Curated Insights 2019.09.27

Why these two innovations in artificial intelligence are so important: Eye on A.I.

The first item was news that a Hong Kong-based biotechnology startup, InSilico Medicine, working with researchers from the University of Toronto, had used machine learning to create a potential new drug to prevent tissue scarring. What’s eye-popping here is the timescale: just 46 days from molecular design to animal testing in mice. Considering that, on average, it takes more than a decade and costs $350 million to $2.7 billion to bring a new drug to market, depending on which study one believes, the potential impact on the pharmaceutical industry is huge.

What’s also interesting here is that InSilico used reinforcement learning, an A.I. technique that hasn’t yet impacted business much. Reinforcement learning is notable because it doesn’t require the vast pools of structured, historical data that other A.I. methods do. Here researchers used reinforcement learning to rapidly design 30,000 new molecules and then narrow them down to six, which were synthesized and further tested in the lab. Look for more A.I. breakthroughs like this to start upending the balance of power between biotech startups and Big Pharma.

The second piece of underappreciated news is that researchers at DeepMind, the London A.I. shop owned by Google parent Alphabet, and Imperial College London, successfully used a deep neural network to find more precise answers to quantum mechanical problems. That’s basically the physics that underpins all of chemistry.

To date, the only element for which we can completely solve the underlying quantum equations is the simplest, hydrogen, which has just one proton and one electron. For every other element, we rely on approximations. Get better approximations, and you potentially get new chemistry – and that means new materials. Think room temperature superconductors or new kinds of batteries that will vastly extend the range of electric vehicles. DeepMind’s A.I.-powered approximations were in some cases almost an order of magnitude better than previous methods. If you’re Dow or DuPont, or Formosa Plastics or LG Chem, that sort of advantage could be worth billions.

Why prescription drugs cost so much more in America

All over the world, drugmakers are granted time-limited monopolies — in the form of patents — to encourage innovation. But America is one of the only countries that does not combine this carrot with the stick of price controls. The US government’s refusal to negotiate prices has contributed to spiralling healthcare costs which, said billionaire investor Warren Buffett last year, act “as a hungry tapeworm on the American economy”. Medical bills are the primary reason why Americans go bankrupt. Employers foot much of the bill for the majority of health-insurance plans for working-age adults, creating a huge cost for business.

Other drugs are more innovative — and their development undeniably expensive. According to Tufts University, the average is $2.6bn per drug, up 145 per cent in the past 10 years. Most drug candidates fail; those that do make it to later stages must go through expensive clinical trials. In support of the drug companies’ argument, one 2015 study found that for every extra $2.5bn a company made in sales, it produced one extra drug.

Robot pilot that can grab the flight controls gets its plane licence

A recent conversion of US military F-16 fighter jets into drones cost more than a million dollars each. ROBOpilot can be inserted into any aircraft and just as easily removed afterwards to return it to human-controlled operation.

“It looks like an impressive achievement in terms of robotics,” says Louise Dennis at the University of Liverpool. “Unlike an autopilot which has direct access to the controls and sensors, the robot is in the place of a human pilot and has to physically work the controls and reads the dials.” The makers suggest that ROBOpilot will be useful for tasks including transporting cargo, “entry into hazardous environments”, and intelligence, surveillance and reconnaissance missions.

Entrepreneurs hope microbes hold the key to a food revolution
A taxonomy of moats

Curated Insights 2017.09.03

Google, IBM primed for a quantum computing leap, says Morgan Stanley

The immediate advantage is speed: “To sort a billion numbers, a quantum computer would require 3.5 million fewer computing steps than a traditional computer and would find the solution in only 31,623 steps.” Other problems, many having to do with computing physics, become possible on quantum machines, the authors write, whereas they might never be possible on traditional binary computing devices.

We think the high-end compute platforms could see a transition post 2025, similar to how steam engines coexisted with combustion engines and electric motors for decades before being decommissioned. In the medium term, we see incremental demand for FPGAs and GPUs (possibly benefiting Xilinx, nVidia, and maybe Intel) as more supercomputers from Atos and Fujitsu are developed to simulate the behaviour of quantum computers. If quantum computers eventually do become ubiquitous, then the growth of high-end computing systems that emulate them could be affected, hence limiting the valuations of those stocks, but this is more a post 2020 event, in our view.

