Daily News
2016-04-14
Theranos
Theranos
THE WALL STREET JOURNAL
Regulators Propose Banning Theranos Founder Elizabeth Holmes for at Least Two Years
By John Carreyrou and Christopher Weaver
April 13, 2016
Summary: Theranos founder Elizabeth Holmes and President Sunny Balwani faces possible ban after Centers for Medicare and Medicaid Services said company failed to fix problems in blood testing with Edison machines, other areas.
Full Text: Federal health regulators have proposed banning Theranos Inc. founder Elizabeth Holmes from the blood-testing business for at least two years after concluding that the company failed to fix what regulators have called major problems at its laboratory in California.
In a letter dated March 18, the Centers for Medicare and Medicaid Services said it plans to revoke the California lab’s federal license and prohibit its owners, including Ms. Holmes and Theranos’s president, Sunny Balwani, from owning or running any other lab for at least two years. That would include the company’s only other lab, located in Arizona.
The two labs generate most of Theranos’s revenue and are at the core of its strategy to revolutionize the blood-testing industry with new technology, user-friendliness and quick results.
The letter hasn’t been released to the public, but a copy was reviewed by The Wall Street Journal.
Under federal law, Theranos had 10 days to give CMS evidence of why the sanctions shouldn’t be imposed. The company has responded, and CMS is reviewing the response, according to a person familiar with the matter.
If the company doesn’t respond to the satisfaction of the regulators, CMS said in the letter that it will proceed to impose the sanctions.
Theranos could appeal to an administrative law judge and then a departmental appeals board, which could delay the effective date of some of the sanctions. If Theranos were to appeal, the lab would keep its license pending the outcome of the appeals process. The proposed ban on Ms. Holmes and Mr. Balwani would take effect at the same time as the lab’s license revocation and would be subject to the same appeals process.
The appeals process could take months, and such appeals have rarely succeeded in the past. A list of appeals decisions on the agency’s website shows that the agency didn’t lose a single such case from 2001 to the end of 2010.
In response to questions from the Journal about the letter, Theranos spokeswoman Brooke Buchanan said the government hasn’t yet imposed sanctions on the company’s lab in Newark, Calif.
“Due to the comprehensive nature of the corrective measures we’ve taken over the past several months, which has been affirmed by several experts, we are hopeful that CMS won’t impose sanctions,” she added. “But if they do, we will work with CMS to address all of their concerns.”
Last week, Theranos announced the recruitment of “nationally respected laboratory and medical experts” to its scientific and medical advisory board. The company said the eight-member panel would “work alongside Theranos’ leadership and internal teams in various areas, including advising Theranos regarding the full integration of its technology into routine clinical practice, and publication and presentation in scientific journals and at scientific meetings.”
Theranos was valued at $9 billion in a funding round in 2014 and the majority stake of Ms. Holmes at more than half that. During the past six months, though, Theranos has faced questions about the proprietary blood-testing devices it invented, code-named Edison, the accuracy of patient test results and its lab practices.
The Journal reported in October that former employees had doubts about the accuracy and reliability of the Edison devices. CMS inspectors found that some tests run on those machines and traditional devices routinely missed Theranos’s own accuracy requirements.
Ms. Buchanan said last month that Theranos “made mistakes in the past in the Newark” lab but has “dedicated every resource to remedy those failures” since becoming aware of the problems.
She also said that most of the deficiencies related to how Theranos used various testing machines, including its Edison devices, not ”the fundamental integrity of the technologies themselves.”
The company’s most urgent challenge is to persuade government officials not to impose the crippling penalties detailed in the 45-page letter. The agency completed an inspection of the California lab in November and found five major categories of infractions that violate the federal law governing clinical labs.
In February, Theranos submitted a correction plan to address the problems, but federal officials concluded it was insufficient, according to the March 18 letter. CMS declined to comment.
The letter detailed six proposed sanctions, including revoking the California lab’s federal license and barring it from the Medicare program. License revocation would result in Ms. Holmes and Mr. Balwani being barred from owning or operating any lab for at least two years, according to the copy reviewed by the Journal.
CMS also proposed to fine Theranos $10,000 a day and said it wants the company to submit the names and addresses of all doctors and patients who used the lab’s services since January 2014.
“This list may be used to advise the laboratory’s clients of the nature of its non-compliance and the nature and effective date of any sanctions imposed against the laboratory,” federal officials wrote in the letter.
