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Elizabeth
Holmes spun one of the greatest stories ever to come out of the Silicon
Valley. It was full of holes from the very beginning, but the image was
fascinating. In times like these, dominated by radical optimists
preaching the virtues of technology, a little independent scientific
verification goes a long way.
 Dear Reader,
It's one of the most absurd things I've ever read.
"But no scientist could credibly vouch for Theranos," writes Nick Bilton in a Vanity Fair piece published September 6, 2016. "Under Holmes' direction, the secretive company had barred other scientists from writing peer-review papers on its technology."1
The emphasis is mine.
By
now, you may be acquainted with the rise and fall of Elizabeth Holmes
and Theranos, the blood-testing company she founded as a 19-year-old
Stanford University dropout.
It's the little things in this story that continue to confound.
Holmes,
as Bilton reveals, is a carefully crafted caricature of her hero, Steve
Jobs — from the "vision" and the secrecy right down to the black
turtleneck.
But
the pupil lacked one major component that defined Jobs' genius: the
dash of substance that comes from actual, usable, useful products with
viable markets.
Start
with the fact that a life sciences unicorn could be valued at
approximately $9 billion without the slightest bit of third-party
verification of the efficacy of its groundbreaking, "world-changing"
technology.
So who funded Theranos?
According
to startup data tracker CrunchBase, Holmes' creation churned up $686.3
million in total equity funding across eight rounds from six investors.2
Only
one of the investors – Draper Fisher Jurvetson, which participated in
the "seed" round – is actually based in Silicon Valley.
And Tako Ventures, a subsidiary of Lawrence Investments, which includes Oracle Corp.'s (ORCL) Larry Ellison as a partner, was in on the Series C round.
But most of the Valley's heavy hitters were loath to invest without some evidence that the technology was sound.1
However,
Theranos' story — a blood test that requires "a finger prick instead of
a needle" and "only a few drops of blood to get results that normally
take vials full" — did attract partners such as the Walgreens Boots Alliance (WBA), which operates the second-largest pharmacy chain in the United States.
It
hoped to deploy its revolutionarily simple blood testing device –
"Edison" – to screen for hundreds of diseases and conditions at more
than 8,000 Walgreens across all 50 states.
The red flag that sent The Wall Street Journal
healthcare reporter John Carreyrou on a quest for answers was Holmes'
inability to adequately explain, with any specificity, what her
company's primary product actually did and how it actually did it.1
In a previous profile published by The New Yorker during Holmes' halcyon days3, Ken Auletta wrote:
What
exactly happens in the machines is treated as a state secret, and
Holmes' description of the process was comically vague: "A chemistry is
performed so that a chemical reaction occurs and generates a signal from
the chemical interaction with the sample, which is translated into a
result, which is then reviewed by certified laboratory personnel." She
added that, thanks to "miniaturization and automation, we are able to
handle these tiny samples."
"Comically vague," indeed.
We
like to read companies' and executives' explanations of how their tech
works – they're important indicators of reliability and possibility.
That's why, for example, we quoted an extensive explanation of Virtual
Incision Corp.'s robotic surgery system in yesterday's Wall Street Daily.
We
try to cover a lot of ground here. We consume a lot of written
material, much of it highly technical, including peer-reviewed articles
for scientific journals, pieces from specialized magazines and websites,
and niche blogs focused on science, technology, and innovation.
It's
one of the reasons we've begun to include footnotes to identify our
sources, so you can have some faith that we've done some due diligence.
It's
why we're on guard today after seeing headline after headline from
British news outlets touting a "smoke detector" blood test described by
researchers from Swansea University at the British Science Festival on
September 7, 2016.
The red flag that sent The Wall Street Journal
healthcare reporter John Carreyrou on a quest for answers was Holmes'
inability to adequately explain, with any specificity, what her
company's primary product actually did and how it actually did it.
The Independent went with "Cancer Breakthrough: Scientists Develop 'Smoke Detector' Test That Can Spot Disease Before Symptoms Are Noticeable."4
For The Telegraph, it's "Cancer 'Smoke Detector' Test Can Spot the Disease 10 Years Before Symptoms Appear."5
The Daily Mail invoked the cup of Jesus, Arthurian legend and all caps: "Is This the Holy Grail for Cancer Diagnosis? Simple Blood Test 'Finds Disease BEFORE the Symptoms Start.'"
