Memorandum

Alphabet (Verily, Google) 1Q16 – No comments on Verily diabetes partnerships; Dr. Howard Zisser hired as Diabetes Clinical Lead; major investment and enthusiasm for artificial intelligence (AI) – May 2, 2016

Executive Highlights

  • Alphabet’s 1Q16 earnings call did not specifically comment on Verily or the diabetes partnerships with Dexcom, Novartis, and Sanofi.
  • Outside of the call, Verily hired Dr. Howard Zisser in early April as its Diabetes Clinical Lead. How will Verily play in diabetes beyond its existing diabetes partnerships to propel established players? Will it launch its own products and services?
  • Google CEO Sundar Pichai emphasized significant investment and gamechanging potential for artificial intelligence: “we will evolve in computing from a mobile-first to an AI-first world.” Google achieved a landmark milestone in March, when its DeepMind AI beat the world champion in the profoundly complex strategy game, Go. Google’s just-published annual Founders’ Letter further highlights the wide-ranging role and promise of AI, and CEO Sundar Pichai believes the field is now at a “tipping point.” How might it be leveraged in diabetes and healthcare?

Alphabet reported 1Q16 earnings recently in a call led by CFO Ruth Porat and Google CEO Sundar Pichai. There was no specific commentary on Verily or its diabetes partnerships with Dexcom (next-gen CGM, ~2018 first launch), Novartis (glucose-sensing contact lens, reportedly entering trials this year), and Sanofi (new sensors, wearables, software). Similar to the Alphabet 4Q15 call, management only shared topline combined financials for all “Other Bets” – revenue of $166 million rose 108% year-over-year (YOY), primarily generated by Nest (smart home products), Fiber (super fast internet), and Verily. Other Bets’ total operating loss increased 27% YOY to $802 million. Financials were not further broken out, which makes it impossible to know how much revenue Verily is generating (which itself contains several non-diabetes efforts), or more interesting, how much investment.

Outside of the call, Verily secured a big win in early April when it hired Dr. Howard Zisser as its Diabetes Clinical Lead. Dr. Zisser is a perfect choice to help advise and prioritize Verily’s three diabetes partnerships and to help build Verily's strength in the field. We do wonder how the company will play in diabetes beyond its existing partnerships, which focus on propelling established players (Dexcom, Novartis, Sanofi). How could Verily change patient behavior or use its data expertise to understand populations of people with diabetes? Will Verily launch its own diabetes products or services, or will it solely focus on external partnerships that leverage its capabilities? We recap the latest on Verily’s three diabetes partnerships below, of which Dexcom has had the most public updates (on track for first-gen launch in 2018).

More broadly, it was extremely valuable to hear Google CEO Sundar Pichai’s comments on artificial intelligence (AI), which is a major focus at Google and has obvious spillover implications to the healthcare work at Verily. In the call and the company’s annual Founders’ Letter (published on Thursday), Mr. Pichai characterized AI as a central player in the technology revolution going forward – “we will evolve in computing from a mobile-first to an AI-first world.” Google achieved a landmark milestone in March, when its DeepMind AI beat the world champion in the profoundly complex strategy game, Go. [For context, there are more possible positions in Go than there are atoms in the universe! It’s been called the unsolved grand challenge in AI, and Google’s approach was published in Nature in January.] Mr. Pichai believes the AI field is now at a “tipping point,” and Google is obviously at the forefront.

We wonder how AI will be used in healthcare and diabetes specifically, whether its giving patients more actionable, real-time insight (similar to the vision for the Medtronic-IBM Watson Personal Diabetes Assistant), changing behavior (e.g., you have time today for a run at 3 pm), helping providers choose the right therapy at the right time (e.g., patients like this tend to do well on X therapy), helping payers and healthcare systems spot trends and cost drivers (patients like this are driving the vast majority of costs), and far beyond. See Mr. Pichai’s quotes below and read the inspiring Founder’s Letter published last week (authored by Mr. Pichai, and for the first time, not by Larry and Sergey).

  • We’d speculate that at this stage, Nest and Fiber are driving most of the Other Bets revenue, as both have launched products: Fiber is currently in five cities (plus six upcoming), while Nest currently sells three smart home products (thermostat, camera, and smoke + CO2 alarm). Management cautioned that “most” of the Other Bets efforts are pre-revenue, but Alphabet continues disciplined investments across the various opportunities. As a reminder, Other Bets includes a wide variety of businesses, in addition to Verily, Nest, and Fiber:

Verily’s Diabetes Partnerships

Company

Product

Latest Timing Update

Most Recent Coverage

Novartis

Glucose-sensing smart contact lens

Expected to enter large-scale human trials overseen by the FDA in 2016

August 2015
(WSJ article published when the Sanofi partnership was announced)

Dexcom

Low-cost, disposable, bandage-like (size of a penny), 10-14-day CGM sensor integrated into an advanced data analytics platform.

