In this special South by Southwest Week edition of Industry Focus : Healthcare, host Kristine Harjes talks with contributor Simon Erickson about the most exciting healthcare tech and trends he saw at this year's conference.

Genome sequencing has massive potential to improve our lives, and we're only just starting to scratch the surface. New, hyper-effective treatments from companies like Spark Therapeutics (NASDAQ:ONCE) are changing the game for pharma pricing. Genome sequencing is more accessible than ever, and new bottlenecks are cropping up that keep the technology from its full potential. More and more attention is being paid not just to physical health, but the mental and behavioral health that underpins our lives. Tune in to find out more.

A full transcript follows the video.

This video was recorded on March 14, 2018.

Kristine Harjes: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. Today is March 14, and this is the Healthcare edition of the show. I'm your host, Kristine Harjes, and we're continuing our South by Southwest coverage. The Motley Fool's Simon Erickson is calling in from Texas so we can talk about what he saw in Austin as it relates to healthcare. Simon, thank you for joining me!

Simon Erickson: Hey, Kristine! It's great to be here. I'm glad to be calling in from Austin, one of the finest cities in the United States.

Harjes: You know, I've never been, but I've heard amazing things.

Erickson: I did live here, so I might be biased, but I still stand by the statement.

Harjes: Well, someday I hope to be able to go check it out. Before we get started with the show, Simon, do you know what holiday it is today?

Erickson: What holiday? No, I do not. I believe it's 3-14 ... does that make it Pi Day?

Harjes: That does make it Pi Day!

Erickson: Yes!

Harjes: So, rapid fire: Buy, sell or hold. Pecan pie.

Erickson: Ooh, pecan, I'm going to go and hold.

Harjes: OK. Cherry pie?

Erickson: Sell.

Harjes: Apple pie?

Erickson: Hold.

Harjes: What about "American Pie," the 1971 Don McLean hit?

Erickson: 100% a buy on that one.

Harjes: [laughs] Okay, I had to keep going until we got some sort of buy. Getting down to business, it seems to me that every year, South by Southwest, which is a tech conference at its heart, showcases more and more advancements being made in healthcare. Can you talk generally about the role that healthcare plays in the conference, and how that's evolved over the years you've been attending the conference?

Erickson: Sure. South by Southwest started as a film and music conference 25 years ago or so. It's evolved to more and more of a technology and business conference that's incorporated in that, as well, a lot of creative thinking, a lot of what's going on in the future, and how can we think innovatively to make a better future? 

In the years that I've been at South by Southwest, which is about the last six years, I've seen healthcare play an increasing role in that. People are getting more and more interested in healthcare, and they're starting to talk about things like, how can we change the healthcare system? How can we use genomics to improve treatment? And a variety of other topics are starting to get into the mainstream, and I think we're starting to see that as a society. We're also starting to benefit from that as investors. That's the approach that I have, and the take that I have on the healthcare track of South by Southwest that I'm attracted to.

Harjes: I'm curious how siloed off the industry is, as a sub-topic of the entire tech conference. Is it that the tech folks are crossing seamlessly over into the healthcare space? Or is it more distinct?

Erickson: There's starting to be a blending of healthcare and of tech. Traditional healthcare, we could think of as very specialized, the -ology's -- cardiology, hematology, endocrinology, whatever specialists that spent decades of their career focusing on a very narrow niche of healthcare and optimizing it. The tech aspect of this is, now you're starting to see a lot of data scientists coming in that are doing more generalized correlations between things that they're seeing in the genome, things that they're seeing in a patient's health, they're connecting the dots. And you and I have talked about electronic health records before, Kristine. There's much more objective data that they're basing their decisions off of now, and I think that's bringing a lot of the techies into the healthcare industry.

Harjes: Yeah, a lot of our personal health information is becoming digitally stored. The availability and capabilities of actually analyzing that data are going to be huge, when you think about driving better outcomes for patients.

Erickson: It really is going to be huge. A statistic that's often overlooked is that medical errors are the third leading cause of death in the United States, behind cancer and heart disease. All three of those are health-related conditions that are preventable, at least to some degree. And if we have better data, it'll lead to better treatments. I think we'll have better outcomes, and we can reduce a lot of those.

Harjes: Absolutely. Hopefully, anyway. One trend that I did want to talk about, because I know that this was very prominent at the festival, is genomics. Can you talk a little bit about what you saw in that area?

