Verily Life Sciences Leads Digitization of Healthcare
We recently did a deep dive into the available robotic surgery stocks on the market. The article only considered pure-play companies where a significant portion of their revenues are derived from that particular emerging technology. Otherwise, you may end up with a list of great companies, such as Johnson & Johnson (JNJ), but get little actual exposure to the theme. If that’s the case, you could just adopt the “invest in everything Google” strategy because you think that the search engine giant has its fingers in every tech-enabled cookie jar. In reality, more than 80% of the company’s revenues come from advertising. In fact, all of Alphabet’s (GOOG) other subsidiaries, like self-driving venture Waymo, make so little impact that their revenue is lumped together under “Other Bets.” And most of those modest dollars are being generated by Verily Life Sciences.
Verily: An Emerging Life Sciences Player
Verily is a name that’s been showing up more and more across all aspects of healthcare. The free-wheeling life sciences subsidiary from Alphabet is backed by at least $1.8 billion of outside capital. Founded in 2015, Verily got its first infusion of capital to the tune of $800 million in 2017 thanks to Singapore-based Temasek. Two years later, a Silicon Valley investment firm named Silver Lake Partners topped the war chest with a cool $1 billion.
It’s unclear how much of the $135 million in first quarter 2020 revenue from Other Bets is directly attributed to Verily, but Alphabet claims the money is “derived primarily through the sale of internet services through Access as well as licensing and R&D services through Verily.” Google Fiber through the Access division has been scaled back, so the main engine for growth seems to be Verily Life Sciences. Another healthcare R&D unit, Calico Labs, has taken in $2.5 billion to date in the quest to boost human longevity, with apparently no significant revenues since it was founded in 2013.
Verily’s main mission is to develop hardware and software solutions to quicken the digitization of healthcare. Over the years, the company has been involved in a number of deals, partnerships, and joint ventures to develop an array of medical technology, from wearables to data analytics. Can Verily someday represent a significant source of income for a company that reported more than $40 billion in revenue last quarter? It seems inconceivable, but the guy who created pet rocks in 1975 made $15 million at the time, so anything is possible. Let’s look at the major collaborations of Verily Life Sciences to understand the breadth of the company’s ambitions.
We first wrote extensively about the life sciences subsidiary in our article about smart contact lenses. In that case, Verily teamed up Alcon, the eyecare division of Novartis (NVS), to create a smart lens to monitor glucose levels for diabetes patients. The collaboration was unable to develop a successful commercial product after about four years, and the venture has been on the shelf since 2018.
Developing technology to help manage diabetes until a cure is found has been a cornerstone at Verily Life Sciences. In 2016, Verily formed a $500 million joint venture with Paris-based Sanofi (SNY) in 2016 called Onduo. Onduo is a virtual diabetes management clinic that uses data collected from wearables and other connected devices, as well as other sources such as electronic health records, to provide insights and recommendations.
Sanofi recently announced a major strategy shift, which includes abandoning its diabetes and cardiovascular R&D efforts and focusing on growing its immunology and vaccine businesses. Sanofi’s new CEO has been quoted as saying his company had “over-invested” in Onduo, though Sanofi has said it will continue its financial backing of the joint venture. It’s unclear how Sanofi’s decision will affect a separate partnership with Verily and Switzerland-based Sensile Medical on developing a smart insulin patch pump.
Other diabetes-related deals between Verily and medical device manufacturers appear to be still solid. For instance, the life sciences company has been working with a large-cap diabetes company called Dexcom (DXCM) since 2015 on new-generation tech for continuous glucose monitoring. While the commercialization of the jointly developed technology remains unclear, the partners amended their agreement last year. Dexcom forked over $250 million in stock to Verily Life Sciences, with another $280 million on the table contingent upon certain milestones. In 2018, Verily inked a separate deal with Orpyx Medical Technologies to provide Onduo members with the Orpyx’s diabetic foot ulcer sensors.
Onduo itself is available at no cost, provided that a patient’s insurance company, medical provider, or employer is partnered with Onduo. Yet another partnership with life insurance company John Hancock looks to expand coverage with a new product called John Hancock Aspire, which is specifically designed for diabetics.
