Tethys Seeks to Double Sales of Test, Prove Value of Preventing Diabetes

3/8/11Follow @xconomy

Fortunes have been made many times over with new drugs and medical devices to treat chronic and deadly diseases. The folks at Emeryville, CA-based Tethys Bioscience have a different idea that is actually quite radical:

They want to make money by preventing disease, not treating it.

“Here we are spending about $200 billion a year on diabetes, and it’s a preventable disease,” says Mickey Urdea, the CEO of Tethys. “What a shame.”

Tethys is in the middle of a very interesting business story, in which it will find out just how much value society puts on prevention, versus treatment. The company, founded in 2005, has raised more than $100 million in equity from a well-known crew of venture backers, including Kleiner Perkins Caufield & Byers, Intel Capital, Mohr Davidow Ventures, Greenspring Associates, Paul Capital Investments, and Aeris Capital. The bet is that doctors, patients, and eventually insurers will come to embrace a new blood test designed to predict which people with early warning signs of Type 2 diabetes are truly destined to join the group of about 25 million people in the U.S. with the disease itself.

The economics at stake here are staggering. Diabetes, a chronic condition in which people can’t properly control their blood sugar, leads to an array of complications like blindness, heart attack, stroke, and amputations. The total cost to the U.S. health system is estimated at about $3.4 trillion in the 10 years through 2020, according to UnitedHealth, the nation’s largest health insurer.

Tethys has a long way to go before its test achieves mainstream acceptance in the medical community, if it ever gets there. But it has shown some early signs of gaining momentum. The Tethys test, which has a list price of $585, became commercially available in certain regions of the U.S. in the second quarter of 2009. It set sales records for six straight months in the last half of 2010, and the test had been performed a total of about 27,000 times heading into this year, Urdea says. Tethys, as a private company, doesn’t disclose its revenues, but given the current momentum in the market, the company hopes to double its sales this year, Urdea says. (I hope to press Urdea a little more on how Tethys is doing when he speaks at the upcoming Xconomy event in San Francisco on March 16th).

The burning question is whether people who get the message from Tethys about diabetes risk will truly change their behavior, or cavalierly shrug it off, and remain destined to a future of daily insulin shots. No one can say for sure if the Tethys test will truly scare people to give up cheeseburgers and soda for a life of broccoli and water. Some anecdotes are trickling in, and Tethys is eager to see if can prove that people will use the information in a healthy way.

“We’ve had people who have been resistant to any kind of intervention in the past who get the test and say ‘I really am scared now and I’m going to do something about it,’ Urdea says. “They want to know what their score looks like afterward. They want to know not just that they lost weight, but that they are healthier afterwards.”

This test, called PreDx, is built on technology that looks 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. The level of risk is communicated through a scale of 1 to 10, with 10 being the highest risk.

There are plenty of skeptics out there. The company’s first clinical trials focused on large groups of patients in Denmark, and then Sweden. That made people wonder if the results were generalizable to more diverse populations in the U.S. “It was a question everyone had,” Urdea says. “If it works on Europeans, does it work on Hispanics, African Americans, and other Caucasians? The answer is yes. No differences in race classes. With all the clinical data in hand, we’ve been selling to physicians and seeing quite an impact.”

But exactly where do you start selling a product like this? Primary care physicians would be a natural place, but such a big and fragmented customer base is too much for a small company like Tethys. So it has focused geographically on certain states with the highest rates of diabetes and obesity—a belt of states that starts in the east in New Jersey, dips down into the south through Georgia, Alabama and across to Texas, then up into the Midwest.

Doctors in those states see so many people with warning signs of diabetes that there is growing interest among doctors who are essentially becoming “prevention specialists,” Urdea says. “They don’t call themselves that, but that’s what they are,” he says.

One doctor in Iowa is a particularly enthusiastic early adopter of the Tethys test—he even likes to call his patients at lunchtime and ask them what they are eating, Urdea says.

While that might be a fun anecdote to tell investors and the occasional journalist, I can’t imagine most doctors would take that much interest in their patients’ overall well-being, especially when it’s something they don’t get paid to do. If Tethys is going to gain wider usage of its test, it needs to advance from the early adopters like the Iowa doctor to larger group physician practices, which have multiple specialists who work together.

Doctors in settings like this really want to know more than just the Tethys risk score—they want to know whether it will motivate patients to reduce their risk, and if so, what the best medical interventions are.

“People who get the risk score are going to ask, ‘what do I do about it?’ Urdea says. “It’s about risk identification, and also risk mitigation.”

Actually, it’s about more than that, too. Tethys, with a test that lists at $585, will need to show that an ounce of its form of prevention is worth its weight in gold—by saving people from going down the long, expensive road of chronic diabetes treatment. If Tethys can really make a persuasive case that this test scares people straight, and they end up avoiding the cost of diabetes, it could save people a lot of heartache, and the healthcare system a lot of money. It might even set an example for other entrepreneurs wondering if there’s any way to make money in healthcare through prevention.

“The economics of this are critical,” Urdea says. “We can’t burden the economy with lots of more expensive tests.”

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