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.

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. Overview
 Introduction
 Value Proposition
 Customer Segmentation
 Scope of Activities
 Market Competitors
 Value Capture
 Strategic Control
 Future Potential Development
 Conclusion

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. 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. Introduction of Theranos

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. 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. 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. 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. 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. 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. Value Proposition
 Value Proposition for Consumers

13. Value Proposition
Small Blood
Sample
Sample size
0.18 ml
Run 30 tests
Use of Micro
fluidic Testing
Platform
VS
Nanotainer

14. Value Proposition
Painless
Finger prick
blood sample
collection
By using an
array of
needles 20nm
in length
Fingerstick

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. 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. Value Proposition
Accessible
Online ordering
menu
Specimen can be
taken in
pharmacy
(Walgreen)
Smartphone Apps
available

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. 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. Strategy Canvas
Inexpensive Compactness
Of Blood
Sample
Speed
of
Service
Blood
Test
Selection
Accuracy
Low
High
Accessible
Incumbent
Comfort

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. Customer Needs & Segmentation
 Healthcare & Market Segmentation

23. Customer Needs & Segmentation
 Direct Users (throughout ages)
 Infants
 Young Children
 Elderly
 Working Adults

24. Customer Needs & Segmentation
 Customer Needs (Faster, Cheaper, Better)
 Small Blood Sample
 Painless
 Speed
 Accessibility
 Inexpensive

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. 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. 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. Customer Needs & Segmentation
 Patients with Chronic Diseases (Cancer)

29. Customer Needs & Segmentation
 Patients with Chronic Diseases (HIV/AIDS)
http://www.healthline.com/health/hiv-aids/facts-statistics-infographic

30. Customer Needs & Segmentation
 People who are health conscious (Trend in USA)
http://www.ers.usda.gov/media/1259670/err161.pdf

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. 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. What Type Blood Test Report to Order?
 fdfd

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Current Value Network
money
Walgreens
money
service
product
service
Healthy
Individuals
product
money
Clinical trials
money
service
money

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. 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. Strategic Control
Sustainable
Profit
Intellectual
Property
Complementary
Asset
 Intellectual Property (IP)
 Patent
 Tacit Knowledge
 Complementary Asset
(CA)
 Ecosystem
 Distribution Channel
 Partnership
 Marketing

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. 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. 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. Future Potential Developments

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