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Theranos Biz Model

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These slides use concepts from my (Jeff Funk) course on Business Models at National University of Singapore to analyze the business model for Theranos. Theranos provides diagnostic testing for consumers that is faster and cheaper than the existing system. Its tests are done in easy to access pharmacies (e.g., Walgreens) as opposed to hard-to reach doctors’ offices. The tests use small bio-electronic integrated circuits (ICs) instead of large scientific instruments. These ICs utilize micro-fluidic channels that require a pin-prick of blood instead of a vial of blood, which makes the tests more appealing and faster than the traditional tests. The slides describe the value proposition, method of value capture, customers, scope of activities, and method of strategic control for Theranos.

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Theranos Biz Model

  1. 1. MT5016 TEAM MEMBERS: Lua Xiang Lian A0110240J Ong Hong Ping Samuel A0147203R Yew Hong Kee A0117916B Zhuo Jun Long A0147192A BUSINESS MODEL ANALYSIS
  2. 2. Overview  Introduction  Value Proposition  Customer Segmentation  Scope of Activities  Market Competitors  Value Capture  Strategic Control  Future Potential Development  Conclusion
  3. 3. Introduction of Theranos  Provider of diagnostic testing, information services to enable patients, physicians make better healthcare decisions  Founded by Elizabeth Holmes in 2003, Theranos originated from integration of therapy and diagnosis  Company valued at $9 billion  Mission: To make actionable health information accessible to people everywhere at the time it matters  No manual handling of samples, reduce errors associated to pre-analytical phase  Questions are being raised on the accuracy of the results, more details will be furnished later
  4. 4. Introduction of Theranos  Proprietary micro-fluidics technology  Theranos Wellness Centers - Partnership with Walgreens for in-store sample-collection centers to reach out to patients  Other wellness centers set up in hospital, US military
  5. 5. Introduction of Theranos
  6. 6. Incumbent Laboratory Testing Process Source: Clinical Laboratory Tests: Which, Why, and What Do The Results Mean? Frank H Wians Jr PhD, MT(ASCP), DABCC, FACB Patient goes to the doctor Doctor orders lab test Specimen taken Specimen transferred to lab Specimen analyzed Results conveyed to doctor Doctor interprets results Clinical response to results Laboratory Testing Process Pre-analytical phasePost-analytical phase Analytical phase
  7. 7. Sources of Laboratory errors Source: Carraro P, Plebani M. Errors in a stat laboratory: Types and frequencies 10 years later. Clin Chem. 2007;53:1338– 1342 Analytical, 15% Post-analytical, 23%Pre-analytical, 62% Laboratory Errors Top Pre-analytical Errors (62%) • Specimen collection tube not filled properly – 13% • Patient ID error – 9% • Inappropriate specimen collection tube/container – 8% • Test request error – 7% • Empty collection tube – 7% • Others – 18%
  8. 8. Theranos Eliminates Many Steps Patients fills up test order form or submits online via PC or mobile apps Specimen taken at Walgreens using a fingerstick Specimen transferred to lab Specimen analyzed using micro-fluidics technology Results sent to patients via website or mobile apps
  9. 9. Technology Comparison (Pre-Analytical) Steps Incumbent Theranos Specimen taking Vials of blood drawn from antecubital vein Small sample collected by fingerstick and fed into nanotainer Specimen transfer and preparation • Pre-centrifugation Handling • Blood Sample Centrifugation Microfludic testing platform with microchips (lab on a chip) in proprietary hardware, allows minute volume of blood flow in microfluidic lanes
  10. 10. Technology Comparison (Analytical) Steps Incumbent Theranos Specimen analysis Test methods using automated analysers and equipment from external manufacturers Micro-fluidics technology in complex laboratory system Step-by-step procedures to test for particular analyte Optimized laboratory methods based on established scientific principles involving biology, chemistry, and physics
  11. 11. Technology Comparison (Post-Analytical) Steps Incumbent Theranos Delivery of test results To healthcare providers by common computer system (Laboratory Information System or LIS) To patients directly or healthcare providers via Theranos website or smartphone apps
  12. 12. Value Proposition  Value Proposition for Consumers
  13. 13. Value Proposition Small Blood Sample Sample size 0.18 ml Run 30 tests Use of Micro fluidic Testing Platform VS Nanotainer
  14. 14. Value Proposition Painless Finger prick blood sample collection By using an array of needles 20nm in length Fingerstick