The size of the market will also depend on the business model used (one-off hardware sales vs. cloud-based, the latter being the most likely, in our view, as the hardware needs to run at a very low temperature (below 1 degree Kelvin) in a very stable radio frequency environment, and as such is more likely used as a shared asset).

Vuitton knows fashion is a money pit—and keeps throwing money in it

High-end clothes are famously unprofitable. The expense of producing collections, staging shows, and displaying apparel in boutiques wipes out the clothing’s potential profit, says luxury analyst Luca Solca of Exane BNP Paribas. He estimates Vuitton loses more than €100 million ($118.1 million) a year on ready-to-wear, which generates less than €450 million of the brand’s $8 billion to $9 billion in annual sales.

Runway shows can create an aura around the brand that helps sell more-profitable items, Som says. With Vuitton, that’s handbags; with Chanel International DB, it’s perfume, which Som estimates accounts for 70 percent of revenue at the privately held luxury house.

Vuitton is the world’s most valuable luxury label, according to consultancy Interbrand, which pegs its brand value at $24 billion, almost twice that of runner-up Hermès International.

Harvey has made the world’s most important chemical a rare commodity

Texas alone produces nearly three-quarters of the country’s supply of one of the most basic chemical building blocks. Ethylene is the foundation for making plastics essential to U.S. consumer and industrial goods, feeding into car parts used by Detroit and diapers sold by Wal-Mart Stores Inc.

With Harvey’s floods shutting down almost all the state’s plants, 61 percent of U.S. ethylene capacity has been closed, according to PetroChemWire. Production may not return to pre-storm levels until November, according to Jefferies.

Ethylene and its derivatives account for about 40 percent of global chemical sales, said Hassan Ahmed, an analyst at Alembic Global Advisors. The U.S. accounts for one of every five tons on the market, and ethylene plants globally were running nearly full out to meet rising demand before Harvey, he said.

Prices for ethylene-derived products, meanwhile, have begun to show signs of the looming shortage. Polyethylene prices globally have begun to climb on the expectation that U.S. exports will be slashed, IHS said.

How the three-tiered beer distribution system works

As of April 2008, 35 states now permit some form of direct wine sales to the consumer. It only accounts for about 2% of the wine sales in the United States, but there is huge opportunity in this market. The distributors see this as a direct challenge to their place in alcohol commerce. Craft brewers would love this access to the consumer, and some states are starting to permit it in small quantities. If everyone can sell directly to the consumer, there is no need for distributors.

Budweiser dominates in world sales, and was the number one selling beer in the world until recently. Part of the reason for their success is it is much easier for Budweiser to penetrate foreign markets than it is for foreign beers to penetrate the American market. The most likely reason InBev pursued the purchase of Budweiser was to gain better access to the distributors, not for the “great taste” of Budweiser.

Corruption now exists at the distributor level. Powerful distributors determine which beers make it to the shelves. For example, Bell’s Brewery in Michigan gave up trying to penetrate the Chicago market and pulled out of Illinois completely.

Markets are becoming more open for wine, so it is a matter of time before the beer producers demand the same treatment. The distributors will fight for their existence, but the US government may have already signed their death warrant with world trade treaties. No matter what happens, eventually the path beer takes to your glass may change.

Switch to renewables won’t end the geopolitics of energy

In the world of fossil fuels, this curse has generally applied to big producers of oil and gas. In a world heavier on renewables, the curse will probably not be so relevant for producers of power. Rather, we may see this curse surface in countries rich in the materials required to produce the components that make renewable energy possible.

China provides approximately half of the indium consumed globally today, whereas the Democratic Republic of the Congo is the source of more than half the world’s cobalt. The big producers of lithium, another material essential for the production of batteries, are Argentina, Australia, Chile and China. Yet Bolivia’s large untapped reserves of lithium could catapult it into this league in the future. Tellurium is not a rare-earth mineral, but it is another key component of solar panels. The U.S. has imported most of this material from Canada, but relies to some extent on Belgium, China and the Philippines.