The proposed penalties are among the most severe in CMS’s power, said Barbara Cammarata, a lawyer at Sidley Austin LLP who advises clinical labs on regulatory issues. “They’re in a lot of trouble,” she said.
Last year, the agency revoked the licenses of about two dozen clinical labs out of the thousands it oversees across the U.S.
Greg Ingle, chief executive of Clinical Lab Consulting LLC, a firm that audits labs, said it “is incredibly rare to see” the government seek to take away the license of “a highly capitalized, large operation” such as Theranos. Company records showed that the California lab ran about 890,000 tests a year.
Officials found that Theranos failed to adequately correct 43 of 45 deficiencies identified by inspectors last year. The failures included not providing evidence that Theranos sent corrected reports to patients who got flawed test results.
One of those tests, a blood-coagulation test known as prothrombin time, measures how long it takes blood to clot and is often used by doctors to determine which dosage of the blood thinner warfarin to give patients.
Wrong prothrombin time results could cause doctors to prescribe too little or too much warfarin. Too much of the drug, also known by its brand name Coumadin, can cause fatal bleeding, while too little can leave patients vulnerable to clots and strokes, according to medical experts.
Prothrombin time is a hematology test. In January, CMS told Theranos that its hematology-testing practices placed patients in “immediate jeopardy.” In the March 18 letter, the agency said the company’s plan failed to adequately correct those deficient practices.
As a result, the agency proposed to bar Theranos’s lab in California from doing any hematology testing, regardless of whether it appeals the sanctions, according to the letter.
The company has said it doesn’t believe any patients were affected.
The Arizona lab wasn’t part of the inspection and continues to run a variety of tests on samples drawn from patients at 40 Theranos wellness centers at Walgreens Boots Alliance Inc. drugstores.
In addition, CMS said it didn’t find some of the exhibits and tables Theranos referred to in its plan, according to the letter. And Theranos widened the variation ranges it deemed acceptable for certain blood tests without giving the agency any justification for the change, the letter said.
CMS officials usually release sanctions letters to the public soon after sending them to lab owners. With Theranos, the agency has held off because the company requested redactions that it said are necessary to protect its trade secrets, according to people familiar with the matter. The agency hasn’t decided whether to grant the redaction requests, the people said.
THE NEW YORK TIMES
Theranos Under Fire as U.S. Threatens Crippling Sanctions
By REED ABELSON and ANDREW POLLACK
April 13, 2016
Summary: Elizabeth Holmes, the chief executive of Theranos, is facing possible sanctions from the Centers for Medicare and Medicaid Services. Federal regulators have threatened a series of stiff sanctions…
Full Text: Federal regulators have threatened a series of stiff sanctions against Theranos, the embattled blood-testing company, including closing down its flagship laboratory and potentially barring its chief executive from owning or operating its labs for two years.
The sanctions, which have not been made final, were included in a strongly worded letter from officials from the Centers for Medicare and Medicaid Services. It is the latest blow to the credibility of Theranos and Elizabeth Holmes, its chief executive, who seemingly became a self-made billionaire by promising to upend the clinical testing industry.
The government officials proposed a series of sanctions against the company, including the revocation of the company’s certification for its California laboratory, its primary operation, and suspension of its eligibility to receive payments under the Medicare insurance program.
If the laboratory’s certification were to be revoked, Ms. Holmes and Theranos’s chief operating officer, Ramesh Balwani, would be barred from owning or operating any laboratory for at least two years, the letter said.
Theranos confirmed that it received and responded to the letter, which has not been made public and was reported earlier by The Wall Street Journal. The company was given 10 days from the date of the letter, March 18, to respond to regulators’ concerns.
In its response to the agency, dated April 1, Theranos said that it had hired new leadership for the laboratory and “would be able to ensure the deficient practices will not recur” through “robust new quality systems” and “intense oversight.” It also said it had stopped running a number of tests that inspectors had expressed concerns about.
The company said it had not received notice of the regulators’ final decision. A spokeswoman for Medicare declined to comment.
Regulators, including those from Medicare as well as the Food and Drug Administration, have also raised repeated concerns about the technology. While approving one of Theranos’s tests last summer, the F.D.A. made clear it needed more evidence that the technology was ready for prime time. The Medicare letter follows an inspection the agency performed last fall that found problems at the lab.
Describing the regulators’ continued questions as part of the “ordinary process,” a spokeswoman for Theranos, Brooke Buchanan, said the company was in daily contact with regulators about their concerns. “We did not expect this to be over in three months,” she said.
