It seems like a perfect plot for a drama fuelled movie: a young, pretty and audaciously smart woman drops out of university to “revolutionise” an existing industry with the encouragement of her old supervisor (punch line “be the change you want to see”). The upstart wannabe then starts to dress in black turtlenecks –in emulation of her hero – and spout rhetoric of “revolutionising blood testing” with her wondrous Edison machine. But here’s the catch: Edison is still a prototype and does not seem to work (queue ominous music with minority extra solemnly declaring that “all the tests are wrong”). The FDA then catches on, shuts down one of the two clinics, and the older, but still pretty, woman contemplates the inevitable crash of her company. Coming soon, starring Jennifer Lawrence as the founder of Theranos, Elizabeth Holmes.
It is not every day that a company goes from being valued at $9 billion to $0 virtually overnight following criticisms in a Wall Street Journal expose. The article includes the crucial information that 190 out of its 240 blood tests offered on the “menu” is not run on Theranos’ secretive testing machine. The entire raison-d’être of the company is to personalise blood testing typically ordered by doctors for specific reasons, for example you may have a history of heart disease so you get your cholesterol checked, or you start displaying the symptoms of diabetes. Holmes delivers a peppy TEDMED talk in which she envisions a future where people can get their blood tested for disease at their convenience (hence the partnership with Walgreens, the American wellness centre), thereby fully encompassing the archetypal American values of freedom and individualism. It is no wonder that investors ate it all up. However, Theranos started out in 2003 while the expose was published in 2015, which begs the questions: how can a company with such shaky foundations have earned such a high valuation?
Investors should be inclined to heed Socrates’ observations on the utility of money which in itself has no intrinsic value. It is well-known that company valuations can be full of hot air, as was the case with the dotcom boom when internet companies with no plan on how to be profitable garnered billions of dollars worth of valuations which subsequently evaporated with the bust. But Theranos was not a company built in the infancy of the internet. Blood testing is a well-established business idea. One of the main problems with Theranos was Holmes pushing for multiple tests which can supposedly be performed on a single finger prick of blood, thereby saving needle-phobes on trauma. Theranos never published a single peer reviewed paper on its technology (the infamous Edison machine), so it is difficult to determine how it performs compared to standard machines. The findings of a recent peer-reviewed comparison between Theranos and two other testing companies did not look too favourable for the company. However, it did hold a patent filed in 2009 on technology used in its machine. In the patent, Theranos claims that their microfluidic technology can use less than 500μL (a micro-litre is 1 millionth of a litre), but preferably a fraction of that (1 – 100μL). Holmes has publicly made the claim that her company can perform up to 30 tests on a single finger prick of blood. Currently, standard blood testing facilities can do up to 100 tests on 7mL of blood. If we assume that each test uses the same volume of blood, Theranos essentially claims that at the very least its technology is 4 times more sensitive than standard blood testing (i.e it is able to use 16.7μL of blood per test rather than 70μL). That is not too hard to believe. However, if we consider its most ambitious claim of only using 1μL of blood for 30 tests, then Holmes effectively claims that her machine is 2300 times more sensitive than standard fare. Now that is quite a stretch and to be sure she never directly makes the claim that her machine is that sensitive. That is not to say that one could never invent such a wondrous machine, but it is unlikely that Theranos could do much of what it claimed given that the company invalidated tens of thousands of tests it had completed. More importantly, any kind of test has a trade-off between sensitivity and specificity, so the more sensitive a test is the less specific it will be. Thus, while a highly sensitive testing machine will identify patients with abnormal results (that actually have an underlying disease), it will also give an indication of abnormal results to patients who have no underlying disease (decreased specificity).
The smoke and mirrors operating style of the company certainly helped it during its initial stages. It is not every day that one can set up a company and earn billions of dollars worth of valuation without the backing of solid, tested technology. The current media infatuation with people who drop out of college and go on to do marvellous, world changing things also aided the hype. But the matter still stands that a company was able to operate and give thousands of blood testing results when there is little evidence that its core technology – the Edison machine – developed beyond a prototype. There is also the issue of multiple testing which Holmes spins as being life saving, when in reality more tests means more chance to get a false positive, thereby send many panicking people for further unnecessary tests.
When profiled for The New Yorker, Holmes was presented as someone with a mission to change the world for the better, to do something great and purposeful with her life. The Hollywood mash-up will likely present this idealistic hubris in the wake of the thousands of lives changed forever with the wrong blood tests.