- Federal health regulators banned Theranos founder Elizabeth Holmes from owning or operating a laboratory for at least two years, and stripped the company's Newark, CA facility of its certification, the once-heralded blood diagnostic firm said late Thursday.
- The severe penalties stem from serious deficiencies in Theranos' blood-testing practices at its Newark lab which were uncovered in inspections by the Centers for Medicare and Medicaid Services last fall and first reported by The Wall Street Journal.
- Since CMS first indicated sanctions could be forthcoming, Theranos' ongoing problems have intensified sharply. The company has revised or voided tens of thousands of blood tests conducted between 2014 and 2015 and class-action lawsuits against the company have mounted.
Elizabeth Holmes’ ban from an industry she promised to revolutionize caps a dramatic reversal in fortune for both Holmes and the young company. Led by Holmes, Theranos quickly rose to prominence on the promise of less-invasive and rapid blood-testing using only a finger-prick rather than a standard intravenous needle.
Even as problems continued to pile up over the past eight months, Holmes remained a public face of the company, defending its technology and methods. The two-year ban and revocation of the Newark lab’s certification are the most damaging developments yet.
As part of the sanctions, CMS also suspended the Newark lab's ability to receive Medicare and Medicaid payments for any laboratory or hematology-related services, as well as levying an undisclosed monetary fine.
In a statement, Elizabeth Holmes said the company had already begun corrective actions.
"Those actions include shutting down and subsequently rebuilding the Newark lab from the ground up, rebuilding quality systems, adding highly experienced leadership, personnel and experts, and implementing enhanced quality and training procedures," Holmes said.
Theranos said it would continue to provide lab services to customers through its other laboratory, located in Arizona. A company spokesperson previously told BioPharma Dive that as much as 90% of blood tests conducted by the company were performed out of the Arizona lab, although it is unclear if services were shifted to that location following the CMS inspections last fall.
At one point, Theranos was valued as high as $9 billion dollars and had attracted a board of directors full of dignitaries such former secretary of state Henry Kissinger and former secretary of defense William Perry.
But questions began to pile up about the accuracy of Theranos’ finger-prick technology. Reporting by the Wall Street Journal last October revealed Theranos used its proprietary Edison blood-testing devices for far fewer tests than the company claimed, relying instead on traditional lab devices bought from other firms such as Siemens.
The Edison device was touted as a game changer for blood testing, capable of analyzing blood samples collected by Theranos’ so-called nanotainers, which collect small amounts of blood from a finger prick.
A report released by CMS in April revealed Theranos failed to meet some of its own quality-control checks for testing and showed the company frequently produced test results which fell outside of acceptable ranges.
Investigations have since been opened by the U.S. Attorney’s Office for the Northern District of California and the Securities and Exchange Commission. The probe by the U.S. Attorney’s office is examining whether Theranos misrepresented its technology and business operations to investors and government officials. The SEC is separately looking into statements the company made to investors.
Theranos made efforts to right the ship, even as problems continued to develop. In May, president and chief operating officer Sunny Balwani left the company as part of a broader restructuring which added three new members to the board of directors, including a former top Amgen executive. The changes expanded Theranos' efforts to bulk up its leadership with members of the scientific and medical communities, which the company had been criticized for lacking.
Later that month, Theranos voided or revised two years of blood test results, in what The Wall Street Journal characterized as an effort to avoid the penalties CMS levied yesterday.
But those efforts were not enough apparently, as the sanctions are among the most severe CMS could have imposed.
It is not clear what a ban for Holmes will mean for Theranos business operations. But the company also recently lost its partnership with Walgreens, which closed all 40 of Theranos blood testing centers in Walgreen’s Arizona drugstores.