Inside the Lab Industry: Touting New Technology, Theranos Strikes Testing Deal With Walgreens

A Silicon Valley entrepreneur has been planning since she was a teenager to remake the sometimes painful and time-consuming process for the blood draws required to perform laboratory testing. The first phase of Elizabeth Holmes’s plan was unveiled this month in conjunction with the nation’s largest retail pharmacy chain. Holmes’s firm, Palo Alto, Calif.-based Theranos, has worked mostly in secret for the past decade to perfect a wide array of laboratory assays that require just a few drops of blood. For collection, the company has developed a system of minilancets, microtubes, and a draw vial so small it is shown in promotional materials on the tip of a finger. Holmes dropped out of Stanford University at age 19 a decade ago to form the company, where she serves as its chief executive officer. Only 29 now, Holmes has a list of formidable accomplishments under her belt: Along with miniaturizing a collection and testing process that’s remained mostly unchanged for decades, she’s raised an estimated $100 million in venture capital, attracted three former U.S. cabinet members to her board, and snagged the former corporate headquarters of Facebook and Hewlett-Packard for company office space. Theranos has also been quietly acquiring additional office space and hiring dozens of employees in recent weeks. Holmes and other company officials have received five U.S. and four global patents on its draw technology and testing devices in the past year, records show. Theranos’s path appears drastically different—and more ambitious—from when Holmes initially founded the company to create a device that would provide real-time information to individuals concerned about their risks of adverse drug interactions. It’s a product she described in 2006 as an “external point-of-care Blackberry.” BlackBerry has admittedly seen better days. Whether Holmes and her company can replicate that experience for the Quest Diagnostics and LabCorps of the world—or just carve out a significant niche for itself—remains a giant question mark. Observers expressed excitement at the technology advances Theranos may offer but caution that the business model it is pursuing poses numerous challenges. The Retail Route Rather than rely on marketing via doctors’ offices, medical groups, and hospitals, Theranos will present its product in a retail setting, primarily as a personal medicine product. It announced earlier this month a deal with Walgreens to open “wellness centers” on-site at a variety of its pharmacies. The first one opened this month in Palo Alto, not far from Theranos’s headquarters. Under the concept, patients would be able to visit Walgreens and provide blood draws for a panel of about 220 different tests, according to data on its Web site. Most of them are basic hormonal, drug, and substance assays, although Theranos’s marketing materials hint at future molecular testing. All assays are priced at 50 percent below Medicare rates, with about half under $10. A basic urinalysis or glucose test is priced well under $2—less than what many drugstores charge for a pack of chewing gum. Tests would be processed at Theranos’s lab in Palo Alto, although the company’s recent patents suggest a lot of testing may be done at the draw site and also transmitted electronically. Results for most tests would be offered to patients within a few hours. “Theranos’ service offers affordable certified lab testing with quicker response times, and furthers our mission to provide a differentiated patient experience,” said Kermit Crawford, Walgreens president of pharmacy, health, and wellness, in a statement. “This is the next step in Walgreens’ efforts to transform community pharmacy.” Spokespeople with both Theranos and Walgreens declined to provide specifics of the business arrangement or how many sites will open in the near term. “We’re right now focused on the successful launch of the first site,” Walgreens spokesperson Jim Cohn said. Separate From Retail Clinics Theranos’s services will be offered as a product distinctly separate from Take Care, Walgreens’ chain of retail primary care clinics, according to Cohn. And while he added there are no plans to market the two together, he did not deny that there is a growing consumer awareness of the retail clinic concept. Observers say that growing awareness could benefit Theranos. “Most certainly, there is a space for something like this,” said Thomas Charland, chief executive officer of Merchant Medicine LLC, a Minneaoplis-area firm that focuses on developments in the retail clinic realm—the one area where lab tests and pharmacies mostly intersect. “But to what extent it will represent significant patient volume, I can’t say.” Charland added that most assays currently conducted by staff at retail pharmacies are of the kit variety and often take just seconds to process, with no referrals or outreach required. That far more tests would be available, with specimens presumably drawn far more comfortably than in a doctor’s office or a laboratory draw site, might make it attractive, he said. And while it appears that the Theranos technology is a leap ahead of traditional blood draws—anyone with a toddler undergoing testing is cognizant of nightmare encounters with a phlebotomist—the logistics of quick draws and analyses at a pharmacy site remain unproven. Peter Francis, president of the Maryland-based Clinical Laboratory Sales Training LLC, recalled an attempt by the clinical laboratory division of SmithKline Beecham to set up draw stations in retail pharmacies in the 1990s. “It did not pan out,” he said, adding that there were long lines and other logistical issues. SmithKline sold its lab business to Quest Diagnostics shortly thereafter. Mostly Silent While Theranos has discussed its technologies, it has been virtually silent on the specifics of its business plans to Laboratory Industry Report and other publications. Holmes once said in legal papers that confidentiality was critical to Theranos’s success. A planning official with the Bay Area suburb of Newark, where the company rents a large space that is believed to include its laboratory, recently told the San Francisco Business Times it was the most secretive outfit he has ever dealt with. The few names openly connected with Theranos suggest a corporate culture simultaneously seeking to leverage status while maintaining insularity. While two of Theranos’s directors are big names—former Secretary of State Henry Kissinger and George P. Schultz—both men are in their 90s and have next to no experience in the business of health care delivery. Ditto for much of the rest of Theranos’s board, whose preponderance of experience is in the public service and military realms. They may have been recruited with the assistance of Elizabeth Holmes’s father, Christian R. Holmes, who held high-level posts during the George H.W. Bush administration and is currently a global coordinator for the USAID relief agency. Only one director, former Wells Fargo & Co. CEO Richard Kovacevich, has extensive experience running large companies. And data from LinkedIn suggest that Elizabeth Holmes’s brother, 27-year-old Christian R. Holmes Jr., holds a key position at the company as its product development chief. Holmes’s only significant media interview in recent years has been with the Wall Street Journal. It was conducted by a member of its editorial board who specializes in opinion writing. His only other interview was with the 92-year-old Schultz, who suggested that Holmes could become the next Bill Gates or Steve Jobs. “This is not the last thing [Holmes is] going to invent,” he offered. Takeaway: A potential breakthrough in the specimen collections process will be marketed in the personal medicine rather than the commercial laboratory realm as Theranos, a California-based startup, takes aim at retail clinics.