t bringing patients in unnecessarily and risking the spread of the virus. Hospitals can focus on the things that they really need to get in-person treatment or on conditions that really require in-person treatment. That also means more efficiency. Technology can triage patients automatically, help them get care without unneeded human interaction and risk of infection. Also helps allocate resources when systems are strained. This means putting doctors in places where they’re needed and tracking assets vital to treatment like ventilators. It also means more efficacy. Data can help fine tune treatments for patients, it can be shared between providers, countries, public health officials, to find new ways of mitigating crisis and helping make public health and budgeted decisions. We’ve already explored this but it can really improve the way treatments are developed and tested as well.

We’ve used the pandemic thus far as a lens for this type of transformation but looking at the graph below there’s just massive spending ways that can be addressed by such technology across administration, pricing, care delivery, over treatment, and just the value of care, fraud and abuse, and failed care coordination. All of these areas in our view are right for disruption and transformation as a result of digital health. Next, I’m going to pass it to Jay now for some quick takeaways.

Jay Jacobs:

Great, thank you, Andrew. Just for some key takeaways, we’re going to go through these and then take a little bit of time for questions. I know we’re long here so we’ll just stay on to answer two more questions. The key takeaways from today’s environment, amid the stay at home economy, we did see certain structural changes accelerate, like e-commerce, video games, and cloud computing. We believe as we continue to go into this re-opening economy leading to the new normal economy. As mentioned, businesses around the world look to reopen everything, from schools to businesses, there will be a heavy emphasis on maintaining flexibility and high safety standards, which is why we believe that some of the best positioned themes today are cloud computing, the IoT, genomics, and telemedicine.

Just a quick reminder that all of our research is available online at We’re constantly putting out more materials on all of these themes. We’ll also quickly go through a couple of disclosures.

With that, we’ll wrap it up. Thank you again for joining. I hope everyone has a safe and wonderful Fall.


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