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A Warning to Biotech Investors

Written by Alexandra Perry
Posted May 31, 2018

One of the world's most famous unicorns just crumpled.

I’m talking about Theranos, a young biotech company that rose to glory in 2003. Guided by its charismatic CEO Elizabeth Holmes, Theranos promised investors a medical revolution through cutting-edge blood tests.

This promise allowed Theranos to raise over $400 million in funding and achieve a $9 billion valuation.

There was only one problem: Theranos's blood testing technology didn't work.

Now, Elizabeth Holmes and her Chief Operating Officer Sunny Balwani have been charged with fraud, with the SEC stating that they misled their partners for over 10 years!

And all of this has investors asking some major questions...

How was Theranos able to fleece investors for so long? Shouldn't there have been more red flags?

The reality is that there were multiple red flags. People just didn't pick up on them.

When it comes to biotech, people are often so wooed by promising medical innovations that they throw caution to the wayside.

And this is a very bad thing.

Fraudulent companies like Theranos distract investors from real multimillion-dollar opportunities in biotech.

In fact, while Theranos was busy weaving its lies, a handful of small companies were quietly building tools for a better medical future. And it is these companies that I want to talk about in this article.

But first, I want to take one more look at Theranos.

Outside of being a juicy tale mired with sex, blood, and money, Theranos provides an example of exactly what biotech investors should be wary of.

And talking about red flags can help you understand real opportunities.

Theranos Left a Trail of Red Flags

In a way, Theranos was the perfect Silicon Valley darling.

The company's promise of cost-effective blood testing married two of the Valley's great loves: technology and medical innovation. This created a sales pitch that nearly no investor could resist.

The company rested mainly on the shoulders of CEO Elizabeth Holmes, who was dubbed the "female Steve Jobs" by Inc. magazine. Holmes founded Theranos at age 19 after dropping out of Stanford. To many in Silicon Valley, Holmes was more than just an underdog; she was a rising star.

But not even Holmes’ untraditional story could hide one glaring secret: Theranos's glorified blood testing product Edison didn't work.

Of course, the company tried to hide this. And the way it did so was the first red flag.

Any time investors demanded a demonstration, Theranos couldn't get a good internet connection or forgot to bring its tools. The company did everything to hide its secrets and continued to benefit from Silicon Valley hype by becoming a spectacle.

These stalling tactics and the consistent hype cycle allowed Theranos to skirt past deeper scrutiny somewhat like the Wizard of Oz. No one bothered to lift the curtain and see if there was anything behind the so-called wizard.

As an investor, you should always be critical of the companies you invest in. And in the nearly fantastical and overhyped world of biotech, being critical is even more important.

Theranos proves that if you invest only based on hype, you'll end up with the short end of the stick.

And that brings me to my next point: the companies you should actually be looking at.

Focus on Cutting-Edge Technologies Backed by Research

When I started writing this article, I sat down with one mission: to talk about opportunities in biotech.

Now, talking about Theranos may seem like a weird way to start that conversation, but it's actually the perfect way. Biotech investing is both high reward and high risk, and Theranos is a warning to investors to always do your due diligence.

That said, there are a handful of companies that are actually changing the world of medicine through legitimate sciences.

Unlike Theranos, these companies are already proving that their unique approach could tackle dozens of diseases. Better yet, these companies are backing their claims with studies and following the traditional regulated path to bring their products to market.

These companies have no need for smoke and mirrors because they are working with a groundbreaking new medical technology, the gene-editing method called CRISPR-Cas9.

CRISPR-Cas9 was hailed as the "breakthrough of the year" in 2015. Now, in 2018, it's hurtling toward mainstream application in the medical community.

But what is CRISPR-Cas9? Great question.

Lucky for you, the scientists working with CRISPR are all too happy to talk about the gene-editing method.

CRISPR is a Profit Opportunity Backed by Science

Broken down to the basics, CRISPR-Cas9 is a cutting-edge gene-editing method that allows scientists to target elusive and often lethal diseases.

This includes diseases that have plagued humans for years like HIV, cancer, and even Alzheimer's disease. CRISPR also allows scientists to target hereditary diseases. In fact, through CRISPR, scientists could potentially eliminate these diseases before a baby is even born.

This kind of breakthrough is incredible. It's also badly needed.

Despite all the medical progress that has been made, humans still struggle with multiple major diseases. Just look at Alzheimer's disease. In America, a new case of Alzheimer's disease develops every 65 seconds, and one in three seniors will end their life with either Alzheimer's disease or dementia.

CRISPR allows scientists to approach diseases like Alzheimer's a different way. We could potentially be rebuilt to stand a fighting chance.

And unlike the paper promises of Theranos, CRISPR is already showing potential in multiple clinical studies.

Just recently, scientists in Japan found that CRISPR was effective in eliminating HIV from the body of rodents. In this study, CRISPR-Cas9 was used to prevent HIV cells from producing.

We're talking about a medical approach that could change the way people live forever.

That said, it shouldn't come as a surprise that CRISPR has drummed up massive interest from the medical community.

And it isn't just the medical community. Just about every mainstream publication, from the New York Times to Wired, has talked about CRISPR technology.

This is something investors should be paying attention to.

Just recently, my colleague Jeff Siegel published a new research presentation talking about some of the companies behind the CRISPR revolution. If you would like to view this presentation, click here.

And remember the story of Theranos when looking at the biotech market. You shouldn't turn your back on biotech because of risk, but remember to look for the red flags.



Alexandra Perry

follow basic@AlexandraPerryC on Twitter

Alexandra Perry is a contributing analyst for Wealth Daily and Energy and Capital. She has multiple years of experience working with startup companies, primarily focusing on artificial intelligence, cybersecurity, alternative energy, and biotech. Her take on investing is simple: a new age of investor can make monumental returns by investing in emerging industries and foundational startup ventures.


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