Google’s parent company, Alphabet, last month announced a strategic shake-up at Verily, its life sciences business. The restructuring programme will see around 200 of Verily’s 1,600-plus workers lose their jobs as the company shelves unprofitable projects and intensifies its focus on high potential products and services.
The company will use a $1B cash injection from Google last September to push through with the restructuring, which will, in particular, see Verily’s precision health business expanded.
The Signify View
In announcing the job cuts and restructuring plans at Verily, Alphabet has acted decisively in the face of challenging market conditions. There are rumours, denied by Verily, that it is loss making. Whatever the truth, it makes sense in the current environment to trim costs and remove unprofitable or low margin areas of the portfolio.
Aside from the sadly inevitable redundancies, two decisions from the recent Alphabet announcement catch the eye. One, that the Verily Value Suite (VVS) health analytics toolset will exit the portfolio. And the other, that Verily is assuming full ownership of chronic disease management firm Onduo from joint venture partner Sanofi.
Both decisions are steeped in logic. As population health management (PHM) tool, VVS has always sat awkwardly in Verily’s research-orientated portfolio. Furthermore, VVS is also very similar to Google’s Healthcare Data Engine (HDE) and associated analytics offerings, and had some functional overlaps with Care Studio and its underlying technology. Product duplication among close family makes little sense.
Onduo fits much more naturally into Verily’s portfolio. Monitoring patients with chronic diseases, it offers many synergies with Verily’s research-orientated model. It also boasts excellent revenue prospects, with RPM seeing rapid growth via new reimbursement structures, a greater focus on hospital-at-home and as a key tool for supporting value-based care programmes.
Parallel Product Problem
Verily was established in 2015 out of Alphabet’s research and development arm, Google X. Its core business is developing tools which use research data to find patients to undergo clinical trials for drug discovery. That data is then used to develop personalised healthcare plans.
Pulling data from EHRs, VVS offered all the building blocks of a PHM solution (risk stratification, care management and patient engagement). While a decent product, it never sold particularly well, and was always the outlier in the Verily portfolio.
VVS also shares many similarities with Google’s other value-based care/PHM products. HDE provides similar data aggregation functionality to elements of VVS and, alongside its more general analytics tools (e g BigQuery) it can be used to address similar market demands to VVS. In addition, Care Studio provides clinicians with a combined view of patient interactions across different parts of the healthcare system, enabling them to implement more strategic PHM-type programmes. With Alphabet wielding the axe on VVS, Google can focus on addressing VBC through HDE and Care Studio. And Verily can save on further product development costs and double down on precision medicine.
Unlike VVS, Onduo has real synergies with Verily’s existing portfolio, and is therefore a much more attractive prospect to develop. Set up originally as a joint venture with pharma company Sanofi, Onduo is an app/tool used by predominantly payers and employers to monitor and manage chronic diseases such as diabetes. In many respects it resembles the monitoring tools offered by Livongo and Armada.
Taking full ownership of Onduo is a ringing endorsement by Verily. The latter will look at Livongo and see a company with a similar product that has successfully grown its customer base beyond diabetes into other conditions. Verily will also be confident that Onduo can capitalise on the big push by healthcare providers to use technology to better manage patients with costly chronic conditions, as part of the wider value-based care trend in the US.
But perhaps the biggest strategic advantage to Verily here lies in the huge amount of data the Onduo platform gathers on the conditions patients are managing. This data feeds back into Verily’s drug discovery and clinical trial activities. This deep repository of information is valuable to Verily as it enables the company to identify which populations work best for specific clinical trials, and use it as the basis for drug discovery.
Alphabet’s Verily plans are not without risk or challenge. The big bucks for the type of Real World Data (RWD) that Verily is dealing with are in PHM and VBC at present, and so in that sense ditching VVS, that addresses that market, feels counter intuitive.
Realigning Verily’s focus towards purely precision medicine also relies on the IT systems used to support RWD generating good revenues. As we wrote in this recent Insight, RWD is embryonic, and could take between five and 10 years to reach its true revenue potential. Verily will need to exercise considerable patience to see returns.
Verily nevertheless approaches the next chapter of its eight-year story from a strong position. The recent $1B cash injection offers real impetus to push through the restructuring plan and drive more deeply into precision medicine. Given its clear strategic importance to Verily, Onduo will also see further significant investment to broaden the range of conditions its app and tool support beyond diabetes, weight management, hypertension and mental health. Verily will also increasingly integrate the data generated from Onduo into its wider portfolio.
Verily also says it will increasingly rely on AI to narrow the gap between research and clinical care. It will do so by developing products that deliver evidence-based precision interventions through speeding up the matching of patients with clinical trials for therapeutic development. By improving trial recruitment processes Verily will enable novel therapeutics to be tested more quickly, and will increase the likelihood that more will make it to market.
While the short-term focus is on cost savings and new revenue opportunities at Verily, what of the bigger, longer-term picture?
Six months ago, there were rumours that Google planned to publicly list Verily. The $1B Alphabet-led investment and current restructuring programme makes this less likely for now. But, in the recent announcement, Alphabet referred to Verily ‘striving for financial independence’. Another subtle hint that an IPO remains on the agenda at some point, maybe? Verily would certainly be attractive if it can stand financially independent from Alphabet and Google, and demonstrate that the current restructuring drives clear revenue growth and profitability.
Alphabet’s Watershed Moment?
Verily’s restructuring plans are timely, and not just because they are borne of necessity in tough market conditions for Alphabet. This is a good time to move on from VVS, and a good time to focus on remote monitoring patients with chronic conditions. Big things are expected of Onduo.
While this is no watershed moment for Verily, it might be for Alphabet. Like other big tech firms, it is in the midst of business-wide job cuts, laying off 10% of its workforce just days ago. It is also closing Area 120, its healthcare incubator company.
As such, Alphabet’s decision to change things up at Verily is just the thin end of the wedge. All signs point to it taking a much more strategic approach to healthcare for the foreseeable future, focusing on products with clear revenue and profit-generating potential. The experimental days, when it was willing to tolerate product overlap and speculative initiatives, appear over.