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Post-Theranos, Startups Are Still Out for Blood

‘Hubris is very dangerous’: How blood diagnostic companies are distancing themselves from Theranos’ fraud charges

Illustration: Ariel Davis

TTanay Tandon ditched class the day Elizabeth Holmes came to speak to his fellow freshmen at Stanford University a few years ago. At the time, says Tandon, now 22, the campus community was already skeptical about Theranos, Holmes’ now-infamous blood testing company. That’s because her talk took place around the time John Carreyou at the Wall Street Journal published his first story questioning Theranos’ legitimacy. According to Tandon’s classmates, Holmes — who dropped out of Stanford to start her company — spent part of her lecture explaining to the students why she felt the accusations against her were wrong.

It was the brink of everything starting to explode,” Tandon says about her visit.

The meteoric rise and fall of Holmes and Theranos has been the subject of the Wall Street Journal investigation, a bestselling book, a podcast, and a documentary. Most damningly, the U.S. Securities and Exchange Commission has charged Holmes and former Theranos president Ramesh “Sunny” Balwani “with raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.”

“It has been a black eye for the field to have this thing occurring.”

Tandon is on a leave of absence from Stanford and is now the founder of a finger-prick blood testing startup called Athelas, which he hopes will one day allow chronically ill people to test themselves in the privacy of their own homes. Despite the similarities between Tandon and Holmes, Tandon says the swirl of negative publicity surrounding Theranos has ultimately created more, rather than less, interest in the field.

Athelas is one of a handful of biotech companies seeking simpler blood-based diagnostics. Karius is a company that says it can identify more than 1,000 pathogens from a single blood draw in order to quickly diagnose infectious diseases. MindX Sciences is an Indianapolis-based startup that’s developing blood tests for psychiatric disorders. Flux Biosciences, a company co-founded by Theranos whistleblower Tyler Shultz, uses blood, urine, or saliva to “measure biomarkers related to exercise, stress, fertility, and diet and will correlate those measurements to sleep and activity data collected from wearable technology.”

Tandon argues that while Theranos’ product was clearly fraudulent, the sheer amount of investor interest indicates that it would have been worth billions if Holmes could have delivered on her promises. “For an investor, there’s really no better proof that there’s a market here,” he says. “It’s just going to take the right company, the right team, the right people who have the right kinds of ethics and, obviously, the right technology, to pull it off.”

Still, Tandon notes ruefully, “The Theranos saga really took a lot of the oxygen out of the room.”

InIn traditional science and medicine, peer-reviewed data is king. So, when Alexander Niculescu III, MD, saw Holmes gracing the covers of magazines in her trademark black turtleneck, boasting about how her blood test machine was going to change the world, he too was skeptical. He wanted to see data that backed up her claims, and, most important, he wanted to see data that showed how her technology worked. She was potentially a competitor, after all.

Niculescu, co-founder of MindX Sciences and a professor at the Indiana University School of Medicine, says that because his company is deeply rooted in academia — and based outside Silicon Valley — the Theranos controversy hasn’t affected it. But he does see an impact for biotech startups more generally.

“It has been a black eye for the field to have this thing occurring,” Niculescu says. “For the credibility of the field and for the general public to have confidence, [Theranos] was a setback.”

For Niculescu, one major tell that Theranos lacked credibility was, ironically, one of the major attractions for investors: the company’s star-studded board. It included the likes of Henry Kissinger and George Shultz but lacked anyone with what Niculescu refers to as “domain expertise,” meaning health and medicine credentials.

Niculescu and Tandon each stressed that their companies have medical doctors on their respective boards and that their results have been published in peer-reviewed journals. Tandon says he never saw Theranos and Athelas as competitors or even as existing in the exact same field. Theranos operated as a central laboratory, he explained, while Athelas was founded to build blood testing devices that would analyze a finger prick’s worth of blood in the home or other non-laboratory settings.

“There was overlap in the space, but in application, we’re quite different,” Tandon says.

Niculescu says MindX Sciences — which is developing blood tests for psychiatric disorders, as well as creating a diagnostic test for evaluating pain — is more on the scientific and biotech side than Theranos was.

“We’re not developing a machine that does laboratory testing. We use standard machines for our testing,” he explains. “We’re just developing the science and the tests that would be used to make the diagnosis and help inform treatment.”

R. Matthew Neff is the president and CEO of MindX Sciences and has written several articles about Theranos for the Indianapolis Business Journal. He fears that the Theranos scandal could shake the faith of consumers, who trust their doctors and pharmacists to deal with reputable companies.

Perhaps the biggest fallacy is the notion that Mark Zuckerberg’s motto, “move fast and break things,” is an appropriate strategy for a health biotech startup.

“Theranos was definitely a failure of multiple systems,” Neff says. “There should have been publications. There should have been diligence done by Walgreens. There should have been diligence done by the Centers for Medicare and Medicaid.”

Instead of demanding scientific proof from Holmes that her company did what she claimed it could do, many people took Holmes at her word.

“Everybody wanted another Steve Jobs, and here comes this charismatic, blonde-haired, blue-eyed scientist who looks a lot like the female version of Steve Jobs,” Neff says. “There’s a psychological tendency of people to see what they want to see, and in Elizabeth Holmes’ case, they did.”

But perhaps the biggest fallacy, according to Tandon, Niculescu, and Neff, is the notion that Facebook founder Mark Zuckerberg’s famous motto, “move fast and break things,” is an appropriate strategy for running a health biotech startup.

“There have to be many more safeguards when you go into people’s health care,” Niculescu says. “That might work for renting apartments and ride-shares, but when you go into health care, I think that hubris is very dangerous and can backfire.”

That doesn’t mean health care startups can’t be innovative and experimental, according to Tandon. “When you’re just working with R&D samples in a lab, you can totally move fast and break things,” he says. “But when you are in production and when you’re returning results to patients, that doesn’t apply anymore. That’s the real distinction. You can’t be in production as a health care company and be actively breaking things.”

Public health reporter

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