Theranos’ Elizabeth Holmes is Not a Liar

(Via Quora’s Is Elizabeth Holmes a liar?)

The Theranos story has gone from bad to worse, first from the Wall Street Journal “expose” that Holmes during a live blogging event equated to “tabloid” journalism, then from a series of very public disengagements with partner corporations, and now — complying with a Herculean FDA request. This is causing some in the public to ask whether Holmes is a mastermind in a fairytale of scientific triumph.

No. Holmes is not a liar.

Holmes made bad business decisions and painted herself into a corner.

Holmes is in the class of executives that are technologist founders, which combines subject matter STEM expertise with the vision and strategy typical of C-level executives. The challenge with this class of executives is that they often do not excel in all aspects required in each role. There are incredible business chiefs that cannot do the job of their company’s top subject matter experts (SME). There are genius technologists who can rapidly run businesses of any size to the ground. It is rare to combine both SME and business acumen at the highest levels in one person.

In the case of Theranos, she was extremely effective in the beginning, when she needed to create excitement and inspire others to support her vision. She fulfilled an important role for a chief executive. She brought the technology into development, which fulfilled an important role for a technical subject matter expert, although I am less “sold” on how cutting edge her technology is given the lack of data, thus I hold her less credible on the SME role compared with the CEO role.

Companies must exist beyond initial honeymoons, and especially must weather and survive crises that are part of business cycle/life. Add to this, the “healthcare business”, where we now involve the quality and quantity of people’s lives, and we can see the level of shit-storms that can happen. In the healthcare business, I have come to believe that the question is never about “if” a shit-storm will happen to a life science company, but “when” and “how bad” a shit-storm will happen.

This is where Holmes began making a series of bad calls that snowballed into bad decisions, which became bad publicity that she made worse by more bad decisions. Now we’re at the point where we may want to believe but we harbor more doubt because of Holmes’ cumulative actions resulting from the original points of doubt.

But has Holmes fared worse in her CEO actions than other CEOs who have been embroiled in scandals? Has she behaved in a way that shows greater opacity or concealment than other CEOs under fire from public scrutiny?

I don’t think so. Holmes is acting exactly as other CEOs had to act in this situation: as directed by company lawyers, to ensure her actions are in the best interest of Theranos at this point. Even if she was the one who caused great harm the credibility and public image of the venture that has become her entire identity.

The Theranos Problem in One WSJ Graphic

Now that Theranos is allegedly/denying-trying to raise money, speculations continue as to whether it could survive the Wall Street Journal article, Hot Startup Theranos Has Struggled With Its Blood-Test Technology, or whether a big industry player may swoop down to acquire the company.

In terms of “who would be audacious (to use a polite word) enough to possibly merge/acquire Theranos”, I think a diagnostic company would be more a likely candidate… you know, one of the big players that Theranos was meant to “disrupt” the business of.

The short sighted assumption from many people thus far, is that Theranos was the only company that had the “foresight” to reduce sample volume required for blood based assays.

Can we actually believe that NONE of the big players NEVER considered the competitive advantage of reducing sample volume required from patients and human subjects? Are we saying that all these years no one had ever realized how many people hated needles, and the kind market leadership position one may gain if one creates an assay method that enables accurate sampling of mere drops of blood versus vials of blood?

When we look at Theranos’s “accuracy” compared with hospital results, most scientists familiar with the assay process can deduce the magnitude of what needs disrupting:

The best performance in the graphic from Theranos in terms of “accuracy” compared with a hospital result “standard”, is the glucose test.

This is nothing to be impressed about: getting the glucose reading right is no newer than the finger prick glucose draw available from today’s diabetes management devices. It only shows Theranos got their tech as right as what is already available in terms of a finger prick blood sugar test.

Perhaps someone can use current glucose monitoring technology, modify it so it could assay for Herpes (simplex type1), and see if the same “tech” transfers readily to accurately test for Herpes. This would offer an interesting data point to show just how novel the “Edison portfolio of technology” is.

This one graphic sums up the Theranos problem: the most accurate comparison is in a variable for which cheap and accessible diagnostic is available (glucose), and not for any variables for which wide clinical use are expected (liver function tests, which are critical for a variety of medications affecting liver function).

Theranos’s results are consistently “false positive” compared with hospital standard: if a clinician believes in the Theranos result, the clinician may order the patient to stop taking medications that the patient needed and was doing well on, but should no longer be taking because the results show that liver was being negatively affected, or the clinician could switch to another less effective medication for the patient out of concern for liver function. Either case, if the Theranos test was inaccurate, this would cause harm to the patient by unnecessarily disrupting treatment regimen that was otherwise appropriate.

