Silicon Valley Cash Is Still Chasing Blood Despite Theranos BustBy
‘Skepticism is raised,’ investor says of blood-test startups
New diagnostics companies are still raising venture money
Blood is still pumping in Silicon Valley.
Amid the collapse of Theranos Inc. last year, investors are betting that some of the disgraced blood-testing startup’s lofty medical goals might still have a kernel of promise -- at other companies.
Grail, a company backed by Bill Gates and Jeff Bezos, said on Thursday that it’s expecting to raise a record $1 billion on the promise of a blood test to detect early-stage cancer. Venture capitalists are also backing startups like Genalyte Inc., which says it can run multiple tests on just one drop of blood; Velano Vascular, which makes a needle-free blood drawing device; and Seventh Sense Biosystems Inc., which is seeking regulatory approval for a “virtually painless” blood collection device.
Others include Orphidia Inc., with a “single blood drop” disease test, and Karius Inc., whose website promises “one test that puts nearly 1,000 microbes in plain sight.”
Those futuristic goals sound starkly similar to Theranos, which claimed to be able to run hundreds of tests off drops of blood at a fraction of the price of traditional methods. The company now looks like an expensive failure: It has pulled back operations, is being investigated by law enforcement, and is being sued by backers.
“On the positive side, Theranos has done a wonderful job of educating the investment community and public of what the world could look like if you had this technology,” said Vijit Sabnis, a partner at Khosla Ventures. “There’s now broad-based interest and desire for this to happen.”
That means the venture capital money is flowing. Genalyte raised $36 million on Nov. 20 from backers including Khosla and Redmile Group. Velano said Nov. 29 that Sutter Health hospitals would use its devices in a pilot program, and the hospital network is an investor as well. This week at the annual J.P. Morgan Healthcare Conference in San Francisco, Chief Executive Officer Eric Stone says he’ll be meeting with potential investors, hospital customers and partners, though he declined to comment on whether he’s currently raising more capital.
The bar for what VCs want to see first has gotten higher, though.
“Skepticism is raised, broadly,” said Malay Gandhi, co-founder of San Francisco investment firm Ensemble Labs. He’s not invested in any of the startups. “People are asking for way more data and doing a very deep level of diligence to make sure there’s nothing weird going on with the product or how the data is presented.”
“We get asked all the time for data, for information about credibility,” said Cary Gunn, chief executive officer of Genalyte. Unlike in the consumer technology startup world, “you can’t go to the market with an early launch and then iterate, saying it doesn’t matter if there are bugs. That doesn’t work with patient safety on the line.”
Theranos hasn’t given up. The company has pivoted to a so-called “miniLab,” a tabletop device for blood testing, and says it’s reformed.
“We have a new executive team leading our work toward obtaining FDA clearances, building commercial partnerships, and pursuing publications in scientific journals,” said spokeswoman Tali Mackay. “We are fortunate to have supporters and investors who believe deeply in our mission of affordable, less invasive lab testing, and to have the runway to realize our vision.”
While Theranos marketed hundreds of tests to consumers, Genalyte is targeting rheumatologists with a 15-test panel for autoimmune diseases such as lupus and offering up much of the company’s data for outside review. Two separate studies of the company’s tests showed similar results to a current industry standard.
“I’m impressed,” said Patricia Jones, 2016 president of the American Association for Clinical Chemistry, after reviewing the data. “The game-changing part of this would be being able to do testing and potentially make a diagnosis immediately, instead of having to send out lab tests, wait several days, then call the patient.” She’s not affiliated with Genalyte.
Genalyte says it’s planning another trial in hundreds of patients that it intends to submit to the U.S. Food and Drug Administration for review. If successful, Genalyte will then move into other disorders.
Velano has received FDA clearance for its device, which allows doctors or nurses to draw blood through an intravenous line already in their arm, instead of having to get multiple needle pricks a day in the hospital, said Stone, the CEO. (Stone is the brother of Bloomberg News technology editor Brad Stone, who did not contribute to this story.)
While Velano has yet to publish any data, the company has run studies with hospitals including Brigham and Women’s Hospital in Boston and the University of Pennsylvania, Stone said. One study is currently under peer review for publication and results from another are being prepared. He’s anxious to have the data in print.
“You have to invest in facts,” he said. “Absent proof, it’s gambling.”