How To Kill A Unicorn: The cautionary tale of Theranos

A unicorn in startup jargon is an early stage tech company with a $1 billion+ valuation. Theranos is (was?) a Silicon Valley startup and a unicorn, focused on disrupting the enormous market of diagnostic blood testing.

Valuations are funny things. They are critically important to startup CEOs and investors but ultimately, they are subjective shared opinions based on complex models of present and future events. Startup CEOs and venture capital investors try very hard to keep their company’s’ valuations ever-increasing. Negative news or events can start a cascading cycle resulting in the dreaded “down round” of investment and even ejection from the unicorn club.

Theranos was a unicon, but no longer
Killing the unicorn, British Library

Background

CEO Elizabeth Holmes founded Theranos in 2004. As a 19-year old college student, Holmes pitched an idea to her Stanford professor and was advised to start a company. Through family and personal connections, venture capital money poured in, Holmes dropped out of Stanford and Theranos began its mission to change health care.

Theranos CEO Elizabeth Holmes
Theranos CEO Elizabeth Holmes – Inc. cover photo Oct. 2015

“…it doesn’t work…”

Alas, “mistakes were made” and the company and its executive team found itself in hot water with the FDA and the subject of a number of unflattering stories in The Wall Street Journal and elsewhere. The Theranos head of R&D committed suicide and left a note saying “it [the technology] doesn’t work.” Also, the company president recently resigned and CEO Holmes is banned from owning or operating a lab for two years. In addition, Theranos’s commercial partners, Safeway and Walgreen’s, terminated their agreements with the company.

That’s about as bleak a series of events as you can imagine, right? Well as the infomercial goes, wait, there’s more…

Negative reactions continued over the year since the WSJ story broke. In May 2016, Theranos announced that it had voided two years of results from its Edison device. Patients filed a class action lawsuit alleging they were adversely affected by Theranos’s business practices (specifically, faulty blood tests). Recently, the company announced layoffs of 40% of its labor force and closure of testing labs around the country. In October, 2016 Holmes announced that Theranos would shift its strategy toward development and manufacture of small, robotic diagnostic test equipment – a very crowded market.

In June, 2016, Forbes assessed the valuation of Theranos as $800 million and revised the estimated net worth of CEO Holmes from $4.5 billion at the company’s peak valuation (she has a 50% stake in Theranos but it’s all common stock) to zero.

Theranos valuation history
Theranos valuation history (based on public estimates)

What killed the unicorn? There are a number of bad decisions made by Theranos management and its Board of Directors. Here are 10 of the worst that I identified.

Bad Decisions

  1. Stack the Board of Directors with old, politically connected white guys (Henry Kissinger, George Shultz, Bill Frist, Sam Nunn) with little or no startup, technology, or diagnostics savvy.
  2. Create a cult of personality around the CEO. Make sure she appears on popular magazine covers and is interviewed frequently on TV shows.
  3. Create a not-so-subtle emphasis on the similarities between your attractive, young CEO and Steve Jobs: both are college dropouts, both wear a uniform of black turtlenecks, both are “visionary” leaders, both are/were young billionaires (only on paper in the case of Elizabeth Holmes)..
  4. Keep the founder as CEO, no matter if she has zero prior business or medical industry experience. Do not bring in a strong executive team with relevant industry experience to complement the CEO’s energy, vision, and talent.
  5. Hype your technology but shroud its technical details in secrecy. Worse, secretly use competitor’s technology for the vast majority of the tests performed.
  6. Do not conduct randomized clinical studies to demonstrate efficacy vs. industry “gold standard” technologies. Definitely  do not publish in peer-reviewed journals.
  7. Sign agreements with major commercial partners (Walgreens, Safeway) and conduct major PR campaigns announcing the deals before the technology is mature and proven.
  8. Pay no attention to FDA, CLIA, and GLP requirements. Refuse to learn from what happened to other startups that defied or ignored the FDA (see 23andme).
  9. Aggressively promote your muddled, multi-pronged, “disruptive” business model.
  10. Deny and deflect all bad news. Accuse The Wall Street Journal of conducting a witch hunt.

