Monday 13 October 2014

Theranos: The World's Best Healthcare Company

Introduction to Theranos

TheranosEver since their debut article in Fortune this June, in which Theranos unveiled its stature as a $9B-valued company poised to completely disrupt the $78B per year laboratory diagnostics industry, Theranos has been lavishly featured in the media as a herald of the new healthcare: Affordable, personal, transparent, and accessible. Theranos is built around a proprietary new high-complexity diagnostics lab that allows for a large range of tests (they currently list 229 on their website, but the Fortune article tells us they'll soon offer over 1,000) to be run on blood and other bodily fluids using much smaller sample sizes (70 separate tests can be run on a single sample of a few drops of blood: 1/1000th the amount of blood needed for traditional tests) for a very low cost (Theranos's prices are always 50-90% less than the Medicare reimbursement codes. For example, a standard metabolic panel would cost ~$46 at a standard lab, Medicare would reimburse $14.74, and Theranos charges only $7.27. The average price across their 229 tests is $12.92), and at exceptional speed (whereas traditional testing services would take days to return results, Theranos's labs take mere hours). The Theranos labs also require less footprint, allowing them to be housed in small corners of retail clinics, hospitals, and other existing healthcare outlets. They have signed a non-exclusive agreement with Walgreens (the pharmacy chain currently boasts over 8,200 brick-and-mortar pharmacy locations in the U.S.) to build Theranos Wellness Centers in each location as quickly as possible. They are already operating out of 39 Walgreens stores in Arizona, and 1 in Palo Alto, California. They have also inked agreements with several hospital systems, such as Intermountain Healthcare and Dignity.

Whence Theranos on 

Before explaining why Theranos is the best healthcare company in the world, it's worth explaining why is featuring Theranos in the first place; after all, the company maintains over 500 employees in a 111,000 square-ft. facility at Stanford University, and even manufacturers their labs at a 262,000 square-ft. factory in Newark, California. Their board is also unusually stacked with American civil heroes such as Henry Kissinger, William Perry, and James Mattis. Theranos is as American a company as they come, but there are good reasons to feature Theranos as the first innovation profile on a site dedicated to researching technologies originating from emerging markets. The first is that Holmes's (Elizabeth Holmes is the Founder and CEO of Theranos, a very focused and brilliant person who dropped out of Stanford's Chemistry program as a Sophomore to start this company) idea for Theranos seems to have originated from a 2003 summer internship (Holmes founded Theranos in the fall of 2003) at the Genome Institute of Singapore during their work with Roche Diagnostics to make highly affordable, accessible, and fast SARS testing kits available to the Asia-Pacific region using their nobel-prize-winning PCR technology. 

The second reason is that Theranos is such a complete example of a healthcare innovation, a standard by which all of the individual foreign technologies will feature must aspire to within the transplanted context of the U.S. healthcare market. The fact is that any technological innovation in isolation is naked, and really not worth much until it is clothed in the appropriate vestments of an integrated market application and comprehensive business model that delights each of its stakeholders. Like Edison, true disruptors must invent more than just a lightbulb: They must also design and execute a workable electrical grid into which the lightbulb can integrate.

Why Theranos is the World's Best Healthcare Company

Reason 1: Theranos's Market Position in Diagnostics
Successfully designing their 'electrical grid' is the second-most important reason why Theranos is the world's best healthcare company. The first is that they may credibly become the 'gatekeeper of healthcare' by owning the market for laboratory diagnostics, the data of which already form the basis of 70-80% of clinical decisions. This number will only increase as the speed, reliability, accuracy, breadth, price, and accessibility of diagnostic information increases--all of which Theranos is accomplishing. Additionally, diagnostics is the nexus of healthcare most amenable to expanding the scope of practice of lower-cost providers for well-understood medical conditions. As another of our posts explores, this is one of the surest ways to decrease healthcare costs in the U.S. 

