Theranos: Small Sample, Big Opportunity
Los Angeles, CA June 20th 2014 – Silicon Valley is no stranger to revolutionary start-up companies with lofty valuations and visionary leaders, so it only made sense when Fortune magazine revealed Theranos, with its 30-year old founder and CEO Elizabeth Holmes, sits firmly on the growing list of billionaire start-ups. Frequently compared to the late Steve Jobs, Holmes displays the same focused stare and grand vision (not to mention wardrobe) of the Apple co-founder causing many to refer to Theranos as “healthcare’s answer to Apple”. In the lens of Silicon Valley, Theranos is no anomaly. With an estimated ~$400 million in VC funding, the company and its $9 billion valuation is far from shocking considering the values demanded by other disruptive companies such as Uber and Airbnb (See Figure 1: “Silicon Valley Companies”). However, when compared to the most disruptive companies in healthcare over the past decade, many questions can be raised on the rationale behind Theranos’ valuation (See Figure 1: “Biotechnology Companies” ). Though it is not uncommon for large healthcare companies to acquire vibrant young technology companies, Theranos seems to stand in a world of its own. For now, it remains to be seen whether Theranos can truly deliver on its promise and revolutionize the laboratory diagnostics market. Below I have highlighted my recent experience as a patient at a Theranos Wellness Center. DeciBio’s profile of Theranos, analyzing the company and its market opportunity, will be available in the fall of 2014.
As a long time medical technology enthusiast, I recently took the opportunity to visit a Theranos “wellness center” in my hometown of Scottsdale, AZ. With $100 lab credit and a physician’s order form, I eagerly arrived at the Walgreens located at 6501 E. Greenway Parkway. This particular location, which officially opened its Theranos operation in November 2013, marked the first national expansion of Theranos Wellness Centers to Walgreens outside of the Palo-Alto region. Today, the company is represented at 20 locations around the Phoenix area, with future plans of expansion throughout the nearly 8,200 Walgreens drugstores nationwide.
Countless banners displaying statements such as “welcome to a revolution in lab testing” and “one tiny drop changes everything” were spread throughout the store making it immediately clear that I had arrived at the right place. After checking in with the pharmacy technician, I was escorted into a separate room designated by the Theranos’ sea-foam green logo where I was greeted by a Theranos-employed phlebotomist. Whether it was due to the quantity of tests (7 tests) or the particular tests I ordered, I was quickly informed that I would be receiving a standard blood draw for my first visit. To my surprise, only 75-80% of patients receive the finger stick method, while the remaining 20-25% require a standard blood draw. The company’s goal to expand nationally relies upon the ability to integrate within the infrastructure of existing Walgreens’ drugstores, a feat made difficult by the need for a trained phlebotomist to serve a specific group of test orders. While the company currently offers more than 200 blood diagnostic tests, the internal assay development team is working to expand this menu to include over 1,000 of the most commonly ordered tests at their CLIA laboratory located in Palo Alto, CA.
In addition to my own blood draw, I stayed to observe the highly publicized finger stick, a staple of the start-up’s competitive appeal over established companies like LabCorp or Quest. It was here that the charm of Theranos became more obvious. Rather than a phlebotomist, a Walgreens pharmacy technician is easily able to perform the “nanotainer” blood collection steps, a testament to the simple and integrated workflow system developed by Theranos. Blood collection kits are provided to the technician, which include alcohol swabs, a warm compress, a finger stick, and a “nanotainer” (kept separately in a fridge). After scanning and labeling the sample tubes, the pharmacy tech begins the simple process as follows: apply warm compress to finger, clean the finger with alcohol swabs, massage blood towards the tip of the finger, stick the finger using one of 3 prick sizes (purple = small, pink = mid-size, blue = large), collect blood. The “nanotainer” which collects only a few drops of blood via capillary action, has continuously been an attractive marketing tool for Theranos, inflating the nano-sized tube with a larger than life persona. These samples are then stored in the fridge until a courier system can transport them to the CLIA certified lab in Palo Alto, where proprietary platforms allow the company to run traditional tests on 1/100th to 1/1000th of the ordinary volume. My results were emailed to my physician the following day.
There is no doubt that Theranos has done an immaculate job at marketing itself. The “cool without trying” image makes customer’s feel like they would be foolish not to appreciate the company’s genius. Reminded of the mythological lotus-eaters, one can hardly escape the overwhelming allure of Theranos, a feeling all too familiar due to the rise of Apple driven by similar marketing efforts. However, it remains to be seen whether Theranos will be able to overcome both technical and market barriers in their effort to convert physicians to this method of lab testing. While the initial feeling was not dissimilar to any other trip to a convenience store, there was something rather exciting about being at one of the few hubs for this self-proclaimed “revolution” and appreciating that this could be an instrumental piece in shaping the future of healthcare. Theranos is positioned to enable patients to take control of their health and make regular monitoring as commonplace as a trip to the neighborhood store.
Check-back in September to read DeciBio’s full report on Theranos.