a16z Podcast - a16z Podcast: Drones for Delivery in Healthcare

Episode Date: November 23, 2016

“If we have instant delivery for our burgers,” says Zipline CEO and co-founder Keller Rinaudo, “we should have it for our medicine.” So while some people debate whether drone delivery for burritos, beers, and books is a marketing gimmick, one of the most important kinds -- urgent delivery of urgent healthcare -- is happening right now through Zipline’s delivering blood and vaccines to patients and hospitals in Rwanda. The peace dividend of the smartphone (and electric vehicle) wars has yielded components and cost dynamics that make all this possible. But more importantly, the economics -- bypassing motorcycles and going 20x as fast -- are actually profitable, as drones can help leapfrog existing (or lacking) road infrastructure. "It’s trade, not aid" ... especially as this approach also builds out commercial infrastructure in Africa. In this episode of the a16z Podcast (in conversation with Chris Dixon and recorded at our recent inaugural a16z Summit), Rinaudo and UPS' Vice President of Healthcare Strategy John Menna discuss using drones to leapfrog infrastructure, and save lives by doing it in less than 15 minutes. But how are regulation and locals responding? What does the trend towards “light and fast” logistics -- based on smaller inventory in a number of controlled-environment yet centrally managed locations -- look like? And finally, how can drones for healthcare delivery further the trend of personalized medicine? The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

The content here is for informational purposes only, should not be taken as legal business tax or investment advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hi, everyone. Welcome to the A16Z podcast. We're continuing our annual Thanksgiving series with a ongoing series around good business doing good. And in this episode, we're featuring drones. for health care delivery in Africa and beyond. This episode is based on a conversation from our most recent A6CNZ summit event featuring Zipline CEO and co-founder Keller Renato and John Mena, VP of Healthcare Strategy at UPS, in conversation with Chris Dixon.

Thanks for being here. Keller, do you want to start by talking a little bit about what you're doing in Zipline? Sure. We build a system that is basically instant delivery for health care. We make it possible. for governments to deliver medicine instantly to people who live in hard-to-reach locations. The company is currently operating in Rwanda.

We deliver blood to about half of the transfusing facilities in Rwanda. Rwanda delivers about 55,000 units of blood a year. 50% of that is going toward moms right after giving birth, and 30% is going toward kids under the age of 5 who have anemia due to malaria. So the company is now basically delivering blood instantly to people who couldn't get access to it before. John, can you tell us a little bit about what you work on? I'm Vice President and Healthcare Logistic Strategy for UPS. And we serve manufacturers in the health care and life sciences industry,

primarily farmer manufacturers, medical device manufacturers. And we do everything from warehousing products to distributing those products and obviously transporting those goods. Everything from manufactured products to the transportation of specimens and biological specimens as well. And do you have operations all over the world, including in Africa? We do. Obviously, we have a very strong footprint in North America for healthcare logistics in Europe and parts of Africa and Asia as well. UPS is basically supporting the work that we're doing in Rwanda. So they've both been helping fund the work and then also been advising us in terms of actually creating a logistics network at national scale.

The reason that it's been so awesome to work with UPS is that we both share a vision for taking legitimate. in a direction where you can get anything you need instantly, particularly for products that we rely on with our lives. Good. You want to maybe a little more detail with you? Whenever we talk about like drone delivery, people are like, this is science fiction, it's not real. People are very cynical about it because some big companies and made some announcements four

years ago and basically nothing's come out of it. So people think, okay, it's impossible, it's marketing. I did just want to emphasize it's not marketing. It's happening right now. So this is a zip, which is the vehicle we build, delivering blood to a hospital. This blood was transfused into a patient. shortly thereafter. The blood that we're delivering

is being transfused and saving patients' lives. This is actually happening at national scale. 5.2 million kids under the age of 5 die every year because they can't get access to basic medical products.

