Theranos Sounded Too Good to Be True—and It Is

The health startup—once the darling of the biotech industry—is under the gun to prove its pinprick blood tests work.

02.02.16 5:01 AM ET

When health care company Theranos announced that it could conduct dozens of blood tests with a finger prick, it sounded too good to be true.

Once valued at a staggering $9 billion and greeted by the press with fawning magazine features, Theranos’ troubles have slowly been coming into focus since last fall. The company claimed last year that its proprietary technology can “perform hundreds of tests, from standard to sophisticated, from a pinprick and tiny sample of blood,” rather than from blood drawn through a vein in the arm. But last week, after months of heightened scrutiny, the government placed Theranos under the pressure cooker of federal regulation.

Now, industry critics are saying that “time is running out” for the Silicon Valley startup to prove that its tech actually works.

On Jan. 25, the Centers for Medicare and Medicaid Services (CMS) sent a stern letter to Theranos following an onsite survey of the company’s Newark, California, laboratory conducted in November 2015.

“[I]t was determined that the deficient practices of the laboratory pose immediate jeopardy to patient health and safety,” the letter noted.

CMS gave Theranos a deadline of 10 business days to prove that the laboratory was complying with hematology-related and other lab requirements.

Three days later, Walgreens, which had partnered with Theranos to provide its blood-testing services in stores, ceased all testing at a Palo Alto, California, location and ordered the company to process all of its other tests from Walgreens locations at its Arizona laboratory instead of the Newark, California, lab.

In a statement issued two days after the CMS letter, Theranos promised to “take corrective action” and “submit a full plan of correction to CMS within days.” The company added that the survey is “not a reflection of the current state of our lab in Newark, CA,” and stressed that its Arizona lab, where it says 90 percent of the tests are processed, was not the subject of the CMS letter.

When asked about the impact of the CMS letter and the Walgreens announcement on its business, Theranos VP of communications Brooke Buchanan told The Daily Beast that numbers at Arizona locations are “increasing” in terms of customer traffic and volume.

“While people are focusing in on a lab audit, which we take very, very seriously, it’s not impacting our business,” she said.

Theranos wasn’t always on the backfoot. It was once the darling of the biotech world.

As The Washington Post noted last October, many in the media initially fell in love with Theranos’ new blood-testing technique and its charismatic billionaire CEO, Elizabeth Holmes. Holmes, who founded the company in 2003, was profiled in The New Yorker in December 2014 and made the covers of Fortune and Inc. as well.

The New York Times hailed her as a “visionary tech entrepreneur” on Oct. 12 of last year, writing that she was “paving the way for a scalable approach to early diagnosis and therefore lower-cost, less invasive treatment.” The conclusion: “[S]he may be starting a movement to change the health care paradigm as we know it.” Four days after those glowing words were published, the Times added an update to the bottom of the story citing “new developments.”

If calling Holmes the harbinger of change to the “health care paradigm” was an overstatement, “new developments” was the understatement of the year.

What happened in between was a sweeping Wall Street Journal investigation, which called the reliability of Theranos’ blood tests into question, and reported that its use of the finger prick technique was fairly limited. Most of the company’s tests, the Journal alleged, had been conducted the old-fashioned way: a needle in the arm. The promise of “hundreds of tests” from a finger prick was suddenly punctured.

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Deeply disturbing” was how Fortune editor Roger Parloff, who wrote the magazine’s favorable cover story on Holmes in 2014, reacted to the story. The company’s subsequent statement in response to the Journal, Parloff said, “reads like a powerful denial [but] says remarkably little.”

The experience prompted Parloff to try to get Theranos to tell him the exact number of tests it could conduct through the finger prick method but the company, in his words, “declined to specify how many,” and eventually sent an opaque statement that also failed to include a specific number.

Behind the glowing press and the cover stories, it seems, there were several unanswered questions: How, exactly, did the non-invasive blood tests work? Were they reliable? What could they actually test for? And was the hype—to the tune of $9 billion—justified?

The more these questions were asked, the more confidence in the company began to erode. On Oct. 16, Theranos announced that the FDA was subjecting Theranos’ Nanotainer, a small container used in the finger prick blood tests, to regulatory approval for any uses besides herpes simplex virus type 1 (HSV-1) testing.

In response, Theranos vigorously disputed the accuracy of the Wall Street Journal articles, calling the first “factually and scientifically erroneous and grounded in baseless assertions by inexperienced and disgruntled former employees and industry incumbents.”

Walgreens initially stood by the company, telling the Times that they were “[continuing] to evaluate next steps for further expansion.”

But Walgreens changed its tune by Oct. 23, when an official told the Journal that the pharmacy chain would no longer open new Theranos blood testing centers in its stores. Instead of the large-scale expansion that had been planned, the Theranos rollout stopped at just over 40 locations.

Then, on Oct. 27, the FDA issued two lab inspection reports on Theranos, noting that, among other alarming findings, the Nanotainer “was not validated under actual or simulated use conditions.” Theranos again defended itself in a statement, claiming that its technologies “have been rigorously tested and reviewed, and continue to be rigorously tested and reviewed.”

That didn’t stop a $350 million deal with Safeway from falling through in November, according to the Wall Street Journal, nor did it prevent Theranos from shedding seven of its 12 board members in December including, oddly enough, former Secretary of State Henry Kissinger.

Now, in the wake of the CMS letter, many are wondering how many more punches Theranos can take before it gets knocked out of the game.

Bloomberg editor Sheelah Kolhatkar noted that, unless Theranos publishes credible data—and soon—further investment could dry up in a Silicon Valley environment that is much more competitive now than it was when the company was founded.

Is Theranos Finished?” asked health and medicine outlet STAT, which noted that the company “didn’t respond to questions about how it’s doing financially.” Between the government regulation and the rocky business deals, those are reasonable questions to ponder.

When asked by The Daily Beast about the company’s future, Buchanan said, “We are confident in our business [and] in our technology, and continue to look forward to serving our customers in Arizona and California.”