The policy promises to reduce premiums up to 25% while offering access to all of the bells and whistles on the Onduo platform.
Other Joint Ventures
Onduo isn’t the only well-funded joint venture to emerge from Verily Life Sciences, which has partnered with major pharma and medical equipment manufacturers on an array of healthcare initiatives.
In 2016, Verily and GlaxoSmithKline (GSK) formed a $700-million joint venture called Galvani Bioelectronics to take on the electroceuticals industry. Electroceuticals are external or internal medical devices that treat pain or disease by directing electrical impulses to specific body parts. Few details have emerged on what progress the venture has actually made. An article in Time last year briefly mentioned the effort, which involves developing a very small implantable device that can communicate with an external device to control the electro-therapy. Kris Famm, president of Galvani Bioelectronics, told Time:
What is beautiful about electroceuticals is that they can get on a nerve right by the organ you are interested in, and it has exquisite potential for precision.
You know what gets on our nerves? Well-funded, large companies that don’t share meaningful results.
Last year, we wrote about a new treatment for sleep apnea, a condition that causes your airway to become blocked or partially blocked while you sleep. It reportedly affects more than 50 million Americans. In 2018, ResMed (RMD), which manufactures medical equipment to treat sleep-disordered breathing, announced a joint venture with Verily. The unnamed JV “will study the health and financial impacts of undiagnosed and untreated sleep apnea, and develop software solutions that enable healthcare providers to more efficiently identify, diagnose, treat and manage individuals with sleep apnea and other breathing-related sleep disorders.” And that’s about all we know on that one for now.
Verily’s latest JV is with Japanese pharma giant Santen (4536:JP). In February, the two healthcare companies announced a joint venture that would apply microelectronics and scalable digital technologies to ophthalmology. There are already a number of visual enhancement devices on the market, while there’s a dearth of details around the new venture. Verily is expected to leverage its expertise in developing connected, integrated medical devices and machine learning to “commercialize unique ophthalmic devices and comprehensive tech-enabled solutions.”
Other Partnerships and Collaborations
Until recently, Verily Life Sciences also had a piece of a JV company called Verb Surgical with J&J, but the latter acquired the former’s stake. The move appears part of a larger strategy by J&J to make serious inroads into the robotics surgery market. Don’t worry: Verily still has plenty of work on the books, including a few other high-profile partnerships and collaborations, including:
- Earlens, a startup that has raised more than $285 million to help fix hearing loss with a device that converts sound to light, shooting a beam to the lens on the eardrum to activate a person’s natural hearing system. Verily will provide its know-how in miniaturized, low-power, and integrated medical devices to help create the next generation of Earlens solutions.
- iRhythm Technologies (IRTC), a $3.25 billion company that uses AI for cardiac monitoring. Verily and iRhythm will collaborate on solutions aimed at improving the screening, diagnosis, and management of patients with atrial fibrillation (AFib), a heart condition that affects an estimated 10 million Americans. Verily announced its FDA-cleared Verily Study Watch – a wrist-worn, sensor-based ECG device for non-invasive, continuous monitoring – recently received specific FDA approval for use on AFib patients.
- Strategic alliance with Novartis, Sanofi, Pfizer (PFE), and Otsuka to bring tech-enabled solutions to clinical trial research, including Verily’s Project Baseline, a platform “designed to engage more patients and clinicians in research, increase the speed and ease of conducting studies and collect more comprehensive, higher quality data, including outside the four walls of a clinic.” The initiative began in May.
Back in 2018, Amazon announced it would be getting into the healthcare management business and about $30 billion in market value evaporated. No such tremor was felt back when Alphabet established Verily Life Sciences five years ago. But you would be hard-pressed to find a company so young at the forefront of so many healthcare initiatives. Whether Verily will remain a pet project or a profit-driving engine for Google remains to be seen.
Despite what the pundits say, FAANG stocks (Facebook, Apple, Amazon, Netflix, Google) don't give you real exposure to AI. Read about 7 stocks that give you true pure-play exposure to AI in our guide to investing in AI healthcare companies, freely available to Nanalyze Premium subscribers.