Sure, that's exciting. My first thought was, Where there's smoke, there's fire.
By that logic, isn't smoke a "symptom" of fire?
At
any rate, we'll get back to you once some peer-reviewed papers address
the science behind the Swansea University breakthrough.
Katharine Hobson of FiveThirtyEight.com
raised another compelling line of inquiry about Holmes'/Theranos' quest
to "democratize" health care and thus "make the world a better place":
Were it actually viable, would we even need such technology? 6
That also applies to the Swansea University news.
Hobson breaks out a key set of lines Holmes delivered during a 2014 TEDMED talk (the video of which is "no longer available" at tedmed.com), the punchline of which is: "If only I'd known sooner." 6
At
the same time, the ultimate goal is not to fight the disease. It's to
fight for the patient. And that's a far more complex equation.
It stands to both basic common reason and strict scientific scrutiny that when it comes to disease, earlier detection is better.
At
the same time, the ultimate goal is not to fight the disease. It's to
fight for the patient. And that's a far more complex equation.7
So
do "early detection" tests even provide enough information? According
to what Dr. Brenda Sirovich, co-director of the Outcomes Group at the VA
Medical Center in White River Junction, Vermont, said to Hobson, the
answer is no:
The reservoir of abnormalities is bottomless. And we don't know anything about what those things mean in an asymptomatic vacuum.6
And is that information even reliable?
Not entirely. Hobson continues:
The
effectiveness of screening for a given disease before signs and
symptoms appear depends on a host of conditions, said Dr. John
Ioannidis, director of the Stanford Prevention Research Center —
including whether there's an effective treatment for whatever is found,
and whether people will fare better if they get treatment without
waiting for symptoms. He added that a successful screening test needs to
be accurate, without too many false positives or false negatives.
But
depending on the prevalence of a disease or condition in a given
population, false positives can outnumber true positives, even for a
test that's quite accurate.6
Alas, according to the "Father of Modern Medicine,"8"The good physician treats the disease; the great physician treats the patient who has the disease."7
That's
Sir William Osler, a Canadian physician, one of the "Big Four" founders
of Johns Hopkins Hospital and the first Professor of Medicine there,
and of whom it was said, "The life and philosophy of William Osler
continues to serve as a standard of excellence and a model for the
evolution of the profession and its practitioners."8
We're as excited as anyone about the potential for innovation at the intersection of medicine, biotechnology, and Big Data.
But
we also come at this from the perspective of investors, which means
there must be some roots in reality that will enable a particular
innovation to eventually establish a market.
And in our particular field of inquiry that requires verification from independent, expert sources.
The medical diagnostics market is huge, about $75 billion huge according to Haverford Healthcare Advisors.9 Hospital labs continue to command the biggest share of total industry revenue.
The independent segment is dominated by two big players, Quest Diagnostics Inc. (DGX) and Laboratory Corp. of America Holdings
(LH), which generate combined annual revenue of about $17 billion. It's
still relatively fragmented following a phase of rapid consolidation.
The
prospect of sparing patients the potentially invasive experience of
having a needle stuck in their arms for several minutes to draw anywhere
from 5–10 milliliters of blood, depending on the nature of the tests to
be done, by combining expertise in biology, chemistry and software
engineering was compelling.
Holmes
said Theranos could "extract blood without syringes, make a diagnosis
from a few drops of blood, automate the tests to minimize human error,
do the test and get the results more quickly, and do this more
economically."3
It
sounded so good – cloaked in pseudo-Jobsian Valley-speak – that even
the head of the world-famous Cleveland Clinic, Dr. Delos M. Cosgrove,
said, "I think it's potentially a breakthrough company. It represents a
major change in how we deliver healthcare."3
It sounded so… disruptive.
I still can't believe Holmes and Theranos got that far without a single peer-reviewed paper.
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2016 Agora Financial, LLC. 808 Saint Paul Street, Baltimore MD 21202.
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