Erickson: Yeah. Something that I've been keeping a very close eye on the last couple years is whole genome sequencing. This is where you're going through the 3 billion nucleotides of a DNA strand and basically looking at every single one of them and trying to figure out, what's written into our DNA, of us as a person? And how can we get the cost of reading that DNA low enough that we can make decisions that would be proactive rather than reactive in the healthcare system? What that means is, we've seen now, Illumina, a company that we've talked a lot about at The Motley Fool, now with a clear path for how to get a whole genome sequence for human beings down to $100 in the next couple of years, probably the next six years, maybe less than that. 

This opens up, from the investing perspective, a whole boatload of opportunities, business opportunities to do. The first that we're starting to see is just for sick patients, cancer patients. This is the first group that's going to still be kind of reactive, but at least use more data-driven diagnoses in a genome sequence to see what's really going on -- looking at the tumors, figuring out what the best course of action would be. 

But, I think the next two groups that we're going to start see genome sequencing applied to, it's going to be much more preventative and proactive. The next group that I think we're going to see is more routine screens for the elderly, or people who are more predisposed for conditions arising. That's going to be a proactive step to keep people out of the hospital and the ER, where it's more of a routine checkup, you can catch something in advance. Then, the third group after that, I think, is going to be newborns. The screens that they're doing on babies right now, 80% of those screens have identified a condition that's treatable and is fixable, even with today's technology. When you think about it, if four out of five babies across the board have a genomic screen done, you can catch a lot of issues even at birth that wouldn't manifest until later in life. I think that's incredible. 

There's definitely an increasing role of genomics in health for this country. It's getting costs of the healthcare system down, it's improving health outcomes, it's making people happier. There's a lot of wins that come out of this industry.

Harjes: Absolutely. When you think about both costs and outcomes, we know that for many diseases, the earlier you can catch it, the better. It's far more effective to treat a disease when it's caught in an early stage, and it's also a lot cheaper. So, when you think about the advancements here, what's really important is that you can get a sense very early on of whether you have the early stages of a disease, or even just if you might be predisposed that disease.

For example, the FDA recently gave 23andMe, which is a consumer genomics company, the OK to start selling the first ever direct-to-consumer test that specifically looks for a couple of genes that are linked to a very serious risk of developing certain types of cancer. As a consumer, you can now go directly through this company to get a test done just based on a saliva sample that tells you that you might be more predisposed and more likely to develop these types of cancers. So, what that means, the actionable piece of that, is that you can get screened more frequently in hopes of catching a disease as soon as it starts and treating it when it's a lot easier to treat, a lot less expensive, less burdensome to treat. That could really be huge in changing outcomes.

Erickson: It sure is. I also think the other piece of it, there's certainly the medical piece of it, the doctors' offices and the treatment of diseases. I think we're also starting to see a lot of pharmaceutical companies really interested in the genome, too. Kristine, we talked about gene editing before. There's targeted drugs that are treating serious conditions. Spark Therapeutics is one that I've got my eyes on that's looking at diseases of the eyes. They're very expensive, but this is restoring vision in 90% of cases, at least to some degree. The efficacy is very high. And because they're targeting it and they're so effective, I think this is kind of changing the subjective blockbuster drugs that we're used to seeing. They're much more personalized, and they're expensive, but they're also very, very effective, which changes drug pricing and the name of the game for economics in pharmaceutical industry, now that you have drugs that are over 90% effective in their treatments.

Harjes: And the line that you hear from the companies regarding pricing is that, if you look at the holistic cost of caring for, say, in the case of Spark Therapeutics, caring for somebody that has this congenital blindness, it's incredibly expensive. Not only is that person going to be taken out of the workforce most likely, but the caregiving for them is also extremely burdensome on a personal level and an economic level. So, when you consider a therapy that costs almost $1 million, but you only need to have it done once and the patient is cured, that really opens up a lot of possibilities. And the cost-benefit analysis really does work, especially if you add on another layer to that, which is that many of the companies that are working in one-and-done gene-based cures are considering value-based pricing, where if the drug doesn't work then you don't have to pay for it. That makes it a lot easier of a sell, even though that sticker shock might be kind of severe.

Erickson: It's a win-win for everybody, really. Like you mentioned, Spark has short-term efficacy of 30 days and long-term efficacy of 30 months, and they'll give rebates back if it doesn't work. That's a win for the insurers, because they know it's going to be a drug that works. It's a win for the patient, it's a win for Spark. We're starting to see a new era of pharmaceutical economics, I think.

Harjes: Absolutely. One cost that has absolutely been driving this entire market is the cost that you mentioned earlier of sequencing a single human genome. When you think about the Human Genome Project, which was a U.S. government project that kicked off back in 1990, and it was the first time that a human genome was ever sequenced, it cost $3 billion. If you look at the timeline there, and you start back in 1990 and take that to today in 2018, where you're going from a cost of $3 billion to today, with Illumina's NovaSeq, the capability of sequencing a genome for $100, that's kind of incredible.