Takeaways

  1. The medical device/diagnostics industry is not the technology industry. Patients’ health and lives are affected by poor management, decisions, and/or business practices. Consequently, medical technology companies are heavily regulated and conservative regarding innovation. 
  2. If you must have an inexperienced person at the helm of the startup, compensate with a seasoned, accomplished Board of Directors with relevant experience and networks.
  3. Aim to solve one problem at a time. Prioritize. Theranos touted its “Nanotainer” finger stick technology, Edison diagnostic technology, and plans to disrupt healthcare by bringing diagnostic testing directly to patients through grocery and drug stores. That’s a lot of moving parts.
  4. Expect swift and deadly reactions from entrenched competitors (including complaints to the FDA and leaks to the media). Your disruptive business model is their existential threat.
  5. As the saying goes, sunlight is a powerful disinfectant. The first step to success in the medical technology industry is a strong intellectual property portfolio and properly maintained trade secrets that create solutions to real healthcare problems. But that strategy must coexist with a culture of regulatory compliance, stringent adherence to quality standards, and sponsorship/disclosure of peer reviewed randomized clinical studies. It’s a business model that has worked for many successful companies in the industry.

Will Theranos pull out of its nose dive, emerge as a disruptive company in the ultra-competitive medical diagnostics market, and regain its unicorn status? Maybe, but given its track record and penchant for acting more like a Silicon Valley tech startup than a medical technology company, I would not bet on it.

Postscript 12.15.16 The shareholder lawsuits have begun.

References

  1. From $4.5 Billion To Nothing: Forbes Revises Estimated Net Worth Of Theranos Founder Elizabeth Holmes [Forbes]
  2. The wildly hyped $9 billion blood test company that no one really understands [The Washington Post]
  3. An Open Letter From Elizabeth Holmes [Theranos company website]
  4. Theranos Attacks Wall Street Journal (Again) in a Rebuttal You’ll Need a Medical Degree to Understand [recode]
  5. Expecting Data From Theranos, Lab Experts Get New Product [Bloomberg]
  6. At Theranos, Many Strategies and Snags [The Wall Street Journal]
  7. Why the Next Steve Jobs Will Be a Woman [Inc.]
  8. Theranos throws in the towel on clinical labs, officially pivots to devices [Ars Technica]
  9. How Playing the Long Game Made Elizabeth Holmes a Billionaire [Inc.]
  10. Theranos’ Scandal Exposes the Problem With Tech’s Hype Cycle [Wired]
  11. Will Shareholder Lawsuit Trigger Theranos To Return Capital To Shareholders? [Forbes]

  12. Theranos Just Got Slammed With Another Lawsuit [Fortune]

3D Printing Parts from McMaster-Carr| Make:

McMaster-Carr Catalog 3D print
McMaster-Carr Catalog

McMaster-Carr, the industrial supply giant (http://www.mcmaster.com/), has been in business since 1901 but the company is fully embracing the digital age. McMaster previously released an iPad app of its massive paper catalog containing over 555,000 items. The company has gone one step further and is now offering 3D printing files of many of its parts.

Engineers and designers unsure about dimensions and compatibility of a particular part now have the option to download and print a 3D printing file of many parts in the McMaster -Carr catalog. The user can then try the printed part for fit before ordering “real” parts. This capability can save makers considerable time and expense.

It’s probably just a matter of time until 3D printing has the capability to duplicate manufactured parts in terms of materials and physical performance. Great to see a company that’s over 100 years old innovating and keeping up technologically with its customers.

Takeaways: If you are developing a new widget or prototyping a novel medical device, check the McMaster-Carr catalog, website, or iPad app if you are looking for readily available parts and you don’t want to wait or pay for custom prototypes. You can even check out a new part without the wait by downloading and 3D printing some parts.

If your company-startup or otherwise-is in a rut, look at McMaster-Carr for inspiration. If a 114 year-old company is still innovating and  differentiating itself via new technologies, your company can, too.

Pro Tip: You Can 3D Print Parts from McMaster-Carr | Make:
Link to Instructables set-by-step instructions

Neckties

ID-10081313In honor of Fathers’ Day and all of the neckties given as gifts that will be relegated to the back of Dad’s closet…

When I started my business career, neckties were mandatory attire. I didn’t enjoy wearing ties but I had fun picking out outlandish designs and sending subtle messages via tie designs (probably missed by everyone but me).

