Theranos is in trouble, and it’s difficult to see how the company can survive recent events. While it’s pretty obvious that bad company practices and a lack of proof of concept are to blame for Theranos' problems, the fallout could be evident of a bigger issue at hand, namely the practicality of medical startups.
More Money, More Problems
Founded 13 years ago by CEO Elizabeth Holmes, Theranos’ selling point is an efficient hand-held blood-testing device. Holmes dropped out of college at the age of 19 to start the company, which in the years since has generated the same kind of media attention normally given to tech giants like Facebook and Google.
The device, known as the Edison, claims to require just a few drops of blood to complete tests, making it far more efficient than the traditional venipuncture method. This apparent advance in diagnostic technology made a lot of people very excited, and the company received heavy investment over the years resulting in a 2016 company valuation of USD 9 billion. The In Vitro diagnostics market is forecast to be worth USD 81.3 billion by 2022, a market Theranos was expected to dominate. So far so good.
But the company’s reluctance to publish test results in peer reviewed biomedical journals, and the general level of secrecy surrounding its technology led to more than one person questioning the feasibility of Holmes’ goal. Cracks started to appear last October when The Wall Street Journal reported how the Edison device might provide inaccurate results. The Food and Drug Administration (FDA) ordered Theranos to limit its use of the Edison to just one of the 240 tests the company offered, causing further problems. Following this, the US Military suggested further investigation by the FDA, Walgreens and Safeway cancelled their corporate partnerships, and the Centers for Medicare and Medicaid Services (CMS) threatened to close Theranos’ Californian lab due to ‘immediate jeopardy to patient safety’. Regulators requested the correction of a number violations of clinical standards, something Theranos appears to have failed to do.
Last week saw CMS health regulators proposing a ban on Holmes and President Sunny Balwani, preventing either from owning or operating laboratories for at least two years. The CMS also suggested the removal of the Californian lab’s federal license. Regardless of the outcome of last week’s incident, it’s safe to say that Theranos is facing a rocky future in the diagnostics industry.
A Bad Start
The American medical industry requires new companies to prove the quality of their products using a long established method. A new therapy or technology intended for mass usage must be proven safe, effective and fit for purpose through a series of trials. In addition to this, new therapies and technologies are extensively reviewed by the medical community in the various periodical journals published by the industry. The process can take years to complete but its purpose is to prove a product’s safety and to generate confidence among investors. Technology and therapy tests are often very demanding and expensive for the proprietor, but the cost is justified if the products are deemed fit for public use.
Theranos’ valuation of USD 9 billion was big news for the healthcare industry. Many people saw it herald a new age for medical startups, one in which companies didn’t require journal reviews to win over investors and where visionaries could pursue innovative medicines without the approval of governmental bodies. However, this was not meant to be.
The startup platform is ideal for industries like computing and telecommunication, who generally operate free from fear of regulation, but is a difficult venture for healthcare and medicinal companies. While investors in every industry face financial risk, nothing is as risky as funding a medical product that could potentially cause more harm than good, such as a blood-testing device that gives inaccurate results. This is why the traditional route for pharmaceuticals and health-technology companies is a better option, as draconian as it may be at times. Stringent rules and regulations ensure clinical standards are adhered to and patient safety is maintained, while journal reviews guarantee device and drug competency.
Theranos’ gamble to venture outside the playing field may have secured its impressive funding, but at the cost of a product that actually works. The CEO and President face hefty bans, the company’s Californian lab could be closed and it’s hard to imagine the company ever recovering from the past seven months. Would things have been different had Holmes decided to take the traditional route? Possibly, although the lack of test results suggests the company wouldn’t have made it very far.
A Better Future
It’s hard to take anything positive from the Theranos fiasco, but perhaps it will serve as a strong warning to medical startups. The traditional route to therapy and technology approval may be long, costly and tiresome, but it ensures a product is fit for public use and presents no danger to patients. While Holmes may be honest in her intentions to develop a simple solution to this common medical practice, the task has evidently been more challenging than she expected. 13 years, USD 9 billion and virtually zero results later, it’s difficult to see Theranos as nothing more than a very expensive goose chase.
Stay up-to-date with the latest market developments, trending news stories and industry advances with the Research and Markets blog. Don’t forget to join our mailing list to receive alerts for the latest blog plus information about new products.