• A circa 2001 story of a a biotech company’s spectacular flame-out might have lessons for how the Theranos story might pan out.
  • In that case, just one piece of bad news was all it took for a domino-like collapse that revealed corporate illusion at the heart of the company’s operations.
  • Unlike Theranos, this biotech company was public, not private so subject to different pressures and liabilities.
  • Similar to Theranos,
    • Existed for a long time, in its case, ~20 years.
    • Did not put out a single product in all those years (Theranos, OTOH, has at least the FDA-approved HSV-1 test).
    • Was valued in the billions of dollars.
    • Led by a high-profile, strikingly charismatic entrepreneur.
  • I’m talking about ImClone Systems and Samuel D. Waksal
  • These days if people recall Imclone, it’s most likely for the alleged insider trading case that landed Martha Stewart in jail.
  • However, the reason for Imclone’s sudden downfall was an unexpected rejection by the FDA of its much-anticipated cancer drug, Erbitux (Cetuximab).
  • In his book, The Cell Game: Sam Waksal’s Fast Money and False Promises – and the Fate of Imclone’s Cancer Drug (Amazon.com: The Cell Game eBook: Alex Prud’homme: Kindle Store), Alex Prud’homme captures the fly-by-the-seat-of-the-pants style of functioning that Waksal brought to Imclone, a style that turned out be its and his downfall.
  • This was primarily because that style engendered a ‘playing by the rules is for schmucks‘ mentality and culture at the company. Sound familiar?
  • Months before its precipitous collapse in 2001, no less a company than Bristol-Myers Squibb had been eyeing a 20% stake in Imclone for $2 billion.
  • In fact, Imclone was a pioneer in cutting edge therapeutics.
  • Imclone was ahead of its time for two reasons,
    • First big player in cancer immunotherapy.
    • First to realize the importance of patient stratification.
      • Though European regulators rejected their Erbitux application when they submitted their data to them, Imclone pointed out a subset of responding patients who even went into full remission.
      • In fact, based on such promising data, even Bill Clinton asked for and got them to give Erbitux to a friend of his on compassionate grounds (Prud’homme’s book).
  • These pioneering traits notwithstanding, problem was Imclone was appallingly sloppy in its science and couldn’t withstand a full regulatory review by the FDA. Again, sound familiar?
  • In 2006, take-over specialist extraordinaire Carl Icahn took over Imclone.
  • In 2008, Eli Lilly and Company acquired Imclone for $6.5 billion.
  • Imclone’s portfolio of Erbitux and other anti-tumor mAbs (monoclonal antibodies) made it acquisition-worthy for a giant like Eli Lilly.

So what are Theranos’ assets?

  • A tangible asset useful to have on hand during acquisition negotiations is an extensive patent portfolio.
  • Patent Database – Justia shows ~87 patents filed by Theranos. Actual number’s likely <87, some filings being continuations, i.e., earlier filings incorporated fully into later ones.
  • Theranos could also have potentially lucrative trade secrets and proprietary technologies, something they’ve claimed all along to explain their disproportionate secrecy about their technology.
  • Patents, trade secrets and proprietary technologies would help at the bargaining table for acquisition talks.
  • Another bargaining chip? If they have valuable data from all those Walgreen Theranos Wellness Center blood tests, provided substantial amount of it was generated using their trade secrets and proprietary technologies. However, if most of it was generated using conventional technology already extensively used by competitors, the data’s not so valuable.

What might Theranos’ investors do?

  • If they push for an immediate acquisition, patents, trade secrets and proprietary technologies would bring value to the table but Theranos’ data’s still a huge question mark.
  • Since Theranos’ asset portfolio is more or less a black hole, at least publicly, acquisition may likely not be the first option for its main investors.
  • Wait and see what government regulators do may be their watchword in the immediate future.
  • Very likely Theranos was burning through investor money fast to provide all those test results at 1/10th or so of conventional costs, even as it turns out it was largely using conventional technologies to do so. What investor would like their money burned in such a futile quest?
  • That brings us to the next logical question, who are Theranos’ investors? In its Oct 31, 2015 print edition, the Economist reports, ‘In several respects, Theranos is highly unusual in the tech industry. Formed twelve years ago after Ms Holmes dropped out of Stanford University, the firm has not raised capital from the usual suspects in the tech or medical businesses. Only one prominent venture-capital firm, Draper Fisher Jurvetson, has invested, along with Larry Ellison, one of the founders of Oracle, an IT giant. Several of its investors are small-time players with no known expertise in the industry‘ (1).
  • So who these ‘small-time players‘ are and what they’ll do near-term will become critical questions in the near future.
  • As also decisions of early investors who purchased readily available Theranos shares in secondary markets (2).

