The basic gist is this…Google as it is currently known will become Alphabet, a tech conglomerate under which the banner search and advertising business will be just one of many units. Among its siblings will be Google Life Sciences, which is developing a high-tech contact lens with Novartis, and the aforementioned Calico, which launched in 2013 with the ambition of basically conquering human mortality.
Calico, like each of Google’s non-revenue-generating endeavors, has benefited from a long leash and an undisclosed research budget. Since getting off the ground, the company has recruited superlatively well-regarded (and presumably well-compensated) biotech veterans to spearhead its efforts to better understand the biological process at work in aging, partnering with top-tier institutions and signing an R&D deal with AbbVie worth up to $1.5 billion but otherwise keeping much of its operations under wraps.
However, the Alphabet ethos, as Google co-founder Larry Page explained in a blog post, is to create a “cleaner and more accountable” conglomerate, and the company told Re/code that it’s decision was at least in part influenced by Wall Streeters looking for tighter corporate governance and more transparency in capital allocation. (Not full transparency, of course: Under the Alphabet system, only the slimmed-down Google and parent company as a whole will report financial results, so don’t expect to see a Calico R&D line item in the next 10Q.) It’s an arrangement Page says “allows us more management scale, as we can run things independently that aren’t very related.”
“In general, our model is to have a strong CEO who runs each business, with Sergey and me in service to them as needed,” Page wrote. “We will rigorously handle capital allocation and work to make sure each business is executing well.”
That kind of talk–siloing off what makes money from what doesn’t yet and may never–has some concerned Google is tinkering with a system that was working just fine. The company’s model has to this point revolved around sating Wall Street’s gate-bound barbarians with huge advertising profits and using the resulting buckets of cash to keep its moonshot projects safe in ivory towers of R&D, where it can invest in self-driving cars, drone delivery and, in Calico’s case, prolonging human life. However, as Matt Levine writes in Bloomberg, separating the likes of Calico from the core business could be inviting short-term-minded investors to agitate for a breakup, or at least pressure management to stop throwing so much money at research and consider stock buybacks instead. Google’s leaders now have enough clout and corporate leeway to follow their vision, but the Alphabet evolution could unwittingly weaken them in the long term, Levine writes.
However, Calico is not worried. Art Levinson, the former Genentech CEO brought in to lead the anti-aging biotech, told Forbes‘ Matthew Herper that his team expects no tweaks to the company’s mission and operation. “Everyone involved understands the long-term nature of this business,” Levinson wrote, and Calico’s end goals, necessarily far in the future, remain unchanged.
And Page, alongside co-CEO Sergey Brin, is promising to give Alphabet’s lieutenants the freedom they need to execute on the parent company’s vision. How that shakes out over the coming years remains to be seen.
REFERENCE: Fierce BioTech; 11 AUG 2015; Damian Garde