Coverage: Theranos founder barred for two years

Federal regulators barred Theranos executive and founder Elizabeth Holmes from owning or operating a medical laboratory for at least two years, raising new questions about the future of the embattled blood-testing start-up.

Andrew Pollack of the New York Times had the news:

In a letter sent to Theranos that was made public on Friday, regulators said they were revoking the certification of its flagship laboratory in Newark, Calif., effective Sept. 5. They also said the laboratory would be prohibited from taking Medicare and Medicaid payments.

The government scrutiny stemmed from questions about the effectiveness of Theranos’s technology and the way the company operated its labs.

The company faces a fine of $10,000 for every day it is out of compliance with regulations, effective July 12.

Such stern sanctions are “virtually unheard-of in my 40 years’ experience in the industry,” said David Nichols, president of the Nichols Management Group, a consultant to and operator of clinical laboratories. “I don’t see a path forward for the company.”

What Theranos and Ms. Holmes will do next is not clear. The company said in its statement that it would continue to operate a laboratory it owns in Arizona, at least for now.

Matthew Herper of Forbes reports that Holmes will remain CEO of the company:

In a statement sent via email, the company says the CMS review pertains to its Newark, Calif.,laboratory, not its technologies, including small-volume sample assays, capillary collection technologies, and and the ability to test small samples of blood.

“The clinical lab is just one of Theranos’ many opportunities to provide access to high-integrity, affordable and actionable health care information, and the company will continue to carry out its mission under the leadership of its founder and CEO, Elizabeth Holmes,” the statement says.

That seems to indicate Theranos might make a massive pivot, away from the blood test business in which it hoped to challenge giants like Quest Diagnostics and LabCorp. The idea was that Theranos’ tests, taken with a few drops of blood from a finger prick, not a needle, could be performed more conveniently and cheaply while still allowing the company to pocket large amounts of profit. But Theranos has never published any significant studies showing the technology works, and outside researchers have raised doubts about the accuracy of the companies tests. Forbes once estimated Holmes’ net worth at $4.5 billion based on her Theranos stake, but in June we lowered our estimate of her net worth to zero based on a much lower valuation of the company.

John Carreyrou, Michael Siconolfi and Christopher Weaver of The Wall Street Journal report that the company remains the target of a criminal probe:

The company faces other threats, including a criminal probe by federal prosecutors of whether it misled investors and regulators, according to people familiar with the matter. Theranos also lost its main retail partner, the Walgreens drugstore chain, last month.

Theranos declined to comment beyond its news release and statements. In one, it said: “We accept full responsibility for the issues at our laboratory in Newark, California, and have already worked to undertake comprehensive remedial actions,” including, it added, shutting down that lab, adding new medical experts and lab staff and improving its quality and training procedures and systems.

The sanctions could force the board to make some tough decisions.

“The ban is a blessing. It gives the company a way to go forward without Holmes, whose lack of credibility in the financial and clinical communities is sinking the company,” said Erik Gordon, a professor at Ross School of Business at the University of Michigan. “If the company appeals the ban, it will destroy its claims that it is cooperating and is more likely to end in bankruptcy than a turnaround.”