The U.S., too, is rich in many of these resources; the U.S. Geological Survey estimates that the United States possesses 13 percent of global rare-earth reserves, 14 percent of global tellurium deposits, and 3 percent of the world’s indium reserves.

The majority of the world’s cobalt reserves are believed to be in the Democratic Republic of the Congo. Thus it would benefit U.S. policymakers to look at the African country as not only a humanitarian crisis and failed state, but as a more pressing a strategic priority.

More than a third of those ages 18 to 34 say they can’t go without Amazon, according to comScore’s 2017 US Mobile App Report. Gmail and Facebook ranked second and third. That bodes well for Amazon, especially as millennials age and grow their earnings power.

The case for a breakfast feast

A recent review of the dietary patterns of 50,000 adults who are Seventh Day Adventists over seven years provides the latest evidence suggesting that we should front-load our calories early in the day to jump-start our metabolisms and prevent obesity, starting with a robust breakfast and tapering off to a smaller lunch and light supper, or no supper at all.

The group issued a scientific statement emphasizing that skipping breakfast — which 20 to 30 percent of American adults do regularly — is linked to a higher risk of obesity and impaired glucose metabolism or diabetes, even though there is no proof of a causal relationship.

The complete guide to not going to college

Adopt a different attitude right now: Understand that the most important kinds of education have nothing to do with degrees. If you think you’ll benefit from hours of scholarly debate about niche topics, by all means go to college; but if you already know that you won’t, there are hundreds of high-paying jobs that don’t require you to waste your time.

Companies, particularly those in Silicon Valley, are progressively looking away from transcripts and extracurriculars. Google, in particular, truly couldn’t care less about what school you attended; it only wants to know if you can a) solve problems, b) lead, and c) offer the company something different. IBM says that about 10-15% of its new hires don’t have a college degree. And in Google’s view, the experience of going to college can sometimes even detract from a candidate’s qualifications—serving as only an “extended adolescence.”

If you have an idea, and believe in it, take a risk, and work hard at it.

Curated Insights 2017.07.30

Capital accumulation, private property, and inequality in China, 1978-2015

Between 1978 and 2015, China moved being from a poor, underdeveloped country to the world’s leading emerging economy. But relatively little is known about how the distribution of income and wealth within the country changed over this period. This column presents the first systematic estimates of the level and structure of China’s national wealth since the beginning of the market reform process. The national wealth-income ratio increased from 350% in 1978 to 700% in 2015, driven mainly by the increase of private wealth.

The top 10 stocks in the S&P 500 at year-end every five years going back to 1980

The biggest stocks

…it’s not that out of the ordinary for a handful of stocks to account for a large portion of the stock market’s gains. This is just the nature of the beast with the stock market. There are very few big winners and lots of big losers over the long haul.

The top 5 companies today are all technology companies (we can quibble on how to define some of these firms but they are mostly tech firms). This has some people worried. Maybe it should cause us some concern but look at the top 10 companies in 1980 — the list was dominated by energy companies, a much more cyclical industry.

Both Citigroup and AIG were on the top 10 list in 2000 and 2005. These were two of the companies that were responsible for nearly taking down the entire financial industry and have suffered enormous losses because of it. Since the end of 2005, Citigroup is down 86% while AIG has fallen more than 95% in market cap.

If it cracked down on password sharing, Netflix could probably make $400 million more a year

If 6% of that audience, or 4 million US households, stopped borrowing passwords and signed up for their own Netflix memberships, Netflix could stand to make as much as $391 million more a year. That’s if each of those new members signed up for Netflix’s cheapest plan, which is $7.99 a month in the US.

Tesla and Elon Musk’s moment of truth with first mass-market car

“No one can produce a car that size, and with that amount of battery, at a lower cost than General Motors.”

Maintaining premium pricing while fending off some of the big carmakers will not be easy. It has been tempting for investors to view Tesla as the latest in a line of disruptive Californian companies that will go on to dominate a new industry, says Bruce Greenwald, a professor at Columbia Business School. But he adds that, unlike Apple and Google, there are no “moats” to protect its business from competition and it does not dominate any single market.

