I have been carefully following the news about Theranos as it's overall business model is slowly unveiled (see: Finally, Some Important New Details about the Theranos Business Model; Cleveland Clinic Develops Business Partnership with Theranos; Further Discussion about the Cleveland Clinic Relationship with Theranos; The Physician Office Relationship with Reference Laboratories; Another Puff-Piece about Theranos; Extracting the Most Salient Points). The latest information comes from an article in Fortune that is very interesting (see: A second FDA approval frees Theranos to do a blood test outside lab), Below is an excerpt from it:
In its second FDA approval... [recently],...Theranos won a right...that no one knew it was seeking: It is now authorized to process a complex, authoritative blood test outside of a lab, signaling a sea-change that could greatly diversify the company’s business model....The clearance is technically known as a CLIA waiver, the term used when the U.S. Food and Drug Administration gives permission to run a device outside a laboratory—labs being regulated under rules set up by the Clinical Laboratory Improvement Amendments of 1988, or CLIA....Yesterday’s FDA action involves a test that detects the presence of the sexually transmitted disease known as herpes simplex virus (HSV-1), which is a procedure that has never before been the subject of a CLIA waiver, according to Theranos. Though yesterday’s waiver extends only to that one particular test, the company has said that it is pursuing FDA clearances on more than 120 other diagnostic exams it performs using very similar hardware and software, so it appears that the company is seeking wide-ranging capacity to eventually run all these tests outside the centralized lab context. Historically, the FDA granted waivers of this kind only to fairly simple, single-function, “point-of-care” devices—like glucose meters—or to preliminary screening procedures, like pregnancy test strips, whose results must later be confirmed by more authoritative tests performed in a regulated lab by credentialed technicians under the supervision of a pathologist. Theranos’s tests, which are currently done in regulated labs, are authoritative themselves, like those performed by incumbent rivals Quest Diagnostics ... and Laboratory Corporation of America ..., which must also be performed in labs. But with technical advances, the FDA is gradually permitting more complex diagnostic procedures to be performed outside the lab. Yesterday’s approval means that Theranos has succeeded in so automating the process of running the herpes simplex virus assay as to render it virtually foolproof in the FDA’s eyes, even when run by minimally trained workers.
So, in summary, Theranos has been awarded a CLIA waiver to perform its herpes simplex virus (HSV-1) test which means that it does not need to be performed in a hospital lab or reference lab such as Quest or LabCorp. Furthermore, the company has announced that "it is pursuing FDA [CLIA waiver] clearances on more than 120 other diagnostic exams it performs using very similar hardware and software." The article appropriately refers to this as a "sea change" in terms of the company's overall strategy. I agree and here are some of my ideas about what the future may hold for the company and the clinical lab industry:
- Part of the Theranos strategy has been to compete with the major reference labs and hospital labs on the basis of price. Part of this involves using its still mysterious "lab-on-a-chip" technology whereby the testing process is multiplexed -- multiple tests are performed with a very small aliquot of blood requiring lesser amounts of reagent and increasing the information output of the analyzers per sample.
- With a point-of-care testing (POCT) strategy plus a CLIA waver, labor and logistic costs are reduced dramatically. By piggybacking onto the in-store, walk-in clinics of Walgreens, the cost of developing a network of patient services centers (PSCs) is avoided. Here's a quote from a previous note describing the size of the Quest Diagnostics infrastructure (Another Puff-Piece about Theranos; Extracting the Most Salient Points):
- (1) Strong logistics capabilities, including approximately 3,000 courier vehicles and 20 aircraft that collectively make tens of thousands of stops daily; (2) Operates more than 2,200 patient service centers.
- The IT component of the Theranos business model is extremely important. CVS has announced a relationship with Epic for EHR support in its MinuteClinics (see: Epic EHRs Added to In-Store MinuteClinics; the Pursuit of Connectivity). My guess is that Walgreens/Theranos may consider a similar strategy in order to print test results quickly for customers and also interoperate with the Epic EHRs installed in regional hospitals. This is important for patient referral.
- Look also for Theranos to begin to pursue the health insurance companies and health plans for their contractual, in-network business. The low cost of the Theranos lab testing will be irresistible for such companies and the convenience of the POCT operations in neighborhood retail drug stores will greatly appeal to patients.