5 ms·

I don't know what to think of Theranos. On one hand, it is tackling a huge, important market and appears or appeared to have something legitimate. On the othe

by pbreit 11y ago

I don't know what to think of Theranos. On one hand, it is tackling a huge, important market and appears or appeared to have something legitimate. On the other, so many of its tactics seem designed more to increase valuation than successfully bring its technology to market. It's obscenely celebrity board completely devoid of any relevant experience. A ridiculous $9b valuation on a paltry (relatively) $400m raised. 100s of SKUs on its product list when it should be perfecting on a just a few. The incessant PR campaign around its founder. Giving Jim Cramer an exclusive? Refusing to participate in WSJ article. Spending a whole day with Harvard Fellows. Hiring slick crisis handlers. Threatening whistleblowers. I'm sure the incumbents wouldn't be that excited about a patent-protected entrant into the market but it doesn't seem like they are the ones mounting the attack. It either works or it doesn't right? And it'll be easy to figure that out. Can someone help me out?

pen2l 11y ago
It is putting a lot of effort on PR. I went to https://www.theranos.com/ https://www.theranos.com/ for curiosity's sake, and was surprised to see that... well, the big center image has absolutely nothing to do with Theranos' technology, it's about "empowering women" (which is of course a laudable effort). My best guess is this is just 'fake it till you make it'. If they've got a 9 bil valuation, at least they can hire some smart folks who would otherwise be unhappy in proper academia. Maybe they're on to some technology and we will see that pivot soon.
- user_001 11y ago
  Not sure if you noticed, it's a carousel, the second slide mentions FDA clearance, the third mentions about the CLIA waiver.
  - pen2l 11y ago
    They got FDA clearance for JUST ONE test, the herpes one. It's not clear if it'll work for the many hundred others, as Theranos has suggested it can.
    - user_001 11y ago
      Sure, it's a start. We would have to just wait & watch.
akiselev 11y ago
I am on board with your skepticism, but I don't believe your concerns are valid in the context of what Theranos is promising and what they have done ($400 million is nothing to scoff at in an industry where you have $0 revenue until a real breakthrough passes the FDA). The global pharmavertical industry is about $900 billion a year and has a very wide variance in types of products so the normal idea of what what value a "celebrity" is worth is very different. If you're a biotech company whose most likely exit is an aquisition by Pfizer or Roche, you want industry insiders. If you're like Theranos, and your business depends on consumer spending at places like Walgreens, you're so far out of the normal pharmaceutical and diagnostic industry that all bets are off. Several hundred million for an IPO biotech company on ZERO revenue post dotcom crash is common enough that $9 billion valuation (25 times revenue) is damn good. There are literally thousands, if not tens of thousands, of labs that can run an off site (for the consumer) screening for every one of Theranos' target markers. The idea that anyone would invest hundreds of millions into a diagnostic company without compelLing secret sauce is troubeling. I don't doubt that VC firms make mistakes as silly as the rest of us, but I prefer to give the benefit of the doubt assuming semi-competent due dilligence. That said, no VC firm in their right mind would ever invest in a company like Theranos if it had only a few SKUs. It is practically impossible (with current technology) to come up with a generalized test that identifies anything more precise than "gram negative bacteria." Either Theranos is a pump and dump scam of epic proportions or they really do have some technological superiority that allows them to convert expensive lab tests into a consumer technology. As far as the other red flags, you'll usually find the same intrigue surrounding most successful biotech companies. When your operating at the cutting edge of the most difficult scientific field in the most stringent regulatory environment on the planet, you have to take more shortcuts than usual.
- d_welsman 11y ago
  Fantastic comment. Totally agree. Biotech, pharma, you're a zero revenue company until that massively expensive FDA approval comes through. Investors are aware of this, and it is an all or nothing play.
- cycrutchfield 11y ago
  Uh, 25x revenue? Are you conflating money raised with revenue? Because Theranos has not made anywhere close to 400m over the entire life of their company...
dbcooper 11y ago
George Church [1] said the following about their board: http://www.washingtonpost.com/news/wonkblog/wp/2015/10/15/the-wildly-hyped-9-billion-blood-test-company-that-no-one-really-understands/ http://www.washingtonpost.com/news/wonkblog/wp/2015/10/15/th... "Usually such deficits in the board of directors would be offset by an equally stellar scientific advisory board and/or medical advisory board," Church said in an e-mail. "I don't see either for Theranos." [1] https://en.wikipedia.org/wiki/George_M._Church https://en.wikipedia.org/wiki/George_M._Church
adventured 11y ago
Beyond the things you point out, my biggest point of skepticism on Theranos is its business and the potential value of it. Lab Corp is worth $11 billion. With $6 billion in sales (and having generated ~$1.6 billion in profit over the last three years). The market Theranos is tackling is not as huge as some people apparently would like to think. Lab Corp is a monster in the field, and they're merely doing $11 billion. It's not an Uber situation, where a company blindsides an entire industry, and that industry stands still - Lab Corp has the resources and scale to respond to anything Theranos can do. In the perfect scenario, Theranos is doing little more than pulling at least a decade of future returns forward at a $9 billion valuation. There's nothing they can do that will generate $6 billion in sales in the next five or six years. Their business model is partially built on neutering the high margins that companies like Lab Corp enjoy.
- dbcooper 11y ago
  Abaxis (manufacturers of the "Piccolo" systems, which seem to be lab-on-disc based and offer point-of-care operation) are an interesting company to compare to Theranos. They seem to be able to perform small panels of assays (up to 14) on 100 µL samples [1] obtained by venipuncture.[2] They are valued at $880M, and had ~ $200M revenue and $27M profit in the last financial year. http://www.abaxis.com/about_us/history.html http://www.abaxis.com/about_us/history.html [1] http://www.piccoloxpress.com/products/panels/function/ http://www.piccoloxpress.com/products/panels/function/ [2] http://www.piccoloxpress.com/wp-content/uploads/2015Revisions/400-7139-1RevP-ComprehensiveMetabolicReagentDisc.pdf http://www.piccoloxpress.com/wp-content/uploads/2015Revision...
  - AndrewKemendo 11y ago
    They are valued at $880M, and had ~ $200M revenue and $27M profit in the last financial year. If they were in startup world those numbers would probably make them over $1BN in valuation.
    - pbreit 11y ago
      Only if they are growing rapidly.
cavisne 11y ago
Reading through the press and Theranos response it's certainly ... weird. My theory, assuming they aren't outright committing fraud. The technology works, at least within a tolerance they think is reasonable. It's possible that early scientific staff (part of the huge turnover commented elsewhere) weren't happy with that tolerance. Now they are in the process of getting FDA approved. At the same time Theranos is also following a Silicon Valley strategy, building an audience with a loss leading product. In this case it's doing blood tests at a price well below cost, using normal lab equipment, and covering the difference with VC money. They dont want to admit this for two reasons 1) It exposes them to the competition, who know they are losing money on every transaction and it also would make doctors and patients wary of dealing with them 2) As discussed in the WSJ article taking less blood and using normal machines just means a less accurate blood test, which makes the benefit of not getting a needle much smaller and messes with their core marketing message I think this also explains the directive discussed in WSJ to only submit sample results from normal lab equipment, as at the moment they are simply operating as a normal lab. I think this is a clash between staff who think Theranos was all about creating a reliable way of doing blood tests with less blood, and the current direction they are taking building scale with traditional equipment.
deleted 11y ago
[deleted]
meatysnapper 11y ago
I and several engineers I know had recruiters from Theranos contact us. They would not tell us anything about what we'd be working on, what kind of people we'd work with or how much we'd be paid. Needless to say we were not interested.

