In June 2014, shortly before Theranos stepped into the spotlight with a cover story in Fortune magazine, I booked a flight to Phoenix to visit one of the first Theranos Wellness Centers to see for myself whether this company truly represented a “revolution in lab testing” as it claimed. I eagerly anticipated receiving the highly marketed blood test that requires only a single drop of blood.
Contrary to the finger-stick I was expecting, I was informed that my test would require a standard blood draw by venipuncture. Rather than “one tiny drop changing everything," it was three vials of blood and two days before I received my lab results. The test was more or less the same as any traditional test I had received from competitors Quest and LabCorp. I was disappointed.
This experience led me to ask an important question that is now being raised publicly in light of Carreyrou’s article: If Theranos can’t deliver on its technology, does the company still have value?
The answer is yes.
Theranos’s efforts to embrace the inevitable changes occurring in health care and to democratize patient health information are a catalyzing force in an industry in need of fresh innovation. The company is building its foundation with the future in mind — a future characterized by transparency and engagement with patients.
When Theranos chose to publish its entire list of test prices online, with average prices set at half the Medicare reimbursement rates, the public took notice. In reality, the difference in price was less an effect of Theranos’s technological innovations and more a product of Medicare overpaying for many of these procedures. The fundamental problem is that patients have no sense of the true cost of a routine blood test. Historically, lab processes and prices have remained opaque as it provided the advantage that labs can charge varying prices to different insurers for the same tests, a practice known as price discrimination. With the introduction of policies such as the Protecting Access to Medicare Act (PAMA) of 2014, insurers are attempting to establish more transparency in payments and Theranos is embracing this change.
Examples such as this are not limited to reimbursement but span every facet of the health-care industry. While traditional labs are resisting impending Food and Drug Administration regulation of lab-developed tests, Theranos has taken steps to welcome scrutiny and seek clearance for its tests. In a health-care environment in which insurers, providers and labs are consolidating to increase their own power, Theranos is giving power to patients. Despite the existence of incumbent labs with deep pockets and political connections, this start-up effectively passed the most democratizing law for patient testing to date — no doctor’s note required.
The downside of this strategy is that in its efforts to market directly to consumers, Theranos has created inflated expectations on which it currently cannot deliver. With a valuation more aligned with Silicon Valley tech start-ups (e.g., Uber) than innovative diagnostic companies (e.g., BioFire Diagnostics), Theranos has given the impression that it is the “Apple of health care,” which is reinforced by its founder’s Jobsian visage. However, health care appropriately has a culture of checks and balances, peer review, and regulation that differs tremendously from the technology industry. It is not as simple as updates and iterations.
Granted, if my own experience and Carreyrou’s article are any indication, Theranos is still very early in its development. Significant investment in research and development efforts will have to continue to enable the technology to mature. The company cannot run a finger-stick on all patients, results occasionally vary in range and accuracy, and it will probably experience an uphill battle as it now faces FDA audits. As a whole, it is unlikely that physicians will switch to Theranos without proper validation. For consumers wondering when Theranos will arrive in your city, this is a distant prospect. Nonetheless, the value is that Theranos has engaged patients in laboratory testing, a part of the health experience in which people otherwise have shown no interest.
In health care, preparing for the future has meant consolidating and holding onto traditional revenue streams. Yet Theranos has demonstrated that building the future means embracing new models with patients as consumers. In regards to its “disruptive” technology, the company is facing the backlash of the technology hype cycle. Expectations became too high too quickly, negative press is causing pessimism that may overshoot the real issue, and disillusionment will likely ensue. At its core, Theranos has proposed a new approach to lab testing that has real value, they just need time to develop it. How to calculate a valuation from this value is another question entirely.