Actually, since we're talking about South by, and that's a very tech-heavy topic, I want to bring up Moore's Law, which is something that hear a lot talked about a lot in tech. Moore's Law is an observation that the power of computers measured in a very specific technical way has roughly doubled every year. It's this industry benchmark for really exceptional progress. If you were to apply that here, if you went from $3 billion to $100 by halving every year, so, at the pace of Moore's Law, that would take 24 years. But here, between 2003 and 2018, that's only 15 years. So, this pace of advancement is beyond that of Moore's law, which is already upheld as this incredible standard. And I don't even know where it's going to go from here. When I look at Illumina as a company, I think the advancements that they're to make going forward have less to do with bringing down the cost further and more to do with what sort of software and applications they'll be able to develop for the use of all this data that's now so much more accessible.

Erickson: I 100% agree with that. The next step is going to be, what do we do with this flood of genomic data that we have out there now? One of the interesting things they said in the conference was, of 100% of the genomes that they get, they've actually done the sequence and they've looked at the data, they say about 30% of them are clear. There's not variants that they're worried about. And about 30% of the time, they also do find something, and they're very clear that they say, this is something that we're really worried about and we need to address. And Kristine, that leaves that grey area, that 40% in the middle, that are uncertain, where they see something that they think is a variant, but they're uncertain of the significance of it. 

And that's the difficult part of healthcare and genomic sequencing right now. What do you do about those? If you're going to prescribe a patient to be on a treatment routine, that's a really big deal, a life-changing deal, sometimes. You don't want to be wrong. But in that 40% of cases, I think that's one of the biggest risks to sequencing today, and why we haven't really seen this gone completely mainstream. We still need to draw those correlations between data points, and it's more and more important to have those algorithms and those machine learning systems that are addressing this. And we saw Illumina teaming up with IBM last year, they're putting Watson on it, there's a bunch of other companies, too. They're trying to train the bots and AI to make sense of what's going on there, so we don't have worse outcomes from more data. I'm personally more optimistic than that. I think it's going to get there. But I think that's one of the bottlenecks, so to speak, in this industry.

Harjes: Yeah. For me personally, this is one of the reasons why I haven't gone through 23andMe or one of the other competitors to that company to get my genome sequenced, because it's so early stage that I'm not convinced that all of the information that I would want would really be available to me. So, for me personally, I think I would rather wait until the industry has developed a little bit more, there's been more data to work with and the analysis of it has gotten more sophisticated, so that I know that if I were to find something out, it would be actionable, and there would be evidence that making these decisions based on the outcome of the test is something that's tried and proven.

Erickson: Kristine, do you know who one of the first celebrities to have their entire genome sequenced was?

Harjes: I do not.

Erickson: It was Ozzy Osbourne.

Harjes: Really?

Erickson: It explains a lot about how he's still alive after five decades in rock and roll.

Harjes: [laughs] That's awesome. I would not have guessed that one.

Erickson: [laughs] It's in the genes, though.

Harjes: Have you had yours sequenced?

Erickson: Not yet, no. But I'm starting to see on TV a lot more advertisements, direct-to-consumer. You see 23andMe ads all the time on the television.

Harjes: Yeah. And to be clear, I do love what that company is doing. I think this kind of thing should be made accessible to people, and even if you do get your genome sequenced now, hopefully it would still be accessible to you down the road if you wanted to re-query that. I know that's something that many of these companies are working on, is layers of applications where you have your genome stored and you can repeatedly query it as new ways of using the information come out.

Erickson: It's empowering consumers to really look after their own health more. We're now in an era where it's not just, OK, I go to my doctor a couple times a year and he tells me if something is wrong with me. It's empowering consumers to really know what's in their genome, what are they predisposed to doing, how should they change their habits based on who they are at the blueprint of a human being. I think that's a good thing for everybody, to know that information. So, even if it is just to get a baseline of where you stand, I think, this is something that, at the lower price points, makes sense for a lot of people now.

Harjes: Yeah, it certainly has become part of the common culture, where people are doing this pretty frequently, and it's not considered something that's particularly out there. It's becoming a lot more well-accepted and understood. Which brings me to the next point I want to get to, which is that this tech conference, South by Southwest, has such an ability to shape how people are thinking about trends within both the tech industry, the healthcare industry, and all of the other industries. I know that you had an interview while you were there with the healthcare programmer, and you mentioned that she had some interesting things to say about how people are perceiving healthcare, and how the programming of the conference affects that.

