Theranos Biz Model

MT5016 TEAM MEMBERS:

Lua Xiang Lian A0110240J

Ong Hong Ping Samuel A0147203R

Yew Hong Kee A0117916B

Zhuo Jun Long A0147192A

BUSINESS MODEL ANALYSIS

Overview Introduction

Value Proposition

Customer Segmentation

Scope of Activities

Market Competitors

Value Capture

Strategic Control

Future Potential Development

Conclusion

Introduction of Theranos Provider of diagnostic testing, information services to

enable patients, physicians make better healthcare decisions

Founded by Elizabeth Holmes in 2003, Theranosoriginated 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

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

Introduction of Theranos

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

Doctorinterprets

results

Clinical response to

results

Laboratory Testing Process

Pre-analytical phasePost-analytical

phase

Analytical phase

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%

Theranos Eliminates Many StepsPatients 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

Technology Comparison (Pre-Analytical)

Steps Incumbent Theranos

Specimentaking

Vials of blood drawn from antecubitalvein

Small sample collected by fingerstickand fed into nanotainer

Specimentransfer 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

Technology Comparison (Analytical)Steps Incumbent Theranos

Specimenanalysis

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

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

Value Proposition Value Proposition for Consumers

Value Proposition

Small Blood Sample

Sample size 0.18 ml

Run 30 tests

Use of Micro fluidic Testing

Platform

VS

Nanotainer

Value Proposition

Painless

Finger prick blood sample

collection

By using an array of

needles 20nm in length

Fingerstick

Value Proposition

Speed

Fast turnaround time for test

result (24 – 48 hours)

Streamlined processes

required for Blood Test


Platform

Value Proposition Speed in Healthcare & in Theranos


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

Value Proposition

Accessible

Online ordering menu

Specimen can be taken in

pharmacy (Walgreen)

Smartphone Apps available

Value Proposition

Inexpensive

Affordable pricing (>50% cheaper

than incumbent)


Platform

A much simpler processes

https://www.theranos.com

Value Proposition Comparison between Theranos with Incumbent

Typical Blood Test Process

Theranos Incumbent

Appointment for specimen collection

Not applicable Before blood testWaiting 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 TestResults

1 to 2 days 1 to 30 days

Collection of Test Report

Online via email Appointment for self collection or via mail

Strategy Canvas

Inexpensive CompactnessOf Blood Sample

Speed of Service

BloodTestSelection

Accuracy

Low

High

Accessible

Incumbent

Comfort

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

Customer Needs & Segmentation Healthcare & Market Segmentation

Customer Needs & Segmentation Direct Users (throughout ages)

Infants

Young Children

Elderly

Working Adults

Customer Needs & Segmentation Customer Needs (Faster, Cheaper, Better)

Small Blood Sample

Painless

Speed

Accessibility

Inexpensive

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

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

Customer Needs & Segmentation Patients with Chronic Diseases (Diabetes)

29.121

8.1

0 10 20 30 40

Diabetes(USA2012…

Undiagnosed

Diagnosed

Total

In Millions

Customer Needs & Segmentation Patients with Chronic Diseases (Cancer)

Customer Needs & Segmentation Patients with Chronic Diseases (HIV/AIDS)

http://www.healthline.com/health/hiv-aids/facts-statistics-infographic

Customer Needs & Segmentation People who are health conscious (Trend in USA)

http://www.ers.usda.gov/media/1259670/err161.pdf

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

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

What Type Blood Test Report to Order?

fdfd

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

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

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

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-2015-10https://www.theranos.com/news/posts/custom/theranos-facts

Scope of ActivitiesPotential 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

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

Market Competitors

Source:http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=20334531http://www.bloomberg.com/quote/LH:UShttp://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

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/showhttps://www.health-tests-direct.com/ordering-page/ https://www.theranos.com/test-menu

Overall savings of approx 50-80%

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

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

Current Value Network

money

Walgreens

money

service

product

service

Healthy Individuals

product

money

Clinical trials

money

service

money

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

Proposed Value Network

Hospital and Clinics

Healthy Individual

product

money

Subscription

money

Apps

Insurance Company

Historical Data

money

money

InsuranceInsurance

money

Subscription

Apps

Walgreens

serviceproduct

Patients

Strategic Control

Sustainable Profit

Intellectual Property

Complementary Asset

Intellectual Property (IP)

Patent

Tacit Knowledge

Complementary Asset (CA)

Ecosystem


Partnership

Marketing

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

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


Theranos services to be make easily available through pharmacy like Walgreens

Tied up with hospitals and clinics to use Theranos services

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

Future Potential Developments

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