This is not the kind of “disruption” healthcare providers want.

From a business perspective, Theranos’s FDA approved use for its product has a very narrow indication (Herpes), yet the test is commercially available without authorization from a licensed healthcare practitioner. This is great for the company’s bottom line, because the (federal) agency will have a tough time identifying which kits have been purchased for “approved” use and which kits are actually used “off-label”. The pricing advantage allows Theranos to reduce dependence on CMS reimbursement, by going straight to consumers. Liability becomes a matter of personal injury, which may be skirted when the consumers assume entire risk by “inappropriately using” the kit.

However, this is not great from a consumer protection standpoint.

We may subscribe to a conspiracy theory about major diagnostic and device companies colluding to keep an oligopoly on expensive assay machines and profit margins for assay kits, but from a business competition standpoint, the market dominance/leadership would be too attractive for a major player to ignore in the name of market oligopoly.

Biotechnology Stock Price Drivers

The following may be happening that can affect the stock price:

  • Presentations or buzz occurring at key scientific and medical meetings; for oncology from which many biotechs sprout, we have ASCO, ASH, AACR, to name a few key meetings.
  • Clinical trial results are closely pending or just released. Typically companies dealing with the same or similar technology/pathway are affected by a peer company’s clinical trial results.
  • FDA decisions pending or released.
  • FDA holds on a clinical trial either imposed or lifted (as with $GERN).
  • Management taking the “poison pill” strategy against possible hostile bids (as with $ARIA 2 years ago)
  • Earnings are reported (usually at a loss unless there is already a commercial drug).
  • Merger & acquisition activity (Drama around $VRX hostile bid for $AGN).
  • Licensing announced including upfront/milestone payments.
  • Orphan drug designation announced (as with $ISIS recently).
  • Key management (C-level for biotech) changes.
  • Major insider buys/sells (like when $INO’s CEO bought a ton of company stock as a show of confidence when stock dropped last year because a blogger made unfavorable comments about the company’s drug, or $OPK’s founder buying a ton of his company’s stock last year when $IBB went through a bloodbath.)
  • Major shareholder (usually investment firms or hedge fund managers) buys/sells.

For the most part, biotech stocks should be viewed either as a speculative investment and/or truly for the long term. Those who bought $MDVN or $PCYC when these were in double digit prices and held through 2015 has seen their investment double or triple in value. There are those who daytrade and really speculate the sector for its volatility, but that’s a pretty stressful “day job” in my personal opinion.

Antibiotic Resistance: Cultural Issue not Medical Science

We must tackle a cultural problem around overuse of antibiotics.

It doesn’t matter whether we keep coming up with antibiotics: we simply breed for the most drug resistant pathogens by increasing the selective pressure in bacteria. We do this by over-prescribing antibiotics.

But wait. This isn’t necessarily about getting doctors to stop over-prescribing antibiotics. If it were that simple….

When a patient comes in complaining of what a physician judge to be “a cold”, the physician may very well tell the patient, “Go home, sip lots of hot tea and chicken soup, get plenty of rest, and take some decongestant for the symptoms.”

Then that patient says, “But I waited in your damn office for 45 minutes! You’d better get me SOMETHING.”

In other words, the patient EXPECTS the doctor to write a prescription for what the patient perceives to be “more than just” a cold.

If that doctor tries to educate the patient on the broader consequences of antibiotic overuse, the patient may very well continue to demand (DEMAND!) that the doctor write a prescription for an antibiotic (yes, here in the U.S. many patients aren’t afraid to tell doctor what they want prescriptions for). If that doctor refuses, the patient simply goes to another doctor, who is willing to write the prescription.

So I don’t care if we come up with nth generation macrolide / cephalosporin or we engineer a quinolone that won’t cause such serious adverse events that half of the drugs in that class has been pulled off the shelf…

I don’t care if we start ‘designing’ antibiotics that overcome a microbe’s awesome drug-effluxing receptors…

it is only a matter of time that we create enough selective pressure for a bug to breed and mutate into a superbug that not only will clip whatever enzyme an antibiotic uses to disable the superbug’s replication system but will pump and dump that antibiotic faster than you can say “vancomycin”.

The most important thing we can do is to curb society’s demand for antibiotics for conditions that does not warrant antibiotics, and hope that pharmaceutical sciences can catch up with the superbugs.