She insisted Theranos had made changes aimed at addressing regulators’ concerns over the accuracy of its tests. “We’ve taken comprehensive corrective measures over the past several months,” she said. If Medicare chooses to impose sanctions on the company, she said, Theranos will continue to work with regulators to address its concerns.
Theranos, the creation of Ms. Holmes, epitomized the promise of Silicon Valley to transform — or disrupt, to use its own lingo — all of health care. Having dropped out of Stanford University to found the company in 2003, Ms. Holmes claimed to have created a whole new way to perform multiple tests using a few drops of blood from a finger prick, which would be less painful and less costly than conventional blood tests.
Her vision of bringing laboratory testing to the masses, including allowing customers to order tests without a doctor’s order, attracted some well-known venture capitalists. The company earned a stunning $9 billion valuation and an abundance of news media attention. Ms. Holmes graced the cover of numerous magazines, including T: The New York Times Style Magazine.
A scathing report in The Wall Street Journal last October put an end to the fairy tale and Theranos scrambled to respond to the news media’s sudden turn. The company’s fall from grace came to symbolize the overreach of Silicon Valley and the hype that surrounds unproven technology.
While Ms. Holmes has continued to defend the company in as many forums as she can, the lack of hard information about whether the technology worked has only increased the skepticism surrounding her company.
Examiners from Medicare inspected Theranos’s laboratory in Newark, Calif., last fall and found numerous deficiencies, one of which they said posed “immediate jeopardy to patient health and safety.”
That particular deficiency related to Theranos’s test for the clotting ability of blood, a measurement used to help determine the correct dose of the blood-thinning drug warfarin. Too much warfarin can cause internal bleeding while too little can leave a patient vulnerable to a stroke. The inspection report, which was recently made public by Medicare, said that all 81 results provided to patients from that test from April to September of last year were inaccurate.
Theranos said in response to regulators that it had voided the results of those tests. Ms. Buchanan said the company, after talking to the patients and doctors involved, did not believe any patients had been harmed.
The regulators also said that the director of the laboratory was not qualified and some other personnel were inadequately trained. At the time of the inspection, the laboratory director was a local dermatologist who continued to run his medical practice while also supervising the lab.
After receiving the regulators’ findings in January, Theranos submitted a plan to correct the problems in February. But in proposing the sanctions, the new letter from the regulators says that the company’s response “does not constitute a credible allegation of compliance and acceptable evidence of correction for the deficiencies cited.”
Among other things the letter said some documents referred to in Theranos’s submission were missing. It also said the company had not provided enough information to justify its conclusions regarding whether patients were affected.
Philip D. Cotter, a consultant to laboratories, said the letter to Theranos was “definitely on the more serious end of the spectrum,’’ making it more likely that some sanctions would be imposed.
“It wouldn’t be impossible to turn this around but the response they would have had to turn in by March 28 would have had to be pretty convincing,’’ said Dr. Cotter, a principal at ResearchDx in Irvine, Calif.
Medicare suspended, revoked or limited the certifications of about 50 clinical laboratories in 2015, a small fraction of the labs it oversees.
Theranos is now doing all of its tests in a separate laboratory in Arizona, which is not being threatened with loss of its certification. However, that laboratory uses standard equipment purchased from other vendors, not Theranos’s proprietary testing technology. Also, if Ms. Holmes were to be barred from owning any laboratory, it would raise questions about whether Theranos could continue to own and operate the Arizona lab.
CNBC
Regulators may ban Theranos CEO for 2 years: DJ
By Anita Balakrishnan
April 13, 2016
Summary: Federal health officials may ban the founder and CEO of blood-testing start-up Theranos for at least two years, The Wall Street Journal reported Wednesday.
Full Text: Federal health officials may ban Elizabeth Holmes, founder and CEO of blood-testing start-up Theranos, from owning or running any labs for at least two years, The Wall Street Journal reported Wednesday.
The move comes after the company failed to fix "major problems" at a California lab, according to a letter from the Centers for Medicare and Medicaid Services (CMS) obtained by the Journal. If any sanctions are enacted, a lengthy appeal process would be involved, according to the newspaper.
Theranos spokeswoman Brooke Buchanan told CNBC she was hopeful that CMS would not impose sanctions, as the company works on comprehensive corrective measures, including the recent recruitment of an advisory board of scientific and medical experts.
"But if they do, we will work with CMS to address all of their concerns," Buchanan confirmed to CNBC.
