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Not even the holiday slowdown could bring a reprieve for the beleaguered blood-testing company Theranos.

This week brought the latest installment of the Wall Street Journal’s ongoing investigation into the company, this time detailing accusations from two former employees that Theranos tampered with its data and cherry-picked its results. An opportunistic law firm then piggybacked on the newspaper’s reporting, announcing Tuesday that it was investigating whether the company made claims to investors that violate securities laws.

It’s the latest in a relentless parade of damaging news for the Silicon Valley upstart, which was valued last year at $9 billion, the most of any venture-backed company working in health care today. Its charismatic founder, 31-year-old Stanford dropout Elizabeth Holmes, has promised to provide quick, accurate medical test results from just a few drops of blood pricked from a finger.


Not many new companies have risen as high or fallen as far as Theranos. But it’s hardly the only firm that’s raised big bucks before proving it had the technology to back up the hype and it’s unlikely to be the last. “I bet that it’s happening right now,” said Dr. John Ioannidis, a Stanford professor who studies scientific robustness.

STAT asked scientists who have been closely watching the Theranos scandal to predict its fallout. They expressed hope that it might be a wake-up call for the biotech industry to prioritize science over speculation but said that the existing structures and incentives make it likely that plenty more companies like Theranos will thrive. Here’s why:


Privately held companies have little incentive to be transparent

Are you working on a cool new medical technology? You can take money from any accredited investor who’ll give it to you. No problem if you haven’t let other scientists vet your idea. Or if you haven’t published any of your findings in a peer-reviewed journal.

Some say that’s the beauty of the free market. But Ioannidis is concerned that “stealth research” — like Theranos’ 12 years worth of development that has yet to produce a single journal article — is enabling new firms to “make big claims with very limited data.” (Theranos has denied many of the accusations levied against it, though without many specifics, and has said it will publish data validating its blood tests soon.)

Startups who hold off on publishing sometimes cite the need to protect intellectual property, but critics of the practice point to another reason: With early-stage capital already hard to come by, companies run the risk of scaring off investors if they open their underbaked ideas to rigorous scientific scrutiny.

“There’s no incentive to reveal much detail, especially if your product is not ready for prime time,” said Jerry Yeo, a clinical chemist and professor at the University of Chicago. That can be good for companies, he said, but it’s bad for laboratory medicine.

Investors keep throwing their money at unproven science

Corporate opacity makes it hard for even the savviest of investors to make smart decisions about complicated medical technologies. But when you add non-specialist investors to the mix who can’t or don’t try to discern the difference between hype and promise, you have a recipe for wildly inflated valuations.

“People just aren’t that discriminating and won’t ask the hard questions,” said David Koch, a clinical chemist and associate professor at the Emory University School of Medicine. “And when they do, and they get little or no answer, they still invest.”

To be sure, many investors bet on risky ideas that specialist investors turn down in the hope that it will translate into big-time payoff. But the growing number of investors, particularly in Silicon Valley, on the hunt for technologies that do for medicine what apps have done for tech can be a boon for new companies like Theranos whose narratives may be more compelling than their science.

One recent example: Stemcentrx, which rode an unproven approach targeting cancer stem cells to a summertime financing round of nearly $250 million and a $5 billion valuation, the most for a venture-backed drug maker and second to Theranos in health care. That’s largely thanks to lead investor Founders Fund, Peter Thiel’s firm known for backing Airbnb and Spotify. Going after tumor-regenerating stem cells is nothing new, though, and even established firms working in this space — those founded by leading cancer biologists — have suffered recent clinical failures.

Hype builds up before regulators clamp down

In biotech, the checks and balances of regulation often take effect only after much of the money has already flowed in — and that can help bolster a company whose science doesn’t pass muster.

“Regulations can be quite effective, but they come along pretty late in the process,” said Koch. The hype, he said, is the problem: Excitement can build up around a company long before a regulator like the FDA denies approval to a product or slaps the firm for overly bold marketing claims or improper lab protocols. (Think: 23andMe.)

There’s some momentum to tighten government oversight of lab tests, a change which might have stopped Theranos’ alleged misconduct. But that’s not going to stop the enthusiasm that can buoy all sorts of biotech companies years before they start testing anything in humans.

“I don’t know how you can ever prevent that if people want to buy into hype before the FDA weighs in,” Yeo said.

The press can’t resist a great narrative about an unproven company

The cover stories and long profiles about Theranos all tended to share the same elements: a photo of Holmes wearing her ubiquitous black turtleneck. A comparison to Steve Jobs. An anecdote or two about her work ethic. And a brief in retrospect, too brief section on her secrecy about Theranos’ technology.

The glowing corner-office profile is a tried-and-true genre in business journalism, and it’s easy to see why: The personal story of the latest “it” CEO can bring life to a boring world of valuations and financings.

But there’s a downside, too: The media’s inability to resist a great narrative gives companies like Theranos a public relations boost that their science alone might not warrant.

Reporters who got caught up in Theranos’ narrative did plenty of soul-searching after it appeared to fall apart, but there’s little reason to think that this misstep will halt an established journalistic tenet.

And, dear reader, please call us out on it here at STAT if you spot us falling for a story that’s too good to be true!