  15. 15. Value Proposition Speed Fast turnaround time for test result (24 – 48 hours) Streamlined processes required for Blood Test Use of Micro fluidic Testing Platform
  16. 16. Value Proposition  Speed in Healthcare & in Theranos Use of Micro fluidic Testing Platform Use of Online Services Cut down time needed for Doctor’s Authorization (Direct Test) Cut down time needed for Blood Test Appointment (Self Check in) Cut down time needed for Blood Testing (30 tests can be run with tiny blood sample) Cut down time needed for delivery of Blood Test report (Online delivery of Report) Collaboration with Walgreen
  17. 17. Value Proposition Accessible Online ordering menu Specimen can be taken in pharmacy (Walgreen) Smartphone Apps available
  18. 18. Value Proposition Inexpensive Affordable pricing (>50% cheaper than incumbent) Use of Micro fluidic Testing Platform A much simpler processes https://www.theranos.com
  19. 19. Value Proposition  Comparison between Theranos with Incumbent Typical Blood Test Process Theranos Incumbent Appointment for specimen collection Not applicable Before blood test Waiting List Waiting Time for specimen collection Not applicable Average 15 to 45 mins Blood Sample Size 0.18ml 5ml to 10ml or more Price for Test Report Cholesterol = $2.99 Cholesterol = $17.00 Order/Purchasing of Tests Online menu Clinical written authorization letter Waiting Time for Test Results 1 to 2 days 1 to 30 days Collection of Test Report Online via email Appointment for self collection or via mail
  20. 20. Strategy Canvas Inexpensive Compactness Of Blood Sample Speed of Service Blood Test Selection Accuracy Low High Accessible Incumbent Comfort
  21. 21. Customer Needs & Segmentation  Maslow’s Hierarchy of Needs  2nd Most Important Level  Healthcare Services  $3.8 Trillion spending in United States  $75 Billion Blood Testing Industry  $7.3 Billion spending in Singapore http://www.forbes.com/sites/danmunro/2014/02/02/annual-u-s-healthcare-spending-hits-3-8-trillion/ https://www.moh.gov.sg/content/moh_web/home/statistics/Health_Facts_Singapore/Healthcare_Financing.html http://www.wsj.com/articles/theranos-has-struggled-with-blood-tests-1444881901
  22. 22. Customer Needs & Segmentation  Healthcare & Market Segmentation
  23. 23. Customer Needs & Segmentation  Direct Users (throughout ages)  Infants  Young Children  Elderly  Working Adults
  24. 24. Customer Needs & Segmentation  Customer Needs (Faster, Cheaper, Better)  Small Blood Sample  Painless  Speed  Accessibility  Inexpensive
  25. 25. Customer Needs & Segmentation  Importance of Blood Testing “Theranos works under the assumption that a single drop of blood can provide enough information for a complete, inexpensive blood test. Blood tests are used in around 70% of medical decisions, but the way they are carried out hasn’t changed in decades.” – Business Insider
  26. 26. Customer Needs & Segmentation  Who is the first customer?  Patients with Chronic Disease (Diabetes/Cancer/HIV)  Diabetes  Cancer  HIV  And other dieases  People who are health conscious  Cholesterol Level  Fitness, Nutrition and Anti-Aging
  27. 27. Customer Needs & Segmentation  Patients with Chronic Diseases (Diabetes) 29.1 21 8.1 0 10 20 30 40 Diabetes (USA 2012… Undiagnosed Diagnosed Total In Millions
  28. 28. Customer Needs & Segmentation  Patients with Chronic Diseases (Cancer)
  29. 29. Customer Needs & Segmentation  Patients with Chronic Diseases (HIV/AIDS) http://www.healthline.com/health/hiv-aids/facts-statistics-infographic
  30. 30. Customer Needs & Segmentation  People who are health conscious (Trend in USA) http://www.ers.usda.gov/media/1259670/err161.pdf
  31. 31. Customer Needs & Segmentation  Indirect Users  Doctors or Physicians  For early diagnosis of medical symptoms  Insurance Agencies  New policy assurance  Hospital and Clinics  Blood Testing for other illnesses  Pharmaceutical Companies  Research & Development in new drugs
  32. 32. What Type Blood Test Report to Order?  Via Health Care Provider  Doctor’s or Physician’s recommendation  Direct Testing via Walgreen (Without Clinical Authorization Letter)  Direct testing form  Arrange with health care provider for consultation and interpretation of test results  Patients  Who know their diagnosis and want to monitor health  Recommendation in Theranos website
  33. 33. What Type Blood Test Report to Order?  fdfd
  34. 34. Scope of Activities Theranos WalgreensHealthy Individuals Theranos send the test results back to the Healthy Individuals and information of further steps to take are also provided in the report Healthy Individuals’ blood samples are drawn using fingerstick and the order form of the tests to be done are submitted together with payment made to Walgreens Blood samples collected are transferred to a nanotainer in a cartridge and dispatched to Theranos to do analysis and the payment collected is passed back to Theranos
