Just a few short months ago, the diagnostic testing company Theranos appeared to be at the top of the world: breathless headlines, the CEO on the cover of Fortune magazine. However, over the past week, the news about Theranos has not been good.
The Theranos concept is simple and compelling: a technology that can use just a few drops of blood to test for a wide range of conditions. No needles! No extended blood draws! The company was started about a dozen years ago by Elizabeth Holmes, a visionary Stanford undergrad. What went wrong? Based on news reports (e.g. the Wall Street Journal and the New York Times), it appears that Theranos’ swagger exceeded its substance.
Theranos is most definitely NOT a typical medical technology company:
- A very young, charismatic founder/CEO whose lack of experience could be construed as either a positive (not beholden to hidebound ways) or a negative (what does she know, anyway?)
- A COO with great experience as a software executive, but no health care or med tech background
- A board of directors of composed of high-profile, politically connected individuals, most with no health care or med tech experience
- LOTS of venture funding ($400 million) resulting in an amazing valuation of about $9 billion
- Stealth mode: About a dozen patent applications over the past five years, but a big emphasis on trade secrets. A correlation: no peer-reviewed research on the effectiveness of their technology.
- A science-based company with no scientist on its senior leadership team
What could go wrong? Think about the implications:
- Isolation: Is the technology real or not? Could it be improved with input and feedback? What's the right business model? The more you try to keep secrets, the less you get a robust view of either the technical or market aspects of your business
- Putting the cart before the horse: It was ok for Zappos to start out offering shoes on the web, then buying shoes at a local store when then orders came in. It's also great that General Mills innovation folks test potential products at a “lemonade stand” (when they test-market new foods using pop-up kiosks in public settings). But Theranos has pushed this approach to an extreme: the company implies that consumers coming to their 30-store Wellness Centers partnership with Walgreens are taking advantage of a disruptive technology. But actually, the technology was FDA-approved for only one test, and the rest of the services were performed with competitors’ equipment.
After 12 years of development and mostly positive publicity, it has taken only a couple of Wall Street Journal articles to start a cascade of negative press. This billion-dollar “unicorn” is severely wounded. Consider the damage:
- Disgruntled former employees more than willing to share anonymous tips with the media
- Unannounced visits from the FDA, and an order from the FDA to not use the Theranos’ proprietary technology for blood tests
- Amplification by national media of concerns that have been raised for a while by academic researchers questioning the science behind Theranos’ core technology
- Defensive responses by the company and its lawyers, but no reasoned defense from a respected scientist – either within or outside the company
The sad thing is that there may actually be something to this technology. But, at least for now, Theranos has dug itself a very deep hole.