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In: Opinions & Features

12.5.15 | Forbes

By Steve Brozak

To read the entire article on Forbes, please click here.

It couldn’t have been easy for Elizabeth Holmes, CEO & founder of the controversial blood test company Theranos, to prepare for an interview with Matt Herper at the Forbes Healthcare Summit. Six months ago, armed with an alliance with Walgreens, Theranos seemed like the future of testing and an answer to high-priced laboratory regimes managed by Quest Diagnostics and Laboratory Corp. of America. Holmes herself was portrayed as a welcome iconoclast, the disruptor of an entire industry who challenged the system on behalf of American patients and made on behalf of American patients and made herself a billionaire along the way. It’s the kind of story Shark Tank America falls in love with.

But Holmes and her company have stumbled as questions arose out of revelations from former employees who claimed that Theranos’ testing system was not as robust as the company claimed. The last couple of months have been a painful reminder that it takes more than words and glossy magazine covers to take on an entrenched system.

The questions asked by Forbes’ Matt Herper at the Forbes Healthcare Summit on December 3 were brutally precise and rapid fire: Do the proposed tests using finger pricks instead of needles and tubes of blood meet the FDA standards? Should they meet FDA rules? The FDA has said that Theranos capillary tube Nanotainer is indeed a Class II medical device subject to federal regulations – why didn’t Holmes embrace that status a year or so ago?

More questions: Are Theranos’ tests as accurate as traditional blood tests administered through Quest Diagnostics Inc. and Laboratory Corp. of America Holdings? Even conventional lab-based tests of tubes of drawn blood can show differences in results – but do Theranos’ tests go outside an acceptable range of variations?  Instead of answering them individually, Holmes went through an entire explanation of what her company does and how the technology works, as if she was rebooting one of her devices.

Let’s step away from the technological details for a moment and address the more serious issue for Theranos and Holmes: Transparency.

Theranos’ competitors and the device makers that could be threatened if Theranos systems are adopted widely are likely celebrating the attacks on Holmes and Theranos. Her detractors believe they can rely on Holmes’ insistence on secrecy to keep her from responding productively. However, Holmes is hamstringing herself and Theranos with secrecy and defensiveness.

As publicly traded companies, Quest Diagnostics and Laboratory Corp. of America must publish quarterly and annual reports, and make public any significant events that could affect their stock prices. As a private corporation, Theranos has no requirement to publicly report the financial health of the company and its technical or business initiatives. But perhaps it should.

At the Forbes Healthcare Summit, Holmes revealed surprisingly good news: No problems with cash flow at Theranos. In fact, she said, “we’ve seen our highest volume” of patients taking the blood tests, and is doing more business than before the negative press stories began to rain down.

But over the 12 years of her enterprise, Holmes has wrapped Theranos in a shroud of secrecy. Specific aspects of the Theranos device were kept hidden to maintain the company’s competitive advantage. The patents on public record are generic, presumably on purpose in order to protect the proprietary technology behind Theranos. There have been numerous profiles in papers and magazines about Holmes’ background and how she came up with “The Next Big Thing,” and how specifics around the high flying tech are black boxed. But in the wobbly biotech environment, lack of discussion about the technology and access to lab information can suggest internal problems with the technology. In this case, Theranos was a high flying story until concerns around its technology arose. Among them were questions about the reliability of test results, if whether or not the Theranos device was actually being used to provide test results, and whether or not the results for its approved uses are actually reproducible.

During the Forbes Healthcare Summit, Holmes conceded she needed to make a greater effort to explain her company to the public. Ironically, On Being A Private Company she also stated that Theranos “is a private company and [that it is] going to stay that way.”  The value of maintaining private ownership of Theranos can be argued, but the high cost of maintaining privacy of useful, positive information on Theranos is obvious. Holmes needs to understand the enormity of this dichotomy, and not ignore it. Even private companies are accountable to the public, especially when it comes to matters of public health, and Holmes needs to do more than just defend the integrity of her company’s data if she wants to remain relevant. She must validate her technology either by sharing it or having a third party or regulatory agency validate it for her.

Here are some ideas: Nothing stops Theranos from having the kind of investor status calls and announcements and events that publicly traded companies undertake. Set up a hybrid: A version of an investor call that discuses the market, new developments, the potential, and the numbers.  Have a patient-doctor day to show off the lab and the Nanotainer at work. Schedule a talk to answer medical practitioner questions at one of the many conferences on the medical convention calendar.

Theranos is poised to introduce a new healthcare technology, yet the company has not published peer-reviewed studies comparing its tests to traditional ones. When asked about the technical details of its testing, Theranos just says it needs to protect its intellectual property. In an interview with Tech Insider in April, Dr. Jerry Yeo, a professor and director of Clinical Chemistry Laboratories at the University of Chicago, said Theranos “completely bypassed the traditional process of peer review or publishing in peer-reviewed journals or having peer labs evaluate their product.”

Theranos should also undertake an independent comparative study of its testing system, submit it to a peer review journal, and get it accepted by a medical journal. You say you want a revolution? Start one.

Disruptors never succeed right from the start. Just ask Bill Gates how many mistakes and attacks he dealt with and fumbled through when Microsoft Corporation took on mainframes.

Life hasn’t been simple for Theranos. Even the name Nanotainer was the subject of legal squabbles with Becton, Dickinson and Company, one of the largest medical device makers of the kinds of products – needles – that could be threatened by Theranos. Becton, Dickinson and Company sued Theranos, alleging that there might be confusion with its microtainer blood containers. The suit was eventually dropped, but it should have awoken Holmes to the need to be more open about Theranos and its technology.

Right now the concern is a seeming slew of questions from the FDA, and Holmes indicated that Theranos is struggling with the evolving nature of FDA policy. But she also suggested that FDA changes could ultimately help her company. Holmes indicated that the FDA is close to clearance on Nanotainers requiring 10 to 30 times less blood. At the Forbes Healthcare Summit, she said there had been some 120 pre-submissions to the FDA, most of them voluntary.

Holmes needs to recognize that many segments of the health care industry, including practitioners, hospitals, policy makers, and investor groups, were in her corner before the controversy around her company made headlines. They wanted to see a disruptor succeed. She now needs to regain their confidence by sharing not only her story, but her technology.