Stealth Mode is the New Sweet Spot for Some Biotechs


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gene therapy company and an oncology company focused on the Chinese market.


Theranos has recently begun to emerge from stealth mode, although its technology is still secret. This June Fortune cover story reported that the 11-year-old company is valued at $9 billion and that, due to her share ownership, company founder Elizabeth Holmes, a Stanford University dropout, is worth $4.5 billion on paper.

Theranos’ blood draw technology replaces traditional, slow, overpriced blood testing with pinprick-style, small-volume blood tests. By working efficiently on tiny volumes, Theranos is both cutting prices by half or more as well as increasing efficiency by allowing for follow-up tests to be done right away, according to the Fortune article.

How Theranos does all this remains a secret. But this “black box” has not prevented the company from raising what Fortune reports to be more than $400 million nor from striking a distribution partnership with Walgreens. In parallel, the company is working with hospitals to offer its tests in what the CEO of University of California, San Francisco Medical Center told Fortune is “the true transformation of healthcare.”

Theranos’ vast ambition, coupled with its lack of publications subjecting its methods to scientific scrutiny, has not gone unnoticed, especially by competitors. Fortune wrote:

“The most frequent criticism is that Theranos is using purportedly breakthrough technology to perform tests that are relied on for life-and-death decisions without having first published any validation studies in peer-review journals. ‘I don’t know what they’re measuring, how they’re measuring it, and why they think they’re measuring it,’ says Richard Bender, an oncologist who is also a medical affairs consultant for Quest Diagnostics, the largest independent diagnostic lab.”

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The clearest unifying attribute of Moderna, Kadmon and Theranos is “high confidence,” followed closely by “high ambition.” There is no other way to raise the billion-plus dollars these three have raised. There has to be some technical know-how to go along with the bravado. Otherwise multi-hundred-million-dollar partnerships with national pharmacy chains or Big Pharma companies just do not materialize. Activating a direct commercial channel (Walgreens) or a high-credibility development partner (AstraZeneca) is at least a temporary substitute for a look under the hood.

A clue to understanding the trend is the presence, or absence, of venture capital (VC) money. Of the three companies we chose to examine, only Moderna has disclosed an investment by a traditional VC, Flagship Ventures. It’s fine to stay in stealth if you want to raise money from a single VC, or for that matter from a single VC syndicate, and so you never need new VC investors. As long as you don’t need “buzz” in the form of news articles and conference hall chatter, you can just go achieve your objectives without sharing much. Next stop, hedge funds, who couldn’t care less about buzz and whose analysts may in some cases be confident enough to make big-ticket investment decisions based on unpublished data.

But there is something else going on as well. Let’s call it “stealth as a business model.” All three of these companies seem to share the belief that they will be better off if no one knows what they really do or how they do it. Most notably, they depart significantly from the status quo of publishing and presenting the technologies in an open forum as the gold standard for credibility. This is so unusual in the history of biotech that it made us think about the question the other way around: why would you want to disclose anything about your new biotech company? Just raise the money, sign a partnership, and get on with it!

We just want to mention one tiny nagging doubt: much of the research that underpins these companies comes about under the auspices of U.S. government funding, typically from the National Institutes of Health. But in the guidelines we found, there is no formal mechanism requiring disclosure once research is funded. It is not even required to be published. Nevertheless, it strikes us that sooner or later there may be a backlash to all this stealthiness.

And of course the longer-term question remains: does having strong financing and a strong commercial channel replace independent peer review of the underlying technology?

In the meantime, we sincerely hope that all of these companies are successful. It would be an amazing day in healthcare if they were. And should that day come, we are imagining a moment when Hollywood decides to make the movie, akin to the way screenwriter Aaron Sorkin imagined the beginnings of Facebook in “The Social Network.” The big difference here is that the scriptwriter will have an awful lot of liberty in shaping a story that no one has ever heard.

Sultan Meghji is an entrepreneur and advisor in life sciences, financial services and high tech. He is based in St. Louis, MO.

Steve Dickman is a former venture capitalist and the CEO of boutique consulting firm CBT Advisors as well as the author of the blog Boston Biotech Watch. Follow @

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  • bubbles

    Great article! Finally asking all of the right questions.

  • Stewart Lyman

    One needs to keep in mind that stealth mode may be good for companies, but I have serious doubts about the value to the scientists at those companies. Imagine if the company gets bought out, or they let go of the scientists so that they can redirect their spending on clinical trials (this happens all the time). Now you’re an unemployed scientist looking for a job, and potential employers are going to ask what you did at your former company. It may be difficult convincing them of your stellar contributions without any published papers to back you up. Investors, too, might want to know that the work was peer reviewed. I’ve seen many company presentations where their scientific claims simply could not be backed up by the data that (eventually) gets presented. Deals don’t validate the science; they merely represent a bet that a company is making on the technology. One can find many examples of deals where acquiring companies paid big money, only to walk away and write off the investment when it doesn’t pan out. Good deal for the VC’s who may have invested early and then got out, but bad news for just about everybody else including patients and the acquiring company’s shareholders.

  • Amarshall

    Perhaps the increasing secrecy is an indication that the benefits of publication (external, independent validation of scientific rigor) are overshadowed by the risks of disclosure of the details of a line of research, particularly when so many companies are looking earlier into preclincial R&D and catching up projects in early R&D is so much easier. One can at least glean something about the science in these companies by looking at the SAB and seeing where and what they have published. For example, Ken Chien has published on technology that seems relevant to Moderna, even if there was no Moderna affiliation on the paper!

  • JesseJames

    I believe that Ken Chien is one of the founders of Moderna. That paper came out over 1 year ago and not too many people are using the technology. Moderna has not published any of its work or even celebrated any of its granted patents…. just saying.

  • Beverly

    Moderna was reported to have some recent C-suite departures for unclear reasons: