Theranos was supposed to revolutionize blood tests. Now its CEO faces an industry ban
Updated by Julia Belluz on April 13, 2016, 3:33 p.m. ET
Elizabeth Holmes's revolution has gone awry.Larry Busacca/Getty Images
Elizabeth Holmes once promised to disrupt the multibillion-dollar blood testing industry with her revolutionary finger-prick tests.
Now the 31-year-old founder of biotech startup Theranos may be on the brink of being banned from the industry entirely.
According to a March 18 letter obtained by the Wall Street Journal — the latest revelation in the newspaper's impressive investigation into Holmes's crumbling empire — US health regulators are threatening to close down Theranos because the company failed to address deficiencies that pose a threat to patient health and safety.
In the letter, the Centers for Medicare and Medicaid Services says it plans to revoke Theranos’s lab license and prohibit its owners — including Holmes and company president Sunny Balwani — "from owning or running any other lab for at least two years," the Journal reported.
CMS will reconsider these actions if the Theranos executives can provide good evidence for why they shouldn't be shut down. The company has already responded, and CMS has not yet reached a final decision.
"If the sanctions are imposed," reporters John Carreyrou and Christopher Weaver write in the Journal, "some would take effect within eight days. Others would take longer, including revoking the California lab’s license, which could occur in 60 days." The company could also appeal the decision, which could delay any regulatory sanctions.
Theranos claimed to offer faster, cheaper, painless blood tests
Theranos's current set of problems started with an October Wall Street Journal published investigation. In it, Carreyrou showed that the company's claims of a health care revolution were overblown. Contrary to Holmes's public statements, Theranos had allegedly been collecting blood samples using the traditional way and then diluting them so they could be run on machines made by other companies — not their much-hyped Edison technology (more on that below).
What's more, the Journal's investigation, as well as a follow-up story, suggested there were major concerns about the accuracy of Theranos's test results.
Theranos had claimed it had the technology to take blood from a simple painless prick and run multiple tests on that tiny, raindrop-size sample rather than the multiple vials usually required. The sample would be sent to a lab in a "nanotainer" and tested on Theranos’s proprietary technology, known as "Edison machines." Theranos also promised to deliver results in a few hours, to eliminate anxiety-inducing waits. Holmes said the tests would cost about half of current Medicare and Medicaid reimbursement rates for tests.
It seemed promising. In 2013, Theranos opened 42 "wellness centers" in Walgreens pharmacies in Arizona, two in California, and one in Pennsylvania. Holmes had also started lobbying state governments to allow patients to order Theranos tests without having to go through the cumbersome annoyance of getting a doctor's note — a step that, in theory, would further cut down on time and cost to patients.
By 2015, Holmes had persuaded Arizona's legislature to pass a law allowing patients to skip right to her labs and order up whatever menu of testing they wanted, without doctors' approval.
So not only was Holmes trying to upend the way blood testing is done, she was also trying to change how people interact with the health care system. Considering that every person gets blood tests at some point, the change she promised was a big deal.
Many of Theranos's claims were never validated, raising suspicions
More recently, however, critics had begun asking for proof that Theranos's technology actually works, and that its results are accurate. After all, the evidence on this wasn't public: The Food and Drug Administration hadn't cleared Theranos's tests. And Holmes had never published her claims in peer-reviewed journals.
Holmes and Theranos's PR team deflected these critics by citing intellectual property concerns and suggesting that any complaints were being planted by rival testing companies, such as Quest and Laboratory Corporation. Here's how Ken Auletta of the New Yorker described Holmes's stonewalling:
What exactly happens in the machines is treated as a state secret, and Holmes’s description of the process was comically vague: "A chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel." [Holmes] added that, thanks to "miniaturization and automation, we are able to handle these tiny samples."
Then in October 2015 came the massive Wall Street Journal investigation. Carreyrou eventually discovered and reported that it appears Theranos rarely even used its much-hyped Edison technology in its tests. Instead, the startup allegedly relies mostly on older technology by companies like Siemens for the bulk of its testing. (This was in contrast to the company's claims that it used older machines only for "certain esoteric and less commonly ordered tests.")
What's more, there are real concerns that the company's signature Edison machines — the ones that have garnered all the hype — aren't nearly as accurate as claimed. On this point, Carreyrou cited former employees, internal emails, and doctors. One Theranos employee even complained to regulators that Theranos had been gaming the system, "failing to report test results that raised questions about the precision of the Edison system."
Since the Journal's story, other critics have come forward and claimed that their blood test results from Theranos didn't quite match those from standard labs. In a follow-up, the Wall Street Journal confirmed that the FDA had pressured Theranos to stop using its Edison technology on almost all of its blood tests save for one (a test for Type 1 herpes simplex) because of concerns about the machine's accuracy.
So how did Theranos get so much hype with such weak claims?
There's no shortage of Silicon Valley companies that claim to be changing the world, but Theranos stood out for a couple of reasons: It had an amazing origin story, it was led by a young woman in a mostly male tech industry, and it promised to solve a problem that was relevant to most people.
Holmes, the company's founder, dropped out of Stanford as a sophomore in 2004. She said she'd started the company both to address her phobia of needles — one that she realized many people shared — and out of the desire to help people diagnose potential diseases faster and at more accessible prices. Her message that billion-dollar lab companies were ripping people off with costly, outdated, and unnecessarily painful technology deeply resonated.
Over the next decade, Holmes managed not only to get her own Stanford professor and mentor on board, but also to attract $400 million from venture capitalists, and assemble a star-studded board that included former US Secretaries of State Henry Kissinger and George P. Shultz.
In this context, it's not surprising that favorable press followed: Holmes could be found, always in Steve Jobs–esque black, on the cover of Forbes and Fortune, and was even the subject of an in-depth New Yorker profile. She was named "the world's youngest self-made female billionaire" by Forbes and "America's coolest billionaire" by Inc. magazine, and even made Time magazine's list of the "100 most influential people."
This whole episode should be a cautionary tale: If a secretive tech company is claiming to revolutionize an entire industry with technology that still hasn't been validated, be skeptical.