The media continues to buzz around the downward pressure on Theranos, as the FDA exercises it's authority in service of the people it serves: us. While the FDA can be heavily bureaucratic and has it's own share of critics, the FDA process continues to exist because - it works. We need transparency and peer reviewed studies of medical advancements, including technology and software innovations - before companies and their investors engage in commercialization.

TheranosWith a multi-billion valuation based on solid industrial logic - lowering the cost of blood tests and creating a more competitive environment than currently exists - this Silicon Valley start up lab, valued at $9 billion, allegedly isn’t using its own technology for all the tests it provides. Notwithstanding this revelation brought to the public by four former employees, in a "hot start-up" context, it may be wise for investors and the management team to get a second opinion about some of the basics associated with success in the vibrant life sciences marketplace.

Throwing out a few observations: 

1. Pedigree means not just attending Stanford, but graduating and getting advanced degrees and building a team of the same, including those with significant experience in diagnostics: history shows this is critical to business success and given all the activity going on is likely to be even more critical in the near future.
2. Stealth mode and private funding has a major risk component that seems to have been forgotten - use the FDA process to your advantage and phase your capital.
3. More generally, can we all simply stop drinking the "startups will save the world" koolaid?  They're so trendy right now that people aren't paying attention to reality and need to focus, especially in healthcare, on building highly repeatable high quality low cost easy to use technologies.

Seems pretty basic right?

Here's my reference architecture for healthcare advancement: 

  1. Start with Academic and NGO research.
  2. Move to peer reviewed, confirmed effectiveness and proven repeatability and replication; even the White House has posted on this topic calling for a minimum standard of allowing another group to access data, analyze it using the same methodology and obtain the same result, and a gold standard of replication, repeating studies from start to finish including new data collection and analysis to prove the same result.
  3. Commercialize in a targeted market to start; for eight figures, companies can roll out solutions in countries like Singapore, learn and advance from there.
  4. Scale globally with an increasing focus on consumerization, personalization and home utility.
  5. Save the world.

I applaud Elizabeth Holmes for her vision and for, quite frankly, taking whatever funding she felt made sense for her business. After all, I'm out to make sure a $100 genome happens in my lifetime - or even a $5 genome, around Theranos' $5.35 blood count. Her vision is in the right place, but seems to have outrun the company's ability to work within the context of the FDA, which earlier this week released two heavily redacted reports citing 14 concerns with the biotech startup. The FDA's calls the company's proprietary nanotainer an uncleared medical device. They didn't stop there, and added that the company has been shipping the device across state lines  -- between California, Arizona and Pennsylvania -- making a federal case out of it.

There's a lot to be said for the disruption Ms. Holmes is so passionate about - after all, blood testing we all know is controlled by a few large players including Quest Diagnostics, who reported earnings for the third quarter with adjusted net income of $172 million this year compared to $161 million for 2014.  Their market cap at closing today (adjust if we publish tomorrow) is hovering around $9.5 billion.

Despite all the bad press, Theranos Inc. authorized new shares that would value the laboratory startup at more than $10 billion, a regulatory filing shows. With over $400 million invested so far, and with a few adjustments to strategy and future commercialization, and with intense focus on ensuring repeatability and replication the company could grow beyond the incumbents. The impact for consumers could be massive and positive, once the basics are in place -- enabling a real, sustainable business to emerge.

For more background on Theranos, see my piece with Steve Dickman on Xconomy.com: Stealth Mode is the New Sweet Spot for Some Biotechs