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Is Google's Switch To Alphabet Good For Healthcare? Definitely Maybe

This article is more than 8 years old.

In the past, Google founders Larry Page and Sergey Brin have been pretty clear that they view the company's efforts in healthcare as a sideline.

"Generally, health is just so heavily regulated," Brin said at a Khosla ventures fireside chat in 2014. "It’s just a painful business to be in. It’s just not necessarily how I want to spend my time. Even though we do have some health projects, and we’ll be doing that to a certain extent. But I think the regulatory burden in the U.S. is so high that think it would dissuade a lot of entrepreneurs."

But now, as Google re-imagines itself as a conglomerate called Alphabet, with the search engine giant as only part of the larger whole that includes a lot of the company's moonshot programs as separate businesses. And in his blog post explaining the re-organization, Chief Executive Larry Page lists two of the company's health businesses -- Life Sciences, which is developing a glucose-sensing contact lens with Novartis , and the drug-inventing division, Calico -- as the best examples of how Alphabet will do things that are "far afield" of the core search engine/YouTube/Android business, which is still called Google. My colleague Dan Diamond is ready to throw a party.

The immediate question I have about these businesses, though, is whether the conglomerate structure could actually be bad. I'm especially thinking here about Calico, which is one of the most interesting plays in all of biotechnology. The company is run by Art Levinson, who, as chief executive of Genentech , was the best biopharma CEO of the 2000s, and one of the best the industry has ever had. And it's stocked with world-class scientists, people like David Botstein, who helped invent the science of genomics, and Cynthia Kenyon, one of the world's top aging researchers. Unlike a lot of blustery efforts in understanding aging (Peter Thiel, I'm looking at you), the company has been incredibly quiet, and deliberate, and I have no idea what they're doing.

If Alphabet wanted to profit from the business in any near term, the smartest thing would be to bring in lots of outside investors and take their money. Biotech is in an innovation boom, but it's also clearly in a bubble, and you can raise money just by sticking out a snot-covered tissue and calling it biology. Revenue raises above $100 million are becoming de rigueur, with Levinson's old neuroscience team raising $217 million from the private markets. The billionaire Patrick Soon-Shiong's NantKwest just raised $207 million in a recent IPO, and Axovant Sciences, a one-drug Alzheimer's company, pulled in a record-breaking $315 million from the public markets. A biotech run by Art Levinson could raise more money than any biotechnology company ever in a second.

Except that would negate the entire point of Calico. The idea here is that Page and Brin, who are each worth $33 billion, can protect this project in the way that the karmic ideal of a drug company would have 20 years ago -- the way Merck in its heyday would in our dreams. That's what makes the whole thing possible, and that what makes it cool.

So sure, giving investors a view of how the base business is working through separate financial reports will help calm their nerves. But do the pitchforks ever come out from the myopic crowds? Could Calico ever be stuck in the terrible, deceitful purgatory of the biotechnology industry, where companies try to break up years-long scientific endeavors into quarterly bites?

I was kind of worried about this, so I asked Art. He says not to worry. "I can’t speak for any of the entities other than Calico," he wrote via email,  "but we expect no change to Calico’s mission, directions or goals (either near or long-term) as a result of today’s developments. Everyone involved understands the long-term nature of this business, as I know you too appreciate."

In the end, the reason that this may be a good thing for Google's healthcare divisions is not because the conglomerate structure really provides any protection in and of itself. Having covered health care conglomerates (Life Technologies, anyone? That didn't really work out) I'm not sure that the structure is really a good one. In what has to be a bad omen, I got a pitch from a public relations representative of stem-cell-and-longevity-focused entrepreneur Mike West saying that his current company, BioTime, presages Google's new structure. BioTime's market cap is just $243 million -- that's like lunch in the Alphabet cafeteria.

But that's not really why Alphabet matters. Because its not the structure that matters, its the statement it makes. Its a dramatic way for Brin and Page to say that they will remake their company to protect their bets on alpha, their moonshots, that that stuff isn't changing. It is a commitment. And that's why I still hope that in another fifteen years, after two more cycles of crazy, value-creating biotech booms and value-destroying biotech busts, I'll be able to sit down with Levinson and interview him about new medicines that fundamentally changed the way we age and resulted in massive improvements in human health.

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