Reason 2: Theranos's Business Model
Every component of a good business model flows from, and seeks to balance and reconcile, the foundational stakeholder value propositions (VPs) upon which the success of the business depends. These VPs are responses to stakeholder jobs-to-be-done (JTBD). Below are some examples of the primary stakeholders, their JTBD related to lab diagnostics, and the resultant VPs that Theranos has so expertly constructed its offerings around:

  • Patients
  • Providers
    • JTBD
      1. Fast, accurate test results
      2. Easily place orders and follow-up orders
      3. Easily consumable reporting
      4. Not take up much space (hospitals)
    • VPs
      1. Results w/in hours instead of days; high illustrative accuracy 
      2. Send samples using existing infrastructure OR send patient to Wellness Center
      3. Alerts and easily consumable graphs via software
      4. Theranos labs require 10x-100x less space than traditional labs 
  • Payers
  • Regulators

Challenges In Emerging Markets for Theranos

Theranos is a careful company. They were in stealth mode for 10 years making sure to nail each piece of their business model before starting to scale, and they are doing that very deliberately so far with Walgreens. Holmes has indicated that Theranos is systematically evaluating a global expansion strategy, which will probably not happen tomorrow. If it does happen, each new market will of course require an entirely new business model, or configuration among a separate set of stakeholders.

Research on the laboratory diagnostic market in India indicates that Theranos would today be a welcome innovation within this market since the vast majority of diagnostic labs in India are importing equipment from the same OEMs that supply the traditional diagnostic labs in the U.S., e.g. Siemens, Olympus, and Beckman Coulter. Because of this, even the Indian test prices are still higher than those of Theranos as the table below comparing the cost of a few Theranos and SRL Diagnostics tests shows:

But price is just one metric, and others may be just as important in emerging markets. For instance, Dr. Natarajan Sriram wrote a critical piece about existing IVDs in emerging markets, and while price was at the top of the list of criticisms, there are many additional reasons that make significant market penetration difficult for laboratory-based diagnostics. Dr. Sriram outlines important performance dimensions required for IVD products to succeed in emerging markets. While Theranos performs well on several cost and reliability metrics, there are a few that Theranos will find difficult to excel on in its current form:

  1. Simple and minimum end-to-end procedure
  2. Test results require no additional equipment or accessories from site of test
  3. Small pack size of IVD
  4. Minimal training required w/ no professional staff
Rapid Diagnostic Test
Typical Rapid Diagnostic Device
Dr. Sriram's own company, the Tulip Group, oversees the R&D and production of Rapid Diagnostic Tests (RDTs), which are typically single-use applications meant to test for the presence of an infectious disease, exactly like that of Roche's PCR system for SARS in 2003. While incremental cost advantages to RDTs have been shown at high levels of a particular disease prevalence, their true advantage in emerging markets is that they satisfy the above criteria for success that Dr. Sriram outlines. 

The penetration of Theranos into emerging markets in its current form might rely on how widely held and acute the JTBD of 'help me watch a movie of my micro-biological health indicators over time' is in these markets since the OEMs already supplying the equipment will likely soon provide lower-cost lab diagnostics to achieve cost parity with Theranos. 

I wonder, might Theranos carry their genius of miniaturization a bit further to create portable laboratories, patches, or more versatile RDTs in order to succeed in emerging markets as they will succeed in the U.S.? 

RDT photo credit:

Tuesday 7 October 2014

Could India Lead the Way in Global Medical Diagnostic Solutions?

Molecular diagnostics, imaging technologies, and high-bandwidth telecommunications are important enablers for disruptive business models in healthcare because they greatly facilitate the movement of medical conditions from intuitive and empirical medicine to precision medicine, where the diagnosis and therapies for these conditions are perfectly or near-perfectly understood. 

Once a condition is within the realm of precision medicine, the scope of practice should be widened for less-credentialed providers to administer diagnoses and provide therapy since there is little possibility of error, the cost of care decreases, and specialists' time and attention can be refocused on true problems. Allowing for expanded practice scope results in more primary care doctors, nurses, PAs, NPs, and others solving the problem on the first visit, greatly mitigating one of the primary cost drivers of the ever-more-expensive U.S. healthcare system: Referrals. Once our understanding of a condition has graduated to the realm of precision medicine, passing the buck is no longer necessary. 

Of course, there are many rules and regulations in place that inhibit practice scope expansion, and thus the need for disruptive business models that prove out the value of administering precision medicine efficiently by gaining market footholds in alternative value networks. Once successful, such business models compel legislative reform on the basis of their fait accompli market victories. 

