On one hand, it is tackling a huge, important market and appears or appeared to have something legitimate.
On the other, so many of its tactics seem designed more to increase valuation than successfully bring its technology to market. It's obscenely celebrity board completely devoid of any relevant experience. A ridiculous $9b valuation on a paltry (relatively) $400m raised. 100s of SKUs on its product list when it should be perfecting on a just a few. The incessant PR campaign around its founder. Giving Jim Cramer an exclusive? Refusing to participate in WSJ article. Spending a whole day with Harvard Fellows. Hiring slick crisis handlers. Threatening whistleblowers. I'm sure the incumbents wouldn't be that excited about a patent-protected entrant into the market but it doesn't seem like they are the ones mounting the attack. It either works or it doesn't right? And it'll be easy to figure that out. Can someone help me out?
Reading through the press and Theranos response it's certainly ... weird.
My theory, assuming they aren't outright committing fraud.
The technology works, at least within a tolerance they think is reasonable. It's possible that early scientific staff (part of the huge turnover commented elsewhere) weren't happy with that tolerance.
Now they are in the process of getting FDA approved. At the same time Theranos is also following a Silicon Valley strategy, building an audience with a loss leading product. In this case it's doing blood tests at a price well below cost, using normal lab equipment, and covering the difference with VC money.
They dont want to admit this for two reasons
1) It exposes them to the competition, who know they are losing money on every transaction and it also would make doctors and patients wary of dealing with them
2) As discussed in the WSJ article taking less blood and using normal machines just means a less accurate blood test, which makes the benefit of not getting a needle much smaller and messes with their core marketing message
I think this also explains the directive discussed in WSJ to only submit sample results from normal lab equipment, as at the moment they are simply operating as a normal lab.
I think this is a clash between staff who think Theranos was all about creating a reliable way of doing blood tests with less blood, and the current direction they are taking building scale with traditional equipment.
"Usually such deficits in the board of directors would be offset by an equally stellar scientific advisory board and/or medical advisory board," Church said in an e-mail. "I don't see either for Theranos."
Beyond the things you point out, my biggest point of skepticism on Theranos is its business and the potential value of it.
Lab Corp is worth $11 billion. With $6 billion in sales (and having generated ~$1.6 billion in profit over the last three years). The market Theranos is tackling is not as huge as some people apparently would like to think. Lab Corp is a monster in the field, and they're merely doing $11 billion. It's not an Uber situation, where a company blindsides an entire industry, and that industry stands still - Lab Corp has the resources and scale to respond to anything Theranos can do.
In the perfect scenario, Theranos is doing little more than pulling at least a decade of future returns forward at a $9 billion valuation. There's nothing they can do that will generate $6 billion in sales in the next five or six years. Their business model is partially built on neutering the high margins that companies like Lab Corp enjoy.
Abaxis (manufacturers of the "Piccolo" systems, which seem to be lab-on-disc based and offer point-of-care operation) are an interesting company to compare to Theranos. They seem to be able to perform small panels of assays (up to 14) on 100 µL samples [1] obtained by venipuncture.[2]
They are valued at $880M, and had ~ $200M revenue and $27M profit in the last financial year.
It is putting a lot of effort on PR. I went to https://www.theranos.com/ for curiosity's sake, and was surprised to see that... well, the big center image has absolutely nothing to do with Theranos' technology, it's about "empowering women" (which is of course a laudable effort).
My best guess is this is just 'fake it till you make it'. If they've got a 9 bil valuation, at least they can hire some smart folks who would otherwise be unhappy in proper academia. Maybe they're on to some technology and we will see that pivot soon.
I am on board with your skepticism, but I don't believe your concerns are valid in the context of what Theranos is promising and what they have done ($400 million is nothing to scoff at in an industry where you have $0 revenue until a real breakthrough passes the FDA).