Then casual Fridays came along (initially, just in the summer!). My coworkers and I all celebrated the one work day when we didn’t have to tie the knot in the mirror and wear that hot, hated, neck-constricting piece of fabric.

A move to the Pacific Northwest revealed a much more relaxed attitude about neckwear: basically, no one wears ties here. Is the climate to blame? Is it Seattle’s famous informality where people attend the opera in t-shirts and cutoffs? I don’t know but the trend to the casual has been increasing and even accelerating in the 20 years I’ve been in the Northwest.

The no-tie movement seems to be gaining momentum all over the USA for at least a couple of decades, perhaps starting on the West Coast and marching eastward. From observations on business trips, the East Coast and particularly the northeast remain a bastion of tie wearing. It it a more buttoned-up culture than the pot-smoking, t-shirt and jeans-wearing liberals on the Left Coast?

Plus, many guys are either fashion-challenged or just don’t care about matching vs. clashing patterns and colors (apparently, their wives or girlfriends are not around when they dress in the morning). Those fashion (in)decisions inflict pain and suffering on people who have to look at the tie wearer.

Once upon a time, clip-on ties were a standing joke but I have a different perspective. I was wearing a traditional knotted tie on a visit to a vendor’s manufacturing plant. While examining a piece of automated equipment, my tie got caught in the machinery. I panicked as I was pulled toward the machinery but I managed to jerk the tie free before injuries occurred. My hosts and I had a big laugh at my expense and I decided to wear clip-on ties on future factory visits!

I did not know this but the origin of the necktie is French and…Croatian! More fascinating facts about ties here.

What do you think – have ties gone the way of spats, pocket watches, and felt hats (hipsters excluded, of course)? Take our ten second poll!

[yop_poll id=”2″ tr_id=”7734″]

Happy Fathers’ Day!

Image courtesy of stockimages, FreeDigitalPhotos.net.

Free Medical Device Launch Checklist – Protect Your Investment

free Medical Device Launch Checklist

So you (or your company) has developed a new medical device. You have invested millions of dollars and substantial time in engineering, obtained regulatory clearances, and set up manufacturing. It’s time to go to market, right? Turn it over to Marketing and Sales and wait for the orders to pour in. Are you sure that all relevant launch activities are being planned and accounted for? Perhaps you should protect your investment in your medical device product with this simple, easy to use, free Medical Device Launch Checklist.

Easy to use, downloadable PDF file: free Medical Device Launch Checklist

The Medical Device Launch Checklist from sanko::strategic consulting is free and easy to use. It contains 64 checkable launch items. Launch items include traditional marketing activities like pricing as well as easy to overlook issues such as expiration dating and localization. The Checklist gives you a brief description of the purpose of each item. It also shows you the department/corporate function with primary responsibility for the item. The file can be saved to monitor launch progress.

Anyone can use the Medical Device Launch Checklist. It is primarily intended for small and medium-size companies that may not have institutional systems and processes to control launch activities. It can also be used by anyone (Product Manager, Marketing Manager, Project Manager, startup CEO, et al) who wants to assure that nothing has been omitted from their launch plan.

You can use the Checklist to guide the development of a launch or marketing plan. The Checklist can also be used as a gateway document to assure that all activities are accounted for and either completed or in progress before authorizing product launch.

To obtain your personal copy of the free Medical Device Launch Checklist, click here and select the link for the free Medical Device Launch Checklist.

Think of it as cheap insurance to protect your multi-million dollar baby.

Image courtesy of arztsamui / FreeDigitalPhotos.net

Look Out, mHealth Startups, Here Come the Tech Companies!

mHealth Startups, the Tech Companies are coming!
Google’s prototype smart contact lens

It’s a good news/bad news situation for fledgling mHealth (aka mobile health or digital health) companies. The startups are working in a market that combines consumer technology with medical devices, meaning they are at the mercy of fads but subject to FDA regulation. The market is small but growing. The business opportunity has drawn the attention of some of the world’s largest technology companies including Google, Samsung, and now Apple. The traditional exit for technology and medical device startups has been acquisition by large players. The good news is that there are more large players in the market than ever – also good for market validation and prospective partnerships. Of course, big competitors can be bad news too. Look out indeed, mHealth startups, here come the tech companies!

