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Theranos

feynmanresearch

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UNF2007 Rookie

UNF2007

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http://www.wsj.com/articles/at-theranos-many-strategies-and-snags-1451259629

http://www.businessinsider.com/theranos-wsj-report-on-allegedly-doctored-tests-2015-12

http://www.businesswire.com/news/home/20151229005120/en/Hagens-Berman-Announces-Investigation-Theranos-Relating-Representations

http://www.nytimes.com/2015/12/20/business/theranos-founder-faces-a-test-of-technology-and-reputation.html

Diamandis, E. (2015). Theranos phenomenon: promises and fallacies. Clinical Chemistry and Laboratory Medicine (CCLM), 53(7), pp. 989-993. Retrieved 30 Dec. 2015, from doi:10.1515/cclm-2015-0356

 

Articles I have read recently about it. I think the whole thing is a fraud.As a doctor I was hoping that it would not be (mainly due to the cost implications), but have been skeptical from the beginning. As I understand from the articles her family was well connected, Timothy Draper was a family friend, obviously having a startup with someone like that in your court is big. Also they had connections to political figures through her family, hence the board. Once you get enough forward momentum behind an idea, people jump on the bandwagon. If you go back people in the scientific community were raising questions about this way before all the negative press came about.

 

The other thing that irks me is her push to have people go and test themselves without a physician or equivalent order. This is absurdity in my opinion, but I can see the appeal to the public. Here is the thing people don't know, most of the lab tests have error ranges that make it desirable to not test unless there is a strong clinical suspicion for something, which increases the pretest probability. Most doctors I know will not run massive lab panels just to check, because the chances are you will detect some minor abnormality which then obligates further testing, money and risk.

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ATLValue Newbie

ATLValue

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In 2013 as an owner of Quest Diagnostics I began digging into Theranos. Given the big splash that Theranos was making at the time we wanted to see if the Company poised a threat to lab testing industry. I had two questions that I was looking to solve through my research, 1) could their smaller machine that they developed displace the established large lab duopoly (Quest and LabCorp) and 2) how much different were the prices from traditional competitors.

 

1) At the time I had no reason to doubt that their proprietary Edison machines functioned the way that they seemed to be claiming. Now we know that the machine does not work for the vast majority of tests. It remains to be determined if they can get the machine to work before their funding runs out.

 

2) If you compare Theranos's price points with the price of tests AFTER insurance discounts they were really just about the same. I took a sample of the Theranos listed prices and compared them to an Aetna price list which included insurer negotiated discounts and the difference was about 3% lower for Theranos, far different from the drastic price differences that they claimed on their website.

 

Theranos is a business that seems to have skirted the line of the truth. I don't think they committed outright fraud but they certainly didn't do anything to dampen the media excitement that was building around their business and proprietary technology....Then again I don't have any idea what they were telling investors during their last funding round.

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  • 3 months later...
Graham Osborn Newbie

Graham Osborn

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I've been following Theranos mostly as a proxy for the biotech IPO market, so I don't have intimate knowledge about their technology or regulatory filings.  In terms of the business model, I think the underestimated the number of regulatory and marketplace barriers to entry.  For starters, thinking they could get approval for all lab tests with a single nano platform was naive.  Now they are having to submit a mountain of applications (each of which is quite costly and can take a while to be approved) to maintain the "platform" image.  I think they also underestimated the amount of comp-testing for each blood test to ensure the results would match the big labs.  Labcorp etc have had decades to work out the kinks for each test, and as a physician myself I know they still suck at it (however, they've already been approved to perform the tests).  And the big labs have every incentive to not to cooperate on the comp-testing.  Most importantly, I think early investors had some unrealistic assumptions about adoption rates by big partners like Walgreens.  Again, I think the amount of regulatory uncertainty was vastly overestimated.  This placed the company in a tight squeeze between keeping investors, regulators, partners, and early customers happy as the original strategy (on which millions had been spent) proved increasing unrealistic.  In the midst of that tension, it is possible corners were cut to service partners.  Like the platform companies of the late 90s, Theranos has found that monetizing a biotech platform is very difficult.

 

Fundamentals aside, I think Theranos has been a victim of the healthcare/ biotech reversal since last summer.  VCs are seeing the IPO market drying up and starting to fear down rounds, which means they are getting much more critical.  Reflexively, these are the times when attention gets drawn to the flaws in pharma/ biotech business models, which attracts regulators' attention.  Valeant, Schkreli, and Theranos are good examples of this.  And because approval kinetics features so prominently in the future cash flows of the biotech companies, the prophecy becomes self-fulfilling.

 

My guess is the company survives and ultimately succeeds as the best platform companies did in the tech bubble buy specializing their business models and ultimately getting acquired by larger competitors.  But I am guessing Elizabeth Holmes will be worth far less than 4.5 billion in a few years.

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berkshire101 Newbie

berkshire101

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Aren't you missing the forest for the trees here? The point isn't that the regulatory burden was too heavy. The point is that their tech doesn't work. Even within their own allowable variances!

 

Has anyone even seen the technology in person to be sure that it even exists?!

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merkhet Newbie

merkhet

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Aren't you missing the forest for the trees here? The point isn't that the regulatory burden was too heavy. The point is that their tech doesn't work. Even within their own allowable variances!

 

Has anyone even seen the technology in person to be sure that it even exists?!

 

The WSJ reporter has seen the tech. It exists. It just doesn't work. As I posted on Twitter, it's a good idea that they have a bunch of non-medical board members -- specifically, super-lawyer David Boise -- because Theranos is going to have to tap his expertise going forward.