This distribution center is serving about half of all the hospitals in Rwanda, and we are already planning a second distribution center, which will put every single one of the 11 million citizens within a 15-minute delivery

of any essential medical product they could need. The overwhelming challenge is just that the roads suck. If you grew up in the U.S. or have lived primarily in the U.S., you probably don't appreciate how bad the roads are in these environments. And so it's really difficult to set up logistic systems that rely on roads. Well, the roads suck, but they have great mobile phone access. A lot of people have mobile phones. Totally. And you can just literally hit a button on the mobile

phone and bypass the fact that you don't have roads. Totally. For a doctor who is trained to help a patient, they have a mom in front of them, and that mom is bleeding out. What happens today is that doctor needs to get in a car and drive two to three hours to a blood bank if the roads are passable and then two to three hours back. But usually when they get back, the mom is either stable or dead. So today that doctor can use this mobile phone, which is becoming, you know, you're always saying it's giving you superpowers. They can use this mobile phone to summon the blood that they need to save this patient's life and get it in 15 minutes. The, you know, one concept we think about is this notion of leapfrogging. People talk about how in

Africa, you know, they sort of leapfrog the era of landline phones and went directly to mobile phones. I think in China, they kind of skipped the PC era and went straight to the mobile phone era. By some assessments, that has made them more sophisticated without having these legacy technologies. So it seems to be that you're sort of doing that with drones and roads, right? Yeah, so from UPS standpoint, this whole Rwand operation came to us as a humanitarian effort. For Keller, it's a real revenue-producing operation. They're making some money on this. But when you look at Africa, you look at humanitarian needs, we work with a lot of the major NGOs around the world, helping them solve logistics challenges.

And because of the poor road infrastructure, many parts of Africa, a lot of the relief supplies and a lot of vaccines and everything else that are meant to save lives don't get through. There's a statistic that they often cite in these NGOs, which is the absorption rate. If I ship 10,000 vaccines into the country, what percentage actually get injected into a citizen with that vaccine being a good condition? In some estimates in some parts of Africa, that absorptions rate 20 to 25%. So only 20 to 25% of what gets into the country to be injected in patients is viable. This solves a real problem because using the sipline operation, we can get blood, we can get vaccines and everything else.

And then can you talk a little about the applications beyond the developing world? Is this something where we would only see in Africa? What it also does for us collectively is build out a use case. and all the detailed operations and work through all the regulatory hurdles of putting this operation in place because we think not only is this leapfrogging the road infrastructure in Africa and other parts of the less established world, but for the more established world, this becomes potentially a much better urgent delivery of urgent health care to patients that are in need of products that are maybe expensive and very temperature and time sensitive. And the other thing you're asking about, like, developed world use cases, the cool thing about launching in Rwanda, a lot of people look at it and say, oh, of course you'd go there because you're experimenting or, you know, you're showing that it'll work. But actually, interestingly, like, or because there's no regulation. But interestingly, the regulation there is just as strict as the regulation here in the U.S. It's just that because they're a smaller country, they've been able to implement modern regulatory practices faster. So we've basically fully integrated with their airspace. And at this point, we are actually, you know, hearing from the Secretary of transportation of the U.S. and other countries, Japan, for example, saying, what would it take to

bring this to develop countries? Because you have a lot of the same medical challenges in rural places in the U.S. that you have in Rwanda. Talk briefly about the technology. How far does that drone go and how is it controlled? It's completely autonomous. It's battery powered. We use dual-band RTK GPS, so the vehicle knows where it is with centimeter level accuracy. And it's autonomous from the moment it leaves the launcher. So when we load the package, that package has a QR code on it that the vehicle can read. And the vehicle automatically has its mission. It knows what hospital it's going to.

And it makes all of its own decisions flying out to make a delivery and then coming back. One interesting thing is fixed wing versus quadcopter because a lot of the hobby astronauts you'll see today are quadcopter. But you guys, the fixed wing have a lot of advantages. And you had to go build your own because there weren't any that satisfied your criteria. Yeah. Building a fixed wing vehicle allows us to have about 20. times more range than a quadcopter. So instead of going five kilometers, we go 150 kilometers. And when you have 20 times more range, that means you serve 400 times the service area. So when you actually want to make this kind of a system economically viable, that's a really

big benefit. I thought one of the cool things when I went to see it was the fact that you do two passes before you drop. The first pass is to measure the wind speed and things. And the second is to like do it very precise within 10 feet or something. Is that right? Yeah. So we deliver into something we call the customer's mailbox. Always learning from UPS. We're delivering into their mailbox, which is basically an imaginary rectangle on the ground. It's about the size of two parking spaces.