In the U.S., there are currently several auxiliary efforts to disrupt diagnostics underway; important and impactful to be sure, but not sterling examples of diagnostic technology's promise to disrupt healthcare. For example, American Well and Project Echo both leverage telecom and mobile technology to nip as many problems and as much of each problem in the bud as possible before recommending an expensive in-person visit to either a PCP or specialist. Retail clinics also continue to spend a great deal of money lobbying for practice scope expansion on a state by state basis, e.g. CVS Minute Clinic fighting for pharmacists' of NPs' ability to perform more precision medicine procedures.

Medical technology can greatly aid in establishing the most efficient, low-cost care processes for precision medicine possible, and improved diagnostics should be at the center of these new business models. But where to look for it? 

I believe India will be a source of truly disruptive diagnostic technology for several reasons. Firstly, it is a market forced to create alternative value networks as entrepreneurs attempt to radically expand access to care with radically affordable products and processes. Secondly, the diagnosis / therapy process in India is not necessarily constrained by rule and regulation to the degree it is in the U.S., allowing for expansion of practice scope as needed. For example, a large part of why Narayana Hrudayalaya is able to perform heart surgery at 1% the cost of the same surgery in the U.S. is that the specialist only does the grafting, which takes about an hour, while a support staff of junior doctors, trainees, nurses and paramedical staff complete the other 4 hours of work consisting of harvesting of veins/arteries, opening and closing of the chest, suturing and other procedures. 

Thirdly, there are several Indian medtech manufacturers that have been in operation for 1-3 decades, and have the technological and manufacturing know-how to start creating truly disruptive diagnostic products for the Indian market as a whole. For example, Trivitron--the largest medical device maker of Indian origin--claims that to "realize Dr. GSK Velu's dream of providing affordable healthcare solutions to all sections of the population, the Trivitron Group now also designs, innovates and manufactures medical equipment across the entire healthcare spectrum." 

Given Trivitron's Facebook post yesterday about bringing 4 new microbiology diagnostics products to market, along with Dr. Velu's closing comments at the recent FICCI Heal 2014 conference to give more focus and attention in India "due to very high import dependency," I would expect to find several promising diagnostic innovations being developed organically from within indigenous R&D centers, such as the Trivitron-IIT Madras Innovation Center. While it's true that companies like Trivitron will find breaking out of their traditional roles as manufacturers and distributors of imported products and technologies to the still-limited Indian healthcare infrastructure, developments like Trivitron's acquisition of Dubai-based ETA Star Healthcare enabling for an export strategy to other developing markets is an encouraging sign. 

Photo Credit: 

Thursday 2 October 2014

Why Conducting Research with an "n of 1" is Best

I have pivoted the purpose and scope of in order to conduct research with an 'n of 1.' The idea is that truly valuable insight into causation comes from limiting research to one subject that reflects all potential factors that might explain the dependent phenomenon in question, and then carefully studying the provenance of the phenomenon with sole reference to this particular subject. In other words, just as a medical researcher might study the pathology of a disease within one patient to understand the disease (the patient being the subject; the disease being the phenomenon), so I might study global innovation transfer within one emerging market company (the company being the subject; the global innovation transfer being the phenomenon). I wish to acknowledge Clay Christensen for this insight, who shared it in a meeting with me on September 4th, 2014.

This was a significant paradigm shift as I had originally planned to uncover and analyze as many potentially transferable healthcare innovations as possible from around the world, and then hoped to extract some real insights into which ones might be 'winners' for effectively improving healthcare through global innovation transfer. According to the advice above, it will be much more productive to carefully choose one of the companies that has successfully developed a healthcare innovation within their own emerging market, and has also made some progress in transferring the innovation globally. By making an in-depth study of how this company has navigated the conditions and constraints confronted in its journey, real insight will emerge that may help guide more global innovation transfer in the future.

But how to choose the right company among such a large array of promising candidates? Firstly, I will initially limit the bulk of posts to companies that have developed healthcare innovations by, for, and of the extremely constrained markets of India. There are other great innovation 'laboratory' markets, but India is a good place to start as they are famously developing a sizable number of healthcare innovations.

Each week, will feature one or two snapshot posts of individual innovations from its Innovations Database page, each innovation of which fits the criteria above. I will also be attending the 8th Annual Indian Medtech Summit in Delhi on December 11th and 12th, 2014, and will finalize a single Indian partner company for close study during my stay in India in January and February of 2015. will feature the research coming out of this internship as a white paper on the website.

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