The global pharmavertical industry is about $900 billion a year and has a very wide variance in types of products so the normal idea of what what value a "celebrity" is worth is very different. If you're a biotech company whose most likely exit is an aquisition by Pfizer or Roche, you want industry insiders. If you're like Theranos, and your business depends on consumer spending at places like Walgreens, you're so far out of the normal pharmaceutical and diagnostic industry that all bets are off.
Several hundred million for an IPO biotech company on ZERO revenue post dotcom crash is common enough that $9 billion valuation (25 times revenue) is damn good. There are literally thousands, if not tens of thousands, of labs that can run an off site (for the consumer) screening for every one of Theranos' target markers. The idea that anyone would invest hundreds of millions into a diagnostic company without compelLing secret sauce is troubeling. I don't doubt that VC firms make mistakes as silly as the rest of us, but I prefer to give the benefit of the doubt assuming semi-competent due dilligence.
That said, no VC firm in their right mind would ever invest in a company like Theranos if it had only a few SKUs. It is practically impossible (with current technology) to come up with a generalized test that identifies anything more precise than "gram negative bacteria." Either Theranos is a pump and dump scam of epic proportions or they really do have some technological superiority that allows them to convert expensive lab tests into a consumer technology.
As far as the other red flags, you'll usually find the same intrigue surrounding most successful biotech companies. When your operating at the cutting edge of the most difficult scientific field in the most stringent regulatory environment on the planet, you have to take more shortcuts than usual.
It's worth noting that (many) blood tests don't need FDA approval. This makes Theranos' approach unusual: they are getting FDA approval, but not publishing the (easier and cheaper to do) tests.
I don't know enough to judge this one in any sensible way. I thought this Forbes article[1] was good, and the author said:
How much is real and how much is hype? I’m not going to provide a final answer here. I still have no idea how Theranos’ technology works. But I’m more confident than I was before after spending a day talking to the company’s partners.
Here are a few reasons for that confidence: The Food and Drug Administration has just posted a detailed explanation of its decision to clear Theranos’ one approved test, and, to my eyes, it does give some validation of their technology
That's not quite true. They don't need expensive clinical trials like a drug developer would, but there is a regulatory process for getting FDA approval for diagnostic tests that lets companies self-regulate, as long as an FDA approved "lab manager" signs off on the internal validation process run by the company. They would only have to fall back to regular approval processes if there is no "golden standard" diagnostic test which to compare their test with.
I'm a bit dubious of using their partners as a source for the technologies effectiveness though. From the insurer's point of view they are getting extremely cheap blood tests from a company using the same equipment and methods as any other lab. Thats a great thing for the customer and the insurer but why would either care whether shifting to the proprietary technology gets approved?
I'm not entirely convinced that what Theranos is promising is even that great.
A couple weeks ago I got a blood test. I walked into the test center, which was staffed by a single person. I waited in line (there was one person in front of me), and told the person my name. She walked me over to a chair, drew enough blood for a whole bunch of tests, and that was it. I was in and out in 12 minutes (I timed it), and it was almost completely painless.
This wasn't Theranos. It was "Lab Corporation", an utterly non-unicornish testing center, and the local branch was staffed by a competent phlebotomist. It turns out that, once you stick a tiny IV needle in, you can draw a few vials of blood very quickly and painlessly.
In contrast, I once had a test at Theranos. The tech poked my finger with the magic lance (which stung more than the IV needle), put the little magic capillary collection widget over the drop of blood on my finger, and squeezed REALLY FUCKING HARD, repeatedly. My finger tingled weirdly for a few hours, because the REALLY FUCKING HARD squeeze hurt and probably broke a few capillaries. And the process took considerably longer than the blood draw at Lab Corporation. See, a little needle with a vacutainer at the other end draws quite a few mL of blood very easily, but a little finger prick struggles for more than a drop or two.
(Next time you give blood and get the finger-prick hematocrit test first, look at the tiny amount of blood that they get. Then imagine the rather large multiple of that amount that you'd need to fill the little Theranos collection widget. Ouch!)
I suppose if I were afraid of needles, then maybe the squeeze-the-finger-really-hard approach would have been an acceptable idea.
