Tethys Snags $33M in Equity, Debt for Predictive Diabetes Test

7/21/10Follow @xconomy

[Corrected: 9 am Eastern] Tethys Bioscience has secured $33 million to see if it can build a big business around predicting and possibly heading off one of scourges of modern life—diabetes.

The Emeryville, CA-based company is announcing today it has nailed down $23 million in equity investment, while borrowing another $10 million to finance the sales and marketing push for its commercial diabetes test. [Correction: An earlier version said it had raised $20 million in equity.] Called PreDx, the blood test seeks to determine the likelihood that an individual will develop diabetes. Greenspring Associates, Paul Capital Investments, Kleiner Perkins Caufield & Byers, Intel Capital, and Aeris Capital contributed to the equity portion of the deal, while Oxford Finance and Silicon Valley Bank provided the venture loan component.

Tethys, founded in 2005, has now raised more than $100 million in equity since its beginning. The company is built on technology for a blood test designed to look for certain protein markers of inflammation, fat and carbohydrate metabolism, and cell death. Tethys hopes that by looking at those markers in combination, it can predict whether a person is likely to get diabetes in the next five years. Diabetes is estimated to affect more than 24 million Americans, and incidence is expected to double over the next 25 years in lockstep with the obesity epidemic. The condition can cause blindness, amputations, and other complications, and costs the U.S. health system an estimated $200 billion a year.

Tethys’ hope is that insurers will be willing to pay for a blood test that can predict which patients are on course to get the disease, while it’s still early enough for them to change their behavior to prevent much of that pain and expense.

“Diabetes is preventable,” says Tethys president Mike Richey. “We can decrease healthcare costs by $10,000 per patient per year by preventing it.”

That’s a pretty powerful value proposition, but Tethys still has a long way to go to fulfill such potential. Its test was first introduced at the American Diabetes Association meeting in San Francisco in June 2008, and became commercially available in early 2009. Tethys has set up a central lab in Emeryville that receives blood samples from doctors, produces a composite score that grades diabetes risk on a scale of 1 to 10, and sends the result back to the doctor within a week.

Tethys doesn’t disclose its annual revenues, although the test is available at a list price of $585, and the company says doctors have ordered 15,000 PreDx (pronounced “predicts”) tests since early 2009. All the “major payers” have started to reimburse doctors who order the test, Richey says, although he declined to offer specific names of major insurers.

The early adopters of the Tethys test are mainly primary care physicians who focus on preventive medicine, Richey says. Most of the adoption has come from the mid-Atlantic states, through the south, and into Texas—a part of the country with disproportionately high rates of obesity and diabetes, which Richey called “the heart attack belt.” More work still needs to be done to justify the future payoff and savings before the test will be widely adopted in California or the northeastern states, Richey says.

Tethys currently owns 100 percent of the commercial rights to its PreDx test, and it does the sales and marketing on its own. The company has 122 employees at the moment, with about a dozen salespeople in the southern states, Richey says. The plan, with the new financing in hand, is to triple the sales force to about 30 people in those same geographies to capture a bigger portion of the available market, Richey says.

How big of a market opportunity are we really talking about? Given an American lifestyle that revolves around video games, television, and junk food, an estimated 57 million people in the U.S. are at risk of getting diabetes. Most of those people are overweight or obese, yet that’s not a guarantee that they will all get diabetes. Only about one-fifth of people generally considered at risk—because of obesity, family history, high cholesterol, or other factors—end up actually getting the disease.

Not all those at risk are going to shell out several hundred bucks for a test. But Tethys says it has potential to perform “several million tests” over the next five to seven years, at prices of between $200 to $300 at maturity, creating a market worth more than $1 billion in the U.S. for its PreDx test, Richey says.

Yet, I had to ask Richey why anybody would want to pay for this test. Today, most doctors will look at a person who’s overweight, with a family history of diabetes, and—without any molecular information from the patient’s bloodstream—will advise that patient to stop eating junk food, and start exercising more. If a patient got a personalized test like this, what will the doctor say to that same patient?

The same thing. So with or without the test, if people would just live a healthier lifestyle, they could greatly lower their risk of diabetes.

Tethys has clearly heard this counterargument before, and the company has a very interesting answer about human behavior. On an anecdotal basis—meaning it must be taken with a grain of salt—Richey says the company has heard that patients often don’t take their doctor’s advice alone to heart. But when an unequivocal blood test result comes back that says unless you change your ways, you will almost certainly get diabetes in five years, patients suddenly have the fear of God struck into them.

“The difference here is that this is an absolute wake-up call,” Richey says.

You can bet that if Tethys can ever prove such a claim with medical evidence, it would be a blockbuster medical paper. That’s exactly what the company is shooting for. The company started selling  its test by studying blood samples from people who were followed for years, and teased out differences in protein markers in the blood of those who got diabetes versus those who didn’t. [Correction 9 am Eastern: An earlier version said the Tethys test had won FDA approval. It hasn't. The test is sold through a CLIA-certified lab]. That’s one form of data, but Tethys is looking to prove the value of its test with a much deeper body of evidence, Richey says. The company is looking at whether its test can actually change patients’ behaviors around food and exercise, whether it can convince physicians to incorporate more preventive medicine into their practices, and whether this predictive test will actually end up saving the healthcare system a lot of money by containing the consequences of diabetes.

If Tethys is successful, it will enlist more partners to its cause. The Big Pharma companies want to sell more of their diabetes treatments, of course, and would like a test to help them target their marketing to patients who need drug therapy. Big commercial labs might be interested in contracts to perform “high-volume, high-value” tests like PreDx, Richey says. Over time, Tethys sees itself branching out from its base in diabetes to other predictive blood tests, like for heart attacks or osteoporosis.

One potential snag that leapt out me was the cost of the diabetes test, which is probably too high for people to get repeated tests to track their progress over time. It also draws more than a pinprick of blood, so it’s not all that practical for repeated analysis. There have been instances in which patients have gotten follow-up tests to see whether their diet and exercise has lowered their risk of diabetes, although from what I gathered from Richey, most patients are get one test and then measure their progress in other ways, like how much weight they lose, blood pressure decreases, etc.

Still, as mentioned before, there are a lot of people out there to test for diabetes and not very many have had their blood analyzed by Tethys yet. The company sees itself very much in the early days, establishing a new market, starting with early adopters. There’s no major competitor, but the company has to make a clear, compelling argument before physicians and payers will get on the bandwagon. It is following some of the lessons described by Geoffrey Moore of Mohr Davidow Ventures, author of books about disruptive innovation like “Crossing the Chasm,” about making the transition with a new technology from early adopters to more mainstream acceptance.

“We’re on the left side of the chasm, and we plan on getting to the right side,” Richey says. “We’re going to do it with high quality clinical trials.”

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  • Krassen Dimitrov

    “On an anecdotal basis—meaning it must be taken with a grain of salt”

    Fair point, but still: the test exists, it has sold, and is being funded by some of the best VCs in the biz, such as KPCB.
    Why should we take this “with a grain of salt” yet imaginary IPOs, veiled in non-existent “quiet periods”, and funded by the biggest losers in the industry (such as OVP) should be swallowed straight?
    http://bit.ly/cmcy6v

    On a separate note: if you are at risk of diabetes don’t take in too much salt, with anything… Seriously :))