And as the vehicle is approaching, it estimates the wind speed, and then it incorporates that in its position when it drops. So we can actually always put the package into the mailbox. When the wind's really heavy, sometimes it'll seem like the vehicle overshot you, and then it'll drop, and it'll come on a diagonal slant into your hands.

You don't appreciate how cool and how real it is until you actually get to receive a delivery in this way, and then it becomes instantly completely obvious to you that this is the future and this is how products will be delivered. You know, John, something you and I always talk about is how logistics is going toward light and fast. In this case, it was because the infrastructure, the road infrastructure doesn't allow reliable deliveries in certain times of the year. But there's many healthcare-related products that are extremely expensive, extremely expensive to store. So you don't want to have significant amounts of inventory in every hospital in the U.S., 6,000

hospitals, you know, it's much more efficient to locate a smaller quantity of inventory in total in maybe 25 or 30 locations throughout the U.S. And instantaneously, when those products are needed, pull them out of a very controlled environment, temperature, humidity, controlled warehousing, and get it rapidly to the point of care within minutes. That's a much better economic model. And the viability of the medication is much better because in many cases, in many cases, cases, those medications are not always stored correctly when they're more in a more dispersed

inventory. But when they're more of a centralized inventory, you can control the conditions that those products are stored. And when you think about the future, you think about personalized medicine, medicine that's genetically specific to the person, as we go in this direction with these rare immunotherapies and things like this, you don't get to just like stock 100 of them at the hospital. You basically have to make the product specific to the patient and then get it to the patient as quickly as possible. So especially when we think about personalized medicine, think about telemedicine, building the half of that system. So you can get on your cell phone and automatically talk to a specialist. But then the other half also exists, which is the specialist can deliver the medicine

to you in five minutes. I just think it's exciting to think about what the future might look like. I think we have a sense that things are good, but it's actually really annoying to go receive medical treatment, even in the U.S. We spend a lot of time. It's very inconvenient. And that doesn't have to be the case. So, John, can you talk a little bit more beyond drones? What kind of new technologies are you thinking about? Sure. So within the autonomous space, UPS is running a number of different experiments and different pilots, some of which are fixed wings, some of which a helicopter, some of which are using autonomous vehicles within the four walls of our facilities to move things around. But then specifically in healthcare, as more and more products are moving to

cell gene therapy and personalized medicine and biologics, there's a significant amount of temperature control and humidity control that's required for those, for those. shipments. So, you know, we've built a lot of capabilities and we've, we've licensed a lot of technology to monitor shipments while they're moving through the supply chain and make sure that they're always kept in perfect condition. Little devices that go inside and the pack out that will set off alarms when products might get out of temperature control or humidity control, and then obviously we can recover them, GPS, position them and understand exactly where they are so we can rescue those shipments on a very timely basis.

And let's maybe talk a little bit about beyond healthcare, both drones and also new modern infrastructure. Do you see your product, your service, applying beyond delivery? You know, we're going to be focused on health care for a long time just because I think that's where this is really needed. I mean, everybody's talking about using drones to deliver your latte to you on the beach or burritos. You know, we're going to deliver six-pack to your home. And we look at that and we think that's really goofy because from a community acceptance perspective... It's also not clear the economics makes sense. Not at all. I'm not even...

Yeah, not even going there. And the regulatory environment is not going to build its use cases on that. They're going to build it on life-saving products. Right now, it's not legal to have fly drones, the online site in the U.S. What we're doing in Rwanda is illegal in the U.S., unfortunately. Now, as I mentioned, we're working really closely with the U.S. government. We're really optimistic. I think that everyone in the government knows that this is fundamental infrastructure.

I was talking to the Secretary of Transportation, and we were going back and forth, and I was like, I think if cars were invented today, they'd be illegal. Because they're dangerous and noisy and, you know, annoying and but of course you know Obama you know was mentioning in this wired article you have to let a thousand flowers bloom and then garden appropriately that's totally what we need to do here it's going to be a real shame if we as a U.S. company go build competitive advantage for all these other countries and the U.S. falls behind just because we aren't willing to do something new from a regulatory perspective but when we think about healthcare I mean first of all it's very obvious to me

like instant delivery you know instacart door dash all these companies that are doing it for food If we have instant delivery for our burgers, we should have it for our medicine. The most obvious place where you would really want to know you have access to something fast. What are the next most obvious after medicine? Are there others? Great question. Now that we've basically launched in Rwanda, we're having all of these additional partners coming out of the woodworks, refugee camps. There are three or four refugee camps within range of the first distribution center we've set up.