Google

Google recently announced it is developing a contact lens that will monitor glucose levels in the tears of patients with diabetes. The device, developed partly at the University of Washington, could also provide patients with alarms when their levels are too high or too low. This is a natural to be combined with mobile technologies like smart phones and Google Glass devices. I’m sure the researchers are already identifying what else could be monitored via a smart contact lens.

Google Dips Into Med-Tech With Glucose-Monitoring Contact Lenses | Singularity Hub.

Official Blog: Introducing our smart contact lens project.

No one could have avoided the general hype and hysteria about Google Glass over the past year or so. And the device is still in beta! Notwithstanding all of the snarky comments about looking like a cyborg and potential privacy issues, there are a number of useful applications in healthcare for healthcare workers and for patients who adopt Google Glass technology. The prospect of a head-worn see-through display with always-on video and voice access to information and colleagues provides for powerful advantages once the bugs are worked out and applications developed.

How Google Glass could revolutionize medicine.

Apple

Now it looks like Apple is getting ready to enter the mHealth market. Recent reports have Apple hiring experienced medical device engineers with backgrounds in biosensors and wearable devices. Perhaps the long-rumored Apple smart watch will make its debut soon.

mHealth: Apple nabs up more medical sensor experts | Personnel Moves | MassDevice.

Samsung

Anyone who is familiar with consumer technology knows that wherever Apple is present, Samsung won’t be far behind. The archrivals have been battling each other in the smart phone and tablet markets for years and have also fought in patent courts around the world. Samsung beat Apple to market with its Galaxy Gear smartwatch in 2013. That device has received a lukewarm reception from consumers, and it doesn’t have any unique mHealth capability. Samsung is famous for iterating and improving its offerings, so I would not be surprised to see a second generation Galaxy Gear with mHealth apps and functionality.

Notably, Samsung applied for and received a 510(k) marketing clearance for its S Health app on its flagship Galaxy S4 smart phone. Also of note in mHealth, Samsung has invested several million dollars in mHealth startup Glooko, which develops apps and devices for diabetic monitoring.

Samsung Receives FDA Approval for the S Health Fitness Tracking App.

Will Samsung tap Glooko for S Health? | mobihealthnews.

Of course, just entering a market does not equate to dominance or even success. After four years of effort, in 2012 Google famously abandoned its Google Health attempt to provide consumers with personal health records. I think the biggest reason for the service’s demise was that it didn’t really “do” anything useful. The story of Google Health shows how industry outsiders may not understand the dynamics of the market.

10 Reasons why Google Health failed | mobihealthnews.

Takeaways: The presence of large competitors can be a little daunting but it’s generally positive. The presence of big companies like Google, Samsung, Apple, and others provides validation of market potential to investors and partners. They can also become partners and investors in your smaller company. Get to know their executives at trade shows and medical conferences and make them a part of your network.

Lastly, you have the advantage of being closer to the market and customers than the big guys – as well as being more nimble and able to identify and exploit opportunities and trends.

mHealth Startups, the Tech Companies are coming!

 

Beyond Mobile Health: Cyborg Health

http://img.gawkerassets.com/img/1986ypr6azxiojpg/ku-medium.jpg
image via io9.com

Mobile health devices have become cool fashion and fitness accessories. They will be under many Christmas trees this holiday season. They do have their limitations, however, mainly being passive devices that monitor activity levels. A number of new technologies tease at the next step in our connected future beyond mobile health: cyborg health?

My own definition of Cyborg is a human who is augmented in physical and/or mental performance by a permanent or semi-permanent device that has extra sensory and/or mechanical functions and logic or intelligence capability. Here are a few examples of cyborg-like devices and people.

Sony has invented what they have termed the SmartWig, a sensor-festooned hairpiece. The SmartWig can monitor pulse, blood pressure, brain activity, body temperature, and more. It will connect wirelessly to the wearer’s smartphone. Since it’s a hairpiece, it’s easy to add audio feedback via earbuds or bone conduction although Sony seems to think in its patent application that a vibration motor would be used to signal and communicate with the wearer.

Sony is famous for not commercializing its inventions but the SmartWig may be just the right combination of innovation and practicality to compel Sony to bring it to market.