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Graham Osborn Newbie

Graham Osborn

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Aren't you missing the forest for the trees here? The point isn't that the regulatory burden was too heavy. The point is that their tech doesn't work. Even within their own allowable variances!

 

Fair enough.  I didn't have time to read the WSJ article this morning but just did.  If their account is accurate it does seem like the internal variability is much higher than conventional.  If that issue, and not the delay of preparing separate applications for each blood test, is the reason only the herpes test has been run with Edison, I would say the company's statements up to this point have been fairly misleading.  Even if they've fixed the problem, it's going to be tough to regain trust in the medical community after being openly derided by the medical director of pathology at Vanderbilt.  Advice to company - stop mucking around and apologize.

 

Next stop in the land of unicorns - Uber Financing ;)

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Graham Osborn Newbie

Graham Osborn

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Ms Holmes mistakenly thought that being secretive and wearing a turtle neck will make her a Steve Jobs.

 

She was wrong - she became a billionaire at age 31 whereas Jobs made it at age 40 (earlier inflation adjusted).  Interestingly, both achieved that milestone in tech bubbles - 1995 and (to a lesser extent) 2015 respectively.  The golden age of American entrepreneurship yea verily.  Nowadays if you want to do that you'll need to learn Mandarin and move to Shenzhen.

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oddballstocks Newbie

oddballstocks

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Here's a completely different angle on this...

 

The BOD is filled with politicians and ex-military guys.  Her dad is in the CIA.  Is it possible that the story we see here isn't the 'real' story of the company?  Is there a government/military industrial complex type tie-in that isn't public that we don't see?  The only oddity or inconsistency to this story is if this were true then why go after VC money?  Why not fat government contracts?  Maybe whatever they're developing hasn't been proven, but once it is the contracts roll in?

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  • 2 weeks later...
randomep Contributor

randomep

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Let's reopen this poll.  :D

 

Well "fraud" is such a strong word.  My image of fraud is some company tossing the blood specimen into the garbage and randomly generating a result. I doubt anyone here suggests they are doing that.

 

However, I do believe that $9B just went poof.  I doubt any other company would want their technology or patents.  I definitely believe they cannot make a profit, now the question is, what can the investors recover from the hundreds of millions that they've invested.

 

I imagine background to this story is probably similar to the big short. Who chose this startup for investment? Someone who says I don't take the risk in this (like Wing Chau in the movie).  Who paid for the investment? Maybe some pension fund in California or Germany. (Lipperman always answers some dumb bank in Germany is taking the other side of the trade).  They are the product of the push for alternative investments and yield.  When there is such a supply of easy money, they will attract smart people pretending to be the next Steve jobs like flies to sh*t. 

 

Steve jobs had to prove himself toiling in a garage in Palo Alto.  Now to get hundreds of millions of dollars you don't have to have a proven product, you just have to do a sell job. So the game changes from showing substance to who has the greatest appearance of substance.  In this environment, such investors will definitely suffer with below average yield.  This cycles repeats over and over.

 

 

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Graham Osborn Newbie

Graham Osborn

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Let's reopen this poll.  :D

 

Well "fraud" is such a strong word.  My image of fraud is some company tossing the blood specimen into the garbage and randomly generating a result. I doubt anyone here suggests they are doing that.

 

However, I do believe that $9B just went poof.  I doubt any other company would want their technology or patents.  I definitely believe they cannot make a profit, now the question is, what can the investors recover from the hundreds of millions that they've invested.

 

I imagine background to this story is probably similar to the big short. Who chose this startup for investment? Someone who says I don't take the risk in this (like Wing Chau in the movie).  Who paid for the investment? Maybe some pension fund in California or Germany. (Lipperman always answers some dumb bank in Germany is taking the other side of the trade).  They are the product of the push for alternative investments and yield.  When there is such a supply of easy money, they will attract smart people pretending to be the next Steve jobs like flies to sh*t. 

 

Steve jobs had to prove himself toiling in a garage in Palo Alto.  Now to get hundreds of millions of dollars you don't have to have a proven product, you just have to do a sell job. So the game changes from showing substance to who has the greatest appearance of substance.  In this environment, such investors will definitely suffer with below average yield.  This cycles repeats over and over.

 

I think you're right that when VC gets bubbly you get kind of a pyramiding misalignment of incentives the way you got with MBS/ CDOs and the megabanks, although the size of the anomaly is orders of magnitude smaller and the ecosystem much simpler.  Nonetheless there is still kind of a hierarchy of early-stage/ mid-stage/ late-stage VC firms feeding off deals to mutual funds, hedge funds and Wall Street banks.  Every assumes the next guy in the chain is always going to be there.  Being a revenue-generating company trying to scale under VC pressure is bad enough - trying to do product development under such conditions (which is most biotech until the product is approved) is far worse.  The problem is this scandal is paralyzing the later stages of the market in biotech/ medtech/ tech generally.  The pace of hiring in Silly Valley has slowed considerably.  When that happens you get more direct strategic acquisitions with fewer middlemen - which means fewer markups and generally lower valuations.

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  • 2 years later...
Cigarbutt Community Regular

Cigarbutt

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“Elizabeth sees herself as the victim”...

In 2015 when facing reasonable questions:"First they think you're crazy, then they fight you, then you change the world."

Kudos to John Carreyrou because it must have been, at the time, very hard to question the conventional and rhetorical wisdom.

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