Alphabet's unprofitable Verily unit in skin-care deal with L'Oreal

© Reuters. A L'Oreal logo is seen at the company's offices in Levallois-Perret, near Paris, France, May 7, 2021. REUTERS/Christian Hartmann

By Paresh Dave

(Reuters) -Alphabet Inc's money-losing health tech arm Verily on Thursday announced a new tie-up in its search for sustainable revenue, saying it would study skin health and explore new products with cosmetics maker L'Oreal SA.

The company declined to disclose terms of what it called a "strategic, multi-year partnership and research collaboration" with L'Oreal.

Executives who have left Verily have criticized it for signing flashy, one-off research collaborations with pharmaceutical companies instead of focusing more attention on landing recurring subscribers to its software for clinical research and disease management.

The critics have said Verily's approach has left it with intermittent revenue and further off from generating profit.

Dr. Amy Abernethy, president of Verily's clinical research platforms, said the company's technology will underpin a longitudinal examination into skin issues and environments and behaviors possibly affecting them. Results could aid development of diagnosis and treatment options.

Abernethy, who has worked closely with skin cancer patients, noted that existing technology struggles to differentiate between similar-looking skin conditions.

By working together, the companies' aim is to "power every single person with access to the most inclusive and personalized information on their skin management," said Barbara Lavernos, deputy chief executive officer at L'Oreal.

Verily last year booked about $400 million in revenue, according to a source briefed on the figures. Over a quarter of sales came from the low-profit-margin business of administering COVID-19 tests for outside organizations, and Verily's overall losses widened significantly from 2020, the source said.

Verily said those numbers are inaccurate. It does not publicly report financial results.

Plans for the L'Oreal project include both the long-term software component and co-development of a new telecare service for dermatologists and consumers. The deal is Verily's first with a beauty company and follows years of talks with L'Oreal.

Corporate sibling Google (NASDAQ:GOOGL), which is testing an artificial intelligence tool for identifying skin conditions https://www.reuters.com/article/ctech-us-tech-fitzpatrick-exclusive-idCAKCN2DU0UA-OCATC, is not involved, executives said.

Verily's deal follows a similar partnership unveiled last August with Colgate-Palmolive (NYSE:CL) Co to study oral health.