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Call It The Theranos Effect: Health-Tech Startups Now Face A "Burden Of Proof"

In the wake of the headlines about the accuracy of the blood-testing startup's technology, other companies will likely face new scrutiny.

Call It The Theranos Effect: Health-Tech Startups Now Face A "Burden Of Proof"
[Photo: Flickr user Joshua Rappeneker]

The success of Theranos, the blood-testing startup recently valued at $10 billion, has inspired many other health-care startups in recent years. Now, in the wake of reports that question the accuracy and effectiveness of its technology, the company is serving as a cautionary tale of what happens when Silicon Valley's disruptive ethos clashes with regulated sectors of the economy. And it is likely to make investors more cautious and increase the scrutiny of regulators into other startups in the consumer health-technology industry, say experts who told Fast Company that it will now be more challenging than ever for other health-technology companies to challenge the status quo.

In recent months, Theranos has taken a beating in the Wall Street Journal for reportedly failing to prove to the public that its low-cost blood-testing technology is both accurate and effective. The company has defended its proprietary method, with board member Richard Kovacevich recently telling CNBC that the recent criticism has been unfair.

And the company's troubles are starting to have an impact. "I would say that any health-tech innovator has been living under the Theranos shadow," said Justin Smith, a pediatrician and medical advisor for digital health at Cook Children's in North Texas.

Smith expects that other health-tech entrepreneurs will now face an uphill battle proving to potential investors and the press that their technology is worthy of hype. "If we overhype things that aren't real—and I'm not saying it [Theranos's technology] is not—that we'll have a harder time getting buy-in for things that are real."

Likewise Malay Gandhi, the recently departed managing director of Rock Health’s digital health fund, says there is cause for concern that novel technologies to treat and diagnose disease will be viewed by the public as "digital snake oil."

"I think the skepticism about digital medicine has increased in the wake of the Theranos scandal," he explained. "I do worry about unethical companies that opt to go to market without following the right rules."

Crisis communications experts say that health-tech companies will now face a greater burden of proof to demonstrate that their technology is effective. But more scrutiny can be a good thing, as it will help the companies that are demonstrating real value to stand out from the pack.

Barbara Bates, the founder of Silicon Valley public relations firm Eastwick, said the short-term fallout will be felt for a year or two. "Health-technology companies should expect to have to present more evidence," she said. "And they should proactively welcome it if they’re confident about their technology."

Will Investors Flee?

Not everyone agrees that the health-tech space will be impacted much by the Theranos scandal, especially when it comes to venture dollars.

"Good investors will continue to diligence claims and make calculated bets," said Christine Lemke, the chief product officer at health-tech company Evidation Health.

Gandhi doesn’t expect that investors will run from the fast-growing digital health space. Most smart venture capitalists would categorize Theranos as a diagnostic, and not a digital health company.

"Diagnostics hasn’t traditionally been the sexiest sector anyway," he said.

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