The Strategist

US regulators excommunicated Theranos' founder from the business

07/11/2016 - 15:13

US Federal regulators have banned Elizabeth Holmes, founder and CEO of Theranos startup medical, from heading blood tests laboratories, or owning them. Above that, the regulators revoked license of Theranos Laboratory in California. The organization will no longer be get subsidies within the state programs for indigent and seniors Medicare and Medicaid. The regulator, Centers for Medicare and Medicaid Services (CMS), imposed a fine on the company. The sum was not disclosed, reports The Wall Street Journal.

Glenn Fawcett
Glenn Fawcett
In 2014, after next round of venture capital financing, Theranos was valued at $ 9 billion ($ 400 million of them came from investors). Holmes, who owns a controlling stake in the company, is also sometimes called "Steve Jobs in the skirt" for her business acumen and passion for black turtlenecks. The company argued that its "best achievements" allow to conduct "full spectrum" of laboratory tests using a few drops of blood from a finger, taken without a syringe. In October 2015, however, WSJ reported that Theranos conducted most of the tests using conventional equipment, purchased from other companies. Besides, there are doubts about accuracy of tests results received on Edison company’s equipment.

In April, it became known that the US government launched a criminal investigation against Theranos for possible misleading investors, and government officials about its technology and operations. At the beginning of the year, Federal prosecutors, San Francisco court, the FBI and the Securities and Exchange Commission Information began to seek about Theranos, WSJ reported, citing people familiar with the investigation. 

In January, CMS mailed Theranos. In the letter, the regulator pointed at significant deficiencies in its California laboratory, due to which the customer's health was "in serious danger», Bloomberg reported. Soon, the company replied to the agency that no "evidence of systemic problems" had been found, and that the negative "consequences for patients should not be awaited." In March, the CMS reported that Theranos’ statements were not substantiated, and threatened the company with fines and penalties.
Then in May, Theranos informed the regulator that it canceled results of all tests carried out on Edison’s equipment in 2014 and 2015. The results of tens of thousands of tests have been revised or canceled completely, as the company reported to its clients - doctors and patients.

"We take full responsibility for the problems in our laboratory in Newark, California, and have already taken steps to implement comprehensive measures to correct them," - Holmes said in a statement, released after the CMS pronounced its decision. The lab will be closed and completely rebuilt. Theranos will continue to handle other analyzes in its lab in Arizona.

The company has 60 days to appeal the CMS’ decision.

Bloomberg adds that three class action were filed against Theranos. The laboratory is accused of consumer fraud and misleading advertising.