- Letter is setback for Elizabeth Holmes's $9 billion startup
- Theranos plans to submit plan to address problems within days
U.S. regulators found serious shortcomings at a medical laboratory run by startup Theranos Inc., the latest in a series of setbacks for the highly valued blood testing startup founded by billionaire entrepreneur Elizabeth Holmes.
Deficiencies at Theranos’s lab in Newark, California, “pose immediate jeopardy to patient health and safety,” U.S. government regulators said in a letter to the company released Wednesday that demanded immediate changes at the lab and threatened the closely held company with sanctions.
Theranos violated at least five U.S. regulations for clinical laboratories that do things like test blood levels or assess disease, the Centers for Medicare and Medicaid Services said in the Jan. 25 letter. The findings are the latest to cast doubt on the medical-testing company, which also has drawn scrutiny from the Food and Drug Administration.
Read the letter here.
Theranos said the inspection, conducted in November, doesn’t reflect the current condition of its lab. The company already has fixed some of the problems identified by regulators and plans to submit a plan to address the rest “within days,” according to spokeswoman Brooke Buchanan.
Theranos, which has been valued in private investments at about $9 billion, has said its technology can run finger-stick samples for tests that typically have required an entire vial of blood. Yet it has been battered by repeated allegations that its blood testing technology isn’t what the company said it was, and that it misled outsiders about its potential. While the company lists about 200 tests on its online menu, the company said in October that it’s using its nanotainer collection tube on only one, a herpes test.
Theranos has 10 days to show CMS that it’s taking action immediately to fix the issues. If the lab doesn’t come into compliance, the government said it could impose sanctions on the company, including fines or on-site monitoring, or could revoke the company’s participation in government programs. CMS is tasked with monitoring most U.S. medical labs.
The government specifically noted Theranos’s blood testing, which is the backbone of the startup’s technology. The agency said the “immediate jeopardy” referred to in the letter means that the problems cited with the blood tests are causing, or are likely to cause, “serious injury or harm, or death, to individuals served by the laboratory or to the health and safety of the general public.”
The findings don’t apply to Theranos’s lab in Arizona, which processes about 90 percent of the company’s tests, Buchanan said.
The repeated doubts about Theranos’s technology and standards are beginning to raise their own questions about whether the startup can weather the storm.
Michael Cherny, an analyst at Evercore ISI who covers the diagnostic industry, said that the letter “reads fairly critical,” and that the results of the inspection and Theranos’s attempts to make corrections could go either way. “I’ve seen situations where it’s a straightforward fix, and situations where it’s spiraled out of control.”
“By keeping so much hidden under the covers, they’ve left the average individual both within and without the investment community expecting the worst, as they haven’t proven otherwise,” he said.
Era of Secrecy
Holmes, the U.S.’s youngest female self-made billionaire, told Bloomberg Businessweek in December that the company’s era of secrecy was over, and that it was planning to start publishing data to show its tests were accurate. Theranos had asked the Cleveland Clinic, a prominent research hospital, to run a study comparing Theranos’s technology to traditional blood draw, she said.
The Cleveland Clinic, however, said Wednesday that it had started no such program. “The Cleveland Clinic has not begun any work related to the study at this time,” spokeswoman Eileen Sheil said by telephone. “We are not consultants, nor do we have any financial investments in the company.”
Intermountain Healthcare, a 22-hospital system based in Utah, said in October that it was planning to run a pilot program with Theranos technology, to be used alongside traditional blood testing for comparison.
Intermountain hasn’t used Theranos’s technology yet, according to spokesman Daron Cowley. “We have not yet scheduled a possible pilot” study, Cowley said Wednesday in an e-mail. “We’ll certainly evaluate this and all information before beginning a pilot.”
In its letter, the government said it inspected the lab on Nov. 20 and received additional information from Theranos on Dec. 23. The agency didn’t provide further details on the deficiencies, and a CMS spokeswoman said she couldn’t provide additional information.
Buchanan, the Theranos spokeswoman, said three of the deficiencies identified by CMS are “related to personnel, such as documentation and oversight.” One has to do with systems, and another with “certain policies, procedures and associated events” that fell short of government standards.
Theranos said that as part of its own review, it had added staff at the California lab. It recently brought on Kingshuk Das, a pathologist, as lab director, and Waldo Concepcion, a professor of surgery at Stanford University Medical Center, as a clinical consultant.