From experience, a blood sample which has been milked out of a finger is quite different to a venous blood sample.
(I am an anaestheologist and often perform or ask nurses to perform post-op point of care pinprick blood counts to look for anaemia in patients who have had big surgeries. We do 2 readings to check for error, and I often find that samples which have been squeezed out have a haemoglobin value 10-20% different to those which are drawn from a vein due to expression of tissue fluid.)
However, the skill level of whoever performed the fingerpricks for that data may be significantly higher than the average technician at Theranos's wellness centers. And of course we have no idea about the hundreds of other tests. There seems to be some other correlation data on Theranos's site (https://www.theranos.com/our-lab - scroll down to 'Representative Clinical Correlations'), but there's no captions or text to provide context.
Theranos definitely has an uphill battle against the ubiquity and cost efficiency of offsite testing labs but their technology is significantly different because it is an onsite test with a tiny amount of blood.
The infrastructure to support the kind of experience you're used to at Lab Corporation or Quest Diagnostics does not exist in much of the world. With the ubiquity of electricity and wireless broadband, a charity like Doctors Without Borders or Red Cross can drop a Theranos test device in a developing country and only have to worry about delivery of consumables to the location instead of shipping samples out, which requires a reliable postal infrastructure instead of a once a month delivery by airplane, boat, train, truck, or rickshaw for that matter.
I'm excited by Theranos' technology because the FDA has strict limits on how much blood you can draw from patients during a clinical trial. As our therapeutics get more and more complicated, we'll need a lot more data but the FDA will not raise this limit much, if at all, in the future. This is a known issue that you have to design around when running clinical trials, especially if you're developing something like a cancer cocktail where you might be looking for half a dozen metabolites and intermediary molecules in extremely low concentrations that each need a vial of blood. This isn't Theranos' target market (intermediaries/metabolites can be much harder to design tests for) but their tech's ability to test onsite with a tiny amount of blood might allow them to move into this market.
Uh, 25x revenue? Are you conflating money raised with revenue? Because Theranos has not made anywhere close to 400m over the entire life of their company...
I apologize, I didn't look up any estimates/figures for Theranos and I think I mistook the funding number for revenue. I also haven't gone to Walgreens and taken a theranos test, although I do suspect that if Theranos is actually at Walgreens their ratio of valuation to revenue does not end with a divide by zero error.
Regardless, there are so many biotech IPOs based on literally zero revenue that this isn't even worth mentioning. Off the top of my head, these are the public biotech companies that I know of that went public with no revenue to speak of: Genentech (yes, THAT Genentech, biggest acquisition in histoty at over $50 billion by Roche), Celgene, and in the last year alone, Axovant Sciences, CytomX, Strongbridge, MyoCardia, RegenX, and Global Blood Therapeutics (I'm almost certain that "in the last year" in actually "in the last few months")
Fantastic comment. Totally agree. Biotech, pharma, you're a zero revenue company until that massively expensive FDA approval comes through. Investors are aware of this, and it is an all or nothing play.
I and several engineers I know had recruiters from Theranos contact us. They would not tell us anything about what we'd be working on, what kind of people we'd work with or how much we'd be paid. Needless to say we were not interested.
On one hand, it is tackling a huge, important market and appears or appeared to have something legitimate.
On the other, so many of its tactics seem designed more to increase valuation than successfully bring its technology to market. It's obscenely celebrity board completely devoid of any relevant experience. A ridiculous $9b valuation on a paltry (relatively) $400m raised. 100s of SKUs on its product list when it should be perfecting on a just a few. The incessant PR campaign around its founder. Giving Jim Cramer an exclusive? Refusing to participate in WSJ article. Spending a whole day with Harvard Fellows. Hiring slick crisis handlers. Threatening whistleblowers. I'm sure the incumbents wouldn't be that excited about a patent-protected entrant into the market but it doesn't seem like they are the ones mounting the attack. It either works or it doesn't right? And it'll be easy to figure that out. Can someone help me out?