  35. 35. Research & Development (R&D) •Proprietary technology – micro-fluidic testing platform •Most notable patent is “Medical device for analyte monitoring and drug delivery - US 8101402 B2” filed in August 2005 Manufacturing •In-house manufacturing and testing facility •Validated by Clinical & Laboratory Standards Institute (CLSI) & Food and Drug Administration (FDA) Distribution Channel •Theranos Wellness Centre – Walgreens (Exclusive Partnership) •Theranos Application (available in Apple Store & Android Play Store) Marketing Strategy •Advocate early detection and prevention of disease •Accessible health care services for all •Make actionable information accessible to everyone at the time it matters Scope of Activities Source: https://covalentdata.com/company/theranos , http://www.ipfolio.com/10-patents-that-launched-billion-dollar-empires/, https://www.google.com/patents/US8101402
  36. 36. Scope of Activities  Theranos’ Advantages New Paradigm to Testing Low cost with transparent pricing Smaller samples Faster results Accessible testing In-house proprietary in-vitro diagnostics (IVD) equipment – Edison Machine Theranos’ proprietary Edison Machine is linchpin to its strategy compared to incumbent diagnostics lab of purchasing traditional diagnostics equipment from external companies like Siemens AG
  37. 37. Scope of Activities  Theranos’ differentiation from traditional incumbent diagnostics laboratories • Goal: All tests can be done by blood drawn from just a finger prick and placed in a nanotainer – finger-stick test • Current Situation: 1. Nanotainers used commercially for 1 test that has received FDA approval – Herpes Simplex 1 Virus 2. Majority of test done using both finger-stick and traditional venous blood draws but with smaller needles Blood Draw • Two labs to process samples drawn from Theranos Wellness Centre • “High-complexity” lab with proprietary “Edison” blood analysis technology & “Medium-complexity” lab with traditional technology Transportation to Lab • Obtaining an accurate results by processing a tiny amount of fluid using micro-fluidics technology • Quick process of all kinds of blood samples using both “Edison” and traditional blood analysis machines via dilution of sample Analysis Source: http://www.techinsider.io/how-theranos-revolutionary-technology-works-2015-10 https://www.theranos.com/news/posts/custom/theranos-facts
  38. 38. Scope of Activities Potential Problem of Tests: Doubt on accuracy and precision of results Possible Solutions: Getting accreditations to ensure tests results are accurate 1) Getting accredited in Clinical Laboratory Improvement Amendments (CLIA-88) by the credentialing regulatory authority – Centers for Medicare and Medicaid Services (CMS) 2) Enroll and participate in a Proficiency Testing (PT) program administered by CMS by developing a transparent system for regulators to assess the comparison of Theranos’ PT results compared to standard PT results for the same analyte Source: http://www.wsj.com/articles/theranos-has-struggled-with-blood- tests-1444881901
  39. 39. Quest Diagnostics, 26% LabCorp, 20% Small Independent Labs, 37% Niche Labs, 9% Tier 2 Labs , 8% Independent Lab Segment - USD25 Billion Market Competitors Incumbent Diagnostics Lab  Laboratory Corporation of America (LabCorp)  Quest Diagnostics  Theranos New Diagnostics Lab Independent Labs, 53% Hospital Outreach, 35% Physician Office Laboratory (POL), 6% Others, 6% Outside the Hospital Segment - USD46 Billion Outside the Hospital, 62% Hospital Outpatient, 17% Hospital Inpatient, 21% Total U.S. Lab Market -USD75 Billion Source: Quest Diagnostics, Jefferies Healthcare Conference, 2 June 2015, Website: http://ir.questdiagnostics.com/phoenix.zhtml?c=82068&p=irol-irhome
  40. 40. Market Competitors Source: http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=20334531 http://www.bloomberg.com/quote/LH:US http://www.bloomberg.com/quote/DGX:US •Founded in 1978 •Offers clinical laboratory tests used by the medical profession in routine testing, patient diagnosis, and in the monitoring and treatment of disease •Develops specialty testing operations, diagnostic genetics and clinical trials LabCorp •Founded in 1967 •Provides diagnostic testing, information, and services •Operates a national network of full-service laboratories, rapid response laboratories, and patient service centres •Provides esoteric testing, routine medical testing, drugs of abuse testing, and non-hospital-based anatomic pathology testing Quest Diagnostics •Founded in 2003 •Operates as a consumer healthcare technology company with specializations in oncology, paediatrics, and geriatrics •Designs, develops, and manufactures systems that provide access to health information for the early detection and intervention of diseases; and conducts laboratory tests from blood, urine, fluid, solid, and other samples •Provides a suite of tools for patients and doctors ranging from websites to mobile applications Theranos