by pbreit 11y ago

pen2l 11y ago

It is putting a lot of effort on PR. I went to https://www.theranos.com/ https://www.theranos.com/ for curiosity's sake, and was surprised to see that... well, the big center image has absolutely nothing to do with Theranos' technology, it's about "empowering women" (which is of course a laudable effort). My best guess is this is just 'fake it till you make it'. If they've got a 9 bil valuation, at least they can hire some smart folks who would otherwise be unhappy in proper academia. Maybe they're on to some technology and we will see that pivot soon.

user_001 11y ago
Not sure if you noticed, it's a carousel, the second slide mentions FDA clearance, the third mentions about the CLIA waiver.
- pen2l 11y ago
  They got FDA clearance for JUST ONE test, the herpes one. It's not clear if it'll work for the many hundred others, as Theranos has suggested it can.
  - user_001 11y ago
    Sure, it's a start. We would have to just wait & watch.

akiselev 11y ago

I am on board with your skepticism, but I don't believe your concerns are valid in the context of what Theranos is promising and what they have done ($400 million is nothing to scoff at in an industry where you have $0 revenue until a real breakthrough passes the FDA). The global pharmavertical industry is about $900 billion a year and has a very wide variance in types of products so the normal idea of what what value a "celebrity" is worth is very different. If you're a biotech company whose most likely exit is an aquisition by Pfizer or Roche, you want industry insiders. If you're like Theranos, and your business depends on consumer spending at places like Walgreens, you're so far out of the normal pharmaceutical and diagnostic industry that all bets are off. Several hundred million for an IPO biotech company on ZERO revenue post dotcom crash is common enough that $9 billion valuation (25 times revenue) is damn good. There are literally thousands, if not tens of thousands, of labs that can run an off site (for the consumer) screening for every one of Theranos' target markers. The idea that anyone would invest hundreds of millions into a diagnostic company without compelLing secret sauce is troubeling. I don't doubt that VC firms make mistakes as silly as the rest of us, but I prefer to give the benefit of the doubt assuming semi-competent due dilligence. That said, no VC firm in their right mind would ever invest in a company like Theranos if it had only a few SKUs. It is practically impossible (with current technology) to come up with a generalized test that identifies anything more precise than "gram negative bacteria." Either Theranos is a pump and dump scam of epic proportions or they really do have some technological superiority that allows them to convert expensive lab tests into a consumer technology. As far as the other red flags, you'll usually find the same intrigue surrounding most successful biotech companies. When your operating at the cutting edge of the most difficult scientific field in the most stringent regulatory environment on the planet, you have to take more shortcuts than usual.

