Business | Diagnostics

Red alert

Theranos’s fortunes worsen again

“FIRST THEY think you’re crazy, then they fight you, and then all of the sudden you change the world,” said Elizabeth Holmes as troubles mounted for her blood-testing startup, Theranos, last year. Things look ever less likely to go beyond the fighting stage.

On July 7th a government regulator, the Centres for Medicare and Medicaid Services, said Ms Holmes would be barred from owning or running a laboratory for two years. It will also revoke her company’s licence to operate one of two laboratories where it conducts tests. As The Economist went to press the firm was due to reply to a letter from Congress, which asked how, exactly, Theranos is going to handle the tens of thousands of patients who were given incorrect test results. Even so, Ms Holmes looks set to remain in position even as the situation deteriorates around a firm that once commanded a multi-billion-dollar valuation.

These may be some of the last twists in a story which will be turned into a Hollywood film by the director of “The Big Short”. Theranos’s troubles began last year when the Wall Street Journal questioned whether the firm’s core technology—the ability to perform multiple tests on a tiny droplet of blood—actually worked. More problems piled up after news of flaws in its lab testing. The Securities and Exchange Commission said it would investigate whether Theranos’s investors, who funded the company to the tune of $690m, were misled. In May it emerged that in 2014-15, results from its proprietary blood-testing device had been thrown out entirely (see table).

These made up only a tiny proportion of the millions of tests that Theranos ran, but there are concerns that patients may nonetheless have been harmed by receiving the wrong test results. Theranos’s own industry is turning upon its erstwhile star. The chief executive of HealthTell, another blood-diagnostics startup, says it is now clear that Theranos did not spend enough time developing the necessary clinical evidence before launching its new blood-testing product.

Theranos’s chief business partner, Walgreens, an American drug retail chain, ended its three-year partnership with Theranos in June. It will now close Theranos’s lab-testing services inside 40 of its shops. Theranos has also been hit with lawsuits from patients claiming fraud and false advertising, with Walgreens as a co-defendant. Walgreens confirmed to The Economist earlier this year that it had not validated or verified Theranos’s tests (contradicting earlier assurances by the firm).

If Theranos is to limp along with Ms Holmes at the helm, one option the firm will be considering is to close down its laboratories (to comply with her ban) and focus the business on developing new blood tests. This was what she had been trying to do before the ill-fated move into the reference laboratory market, one that offers many commonly used tests to customers at one location.

The move into the reference market made it seem as if the firm was not committed to developing finger-stick tests. When customers arrived for testing they were often required to give blood from a vein, albeit blood taken in unusually small samples with tiny needles. That heightened concerns about the company. But behind the scenes it was moving towards its aim of using ever smaller volumes of blood in more consumer tests.

Whether the company has any technology worth saving from its mess is now the most intriguing question. The firm still claims to have a family of new clinical diagnostic methods that can reduce the amount of blood needed for testing and that can perform a wide range of tests in centralised and decentralised settings. A Hollywood ending would involve some sort of redemption for Ms Holmes. The real world is not always as kind.

This article appeared in the Business section of the print edition under the headline "Red alert"

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