Theranos became famous for fast, accurate and affordable blood testing using smaller needles and tubes.
But the company, valued at more than $9 billion, has come under scrutiny after media reports questioned the accuracy of the proprietary test methods, the Journal said. A particular blood-coagulation test was deemed by health officials in January to put patients in "immediate jeopardy," according to the newspaper's report.
The company has told the Journal it doesn't believe any patients were affected.
WIRED
Theranos’ Future Looks Bloody Grim as Feds Threaten a Shutdown
By Nick Stockton
April 13, 2016
Summary: Federal regulators are threatening to shut down Theranos' California lab and ban its owners from running any labs for two years.
Full Text: Biotech startup Theranos is in trouble again. This time, federal regulators are threatening to shut down the company’s California lab and ban its owners from running another blood testing company for two years.
For a company built on the promise of painless blood tests, that’s gotta sting. Now, the government hasn’t shuttered Theranos quite yet. The warning, a letter from Centers for Medicare and Medicaid Services procured by the Wall Street Journal, is dated March 18. Theranos has responded to the feds about the infractions listed in the letter (which include issues with flawed test results), and CMS is currently reviewing their response.
This is bad, bad news for a company whose brand is already facing serious problems. Since October 2015, when the Journal exposed troubling flaws in Theranos’ signature fingerprick technology, the company has lost credibility with the press, the diagnostic community, and consumers. Perhaps most importantly, it has threatened important business partnerships with companies like Walgreens1. The question now is, can Theranos survive?
That depends, first of all, on whether CMS follows through to revoke Theranos’ California license and ban its owners from running other labs (which would include a busy Arizona lab). “If the regulators revoke some approval they had given, the company is going to go into emergency mode,” says Joshua Rauh, professor at Stanford Graduate School of Business. At that point, turning a profit on blood tests is probably out of the question, so Theranos’ owners and board of directors would probably try to sell off parts of the company’s salvagable research and (precious, precious) intellectual property. “The technology might not be profitable right now, but it could be quite valuable to the right buyer,” says Rauh.
But maybe Theranos pulls a hail Mary, and CMS doesn’t revoke the company’s license. At that point, survival becomes a question of how much cash the company has in its coffers. Theranos would need to overcome problems on two fronts: “One, they have to demonstrate that they have technology that works,” says Rauh. Which will take a lot of work. Theranos built its brand declaring it would be able to complete up to 70 tests from a single drop of blood, for a fraction of its competitor’s costs. Despite the Journal‘s reporting (corroborated by warning letters from the feds) on all Theranos’ problems, nobody outside the company (and possibly even within it) knows how far they are from blood drop testing.
Which leads directly to their second challenge: Everyone is aware about the doubts surrounding the company’s tech. “Even with scientific evidence, the brand of the Theranos name is in trouble,” says Rauh. Tainted brands are very hard to revive, even for mature companies have long-standing positive relationships with customers. Theranos has never really had a relationship with its customers, besides promising something that never really came true.
No matter what, Theranos is in trouble. Which could force founder Elizabeth Holmes to loosen her grip on its operations. Rauh explains that most startups sign contracts that give their venture capitalist investors room to usurp control. “If certain growth benchmarks don’t get met, the VCs take additional seats on the board and steer the company in different directions that they think will be more profitable more quickly,” says Rauh. Or, sell the company. Fact is, a lot of VCs are impatient, and will start getting antsy about a return on their investment. And that’s for companies that aren’t being threatened by the feds.
And the VCs could also hit Holmes and her board with lawsuits if they determine they’ve been conned out of their money. “The rules that apply to Theranos are exactly the same as those that apply to any other company that raises money from investors,” says Joseph Grundfest, professor at Stanford Law School. But that would be tricky, because it is unlikely that Holmes intentionally set out to bilk anybody. “We would have to know exactly what Theranos said to people, what people understood about what Theranos said, what risk disclosures were discussed,” says Grundfest.
Of course, nobody on the outside knows what kind of contracts Holmes signed with Theranos’ investors; without that information, speculation is useless. But few would predict that Theranos’ immediate future holds anything besides more trouble.
1 UPDATE: 4/13/16 8:15pm ET This story has been updated to note that Walgreens has only closed one Theranos testing station, at a Palo Alto drug store. Walgreens still hosts over 40 Theranos testing centers in Arizona. However, Walgreens does not plan to open any additional testing centers until questions about Theranos’ technology have been resolved.
