CEO SUMMARY: Over the past 18 months, Theranos has taken steps to enter the clinical lab marketplace. Across Greater Phoenix, Theranos now has specimen collection centers in about 40 Walgreens pharmacies. It is opening a CLIA lab facility in Scottsdale. Now that it is delivering clinical laboratory testing services on a regular basis, the quality of its laboratory test results and the service it provides to physicians and patients will get close scrutiny from both investors and competing labs.
IT’S BEEN 18 MONTHS since the mysterious clinical laboratory company known as Theranos burst into public view with a sweetheart profile published by The Wall Street Journal. In that story, the company’s CEO promised to disrupt the clinical lab industry by serving patients in an entirely new way, using breakthrough diagnostic technology inspired by her vision.
Addressing that point, the WSJ reporter wrote how Theranos CEO Elizabeth Holmes and her proprietary diagnostic technology had the potential to “upend the industry of laboratory testing,” while further adding that Theranos “might change the way we detect and treat disease.”
In that WSJ story, the reporter described Holmes as a 29 year-old wunderkind who had developed a way to perform medical laboratory tests and deliver lab testing services to consumers that would revolutionize and disrupt the clinical laboratory testing market as it exists today. (See TDR, September 30, 2013.)
Included in The Wall Street Journal’s story about Theranos and Elizabeth Holmes was the news that Theranos had entered into an arrangement with Walgreens, the national pharmacy chain with 8,200 stores. The WSJ stated that “the company is launching a partnership with Walgreens for in-store sample-collection centers… Ms. Holmes’s long-term goal is to provide Theranos services ‘within five miles of virtually every American home.'”
Moreover, it was noted that “Ms. Holmes estimates that patients and doctors will receive readouts [lab test results] in “as little as two hours.”
Of course, claims such as these immediately caught the attention of pathologists, clinical lab professionals, and lab executives throughout the United States. With this announcement, they faced a new competitor; a company prepared to not just disrupt the existing business of lab tests, but to introduce an entirely new paradigm for medical laboratory testing.
Since the publication of The Wall Street Journal story about Theranos in the fall of 2013, the company has received fawning press coverage in such media outlets as Wired, Fortune, USAToday, Smithsonian, and The New Yorker, to name a few. The tone of these stories is generally to praise the company and its CEO, along with some mention of criticisms and a few quotes from outside experts who question some of the claims made by Theranos.
By the way, don’t overlook the Elizabeth Holmes speaking tour. During the past year and a half, she has been carefully booked to deliver presentations at conferences ranging from TEDMED to the Clinton Global Initiative. YouTube.com is salted with video clips of the presentations delivered by Holmes.
Given these lofty aspirations and the stated mission to do nothing less than transform the way consumers and patients get their medical laboratory tests, how has Theranos progressed during the past 18 months?
Specimen Collection Centers
Its first public move was in the fall of 2013, when it opened specimen collection centers in two Walgreens stores located in Palo Alto, California. The specimens collected at these sites were transported to Theranos’ CLIA lab facility, also located in Palo Alto. It apparently later closed one of the collection centers and currently offers its lab testing service in just one Palo Alto Walgreens.
Before the end of 2013, Theranos also began opening specimen collection centers in Walgreens stores throughout Phoenix, Arizona. It now offers its lab testing services in as many as 40 Walgreens stores across the Phoenix metropolitan area.
During the summer of 2014, Theranos leased 20,0000 square feet in a biotech office park. It stated its plans to build a CLIA laboratory in the facility and hire a staff of 500 people. It has been recruiting staff as it expands its operations in Arizona.
Although Holmes, in all her media interviews, discusses a business plan that is aimed at providing direct access testing to consumers through the Walgreens pharmacies, clinical labs in the Phoenix area were surprised to find sales representatives from Theranos visiting officebased physicians. These sales reps were asking physicians to refer their patients to Theranos for clinical laboratory testing.