Researchers in England are working on alleviating a serious condition that affects millions who have minimal or no bladder control as a consequence of injury or disease. Poor bladder control inhibits lifestyles, causes infections, and inflicts misery on patients and their families. The “Cyborg Bladder” will provide smart functionality as well as external capability to control one’s bladder.

The neuroprosthetic device concept, being studied in rats at the moment, integrates nerves with an electronic implant and an external control. The promise is that the system would monitor the bladder, preventing accidental urination and enabling voiding on command, functions that are nonexistent in many patients.

The last example may be the most interesting. A man in England has been wearing a head-mounted device to help him with his severe color-blindness, a condition called  achromatopsia. People with achromatopsia see completely in shades of gray with no ability to see any color. The British Cyborg device uses a camera to convert colors into sounds. The wearer “hears” the sound through bone conduction, thus “seeing” the colors of the objects being viewed.

The camera can detect wavelengths beyond human capability including infrared and ultraviolet, thereby giving the wearer super-normal “vision”. While other human cyborgs have been hassled by governments and businesses, the British Cyborg has a passport with a photo of him with his head mounted device in place, giving him some degree of legitimacy.

Takeaways: The line between science fiction and science fact is becoming increasingly blurred. Tech-savvy researchers and engineers have ever more sophisticated technology toolboxes with which to construct solutions to unsolved problems.

While some people may object to the notion of Cyborgs becoming prevalent in society – and the recent uproar about public use of Google Glass is a good example – people living with these chronic conditions may welcome the chance to become a bit of a ‘borg.

Companies seeking to enter these early markets should keep in mind that the Cyborg devices, much like prosthetics, are extremely personal products with which the user interacts constantly and over a long time. Good market and usability research and user input is essential before product development commences.

Read more :

Sony files patent for health-sensing SmartWig | mobihealthnews.

New Surgery Promises Cyborg Bladder | Singularity Hub.

The first person in the world to become a government-recognized cyborg.

 

More Disruptive Innovation? True 12 Lead ECG Heart Monitoring for Consumers

mobilECG conceptNot everyone has a need for a 12-lead ECG at home. But hey, a few years ago, no one thought they needed their own portable defibrillator, either. Now you can buy them from Amazon, Costco, and Walmart. A startup, mobilECG, is in the process of developing a device and software to provide true 12 lead ECG heart monitoring for consumers.

mobileECG is a group of young engineers in Hungary. They are developing a consumer-grade electrocardiograph that will interface with a PC, tablet, or smartphone and that will retail for “in the $300 range” in the summer of 2014 if everything goes according to plan. The device is not a toy. It will have full 12 lead capability and regulatory clearance in Europe and the U.S. when it is launched.

Other smartphone-based ECG devices like AliveCor generate single lead ECG data. That’s useful, but not nearly as useful in cardiac monitoring and diagnostics as a full 12-lead ECG. The AliveCor device retails for $199.

The mobileECG engineers say that the ambitious price target is possible for a number of reasons:

  • No separate device and cable. The ECG electronics are built inside the cable.
  • No retailers. You can buy the device directly from the manufacturer.
  • Low price margin.
  • Crowdfunding.

The company is attempting to  raise seed funding through crowdsourcing on indiegogo. Their ambitious target is to raise $230,000 by November 26. As of today, they have raised $5640. You can reserve your own mobileECG by pledging $289. This project may not be in the sweet spot for crowdsourcing but I admire their spirit!

Takeaways: Smart, ambitious people all over the world are working to solve all sorts of problems in medicine and healthcare. They are also availing themselves of the latest design, prototyping, and fundraising technologies including rapid design and prototyping, 3D printing, and crowdsourcing.

A $300 ECG may not be necessary in a U.S. medical clinic but it might be very welcome as an alternative to $3,000 ECGs in developing countries.

As with most truly disruptive technologies, mobilECG does not have all of the bells and whistles of professional electrocardiographs. They have an intriguing business model, however, and they have cloud-based communications built-in. This technology could make things very interesting in the cardiac monitoring market in the next few years!

Read more:

MobilECG Aims to Bring 12 Lead Electrocardiography to Consumers for True Heart Monitoring.

mobilECG – accessible clinical-grade electrocardiography | Indiegogo.

Mobile health news: Can this cool, cheap ECG device startup raise $230K in a month?.