2016-04-14
Theranos
- The Wall Street Journal – Regulators Propose Banning Theranos Founder Elizabeth Holmes for at Least Two Years
Theranos
THE WALL STREET JOURNAL
Regulators Propose Banning Theranos Founder Elizabeth Holmes for at Least Two Years
By John Carreyrou and Christopher Weaver
April 13, 2016
Summary: Theranos founder Elizabeth Holmes and President Sunny Balwani faces possible ban after Centers for Medicare and Medicaid Services said company failed to fix problems in blood testing with Edison machines, other areas.
Full Text: Federal health regulators have proposed banning Theranos Inc. founder Elizabeth Holmes from the blood-testing business for at least two years after concluding that the company failed to fix what regulators have called major problems at its laboratory in California.
In a letter dated March 18, the Centers for Medicare and Medicaid Services said it plans to revoke the California lab’s federal license and prohibit its owners, including Ms. Holmes and Theranos’s president, Sunny Balwani, from owning or running any other lab for at least two years. That would include the company’s only other lab, located in Arizona.
The two labs generate most of Theranos’s revenue and are at the core of its strategy to revolutionize the blood-testing industry with new technology, user-friendliness and quick results.
The letter hasn’t been released to the public, but a copy was reviewed by The Wall Street Journal.
Under federal law, Theranos had 10 days to give CMS evidence of why the sanctions shouldn’t be imposed. The company has responded, and CMS is reviewing the response, according to a person familiar with the matter.
If the company doesn’t respond to the satisfaction of the regulators, CMS said in the letter that it will proceed to impose the sanctions.
Theranos could appeal to an administrative law judge and then a departmental appeals board, which could delay the effective date of some of the sanctions. If Theranos were to appeal, the lab would keep its license pending the outcome of the appeals process. The proposed ban on Ms. Holmes and Mr. Balwani would take effect at the same time as the lab’s license revocation and would be subject to the same appeals process.
The appeals process could take months, and such appeals have rarely succeeded in the past. A list of appeals decisions on the agency’s website shows that the agency didn’t lose a single such case from 2001 to the end of 2010.
In response to questions from the Journal about the letter, Theranos spokeswoman Brooke Buchanan said the government hasn’t yet imposed sanctions on the company’s lab in Newark, Calif.
“Due to the comprehensive nature of the corrective measures we’ve taken over the past several months, which has been affirmed by several experts, we are hopeful that CMS won’t impose sanctions,” she added. “But if they do, we will work with CMS to address all of their concerns.”
Last week, Theranos announced the recruitment of “nationally respected laboratory and medical experts” to its scientific and medical advisory board. The company said the eight-member panel would “work alongside Theranos’ leadership and internal teams in various areas, including advising Theranos regarding the full integration of its technology into routine clinical practice, and publication and presentation in scientific journals and at scientific meetings.”
Theranos was valued at $9 billion in a funding round in 2014 and the majority stake of Ms. Holmes at more than half that. During the past six months, though, Theranos has faced questions about the proprietary blood-testing devices it invented, code-named Edison, the accuracy of patient test results and its lab practices.
The Journal reported in October that former employees had doubts about the accuracy and reliability of the Edison devices. CMS inspectors found that some tests run on those machines and traditional devices routinely missed Theranos’s own accuracy requirements.
Ms. Buchanan said last month that Theranos “made mistakes in the past in the Newark” lab but has “dedicated every resource to remedy those failures” since becoming aware of the problems.
She also said that most of the deficiencies related to how Theranos used various testing machines, including its Edison devices, not ”the fundamental integrity of the technologies themselves.”
The company’s most urgent challenge is to persuade government officials not to impose the crippling penalties detailed in the 45-page letter. The agency completed an inspection of the California lab in November and found five major categories of infractions that violate the federal law governing clinical labs.
In February, Theranos submitted a correction plan to address the problems, but federal officials concluded it was insufficient, according to the March 18 letter. CMS declined to comment.
The letter detailed six proposed sanctions, including revoking the California lab’s federal license and barring it from the Medicare program. License revocation would result in Ms. Holmes and Mr. Balwani being barred from owning or operating any lab for at least two years, according to the copy reviewed by the Journal.
CMS also proposed to fine Theranos $10,000 a day and said it wants the company to submit the names and addresses of all doctors and patients who used the lab’s services since January 2014.
“This list may be used to advise the laboratory’s clients of the nature of its non-compliance and the nature and effective date of any sanctions imposed against the laboratory,” federal officials wrote in the letter.