Marketing to Physicians
Executives at competing clinical laboratories were not expecting Theranos to begin marketing directly to physicians. In its public statements, Theranos has emphasized its business strategy of having specimen collection centers located in retail stores, such as its arrangement with Walgreens, and serving customers who want to order their own lab tests.
Lab executives watching these developments observe that, if Theranos is to pursue client relationships with office-based physicians, it will need to incur the same costs as other clinical lab companies. That includes courier services, electronic interfaces with the physicians’ EHR systems, along with the need to acquire managed care contracts and maintain a coding, billing, and collections department, to name a few such costs.
Could these developments be early signs that Theranos realizes it must look much more like a conventional clinical lab company if it is to gain a foothold in the lab testing marketplace? And, as it does so, will it be able to generate adequate income to sustain its business operations? In Arizona, lab competitors will be watching to learn the answers to both questions.
In Arizona, New Consumer Direct Access Law Is a First Win for California-based Theranos
IN ARIZONA, A NEW LAW ALLOWS CONSUMERS to order any lab test a licensed clinical laboratory offers without a physician’s order. Governor Doug Ducey signed House Bill 2645, Laboratory Testing Without Order, into law earlier this month.
State officials who support the law say it empowers consumers by letting them order their own tests without having to wait for a physician visit and lab test order. It also protects physicians and other healthcare providers from legal liability, said state Rep. Heather Carter (R-Cave Creek), who sponsored the bill. The law becomes effective in early July.
Pathologists and lab executives will find it interesting that Ducey signed the bill into law at the Theranos lab facility in Scottsdale. Theranos is a clinical laboratory company in Palo Alto, California, that supports the bill. During the signing ceremony, Ducey, Carter, and other lawmakers stood beside Theranos CEO Elizabeth Holmes.
The legislation eliminates “outdated regulation,” Carter said, and gives consumers, “the right to order their own lab tests so they can make informed decisions and even life-changing choices about their health,” according to The Arizona Republic.
Direct Access Testing Law
The Tucson Sentinel reported that the law will affect labs in several ways. First, the law eliminates the current restriction on consumers that allows them to order only those tests currently on the Direct Access Test List from the state Department of Health Services. As of early July, consumers will be able to order any lab test directly from a licensed lab without a doctor’s order.
The law means healthcare providers will have no responsibility to review or act on results of a lab test done without the provider’s consent and a healthcare provider is not subject to liability or disciplinary action for failure to review or act on the results of a lab test if the provider doesn’t request or authorize the lab test, reported the newspaper.
Labs must send test results directly to the individuals who order the tests. Also lab tests that consumers order need not be covered by private health insurance or the state’s Medicaid system noted The Sentinel.
In 2013, Theranos opened its first clinics inside Walgreens stores in Arizona. Today, it operates clinics in 40 Walgreens stores, most of them in and around Phoenix.
Interview with Holmes
In an interview with The Arizona Republic shortly after Carter introduced House Bill 2645 in February, Holmes said that patients have to pay much more for clinical lab tests before they have a diagnosis. Even if a patient’s family has a history of disease and if patients could benefit from a screening test, insurance won’t cover it, she said.
“Inherently, we’ve got a system which is by law saying you can only get these tests done at a cost that is affordable once you already have the disease,” stated Holmes, according to the Republic newspaper. “And if they are not symptomatic, insurance won’t pay for it. So people have to pay out of pocket, and paying out of pocket is insanely expensive.”
During the signing ceremony, Holmes explained why Theranos supported the legislation. “My life’s mission in building Theranos is to change this outdated, expensive, and disenfranchising healthcare paradigm,” declared Holmes. “Our work at Theranos is about access-eliminating the need for painful needles and vials of blood, replacing that with tiny samples taken in convenient locations at convenient hours of operation, always for a fraction of the cost charged elsewhere-to build a healthcare system in which early detection and prevention become reality,” concluded Holmes.