We had a bunch of surgeons come. I know this is still healthcare. We had a bunch of surgeons come and ask us if we could deliver kummidon to the patients that they've done heart transplants for because patients have to take commitment every day for the rest of their lives. And then a really weird one is sperm. I would not have predicted this, but I actually think it's quite possible. The first thing we do that isn't medicine will probably be sperm. A substantial percentage of the people who live in Rwanda depend on cattle as their primary

economic livelihood. And if the cattle has relatively low quality genetic profiles, so there have already been programmed to try to deliver Holstein-grade sperm from the U.S. to Rwanda to improve the genetic profiles of this cattle. It turns out if you can get sperm to these farmers, you can increase the economic productivity of that family by like 30 to 50 percent, which is a huge deal. But sperm's a lot like vaccine. It's light. It's really expensive. It's, you know, it's complicated. You have to get it there fast. You're going to all these little rural locations so you can't deliver, you know, one big amount of it to sounds weird. You can't deliver one large amount to one, you know, central place. So anyway, the future is weirder than we could imagine. And you just don't know, I think, until you start to set up this infrastructure. Anyone have any questions in the audience?

I know that operations that are more profitable are probably going to grow faster. Because that's the way the world works. So I'm curious, how profitable is it? Right now, we are engaging both with the humanitarian and the technical arms of UPS. But what we do in Rwanda is not, we do not think of it as humanitarian at all. We are making money for every delivery that we do. And the Rwandan government pays us for every delivery that we do. It saves them money. It's a totally obvious decision for them because it costs less than doing a similar delivery using a motorcycle. It's 20 times as fast and it doesn't depend on roads. And it's great for us because instead of being in a crappy business of like trying to sell hardware to people who wouldn't know how to use it, we're actually able to make money for every single delivery. And as our costs come down, the system becomes even more profitable. We are currently covering all the costs of the system with what we're doing in Rwanda. And we are going to be using money from that first distribution center to fund the system.

second. This paradigm that if you're operating in Africa, you're doing charity or you're doing philanthropy is totally going to change. If you talk to the president of Rwanda, he's always saying we want trade, not aid, trade not aid, because they view aid as fundamentally setting them up to be dependent, as opposed to independent. The other interesting thing here is it's almost reverse because this infrastructure for humanitarian, it then potentially becomes the infrastructure to get more commercial products in and out of those countries as well. By doing this, we build out the infrastructure commercially as well. All these pharmaceutical companies that John spends all of his time serving, they want to figure out how to serve the other six billion

people. But there's this general challenge, which is, first of all, you don't have the economic growth when there aren't the roads so that people can pay for it. And second of all, if the roads don't exist, you can't get the medicine to them anyway. Good question. How much footprint do you actually need to take off and land the drone? And what about the precision of the delivery drop-off? Imagine a big city like Mumbai. And if you wanted to deliver, that, is that feasible? So we carry about one and a half kilograms today. The box is like a really big shoe box. It's enough to carry any medical product you could want to deliver. There's basically no medical product, emergency medical product, that we have yet to discover that we can't deliver,

except for radioactive treatments that have to be surrounded by lead. We're not going there quite yet. You don't need very much footprint. We're actually doing kind of an aircraft carrier landing. The vehicle catches a wire and then plops onto what's essentially a bouncy castle. And so we can actually do that in a very small amount of space. You only need something like 30 feet by 80 feet for both launch and landing. There's no landing gear on the plane. There's no runway. And then your final question, precision. So we can drop into about two parking spaces. So any driveway, as long as like a house had a driveway, we could deliver to that house. We're probably not going to be delivering to skyscrapers anytime soon, but skyscrapers are really effectively served by

UPS already. It's very efficient for UPS to drive a big brown truck up to the lobby of a skyscraper. and unload it, whereas we're a lot more focused on suburban and rural where it's less efficient. Speed and range of the vehicle seems to open up new opportunities. How fast is the speed and the range expanding for you? They're expanding very fast because batteries are getting better every day, and we're also making the vehicles more efficient. We can fly 150 kilometers right now. We have a top speed of 130 kilometers an hour, and we fly in a straight line as opposed to roads that do this. But, yeah, those are increasing every day. Our plan is to significantly... The bottleneck is battery. The bottleneck is battery.

