Verily of Alphabet is betting on long-term winnings from antivirus testing agreements

OAKLAND, Calif. (Reuters) – For Verily of Alphabet Inc, a healthcare firm that is one of the tech giant’s biggest “other bets,” the coronavirus pandemic offered an immediate business opportunity.

As of last February, the company has transferred many of its roughly 1,000 employees to software development for governments and employers to handle coronavirus testing.

It quickly gained major customers, including the state of California, whose data shows Verily paid $ 49.6 million to use its Baseline software to schedule antivirus tests.

The smaller deals included an undeclared $ 3.1 million grant from the National Foundation for the Centers for Disease Control and Prevention to test in California sites.

Indeed, executives said the pandemic work was an opportunity to demonstrate the company’s capabilities and attract new customers.

“Conversations naturally flow this way,” said Dr. Jessica Mega, Verily’s chief medical and science officer.

Critics say the effort was another distraction for Verily, which bounced between dozens of projects without producing a stable revenue stream. The firm has attracted over $ 1.8 billion in funding from Alphabet and outside investors, including private equity firm Silver Lake.

Converting temporary buyers into long-term customers could be an illusion, four industry analysts said.

Two former executives and a current employee have criticized the company for taking on another one-time opportunity instead of focusing on attracting recurring subscribers to its software for clinical research, disease management and other businesses.

“I don’t think COVID will give them significant headwinds,” one of the people said, speaking on condition of anonymity.

Chief Executive Andy Conrad told employees that Verily is driving an initial public offering and more substantial sales would be essential for a successful Wall Street debut.

Verily’s overall sales are not disclosed by Alphabet. Evercore ISI analyst Kevin Rippey has estimated overall revenue for 2020 “other bets” at around $ 650 million, with Verily contributing less than $ 175 million. Former executives described Verily’s actual revenue as higher, and another analyst suggested $ 200 million to $ 300 million as more realistic.

“WE HAVE TO HELP”

Spun off from Google in 2015, Verily develops devices and software to improve data collection, treatment, research and patient care.

It has enjoyed flurries of revenue from collaborations with healthcare companies, including work with DexCom Inc on a miniature blood glucose meter and a sunken, high-profile experiment with Alcon AG to create smart contact lenses for similar measurements.

But Verily’s financial future depends on software products driven by Baseline, which helps drug manufacturers enroll clinical trial participants and analyze study data. It aims to reduce the paperwork and site visits compared to traditional methods.

Mega said the company reshaped Baseline to schedule coronavirus testing after governments like California started calling for help. The software also powers planning for 460 Rite Aid Corp pharmacies, which provide testing as part of a partnership with the Department of Health and Human Services.

The baseline allowed about 2 million people to undergo testing nationwide last year, he said, a fraction of the overall 250 million administered.

Dr. Vivian Lee, president of Verily’s health platforms, said government COVID-19 projects helped restart separate testing software called Healthy at Work and Healthy at School.

The new tools have 20 customers among them, including Brown University and some biotech companies, Verily said. The University of Alabama, Birmingham, spent $ 6.9 million on Healthy at School, according to previously unreported documents.

Ralph Zottola, assistant vice president of the university, said he is considering whether the software will validate if students have been vaccinated because the company was “a good partner.”

When the need for coronavirus testing software ends, Verily aims to transfer some new customers to Onduo, one of its core offerings alongside Baseline. The program includes sensors, diet coaching, and other personalized tools that insurers and employers can provide for managing chronic disease and general well-being.

Onduo has Walgreens Boots Alliance Inc customers and insurers such as CareFirst.

However, both Onduo and Baseline remain very small players in the medical software markets, researchers say they are worth more than $ 100 billion a year in the United States, and some larger competitors like Livongo and Teladoc Health’s Omada Health Inc have not deviated resources towards last year’s pandemic.

Livongo, which competes directly with Onduo, reported that sales more than doubled to $ 267 million during the first three quarters of 2020 compared to the same period last year.

Mega defended Verily’s moves during the biggest public health crisis in a century.

“Throughout the company, we raised our hand,” he said. “There was an opportunity, we had to help, but our core business is accelerating.”

Reporting by Paresh Dave; Editing by Jonathan Weber and Bill Berkrot