The $9B Company About to Revolutionize Healthcare, And You've Probably Never Heard of It

Last week, Fortune profiled 30 year-old Elizabeth Holmes, CEO of Theranos — a company you probably haven't heard of yet, but should.

Theranos, a laboratory diagnositics company that Holmes dropped out of Stanford to launch, has a valuation of $9 billion and has received more than $400 million funding from venture capitalist heavyweights such as "Silicon Valley legend" Don Lucas Sr. and Oracle co-founder Larry Ellison.  

Even more impressive is the company's board of directors, which according to  Fortune's Roger Parloff, "in terms of public service at least, may be the single most accomplished board in U.S. corporate history. It includes former U.S. Secretary of State, Treasury, and Labor George Shultz; former Secretary of Defense Bill Perry; former Secretary of State and National Security Adviser Henry Kissinger; and former U.S. Senators Sam Nunn and Bill Frist (who is also a heart transplant surgeon), among others."
 
Why Silicon Valley investors want in
If you're wondering why Silicon Valley is so bullish about a diagnostic testing company (when competitors like Quest Diagnositcs already have such a large market share), then it's worth a quick explanation of the company's technology.

Holmes' name is on 82 U.S. and 189 foreign patent applications, 18 and 66 of which, respectively, have been approved, according to Fortune. The first patent — and the innovation on which Holmes founded her company — is for a patch that not only delivers medication to the bloodstream, but can simultaneous test the blood to assess the effectiveness of the therapy, and uses a cellphone chip to send results in real-time to physicians.

Other patents include a new method of blood testing that uses just 1/100th to 1/1,000th of the amount currently required for diagnostic testing and minimizes the already minor discomfort of a finger prick, according to Fortune. The company operates a CMS-approved high-complexity laboratory offering more than 200 diagnostic tests, and plans to soon expand that to over 1,000.

The really exciting thing, though is this: These tests are cheap. According to Fortune:

"Theranos tests cost less. Its prices are often a half to a quarter of what independent labs charge, and a quarter to a 10th of what hospital labs bill, with still greater savings for expensive procedures. Such pricing represents a potential godsend for the uninsured, the insured with high deductibles, insurers, and taxpayers. The company’s prices are set to never exceed half the Medicare reimbursement rate for each procedure, a fact that, with widespread adoption, could save the nation billions." (emphasis mine)

When is the last time ANY INNOVATION cost less than current Medicare rates?

In an era of transition to value-based care, and consumer-based decision making, a medical innovation that lowers costs is worthy of a lot of interest, which Theranos has certainly received.

Another reason to fear Walgreens
Currently, Theranos operates just 22 lab locations, one at its headquarters in Silicon Valley and the others at Walgreen pharmacies in California and Arizona. Walgreens has partnered for a nation-wide rollout in a "substantial" number of its locations across the country. Holmes wants one within five miles of every American home.
 
UCSF Medical Center, Dignity Health and Intermountain are all currently in talks with the company, to use its low-cost methods at its facilities as well.
 
UCSF CEO Mark Laret told Fortune, "This is the true transformation of healthcare, right here in front of us."

And indeed it is.

Medicine is one of the few industries plagued with innovation that drives costs, rather reducing them — which is the norm in nearly every other industry. The cost of the average hospital stay rose 90 percent in 10 years, driven largely by new technologies that are then incorporated into the cost of care. That's remarkable, and remarkably concerning given the demands rising healthcare costs place on our government and patients. So, when a medical innovation cuts cost significantly, that is remarkable too, and hospitals, investors and providers should take note. Some of the biggest names in Silicon Valley and public service certainly are.

 

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