Alphabet 3Q17 – No mention of Verily partnerships with Dexcom, Sanofi, Novartis, GSK, Nikon; Enthusiasm for AI to rebuild products; voice’s potential – October 30, 2017

Last week, Alphabet announced 3Q17 earnings in a call led by CFO Ruth Porat and Google CEO Sundar Pichai. As in prior quarters, there was no mention of Verily’s diabetes partnerships with Dexcom (next-gen CGM), Sanofi (Onduo), Novartis (glucose-sensing contact lens), or GSK (Galvani Bioelectronics). Notably, Verily’s website now shows the Dexcom bandage-like sensor on the homepage (second gen version), and the project page starts with the Dexcom and Novartis glucose monitoring efforts. We summarize the latest updates on all these below.

Verily now has 15 healthcare projects in development, and Google Research’s retinal imaging work in diabetes (leveraging machine learning) is now a Verily partnership with Nikon – we had not realized this and assume this now gives it a path to market! Dr. Howard Zisser will speak more about this at DTM later this week. There’s also a new Verily partnership with NHS focused on risk prediction models for chronic disease – “type 2 diabetes” is mentioned on the page.

Per usual, Alphabet only reported 3Q17 revenue for “Other Bets,” which totaled $302 million, rising a strong 53% YOY. While growth was primarily driven by Nest (smart home devices), Fiber (fast internet), and Verily, the specific contributions from each bet were not shared. As we’ve come to expect, Alphabet reported a substantial Other Bets operating loss of $812 million (up from $772 million last quarter), illustrating the significant investment in these moonshots –  in just one example, the Waymo self-driving car division has begun winter testing in Michigan, now its sixth state. (For those watching automated insulin delivery, we think there is a lot of learning from self-driving cars for closed-loop systems. More on that from SXSW 2017 here.) As far as Verily operating expenses go, we’d imagine that the comprehensive Baseline Study, which kicked off in April, is also a big expense for the division. Ms. Porat only vaguely noted that she is “pleased with our progress across Other Bets.”

The call was interesting for broader technology trends – in this case voice and AI – and key takeaways are summarized below. 

Latest Updates/Timing on Diabetes Partnerships

• Notably, Verily’s website now lists a project with Nikon focused on retinal imaging to detect diabetic retinopathy and diabetic macular edema. We’ve known about Google Research’s retinal imaging work in diabetes ever since it published a JAMA article last December. (IBM Research has subsequently followed with a more advanced algorithm.) Now, we’re glad to see this important automated eye screening work presumably has a path to market through an imaging device – we look forward to learning more at DTM this week, where Dr. Howard Zisser will present on this work.
  
  • “Verily and Nikon (including its subsidiary Optos) aspire to improve the accessibility and quality of ophthalmic screening in order to assist physicians and address a broad and under-served population of diabetic patients. The partnership will combine Verily’s deep learning technology, Nikon's leadership in optical engineering and precision manufacturing at scale, and Optos' proprietary ultra-widefield technology and strong commercial presence among eyecare specialists. The partnership will focus on developing solutions for the efficient referral of DR and DME patients to retinal eyecare specialists, and providing these specialists with assisted reading programs for easier diagnosis of disease.” – Verily Project Page
• At EASD, Dexcom SVP Mr. Jake Leach shared that more information regarding the Verily systems is expected at “upcoming meetings.” As of the most recent update, Gen-1 was slated for a 2018 launch, and gen-2 for a 2020-2021 launch. A more detailed timing update will hopefully come on this Thursday’s (November 1^st) 3Q17 update, or perhaps at DTM later this week.
• In July, Galvani Bioelectronics entered a new collaboration with obesity device company EnteroMedics. As a reminder, Galvani hopes to develop miniaturized devices that can be attached to individual nerves so as to manipulate specific electric signaling patterns. Through this recently-formed partnership, Galvani will leverage EnteroMedics’ signature vBlock neuromodulation system, which targets the distorted nerve signals underlying obesity. No time horizon was shared, as Galvani is still very early-stage.
• There has not been a recent timing update on the glucose monitoring “moonshot” – Verily-Novartis’ glucose sensing contact lens. Notably, it is listed in the first section on Verily’s projects page, though it’s hard to read too far into this, given the absence of updates – especially relative to the more recently signed Dexcom partnership.
  
  • This week’s DTM does have a talk on contact lenses for monitoring glucose, but it’s from Dr. Greg Herman at Oregon State University – we assume this is neither Verily nor Novartis.
• We last heard about Onduo’s diabetes vision (Sanofi/Verily’s joint venture) in a March keynote from CEO Dr. Josh Riff at the Digital Diabetes Congress. This $496 million joint venture with Sanofi was announced with big fanfare a year ago, but has not shared material update since, undoubtedly by design. When will we start to hear more?

Comments on Voice and AI

• When asked by Ms. Heather Bellini of Goldman Sachs to share his thoughts on voice search, Mr. Pichai expressed excitement, positioning voice technology as “a good way to rethink everything we are doing.” Still, he cautioned that relying on voice alone would be a misstep, using the example of attempting to receive information on everything available in a store using only voice. We agree – it could be a good tool for accessibility and novel engagement approaches, but it’s not going to replace most existing things.
  
  • Voice technology has received a lot more attention this year in diabetes. One Drop is an early adopter with its Amazon Alexa partnership, and the Merck-sponsored Alexa Diabetes Challenge surfaced five startups focused on diabetes and voice applications. Meanwhile, last week’s HITLAB 2017 symposium, sponsored by Novo Nordisk, also announced five finalists for an upcoming diabetes/voice challenge.
  • Where can voice add the most value and for which people with diabetes? What’s the optimal user experience and role for voice? We see potential here, but like virtual/augmented reality, it’s still too early to know how it will be leveraged in diabetes.
• Both Ms. Porat and Mr. Pichai spoke to Alphabet’s continued investment in AI and machine learning. Throughout the prepared remarks, “AI” was mentioned seven times and “machine learning” six. Mr. Pichai was pleased to see Alphabet’s early bet on AI pay off: 500 million people now use the machine learning aspects of Google Photos to manage their pictures, and a billion plus people benefit from contextual information supplied by Google Maps. Wow – now that is scale. Management said last quarter that Google Lens (computer vision) would launch in 4Q17. See some of our favorite quotes below:
  
  • “Consumers can already experience how AI allows them to interact with computing more naturally than ever before. Computers are adapting to people rather than people needing to adapt to computers.” – Mr. Pichai
  • “Machine learning is at the center of our processes and systems. And we do remain excited about the potential.” – Ms. Porat
  • “With Google Lens, there’s a long way to go. But today, as humans, visual input is really big for us. It means a lot higher bandwidth than everything else. And so, bringing back to computing, I think, is a really important step in advancing how users can process information. Thanks to machine learning, we will be able to do these things a lot more powerfully.” – Mr. Pichai
  • “Even though we are in the early days of AI, we are already rethinking how to build products around machine learning. It's a new paradigm compared to mobile first software, and I'm thrilled how Google is leading the way.” – Mr. Pichai
• Alphabet continues to expand, reporting a headcount of 78,101 up 2,495 people from 2Q17. As in previous quarters, the majority of new hires were engineers and product managers for Cloud. Ms. Porat reflected on Alphabet’s “culture of innovation,” noting that the company works “relentlessly to anticipate and adapt to the expanding capabilities of both software and hardware.” For those interested, we highly recommend the book, How Google Works, by former CEO Eric Schmidt and design leader Jonathan Rosenberg.

-- by Maeve Serino, Brian Levine, Adam Brown, and Kelly Close