Government regulators and Theranos customers

  • So far, the only public FDA decisions w.r.t. Theranos are recent responses to FOIA requests, the heavily redacted ones declaring Theranos’ nanotainers inappropriate inter-state commerce use of an uncleared medical device (3, 4).
    • The device use issue was low hanging fruit.
    • Easy to ascertain and decide.
    • Issues about Theranos technologies, and if and how they were used to generate data on thousands of Walgreen Theranos Wellness Center customers will take much longer to untangle because it means going through reams and reams of data, QA/QC (Quality Assurance/Quality Control) procedures and logs, collation and co-ordination with Centers for Medicare and Medicaid Services (CMS), Walgreens, etc. That’ll likely take months.
    • Note the bottom of both FDA documents list 12 inspection dates (3, 4): ‘DATES OF INSPECTION: 08/25/2015(Tue), 08/26/2015(Wed), 08/27/2015(Thu), 08128/2015(Fri), 09/01/2015(Tue), 09/02/2015(Wed), 09/03/2015(Thu), 09/04/2015(Fri), 09/09/2015(Wed),09/10/2015(Thu), 09/11/2015(Fri), 09/16/2015(Wed)‘.
    • Twelve days of almost continuous FDA inspection by five different investigators sounds like a big deal to me.
  • A more immediate threat could come in the form of class action law suits on behalf of some of the thousands of customers who paid for and took their tests (5).
  • Or it could be legal action by state Attorney Generals (Arizona/California/Pennsylvania) for flouting regulatory guidelines (5).

Theranos’ Board

  • Why so many board changes?
  • On Oct 29, 2015, Reuters’ Richard Beales reported that Theranos now seems to have sprouted not one nor two but three boards (6).
    • Kissinger, Schultz bounced to a so-called board of counselors.
    • Plus a new four-member medical board.
    • Company claims these changes were made in July 2015.
    • He points out ‘it’s an odd time to muddy the question of accountability (or to reveal that it was muddied three months ago)‘.
    • Also points out it’s ‘odd that no directors represent major investors at a company with more than $400 million in funding’.
  • What’s odd as well is the timing and nature of Theranos’ first board shake-up, back in July 2013, just two months after Ian Gibbons’ suicide in May 2013. Gibbons was the British biochemist the WSJ reported Holmes herself recruited in 2005 (7), and who’s listed on 23 of Theranos’ patents.
    • On Aug 30, 2013, San Francisco Business Times’ Ron Leuty reported that in July 2013 Theranos disclosed that, ‘Robert Shapiro, the former chairman of drug company Pharmacia Corp. , venture capitalist Pete Thomas of Redwood City’s ATA Ventures — another early Theranos investor — and Channing Robertson, the recently retired Stanford chemical engineering professor who encouraged Holmes to start her company‘ departed its board, leaving ‘former Secretary of State George Shultz, Holmes and Theranos President and COO Ramesh “Sunny” Balwani as the only holdovers‘ (8).
    • That’s when ‘former Secretary of State Henry Kissinger, a retired four-star general and former Defense Secretary William Perry‘ came on board (8).
    • The board of directors re-organization Theranos disclosed in July 2013 ended up stocking it with individuals with diplomatic and military backgrounds while the ones with biopharma/start-up/ scientific experience left.
    • That 2013 story also states something that’s now become a well-worn theme with Theranos, ‘Most potential sources contacted for this story — Holmes, her Stanford professor mentor, Theranos employees, former employees, possible suppliers, scientific collaborators, possible competitors, defendants in lawsuits, board members and financial backers — either didn’t return phone or electronic messages, referred questions to Theranos or refused to comment on the record. Some cited sweeping nondisclosure agreements they had signed with the company‘ (8).
    • In fact, that 2013 article quotes Elizabeth Holmes, ‘The company’s culture is such that confidentiality is the essence of its existence‘ (8).
    • That’s a fine sentiment for defense and security-related firms. Not so for science-based health care firms, especially when accuracy of their blood test results come into question.
  • Post Oct 15, 2015 WSJ, why haven’t journalists researched reasons for that original 2013 board shake-up?
  • Post Oct 15, 2015 WSJ, why haven’t journalists tried to interview Robert Shapiro, Pete Thomas and Channing Robertson to find out why they left Theranos’ board in 2013?
  • In her earlier, largely glowing Oct 2015 profile, Kimberley Weisul of Inc extensively quoted Channing Robertson’s influence and guidance during Theranos’ early days (9).
    • What’s his involvement with Theranos now? Is he still a senior technical adviser?
    • Why didn’t she or other reporters ask him why he left the board in 2013? Even a noncommittal answer is better than simply not seeking standard information as required of basic journalism 101.

As things stand, acquisition might be the least painful option in the long run.


  1. The Economist, Oct 31, 2015 print edition:  The fable of the unicorn
  2. The Wall Street Journal, Rolfe Winkler, John Carreyrou, Oct 28, 2015:  Theranos Authorizes New Shares That Could Raise Valuation
  3. FDA’s Theranos inspection, Mary R. Hole, Yung W. Chan, Stayce E. Beck, Aug 25 to Sep 16, 2015: Page on fda.gov
  4. FDA’s Theranos inspection, Seema S. Singh, Ian A. Pilcher, Aug 25 to Sep 16, 2015: Page on fda.gov
  5. The Wired, Nick Stockton, Oct 29, 2015: The Theranos Scandal Could Become a Legal Nightmare
  6. Reuters’ Richard Beales, Oct 29, 2015: Testing simplifier Theranos complicates governance
  7. The Wall Street Journal, John Carreyrou, Oct 16, 2015. Hot Startup Theranos Has Struggled With Its Blood-Test Technology
  8. San Francisco Business Times’ Ron Leuty, Aug 30, 2013:  Theranos: The biggest biotech you’ve never heard of – San Francisco Business Times
  9. Inc. com, Kimberley Weisul,  Oct 2015:  How Playing the Long Game Made Elizabeth Holmes a Billionaire