Launch “on schedule” (i.e., ~2018, for the first-gen product, ~2019-2020 for the second-gen product)

Dexcom 1Q16 (April)

Dexcom at JPM 2016 (January)

Dexcom partners with Google Life Sciences (August 2015)

Sanofi

New sensors, wearable devices, and software to improve diabetes care

None given

Sanofi partners with Google Life Sciences (August 2015)

Google CEO Sundar Pichai on Artificial Intelligence

  • “I do think in the long run, we will evolve in computing from a mobile-first to an AI-first world. And I do think we are at the forefront of development. So we don't view it as adapting to it as much as pushing hard and getting there. And so that's the core of what we do, and we'll continue to do that.”
  • “We've been investing in machine learning and AI for years, but I think we are at an exceptionally interesting tipping point where these technologies are really taking off.”
  • “One of the key ingredients behind this push towards greater assistance is AI. We have long invested in building the best machine learning team and tools, and we are seeing these efforts bear fruit in many ways. As many of you saw last month, DeepMind's AlphaGo has been making great strides. It was a privilege to play legendary Go player, Lee Sedol, in such an important milestone for artificial intelligence. This is another step towards creating AI that could help us with everything from our daily tasks to potentially even bigger challenges like climate change and cancer diagnosis.”
  • “At Google, machine learning is already helping us improve our products every day in search and many other areas like photos, maps and more. Last quarter, I talked about how machine learning helps Smart Reply suggest responses in Inbox. This quarter, we launched Goals in Google Calendar, an intelligent feature that helps users make the most of their time. You just add a personal goal, like run three times a week, and Calendar will help you find the time, then help you stick it to. There's still a lot more that we can do to make Search and other Google services more assistive and helpful to you. You'll see a lot more from us this year.”
  • “I think we have a unique opportunity to evolve search to be very assistive in how we serve our users and be an intelligent assistant that helps users throughout their needs in context, especially in the context of mobile. That's an area definitely I spend a lot of time on. And related to that, we do think we can do a lot of that based on our core advancements in machine learning and AI. So that's an area we invest a lot. And I'm thoughtfully involved with that as well. And third, definitely from a computing standpoint, computing is foundational to everything we do. And so thinking through about how computing evolves, be it emerging technologies like VR or how mobile advances over the next few years, so these are all areas where I do spend time on.” (In response to a question on what he spends most of his time on.)
  • Google DeepMind’s Nature paper was published in January 2016, describing the technical details behind a new approach to computer Go. The authors describe a program based on general-purpose AI methods, using deep neural networks to mimic expert players, and further improving the program by learning from games played against itself. The game of Go was previously viewed as an unsolved “grand challenge” for artificial intelligence – this was a seriously big deal.
  • There is an ongoing academic debate over whether AI brings dangers to humanity. Bill Gates, Stephen Hawking, and Elon Musk have expressed concerns about AI, as did an influential book published in 2014 (Superintelligence) by Oxford’s Dr. Nick Bostrom. Last week, OpenAI, an artificial intelligence company backed by Tesla and SpaceX CEO Elon Musk, announced a new kind of free training “gym” for computer programmers. The so-called “OpenAI Gym” is an open source tool to get developers around the world teaching computer systems better ways to learn and develop more complex reasoning systems. OpenAI is a $1 billion non-profit formed in December “to advance digital intelligence in the way that is most likely to benefit humanity as a whole, unconstrained by a need to generate financial return.”

Notable Alphabet and Google Stats

  • YouTube on mobile alone now reaches more 18 to 34 and 18 to 49 year olds in the U.S. than any TV network, broadcast or cable.
  • In 1Q16, Google Chrome surpassed 1 billion monthly active users on mobile alone.
  • After using Customer Match to reactivate their loyal customers, specialty retailer Williams-Sonoma reported a 50% lift in revenue compared to previous campaigns that didn't use Customer Match. The new product helps brands reach their most valued customers on Google Search, YouTube, and Gmail, with highly relevant and targeted ads.

Close Concerns Questions

Q: How will artificial intelligence best be used in diabetes? Where does it offer the most value? What are the risks? What is the regulatory pathway?

Q: How do Google’s machine learning and AI capabilities compare to IBM Watson’s? What partnership will best translate AI technology into actual diabetes products?

Q: What are Verily’s diabetes ambitions beyond the existing partnerships with Dexcom, Novartis, and Sanofi?

 

-- by Adam Brown and Kelly Close