d_welsman 11y ago
Fantastic comment. Totally agree. Biotech, pharma, you're a zero revenue company until that massively expensive FDA approval comes through. Investors are aware of this, and it is an all or nothing play.
cycrutchfield 11y ago
Uh, 25x revenue? Are you conflating money raised with revenue? Because Theranos has not made anywhere close to 400m over the entire life of their company...

dbcooper 11y ago

George Church [1] said the following about their board: http://www.washingtonpost.com/news/wonkblog/wp/2015/10/15/the-wildly-hyped-9-billion-blood-test-company-that-no-one-really-understands/ http://www.washingtonpost.com/news/wonkblog/wp/2015/10/15/th... "Usually such deficits in the board of directors would be offset by an equally stellar scientific advisory board and/or medical advisory board," Church said in an e-mail. "I don't see either for Theranos." [1] https://en.wikipedia.org/wiki/George_M._Church https://en.wikipedia.org/wiki/George_M._Church

adventured 11y ago

Beyond the things you point out, my biggest point of skepticism on Theranos is its business and the potential value of it. Lab Corp is worth $11 billion. With $6 billion in sales (and having generated ~$1.6 billion in profit over the last three years). The market Theranos is tackling is not as huge as some people apparently would like to think. Lab Corp is a monster in the field, and they're merely doing $11 billion. It's not an Uber situation, where a company blindsides an entire industry, and that industry stands still - Lab Corp has the resources and scale to respond to anything Theranos can do. In the perfect scenario, Theranos is doing little more than pulling at least a decade of future returns forward at a $9 billion valuation. There's nothing they can do that will generate $6 billion in sales in the next five or six years. Their business model is partially built on neutering the high margins that companies like Lab Corp enjoy.

dbcooper 11y ago
Abaxis (manufacturers of the "Piccolo" systems, which seem to be lab-on-disc based and offer point-of-care operation) are an interesting company to compare to Theranos. They seem to be able to perform small panels of assays (up to 14) on 100 µL samples [1] obtained by venipuncture.[2] They are valued at $880M, and had ~ $200M revenue and $27M profit in the last financial year. http://www.abaxis.com/about_us/history.html http://www.abaxis.com/about_us/history.html [1] http://www.piccoloxpress.com/products/panels/function/ http://www.piccoloxpress.com/products/panels/function/ [2] http://www.piccoloxpress.com/wp-content/uploads/2015Revisions/400-7139-1RevP-ComprehensiveMetabolicReagentDisc.pdf http://www.piccoloxpress.com/wp-content/uploads/2015Revision...
- AndrewKemendo 11y ago
  They are valued at $880M, and had ~ $200M revenue and $27M profit in the last financial year. If they were in startup world those numbers would probably make them over $1BN in valuation.
  - pbreit 11y ago
    Only if they are growing rapidly.

cavisne 11y ago

Reading through the press and Theranos response it's certainly ... weird. My theory, assuming they aren't outright committing fraud. The technology works, at least within a tolerance they think is reasonable. It's possible that early scientific staff (part of the huge turnover commented elsewhere) weren't happy with that tolerance. Now they are in the process of getting FDA approved. At the same time Theranos is also following a Silicon Valley strategy, building an audience with a loss leading product. In this case it's doing blood tests at a price well below cost, using normal lab equipment, and covering the difference with VC money. They dont want to admit this for two reasons 1) It exposes them to the competition, who know they are losing money on every transaction and it also would make doctors and patients wary of dealing with them 2) As discussed in the WSJ article taking less blood and using normal machines just means a less accurate blood test, which makes the benefit of not getting a needle much smaller and messes with their core marketing message I think this also explains the directive discussed in WSJ to only submit sample results from normal lab equipment, as at the moment they are simply operating as a normal lab. I think this is a clash between staff who think Theranos was all about creating a reliable way of doing blood tests with less blood, and the current direction they are taking building scale with traditional equipment.

deleted 11y ago

[deleted]

meatysnapper 11y ago

I and several engineers I know had recruiters from Theranos contact us. They would not tell us anything about what we'd be working on, what kind of people we'd work with or how much we'd be paid. Needless to say we were not interested.