The proposed penalties are among the most severe in CMS’s power, said Barbara Cammarata, a lawyer at Sidley Austin LLP who advises clinical labs on regulatory issues. “They’re in a lot of trouble,” she said.
Last year, the agency revoked the licenses of about two dozen clinical labs out of the thousands it oversees across the U.S.
Greg Ingle, chief executive of Clinical Lab Consulting LLC, a firm that audits labs, said it “is incredibly rare to see” the government seek to take away the license of “a highly capitalized, large operation” such as Theranos. Company records showed that the California lab ran about 890,000 tests a year.
Officials found that Theranos failed to adequately correct 43 of 45 deficiencies identified by inspectors last year. The failures included not providing evidence that Theranos sent corrected reports to patients who got flawed test results.
One of those tests, a blood-coagulation test known as prothrombin time, measures how long it takes blood to clot and is often used by doctors to determine which dosage of the blood thinner warfarin to give patients.
Wrong prothrombin time results could cause doctors to prescribe too little or too much warfarin. Too much of the drug, also known by its brand name Coumadin, can cause fatal bleeding, while too little can leave patients vulnerable to clots and strokes, according to medical experts.
Prothrombin time is a hematology test. In January, CMS told Theranos that its hematology-testing practices placed patients in “immediate jeopardy.” In the March 18 letter, the agency said the company’s plan failed to adequately correct those deficient practices.
As a result, the agency proposed to bar Theranos’s lab in California from doing any hematology testing, regardless of whether it appeals the sanctions, according to the letter.
The company has said it doesn’t believe any patients were affected.
The Arizona lab wasn’t part of the inspection and continues to run a variety of tests on samples drawn from patients at 40 Theranos wellness centers at Walgreens Boots Alliance Inc. drugstores.
In addition, CMS said it didn’t find some of the exhibits and tables Theranos referred to in its plan, according to the letter. And Theranos widened the variation ranges it deemed acceptable for certain blood tests without giving the agency any justification for the change, the letter said.
CMS officials usually release sanctions letters to the public soon after sending them to lab owners. With Theranos, the agency has held off because the company requested redactions that it said are necessary to protect its trade secrets, according to people familiar with the matter. The agency hasn’t decided whether to grant the redaction requests, the people said.
THE NEW YORK TIMES
Theranos Under Fire as U.S. Threatens Crippling Sanctions
By REED ABELSON and ANDREW POLLACK
April 13, 2016
Summary: Elizabeth Holmes, the chief executive of Theranos, is facing possible sanctions from the Centers for Medicare and Medicaid Services. Federal regulators have threatened a series of stiff sanctions…
Full Text: Federal regulators have threatened a series of stiff sanctions against Theranos, the embattled blood-testing company, including closing down its flagship laboratory and potentially barring its chief executive from owning or operating its labs for two years.
The sanctions, which have not been made final, were included in a strongly worded letter from officials from the Centers for Medicare and Medicaid Services. It is the latest blow to the credibility of Theranos and Elizabeth Holmes, its chief executive, who seemingly became a self-made billionaire by promising to upend the clinical testing industry.
The government officials proposed a series of sanctions against the company, including the revocation of the company’s certification for its California laboratory, its primary operation, and suspension of its eligibility to receive payments under the Medicare insurance program.
If the laboratory’s certification were to be revoked, Ms. Holmes and Theranos’s chief operating officer, Ramesh Balwani, would be barred from owning or operating any laboratory for at least two years, the letter said.
Theranos confirmed that it received and responded to the letter, which has not been made public and was reported earlier by The Wall Street Journal. The company was given 10 days from the date of the letter, March 18, to respond to regulators’ concerns.
In its response to the agency, dated April 1, Theranos said that it had hired new leadership for the laboratory and “would be able to ensure the deficient practices will not recur” through “robust new quality systems” and “intense oversight.” It also said it had stopped running a number of tests that inspectors had expressed concerns about.
The company said it had not received notice of the regulators’ final decision. A spokeswoman for Medicare declined to comment.
Regulators, including those from Medicare as well as the Food and Drug Administration, have also raised repeated concerns about the technology. While approving one of Theranos’s tests last summer, the F.D.A. made clear it needed more evidence that the technology was ready for prime time. The Medicare letter follows an inspection the agency performed last fall that found problems at the lab.
Describing the regulators’ continued questions as part of the “ordinary process,” a spokeswoman for Theranos, Brooke Buchanan, said the company was in daily contact with regulators about their concerns. “We did not expect this to be over in three months,” she said.
