Back in May of this year, I discussed Theranos’ fall from grace. I explored their journey from biotech startup that was supposed to revolutionize the healthcare industry, to a lesson for investors and Silicon Valley writers about due dilligence. Today, I look at what has happened in the past 6 months and what the future holds for Theranos and founder, Elizabeth Holmes.
When I left you all in May, the biotech unicorn was already in free fall. Over a year ago, John Carreyou published his investigative piece for the Wall Street Journal and Theranos was already under scrutiny from investors, customers, and the public. What was once the Silicon Valley cinderella-story everyone wanted to believe, has turned out to be made up of lies. The Theranos Edison blood-testing machine could not, in fact, do what Holmes said it could do. Investors, partners, venture capitalists, customers, and the public, were left with more questions than answers.
Bleeding Out: Theranos’ Fall From Grace
Let’s review the fallout from Theranos over the past two years. Before Carreyou released his report in October, things were going well for the med tech company. July was a positive month for the company; their finger-prick test got approval to diagnose herpes. In that same month, the company started a partnership with Capital Blue Cross to expand to the east coast. The FDA also approved a CLIA waiver for the company so they could run their devices outside of a laboratory.
Less than two weeks after Carreyou’s publication in the Wall Streat Journal, Holmes’ world comes crashing down. Theranos has to stop using their capillary tube nanotainer (CTN) after the FDA deems it an uncleared medical device. By November, Safeway pulls their $350 million partnership deal with Theranos. After two former employees file complaints about lab practices, Theranos become subject to investigation. And not just one; the Securities Exchange Commission, the U.S attorney’s office, and the Centers for Medicare and Medicaid Services (CMS) opened investigations.
In January 2016, the CMS stated the “deficient practices of the laboratory pose immediate jeopardy to patient health and safety.” Holmes’ labs did not make the corrections needed, as reported in a follow-up report by the CMS. By May, President and COO Sunny Balwani leaves the company amidst the SEC and U.S. attorney investigations.
In the middle of May 2016, the company announced they were voiding two years of Edison blood-testing results. As a result, the company sent tens of thousands of corrected blood test reports to doctors and patients. It was too late for some patients who made health decisions based on those results.
Still Bleeding: More Theranos Fallout
The summer was not kind to the failing company. In June, Holmes’ net worth had a value of zero, according to Forbes (Yes, this was the same Forbes that valued her at $4.5 billion two years earlier). In that same month, Walgreens ended its partnership with Theranos and closed all 40 of their Wellness Center locations.
The CMS revoked the federal license of the Newark, CA lab and imposed a ban on Holmes for two years. This means she is not allowed to own or operate blood testing labs for two years. As expected, Theranos has appealed the sanctions.
Last month, the blood-testing start-up shut down all of their lab operations and remaining wellness centers. They are forgetting about the Edison technology and now trying to find funding for a new product called, miniLAb.
Lawsuit and Litigation
Most recently, former investors and partners (among many patients) are suing Theranos. Last month, Partner Fund Management LP filed suit against the health tech company. The investor that invested nearly $100 million claims that Holmes and Balwani overstated their technology capabilities and their ability to meet partnership obligations.
They weren’t exactly wrong; Walgreens filed suit this month against the company. Walgreens is seeking $140 to recover their investment. Theranos responded to Walgreens ‘unfounded allegations’ stating the company has failed to meet commitments and has mishandled the partnership.
Theranos’ Future Looks Bleak
So, what is next for Theranos? Unfortunately, I don’t think anyone is quite sure. Holmes gave a presentation at a conference for the American Association for Clinical Chemistry (AACC) that did not go over well with scientists. Holmes introduced a new processor called the miniLab that seems to be the Edison 2.0 blood testing machine.
Those in attendance heard Holmes, again, offer promises of this new technology’s ability to run accurate tests on small amounts of blood (this is what they call deja vu, right?). Holmes told attendees that they had already submitted the Zika test for authorization, however, regulators found that the lab did not have essential safeguards in place to prevent patient harm.
The audience at the AACC conference were quite critical of Holmes and asked many questions. At one point, the moderator, Stephen Master spoke of Holmes’ past claims that the Edison machines could run over 70 tests on a single drop of blood. To drive the point home he said, “The evidence you presented fell far short of that.” His comment garnered applause from the audience.
Nobody knows what is to happen next to Theranos or Elizabeth Holmes. However, what we do know is that Holmes, who has no plans of stepping down as CEO, has a question to answer: If Holmes is banned from owning or operating a company running blood tests, but won’t step down as CEO, how will Theranos ever be able to do what they say they can?