Theranos-aurus Wrex

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In my former life I analysed a Japanese company called Sysmex which deals in rapid blood testing equipment for hospitals and clinics. One question that was often put to me by clients and my colleagues at the time was that of the threat of Theranos, a Silicon Valley start up which was worth $9bn and had a star studded board which included Henry Kissinger, George Schultz and Bob Shapiro. Oracle’s Larry Ellison was a backer.

My initial thought was that Theranos’ business model was interesting but like many start ups, commercialisation and acceptance by doctors/regulators was always going to get in the way. The main driver of the business model was cheap blood tests with a sliding price scale. Instead of getting a $300 comprehensive run of all your blood work, a doctor would tell you what he needed to see in your blood work to determine why you had a cold or potentially diabetes and you would head to a Walgreens, go to the back where a Theranos booth was and pay $40 to get the blood work customised for what you needed only.

The issue for me on Theranos was ‘trust’. Not so much on Theranos but the risks to medical professionals. To me the problem was switching costs for doctors. Faced with malpractice lawsuits, doctors, especially in America, do not want to take risks. Theranos hadn’t got the green light from the regulators. Potential yes, but like so many start ups, the problem is always execution. It seems that Theranos had exaggerated its connections with big pharma companies and its laboratories were staffed by inexperienced employees. The FDA concluded patient lives were in danger and banned Theranos from blood testing.

Of course the company is confident it can succeed in the miniLab platform but the blood testing market is densely populated by big players and small. The next big thing in blood testing is liquid biopsies. Doctors will be able to test cancer treatment efficacy in real time rather than send results away for analysis. Sysmex is moving into this area and Johnson & Johnson is already in the market place with a product.

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