She insisted Theranos had made changes aimed at addressing regulators’ concerns over the accuracy of its tests. “We’ve taken comprehensive corrective measures over the past several months,” she said. If Medicare chooses to impose sanctions on the company, she said, Theranos will continue to work with regulators to address its concerns.
Theranos, the creation of Ms. Holmes, epitomized the promise of Silicon Valley to transform — or disrupt, to use its own lingo — all of health care. Having dropped out of Stanford University to found the company in 2003, Ms. Holmes claimed to have created a whole new way to perform multiple tests using a few drops of blood from a finger prick, which would be less painful and less costly than conventional blood tests.
Her vision of bringing laboratory testing to the masses, including allowing customers to order tests without a doctor’s order, attracted some well-known venture capitalists. The company earned a stunning $9 billion valuation and an abundance of news media attention. Ms. Holmes graced the cover of numerous magazines, including T: The New York Times Style Magazine.
A scathing report in The Wall Street Journal last October put an end to the fairy tale and Theranos scrambled to respond to the news media’s sudden turn. The company’s fall from grace came to symbolize the overreach of Silicon Valley and the hype that surrounds unproven technology.
While Ms. Holmes has continued to defend the company in as many forums as she can, the lack of hard information about whether the technology worked has only increased the skepticism surrounding her company.
Examiners from Medicare inspected Theranos’s laboratory in Newark, Calif., last fall and found numerous deficiencies, one of which they said posed “immediate jeopardy to patient health and safety.”
That particular deficiency related to Theranos’s test for the clotting ability of blood, a measurement used to help determine the correct dose of the blood-thinning drug warfarin. Too much warfarin can cause internal bleeding while too little can leave a patient vulnerable to a stroke. The inspection report, which was recently made public by Medicare, said that all 81 results provided to patients from that test from April to September of last year were inaccurate.
Theranos said in response to regulators that it had voided the results of those tests. Ms. Buchanan said the company, after talking to the patients and doctors involved, did not believe any patients had been harmed.
The regulators also said that the director of the laboratory was not qualified and some other personnel were inadequately trained. At the time of the inspection, the laboratory director was a local dermatologist who continued to run his medical practice while also supervising the lab.
After receiving the regulators’ findings in January, Theranos submitted a plan to correct the problems in February. But in proposing the sanctions, the new letter from the regulators says that the company’s response “does not constitute a credible allegation of compliance and acceptable evidence of correction for the deficiencies cited.”
Among other things the letter said some documents referred to in Theranos’s submission were missing. It also said the company had not provided enough information to justify its conclusions regarding whether patients were affected.
Philip D. Cotter, a consultant to laboratories, said the letter to Theranos was “definitely on the more serious end of the spectrum,’’ making it more likely that some sanctions would be imposed.
“It wouldn’t be impossible to turn this around but the response they would have had to turn in by March 28 would have had to be pretty convincing,’’ said Dr. Cotter, a principal at ResearchDx in Irvine, Calif.
Medicare suspended, revoked or limited the certifications of about 50 clinical laboratories in 2015, a small fraction of the labs it oversees.
Theranos is now doing all of its tests in a separate laboratory in Arizona, which is not being threatened with loss of its certification. However, that laboratory uses standard equipment purchased from other vendors, not Theranos’s proprietary testing technology. Also, if Ms. Holmes were to be barred from owning any laboratory, it would raise questions about whether Theranos could continue to own and operate the Arizona lab.
CNBC
Regulators may ban Theranos CEO for 2 years: DJ
By Anita Balakrishnan
April 13, 2016
Summary: Federal health officials may ban the founder and CEO of blood-testing start-up Theranos for at least two years, The Wall Street Journal reported Wednesday.
Full Text: Federal health officials may ban Elizabeth Holmes, founder and CEO of blood-testing start-up Theranos, from owning or running any labs for at least two years, The Wall Street Journal reported Wednesday.
The move comes after the company failed to fix "major problems" at a California lab, according to a letter from the Centers for Medicare and Medicaid Services (CMS) obtained by the Journal. If any sanctions are enacted, a lengthy appeal process would be involved, according to the newspaper.
Theranos spokeswoman Brooke Buchanan told CNBC she was hopeful that CMS would not impose sanctions, as the company works on comprehensive corrective measures, including the recent recruitment of an advisory board of scientific and medical experts.
"But if they do, we will work with CMS to address all of their concerns," Buchanan confirmed to CNBC.