Yep, and it's the energy density of the better. And those get, what, 5% better every year or something? Well, that's just the energy density, but then their reliability and durability is improving faster than that. And that's partly a result of the electric car? Yeah, and we actually use the exact same cell that goes into the Tesla Model S. So we kind of benefit from all their... So it's sort of this interesting spillover effect that you don't always think about, right?

That all this investment in electric vehicles and ground vehicles is also benefiting drones. All, I assume, like, the cell phone infrastructure and a lot of the components are probably similar to cell phones. Yeah, totally. The problem with drones right now is you can buy a $20 million drone that kills people, or you can buy like $100 drone that your kid can fly, but that'll crash every fifth time. And there's basically very little in the middle. And so we're really trying to build in the middle. We want something that's really cost effective for our customers, but is reliable enough to fly in a commercial way overpopulated areas. The way we've done that is essentially we've looked at how flight computers in commercial jets are designed. And then we've built the same architecture just using cell phone components for $1,000 for the cost. Can you actually just expand upon that a little bit? When you said that you had, you looked at the market, you couldn't find any drones, you had to build it yourself. What do you actually mean by that?

Did you hire some aerospace engineers? Did you outsource that? How did you actually go through the product development? Same thing for UPS. How are you guys doing it? You know, we basically, we bought a lot of components and then flew them in planes and then crashed the planes. I mean. But you have a team of aerospace.

Yeah, we have a team of people who have designed these kinds of systems. in the past, both on the military side and on the consumer side. We're not just aerospace engineers, because aerospace over the last 50 years has had some issues. It's not like a booming industry. And so we really wanted to marry rapid prototyping robotics experience with

some people on the aerodynamic side and on the flight control side. We're really, really strong. Because what we really want to do is design planes that are as safe as Boeing, but write software as fast as Facebook. So right now, we are designing, manufacturing, and operating a completely new fleet of vehicles about every four or five months. That's new

airframe, new avionics, new everything. And the only way we're able to do that is through really good testing and rapid iteration. In UPS perspective, we're working with a couple of different manufacturers for different types of use applications. And we get involved in the design to work in the conditions that we operate in, and then obviously the testing environment and the piloting to iterate to get them even better. Do you have other questions? Have you learned anything that's been really interesting and shocking?

Like one of the things I randomly think about, have you had any hijackings? James. Yeah, everybody always asked. Actually, it's a question we usually only get in the U.S., which is, can you shoot them down? We never hear this anywhere else, but in the U.S., everyone wants to know if you can shoot them down. I mean, we build end-to-end encryption and security into the system from day one, so it's a really secure system. People are always, could you deliver bombs? If you wanted to deliver bombs, it would be a lot easier to buy an off-the-shelf quadcopter and do it using that. Our system can only work if it's authenticating with our global servers, et cetera, et cetera, et cetera. In terms of really interesting things we've learned, I think the most interesting thing I've learned in this is that people in the U.S. are possibly the most pessimistic people about technology in the world. We were so concerned about how people in Rwanda were going to interpret this. And you see these 200 people who line up on the fence every day. I show up sometimes at like 5.30 a.m. at the Nest at that distribution center. And there are 12 people that are getting good seats. They're so excited to like watch it take off and land, take off and land.

And you go and talk to them and you're like, what do you think about this? And they say, oh, it's just a sky ambulance. They get it. It's like, damn, that's who we used to be. You know, I kind of feel like Rwanda is probably what it felt like to be living in the U.S. 200 years ago when there was relatively little regulation and just tons of people building new things, building new infrastructure. Like, you know, we were building railroads and highways or whatever.

And it would be really awesome to return to that. All right. We're out of time. Thank you, guys. Thanks.