Artificial intelligence is not as smart as you (or Elon Musk) think

…as strong as AlphaGo was at its given task, it actually couldn’t do anything else but play Go on a standard 19 x 19 board. He relayed a story that while speaking to the DeepMind team in London recently, he asked them what would have happened if they had changed the size of the board to 29 x 29, and the AlphaGo team admitted to him that had there been even a slight change to the size of the board, “we would have been dead.”

“In chess, machines dominate the game because of the brute force of calculation and they [could] crunch chess once the databases got big enough and hardware got fast enough and algorithms got smart enough, but there are still many things that humans understand. Machines don’t have understanding. They don’t recognize strategical patterns. Machines don’t have purpose,” Kasparov explained.



The myth of drug expiration dates

The dates on drug labels are simply the point up to which the Food and Drug Administration and pharmaceutical companies guarantee their effectiveness, typically at two or three years. But the dates don’t necessarily mean they’re ineffective immediately after they “expire” — just that there’s no incentive for drugmakers to study whether they could still be usable.

Tossing such drugs when they expire is doubly hard. One pharmacist at Newton-Wellesley Hospital outside Boston says the 240-bed facility is able to return some expired drugs for credit, but had to destroy about $200,000 worth last year. A commentary in the journal Mayo Clinic Proceedings cited similar losses at the nearby Tufts Medical Center. Play that out at hospitals across the country and the tab is significant: about $800 million per year. And that doesn’t include the costs of expired drugs at long-term care pharmacies, retail pharmacies and in consumer medicine cabinets.

Do probiotics really work?

The idea that consuming probiotics can boost the ability of already well-functioning native bacteria to promote general health is dubious for a couple of reasons. Manufacturers of probiotics often select specific bacterial strains for their products because they know how to grow them in large numbers, not because they are adapted to the human gut or known to improve health. The particular strains of Bifidobacterium or Lactobacillus that are typically found in many yogurts and pills may not be the same kind that can survive the highly acidic environment of the human stomach and from there colonize the gut.

Many researchers think personalized probiotics are the most promising path forward for patients with compromised gut microbiomes.

Should you feed your kid probiotics?

A pill with “40 billion live organisms” is not going to help your child lose weight or “boost” their immune system. It won’t stop your baby from crying on an airplane, protect your toddler’s teeth from decay, lessen the duration of a cold or flu, or cure acid reflux. It’s a billion-dollar industry with virtually no medical oversight.

There’s no credible evidence that the regular consumption of a probiotic yogurt will make your child or you any healthier. But this doesn’t stop marketers from suggesting that it’s a delicious panacea…Food manufacturers may not like to admit it, but it is difficult to control the types of organisms that grow in these live cultures, despite industry standards set to determine what types of bacteria should be in yogurt.

Buy time, they’re not making any more of it

According to a study published Monday in the journal PNAS, people who buy time by paying someone to complete household tasks are more satisfied with life. And it’s not just wealthy people. Across a range of incomes, careers and countries, timesaving purchases were correlated with less time-related stress and more positive feelings. Yet the researchers’ surveys showed that very few individuals think to spend money in this way.

“People are notoriously bad at making decisions that will make them happier,” Whillans [Ashley] said. She suspects the abstract nature of time may be to blame. “We always think we’re going to have more time tomorrow than we do right now,” she said, so we’re hesitant to trade money, which is concrete and measurable, for time, which is much more uncertain.

Why does the other line always move faster?

At the supermarket checkout, should you pick the shorter line or the line where people have fewer items? I have gotten into heated arguments with people who insist on a particular way. And yet, the discussion is actually moot since there is a bigger issue: the entire question is flawed. Mathematically you are bound to wait in long lines because the game is rigged against you.

Why you should never eat food on planes, and other jet-set tips

…at superhigh altitude, your digestive system shuts down completely. Someone said to me it’s like being under anesthesia. So when you get off the plane, everything restarts and [your digestive system] has so much more work to do and so it makes you more tired.