Blood-Test Startups Try to Crawl Out From the Shadow of Elizabeth Holmes

(Bloomberg) -- As Daniel Levner tells it, the “Theranos effect” came in three distinct waves. First, he says, when the company was at its peak, many investors wouldn’t bother funding other blood-testing startups, because how could anyone compete with the youngest, female, self-made billionaire? Then, as news broke that the technology might not work as advertised, investors began to wince at any sight of blood businesses. Finally, when a seminal book on the company’s spiral to dissolution hit stores last year, it became clear that the problems were unique to Theranos, says Levner, who co-founded a blood-test startup. The account described Elizabeth Holmes as a zealot chasing a dream without the science or ethics to carry her there.

Now, even as court proceedings, a popular podcast series, a much-anticipated movie starring Jennifer Lawrence in development and this week’s release of an HBO documentary keep interest in the story alive, the blood business is flowing again. Investors are buying in, and several venture-backed companies say they’re making real, provable progress toward more efficient or affordable blood tests.

Although some entrepreneurs would prefer to never utter the name Theranos, they tend to accentuate ways their businesses are different. No one says they’re building an all-in-one machine that can fit on a desk and do hundreds of tests on a few drops of blood. Most say they’re working carefully to perfect a few tests to start, in cooperation with respected authorities.

“It would be an audacious statement to say every test would work with a finger prick,” says Levner, co-founder of Sight Diagnostics Ltd. “Right now, we can do one test really well.” That was enough to secure $28 million in funding last month for a system that Levner says can recreate a blood sample as a digital file for a computer to analyze. A form of artificial intelligence then looks at a blood cell’s shape, size and other characteristics and delivers a result in a few minutes, compared with the hours or even days it takes for traditional tests, he says.

Another company, Karius Inc., aims to accurately identify more than a thousand pathogens in order to rapidly diagnose diseases, but it requires a full, intravenous blood draw. Orphidia Inc. says it needs only drips of blood from a finger prick for its portable device to complete lab tests in as few as 20 minutes, but it supports just seven tests right now. Even Tyler Shultz, a former Theranos engineer who helped bring the company down by whistleblowing to Wall Street Journal reporter and Bad Blood author John Carreyrou, is back. He runs a company, Flux Biosciences, that plans to use blood, urine and saliva to measure biological markers to test fertility and dietary issues, among other things, according to its website.

Theranos hasn’t deterred Silicon Valley from its growing obsession with health care. Google, Intel Corp. and other industry giants, along with startups staffed by clusters of Ph.D.s, have fixed their gaze on the heavily regulated industry. But computer code hasn’t yet been able to solve the challenge of keeping human beings healthy. Biology just isn’t as hackable as a machine.

The “massive fraud” perpetuated by Holmes, as the U.S. securities regulator described it, left some patients with faulty diagnoses and potential health consequences. (Holmes settled with the Securities and Exchange Commission without admitting wrongdoing.) The good news is the Theranos bust should scare away future peddlers of snake oil, says Dylan Morris, a partner at Charles River Ventures. “Any time there’s a scam that gets uncovered, that’s bad for all the other people trying to run the same scam,” says Morris, who had his own blood-testing startup that shuttered after failing to find a viable business model. “The nuances of how hard it is to actually make and sell a medical device have been brought to the forefront, and I think that’s a good thing.”

Sight Diagnostics makes a machine about the size of a toaster that works with finger-prick samples. But its aim is modest. The startup offers two tests: malaria, which was its first offering, and a complete blood count, a frequently ordered test. The company stresses it’s doing things by the book. It says the technology was approved by regulators for sale throughout Europe and recently concluded clinical trials in the U.S. at Boston Children’s Hospital and Columbia University Irving Medical Center in New York, as it works toward Food and Drug Administration approval.

Karius, meanwhile, says advances in computing and genomics make a new kind of disease-detection system possible. The company says it can identify pathogens found in traces of genetic material in blood and return results overnight. At $2,000, Karius is more expensive than some traditional tests that require pathogens to be cultured in a Petri dish, but founder Mickey Kertesz says it can save money and lives by drastically reducing the time patients must stay under hospital care as they wait for a diagnosis. Last month, the prestigious journal Nature Microbiology published a peer-reviewed validation study of Karius technology, a fact the company heralds with a banner at the top of its website.

When problems at Theranos first emerged, Nature published an editorial that was widely discussed in the medical community. It argued that health care can be disrupted but that companies must test their inventions thoroughly and publish proof of their claims. The sentiment left an impact on the biotech business. “Theranos was just claiming to do everything at once. We have a long-term vision, but we’re going step by step,” says Aron Rachamim, CEO of Orphidia. “We need to teach ourselves to walk before we can run.”

To contact the editor responsible for this story: Mark Milian at mmilian@bloomberg.net, Drew Armstrong

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