  41. 41. Market Competitors  Price Comparison of Theranos vs Incumbent Diagnostics Lab Theranos LabCorp Quest Diagnostics Complete Blood Count $5.35 $24.05 $19.99 Blood Glucose (check for prediabetes / diabetes) $5.82 $27.73 $28.99 Lipoprotein Panel (check for coronary heart disease) $9.21 $29.40 $20.37 Source: https://www.nhlbi.nih.gov/health/health-topics/topics/bdt/show https://www.health-tests-direct.com/ordering-page/ https://www.theranos.com/test-menu Overall savings of approx 50-80%
  42. 42. Market Competitors Strength • Low cost • Ease of use • Innovative platform that enable standard blood based diagnostics to be run using only a fraction of traditional testing volumes Weakness • Overcome regulations and laws on direct consumer lab testing • Objections by medical practitioners on the test results compared to standard lab test Opportunities • One of the first company on verge of building a scaled Point-of-Care (POC) or near POC diagnostic solution • Tapping into consumer-lab-testing market Threats • Overcoming market share of incumbent diagnostics lab • Trigger price war with incumbent diagnostics lab SWOT Analysis
  43. 43. Value Capture-Current Revenue Model Direct sale of health lab tests to customers through Walgreens Subscriptions of advance or more comprehensive lab tests Blood testing services at clinical trials
  44. 44. Current Value Network money Walgreens money service product service Healthy Individuals product money Clinical trials money service money
  45. 45. Value Capture-Proposed Revenue Model Partnering with private and public hospitals to use Theranos lab tests Partnership with insurance companies to provide better health insurance for consumers Sales of innovative user-friendly finger stick devices and other wearables Constantly monitoring patients’ data and make recommendations to patients through mobile apps
  46. 46. Proposed Value Network Hospital and Clinics Healthy Individual product money Subscription money Apps Insurance Company Historical Data money money Insurance Insurance money Subscription Apps Walgreens serviceproduct Patients
  47. 47. Strategic Control Sustainable Profit Intellectual Property Complementary Asset  Intellectual Property (IP)  Patent  Tacit Knowledge  Complementary Asset (CA)  Ecosystem  Distribution Channel  Partnership  Marketing
  48. 48. Strategic Control – Intellectual Property  Intellectual Property serves as a barrier of entrants to potential competitors. Tacit Knowledge - Complete knowledge of how their testing methods works and how to get several tests from single drop of blood. - Tacit knowledge only reside in key R&D personnel (CTO, R&D manager, key R&D engineers with non-disclosure agreement) Patent - As of July 2015, Theranos held more than 26 issued patents, including patents on wearable blood monitors and influenza virus detection - Theranos test blood in its proprietary technology- microfluidic technology (US 8101402 B2) with Theranos Edison blood testing device - Filing law suits against Intellectual Property thief
  49. 49. Strategic Control – Complementary Asset  Capabilities or assets needed to commercialize an innovation Ecosystem Ecosystem of users, doctors, researchers, pharmaceutical and insurance companies - User data attracts pharmaceutical companies for drug development opportunities - Insurances companies uses data for creation of targeted insurance policies for patients Distribution Channel Theranos services to be make easily available through pharmacy like Walgreens Tied up with hospitals and clinics to use Theranos services
  50. 50. Strategic Control – Complementary Asset  Capabilities or assets needed to commercialize an innovation Partnership -Establish tie ups with reputational pharmaceutical companies such Pfizer - Partnership with technology company to develop apps or external devices that can do blood test on mobile phones Marketing -Advertising in commercial medias -Sponsor health forums - Hold free public testing
  51. 51. Future Potential Developments
  52. 52. Conclusion  Theranos, has seized the public imagination with a vision of replacing traditional blood tests with a cheaper, faster, and less painful alternative  Theranos is offering tests for less money, and at a faster turnaround time, than giants like Laboratory Corp. of America or Quest Diagnostics  Value capture of Theranos lab tests revolve around making personal health monitoring a breeze and being cheaper  Profitability in the long run involved exercising of patents and tacit knowledge as well as various complementary assets

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