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Here's What Google's Alphabet Businesses Might Look Like: The Qualcomm of Medical Tech

The newest company in Google's Alphabet, Life Sciences, cuts a deal to make miniaturized diabetes monitors.

Here are two things we can say about Alphabet, Google’s new, still-opaque parent company: CEO Larry Page had grown tired of the ads business. And he wanted Googlers to form businesses that apply Google’s expertise in data to a range of problems inside Google, rather than out of it.

On Tuesday, we got a peek at what those businesses will look like.

Life Sciences, the two-year-old health research group inside Google X, officially moved out of X and became its own standalone company under Alphabet. Andy Conrad, a cell biologist who has led the division since 2013, will be its chief executive. On the same day, Life Sciences announced a new deal with DexCom, a San Diego, Calif., firm that builds continuous glucose monitors for diabetics.

Conrad’s unit will create a cloud-based, miniaturized sensor — about the size of two pennies stacked atop one another, according to DexCom CEO Kevin Sayer. DexCom will then sell it.

Google has ventured into the medical market before, with Google Health, a service for consumers. It pulled the plug after three years. With Life Sciences, the tech conglomerate has decided to stick to its strengths (namely, radical inventions) and leave its weaknesses (distribution and commercialization) to partners. Sayer described Conrad’s operations this way: “It’s like a Qualcomm for medical tech.”

The model is similar to the earlier partnership Google’s Life Sciences unit inked with Novartis, the pharmaceutical giant, to license the smart contact lens. With this deal, however, we have a bit more detail on the terms and how Google, soon Alphabet, expects to turn its moonshots into profitable businesses.

In the deal, DexCom, a public company worth north of $7 billion, will pay Life Sciences an upfront fee of $35 million (all stock, Sayer said) plus an additional $65 million in either cash or stock. DexCom will be the exclusive distributor of Google’s intellectual property around glucose monitoring. There’s one more caveat: Once DexCom exceeds $750 million in annual revenue — the company posted $166 million in the first six months this year — it will pay out an unspecified royalty fee to Alphabet.

So, it will bring a windfall to Alphabet — eventually. The device will hit the market in two or three years, Sayer said. The overall market for diabetic patients is expected to exceed $1 billion in three years, according to Baird & Co. analyst Jeff Johnson, who also wrote that DexCom would triple its sales in five.

Google (Alphabet?) declined to comment beyond its press release, in which Conrad repeated his standard maxim about turning the health market from “reactive to proactive.”

Yet Sayer noted another potential benefit for Google. When they began discussions earlier this year, Sayer said it soon became apparent the Life Sciences team was very interested in DexCom’s data. The deal gives Life Sciences access to this. “What Google adds to us is miniaturized electronics and a co-developed analytics platforms,” he said.

And so, even when these companies untether themselves from Google, it seems they’ll keep Google’s key trait: A hunger to organize and absorb data.

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