Erickson: Sure, absolutely. One of the interviews I do every year I come is to talk with Dana Abramovitz. She does, like you said, the scheduling of the sessions, brings in the speakers, lays out the groundwork for the healthcare track of South by Southwest. And I always throw in the same question in the interview, I say, what are people interested in, what sessions are really full? And she said that this is now the third year that they've featured genomics prominently, and those are sessions that are filling up every single year. Which just shows you that consumers and the people that are forward-thinking at South by Southwest are interested in their genomes. 

And the other big one was behavioral health, which is interesting, because that's something that's a new data point for them. Just, getting checked in at the baseline, not only of your genome and stuff that's genomic data, the zeroes and ones that a computer can monitor, but also something that's more subjective, a little more qualitative of a baseline of, what does your mental health look like? We have more and more technology that is tying people to computer screens and smartphones, which is great. But a lot of the sessions that are focusing on behavioral health is, hey, it's OK to unplug every now and then from all of these new tools that we have. They're fantastic, but also take some time to make sure that your mental health is in check. I think that's getting a lot of attention from the sessions this year, as well.

Harjes: I do find that concept so fascinating. Let's use tech to get away from tech.

Erickson: [laughs] Yes, exactly, and spend some time with our dachshunds in our backyard sometime.

Harjes: Yeah. I mean, even if you just look up meditation apps, there's a mind-boggling number of apps out there that are specifically available for you to meditate, which for many people, is a means of escape from the apps and from your phone and from technology. More and more of these things are overlapping.

Erickson: Yeah, Under Armour, MapMyFitness. Get out there and start running, and we'll help you with a tool to do that. Lululemon is obviously a very successful stock in recent years, for yoga movement. There's still importance of unplugging from the smartphone at least a couple hours every day.

Harjes: Yeah, absolutely. When you look at this conference that you've been attending for so many years, what do you think will be some of the biggest trends for next year's conference as it relates to healthcare?

Erickson: I think you're going to start seeing more and more healthcare mapping. University of California is one of the pioneers of doing this, of drawing out these healthcare maps. You and I were talking about value-based care, proactive care, genomics. The ultimate goal of all of these is to improve healthcare, so that healthcare is more of healthcare and less of sickcare, maybe we can say it that way. If you can start drawing the correlations between things that you see early on, enable to prevent diseases from happening and to extend human lifespans, improve the quality of those lifespans, that's the ultimate goal for any medical system. 

So, California is doing a really good job of using algorithms, using machine learning that they've highly trained to basically see warning signs far in advance, and improve the health of large populations of people, millions of people. And I think we're going to start seeing more and more of that. The question of, what do we do with all of this data, I think is going to start getting answered in the next couple of years.

Harjes: I think the problem is twofold. It's data collection and accuracy, and it's also interpretation. We're collecting more and more data faster than we even know what to do with it. But sometimes it's not the most accurate. For, example, your Fitbit step counter might be off because you wore it while you were brushing your teeth, say, if you were wearing it on your dominant hand, and maybe it counts those as steps, that's a slight inaccuracy. So, when you go to use that to then make decisions, it gets a little bit murky. The second element of that, which is the interpretation, I think that's what I'm really looking forward to seeing the most advancements in. Which, I guess if you were to separate it, it would be hardware issues and then software issues. Personally, I'm really curious about seeing the software applications themselves.

Erickson: The data is out there, no doubt, Kristine. We just saw, last month, the triumvirate, so to speak, of Amazon, Berkshire and JPMorgan now saying that they're going to take on healthcare and provide tools for their employees. I don't think we know what that looks like yet, but I think it's pretty clear that they're going to start aggregating a large amount of data and try to do what so many of healthcare's largest institutions have done for decades. But, the data is out there. That's almost a commodity at this point. We know it's there. Now, it's the interpretation that's really going to be valued to really make sense of this. And that's something that you have to have an expert opinion on. You have to have an expert that's actually looking at it. You can't just draw the lines if you're the common consumer of these products.

Harjes: Yeah, absolutely. Simon, you make a ton of interesting points, and I very much look forward to talking to you again in a year to hear about South by Southwest yet again, and how the tech landscape has changed. Thank you for joining me today!

Erickson: Yeah, it was a real pleasure. Thanks for having me!

Harjes: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. This show is produced by Austin Morgan. For Simon Erickson, I'm Kristine Harjes, thanks for listening and Fool on!

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Kristine Harjes owns shares of Spark Therapeutics and Under Armour (C Shares). Simon Erickson owns shares of Amazon, Berkshire Hathaway (B shares), Illumina, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool owns shares of and recommends Amazon, Berkshire Hathaway (B shares), Fitbit, Illumina, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool is short shares of IBM. The Motley Fool recommends Lululemon Athletica. The Motley Fool has a disclosure policy.