Privately held Theranos's fortunes have plummeted over the past year.
The 13-year-old Palo Alto, Calif.-based medical technology company is under criminal investigation for not following adequate procedures and allegedly making false claims about its blood-testing product. It also faces sanctions that could include revoking certification of its main laboratory in California and banning its founder Elizabeth Holmes and the company's former COO Ramesh Bulwani from owning or operating any blood testing laboratory for two years. In addition, Theranos faces two class-action suits, including one led by a North Carolina man alleging consumer fraud. The suit alleges that the company falsely marketed its blood-testing technology.
The 31-year-old Holmes, once a darling of Silicon Valley and symbol of the potential benefits of technology on healthcare, has suffered in the ongoing crisis. A Forbes story said that her value, once estimated at $4.5 billion, has been wiped out since a series of Wall Street Journal stories last fall questioned the effectiveness of Theranos's blood-testing Edison technology. The company's value was once estimated at about $9 billion.
But it may be premature to bury Theranos. The company received a CLIA (Clinical Laboratory Improvement Amendments) waiver from the FDA July 2015 which cleared the use of the company's Herpes Simplex Virus -- 1 test outside of a traditional laboratory setting. Moreover, the investigations have not run their course. The blood testing system may have some potential.
In addition, Theranos has already taken some steps to correct deficiencies in its testing and workforce. Holmes has vowed to go further to ensure that Theranos can be successful. "I feel devastated that we did not catch and fix these issues faster," she told Maria Shriver, in an April interview with NBC's Good Morning America show. She added that she was certain that the company would survive. "I know what we've built and I know what we've created and I know what it means to people," she said. "And it is a change that needs to happen in the world."
The system requires only a finger prick (capillary versus venous blood sample collection) and costs a fraction of traditional methods. Holmes, who dropped out of Stanford's engineering program to start her company, said that her product could even enable consumers to conduct their own testing. The company's potentially transformational impact on blood testing enabled it to strike lucrative deals with pharmacy chain Walgreens and huge healthcare organizations, the Cleveland Clinic and Capital BlueCross. But the Wall Street Journal series questioned the evidence supporting the technology's effectiveness and spurred regulatory agencies to launch their own inquiries, and also the lawsuits.
The Centers for Medicare & Medicaid Services, part of The Department for Health and Human Services, launched an initial month-long investigation last November. The CMS found deficiencies that could jeopardize patients' safety. Among the major findings of a 121-page CMS report, the company used unqualified personnel at its main Newark, Calif.-based lab. The company operated the clinical laboratory with a director who was not a licensed pathologist. This is unheard of in a clinical laboratory setting. According to the company website, Theranos has now hired a full-time doctor and board certified pathologist to serve as lab director and two co-directors, also doctors and board certified pathologists.
Theranos has also increased the number of people with medical and laboratory backgrounds to serve on the Theranos' board. Previously, scientific minds were in short supply. Of note is Dr. Fabrizio Bonanni who served in senior operating roles at Amgen focusing on quality and compliance. It would be unusual for names of such quality to become involved with a company that had no chance of survival.
The report also found that Theranos did not store blood at the right temperatures and failed to ensure that it had proper control procedures in place for a key blood-clotting test. That error could have led to incorrect dosage of a blood thinner Warfarin, increasing the risk of stroke or internal bleeding. Theranos has said that it did not endanger any patient lives.
CMS sent Theranos a letter seeking additional corrective actions.
Although the company voluntarily shut down the Newark, Calif. lab, Theranos did not fully address CMS concerns. In a letter, CMS demanded an adequate response in 60 days or Theranos would face sanctions, including the loss of Medicare and Medicaid billings and a $10,000 a day fine for noncompliance.
To be sure, Theranos technology holds some promise. A Houston Chroniclearticle cited a Rice University study suggesting potential use of clinical laboratory tests relying on capillary blood samples had potential but might be restricted. But two studies 40 years apart undermine Theranos's claims.
A 1976 article, "Differences between Capillary and Venous Blood Glucose during Oral Glucose Tolerance Tests"published by the Scandinavian Journal of Clinical and Laboratory Investigation, studied the simultaneous capillary and venous blood glucose concentrations. In the samples obtained before and 120-to-180 minutes after the glucose load (patients drink a glucose solution after the initial blood draw), the differences between capillary and venous blood glucose were low, whereas sample taken after 15-to-90 minutes showed disturbing variations. The study concluded, "If the result of the oral glucose tolerance test is to be considered "normal" or "abnormal", the results indicated that the verdict will in some cases be influenced by the route by which the blood was obtained." This is a good example of when capillary samples are accurate and when they are not.
Moreover, a second Rice University study cast further doubts on Theranos technology. The study, "Evaluation of direct-to-consumer low-volume lab tests in healthy adults", published in the May edition of The Journal of Clinical Investigation discovered uncertainties and inaccuracies compared to test results obtained from two well-known laboratories -- Quest and LabCorp. The study examined the results of 60 adults covering 22 common clinical lab tests from July 27-31, 2015.
Theranos has challenged the validity of this study, pointing out that two of the researchers had an involvement with a Theranos competitor, and that there are flaws in the study design and collection procedures.
My husband, Dr. Donald Parker, is a former CDC clinical laboratory director. He has a Ph.D. in biochemistry and a post-doc from Brandeis in enzymology. We owned a bioavailability laboratory and experienced our own need to overhaul policies and procedures in an effort to better comply with the FDA. He does not understand how a finger stick can be as reliable as a venipuncture for all clinical procedures and questions whether a capillary sample would produce the same results in all clinical laboratory procedures, in line with the clinical data that questions the Theranos methods.
Clinical laboratory tests are determined by precision and accuracy. Precision measures the deviation or spread as a + or - variation like 6.2 (plus or minus .1). Accuracy is a right or wrong answer, like 6.2 should have read 6.8. Accuracy is determined by analyzing the test vs the reference method. There are no adequate reference methods for the Edison technology outside Theranos because the Edison technology is proprietary.
As stated earlier, the FDA approved the use of Theranos' Herpes Simplex 1 test. According to the FDA 510 (K) submission document, this test has an accepted reference method -- the FOCUS Herpes Select Immunoblot was used as the reference method for performance analysis. These reference methods for standard clinical lab tests are well established.
Theranos has a way to go to establish other acceptable reference methods. A Theranos spokesperson, Brooke Buchanan said the company is working on this.
While my husband and I feel the use of finger stick samples can never be as reliable and accurate as a venous blood sample for all clinical lab tests, scientists -- like Galileo -- have often proved naysayers wrong. Don feels the technology could have use in gross screening procedures like, for example, screening potential hires for glucose and cholesterol. Glucose is a risk factor for diabetes and cholesterol is a risk factor for for heart disease. For purposes of employment, variation and accuracy are not as critical as in tests for coagulation factors required when a patient is on a blood thinning medication. Corporations can potentially lower health care costs by identifying at-risk employees prior to hire.
We will closely follow Theranos to see where the company goes from here. Even if our premise of a reduced range of testing proves true, the company stands to make money on a system that will reduce costs, and patient discomfort and inconvenience. The course of the investigations and legal proceedings bear watching.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.