Riding High On Hype 6 Months Ago, Theranos Faces Grim Diagnosis

Theranos, the Palo Alto, Calif.-based blood-testing laboratory that has attracted $9 billion in backing from investors and tons of upbeat coverage for founder Elizabeth Holmes, who famously dropped out of Stanford to launch the company in 2003, is teetering on having its license revoked by federal regulators. 

The feds are also proposing that Holmes and Theranos’ president, Sunny Balwani, be banned from owning or running any other lab for at least two years, report John Carreyou and Christopher Weaver of the Wall Street Journal, which has been breaking news about the company’s shortcomings since October.

“The proposed sanctions were included in a March 18 letter to the Palo Alto company from the federal Centers for Medicare and Medicaid Services, which found Theranos out of compliance with certain federal lab requirements,” reports the Los Angeles Times’ James F. Peltz. In return, the company has proposed solutions that the agency is reviewing, according to Theranos.  



“CMS has not imposed any sanctions on Theranos or its executives,” spokeswoman Brooke Buchanan tells Peltz, and the sanctions are “the worst-case scenario.” 

The Centers for Medicare and Medicaid Services is not commenting to anyone except to say that the letter published by the WSJ was not meant to be public. 

Theranos “epitomized the promise of Silicon Valley to transform — or disrupt, to use its own lingo — all of health care,” write Reed Abelson and Andrew Pollack for the New York Times. “… 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. … Holmes graced the cover of numerous magazines, including T: The New York Times Style Magazine.” 

That was the cover of its inaugural “Greats” issue, published last Oct. 25. And just a year ago, Norah O'Donnell was reporting on CBS This Morning that Holmes was “part of the Time 100 List just out” and that she was “being compared to visionaries like Bill Gates and Steve Jobs.” Henry Kissinger wrote the Time piece. His lede: “Elizabeth Holmes’ is a story that could happen only in America.”

But it was already unraveling, thanks to the WSJ reporting. Then, “in January, federal regulators warned Theranos that an inspection late last year had revealed deficiencies in its Newark, Calif., lab, including one that posed ‘immediate jeopardy to patient health and safety,’” Carolyn Y. Johnson reports for the Washington Post. “The company replied to the Centers for Medicare and Medicaid Services, describing how it had addressed the deficiencies in February, but the new letter reveals regulators found those explanations wanting.” 

Specifically, it “critiques Theranos for submitting a response to its allegations of deficiencies that did not detail why the laboratory came to particular conclusions. For example, Theranos said in its response to regulators that ‘no patient impact is expected’ or there was ‘no evidence of systemic errors,’ but regulators said there wasn't information about to support the statements,” Johnson writes.

“This is bad, bad news for a company whose brand is already facing serious problems,” observes Nick Stockton for Wired

“If the regulators revoke some approval they had given, the company is going to go into emergency mode,” Joshua Rauh, a professor at Stanford Graduate School of Business, tells him. It may have to sell off its “precious, precious,” as Stockton puts it, intellectual property.

 Or, if it manages to dodge the closure bullet, Rauh says it first will “have to demonstrate that it has a technology that works.” Then comes the massive job of repairing its reputation, which has been built on promises. “Even with scientific evidence, the brand of the Theranos name is in trouble,” Rauh tells Stockton. 

The company defines Theranos as “detecting the onset of disease in time for therapy to be effective,” saying on its About page that it “originated from the integration of therapy and diagnosis.” In a short video shot by Academy Award-winning director Errol Morris released last May, Holmes speaks about the epiphany behind her founding of the company.

“Coming upon the realization that, to me, nothing matters more than what people go through when someone they love is found out to be really, really sick.” Most of the time it happens so late in the “disease progression process” that “there’s nothing you can do. And, yet, there’s nothing that you wouldn’t do.”

It appears that Theranos is facing an analogous position today.

Next story loading loading..