A key feature of the Theranos business model is the location of the company's blood collection/testing centers in Walgreens drug stores in California and Arizona. Because of the recent media attention regarding problems with the quality control of the Theranos lab tests (see:Theranos Business Model Begins to Unravel; Much Negative Press Follows), Walgreens has decided not to open any new Theranos blood-testing centers in its stores until Theranos successfully resolves questions about its technology (see: Walgreens Scrutinizes Theranos Testing). This is a logical and appropriate action by Walgreens. The company can't tolerate any damage to its reputation on the basis of its relationship with Theranos. All of this calls into question, however, the due diligence that was exercised by Walgreens when the company launched its alliance with Theranos. Some interesting morsels about this topic were buried in its WSJ article referenced above. I quote them below:
Walgreens Boots Alliance Inc. won’t open any new Theranos Inc. blood-testing centers until the startup company resolves questions about its technology, according to a Walgreens official....Walgreens officials... were concerned after finding out in a follow-up article in the Journal that Theranos had stopped collecting tiny vials of blood drawn from finger pricks for all but one of its more than 240 tests. Walgreens officials also were unaware of the Food and Drug Administration’s surprise inspection of Theranos facilities in August and September, the people added....[T]he drugstore chain has “no concrete plans at this stage” to expand the partnership beyond the 41 stores in Arizona and California that now include Theranos “wellness centers,”....“We’re trying to figure out where we are and what we do going forward. We need to understand the truth,” the official added....The drugstore chain has an equity stake in Theranos as part of the partnership, according to a person familiar with the matter....
Some of the [Walgreens] directors discussed how to reach out to Theranos, how they would try to understand any regulatory review and scrutinize why Theranos sharply narrowed its use of tiny vials of blood from finger pricks without telling Walgreens officials....For Walgreens, the [Theranos] deal was part of a larger push to make “back-of-store” pharmacies more valuable, while luring more customer traffic to the “front end,” where beauty products, snacks and other higher-margin products are sold, according to current and former Walgreens executives....The drugstore chain’s clinical-services group typically vets the science and practices of prospective outside medical partners early in the process, but was brought in later with Theranos, according to current and former Walgreens officials. The Theranos deal “went down a different route,” one former Walgreens executive said.
There seems to be a familiar pattern unfolding here with regard to Theranos. Investors and business partners like Walgreens may have made assumptions about the quality of its yet unproved Edison analyzer technology based on vague Theranos assurances. As noted above and in the case of Walgreens, the "vetting" of a potential partner is usually done by its clinic services group but this business unit was "brought in later" according the Walgreens executives. Perhaps the project was also propelled by the fact that the drug store chain had a financial stake in a company that seemed like a hot prospect. I can understand that VC's might be a little vague about IVD technology but the pharmaceutical industry, like the clinical lab industry, is based on scientific principles and is highly regulated. Bypassing the clinical services group seems to have caused problems for Walgreens.
From my point of view, one of the next "shoes to drop" in the Theranos story could be the relationship between the Cleveland Clinic and Theranos (see: (see: Cleveland Clinic Develops Business Partnership with Theranos; Further Discussion about the Cleveland Clinic Relationship with Theranos)). Although not as well publicized as the one with Walgreens, it may elicit more discussion in the future. The Clinic could be in a position to silence the Theranos critics if it acts quickly to validate the Theranos testing methodologies. At this point, I don't think that the critics will be satisfied with the Theranos explanation that this depends on the FDA. They will demand comparisons of the Edison technology with standard, FDA-approved, IVD instruments and reagents. Is this a project that the Cleveland Clinic pathology department is willing to undertake and Theranos will support?
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