Theranos became famous for fast, accurate and affordable blood testing using smaller needles and tubes.
But the company, valued at more than $9 billion, has come under scrutiny after media reports questioned the accuracy of the proprietary test methods, the Journal said. A particular blood-coagulation test was deemed by health officials in January to put patients in "immediate jeopardy," according to the newspaper's report.
The company has told the Journal it doesn't believe any patients were affected.
WIRED
Theranos’ Future Looks Bloody Grim as Feds Threaten a Shutdown
By Nick Stockton
April 13, 2016
Summary: Federal regulators are threatening to shut down Theranos' California lab and ban its owners from running any labs for two years.
Full Text: Biotech startup Theranos is in trouble again. This time, federal regulators are threatening to shut down the company’s California lab and ban its owners from running another blood testing company for two years.
For a company built on the promise of painless blood tests, that’s gotta sting. Now, the government hasn’t shuttered Theranos quite yet. The warning, a letter from Centers for Medicare and Medicaid Services procured by the Wall Street Journal, is dated March 18. Theranos has responded to the feds about the infractions listed in the letter (which include issues with flawed test results), and CMS is currently reviewing their response.
This is bad, bad news for a company whose brand is already facing serious problems. Since October 2015, when the Journal exposed troubling flaws in Theranos’ signature fingerprick technology, the company has lost credibility with the press, the diagnostic community, and consumers. Perhaps most importantly, it has threatened important business partnerships with companies like Walgreens1. The question now is, can Theranos survive?
That depends, first of all, on whether CMS follows through to revoke Theranos’ California license and ban its owners from running other labs (which would include a busy Arizona lab). “If the regulators revoke some approval they had given, the company is going to go into emergency mode,” says Joshua Rauh, professor at Stanford Graduate School of Business. At that point, turning a profit on blood tests is probably out of the question, so Theranos’ owners and board of directors would probably try to sell off parts of the company’s salvagable research and (precious, precious) intellectual property. “The technology might not be profitable right now, but it could be quite valuable to the right buyer,” says Rauh.
But maybe Theranos pulls a hail Mary, and CMS doesn’t revoke the company’s license. At that point, survival becomes a question of how much cash the company has in its coffers. Theranos would need to overcome problems on two fronts: “One, they have to demonstrate that they have technology that works,” says Rauh. Which will take a lot of work. Theranos built its brand declaring it would be able to complete up to 70 tests from a single drop of blood, for a fraction of its competitor’s costs. Despite the Journal‘s reporting (corroborated by warning letters from the feds) on all Theranos’ problems, nobody outside the company (and possibly even within it) knows how far they are from blood drop testing.
Which leads directly to their second challenge: Everyone is aware about the doubts surrounding the company’s tech. “Even with scientific evidence, the brand of the Theranos name is in trouble,” says Rauh. Tainted brands are very hard to revive, even for mature companies have long-standing positive relationships with customers. Theranos has never really had a relationship with its customers, besides promising something that never really came true.
No matter what, Theranos is in trouble. Which could force founder Elizabeth Holmes to loosen her grip on its operations. Rauh explains that most startups sign contracts that give their venture capitalist investors room to usurp control. “If certain growth benchmarks don’t get met, the VCs take additional seats on the board and steer the company in different directions that they think will be more profitable more quickly,” says Rauh. Or, sell the company. Fact is, a lot of VCs are impatient, and will start getting antsy about a return on their investment. And that’s for companies that aren’t being threatened by the feds.
And the VCs could also hit Holmes and her board with lawsuits if they determine they’ve been conned out of their money. “The rules that apply to Theranos are exactly the same as those that apply to any other company that raises money from investors,” says Joseph Grundfest, professor at Stanford Law School. But that would be tricky, because it is unlikely that Holmes intentionally set out to bilk anybody. “We would have to know exactly what Theranos said to people, what people understood about what Theranos said, what risk disclosures were discussed,” says Grundfest.
Of course, nobody on the outside knows what kind of contracts Holmes signed with Theranos’ investors; without that information, speculation is useless. But few would predict that Theranos’ immediate future holds anything besides more trouble.
1 UPDATE: 4/13/16 8:15pm ET This story has been updated to note that Walgreens has only closed one Theranos testing station, at a Palo Alto drug store. Walgreens still hosts over 40 Theranos testing centers in Arizona. However, Walgreens does not plan to open any additional testing centers until questions about Theranos’ technology have been resolved.
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