More Bad News On The Way For Theranos

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The past six months have not been good for Theranos, the Silicon Valley lab test startup once valued at an astounding $9 billion. A series of damaging investigative reports published in the Wall Street Journal by Pulitzer Prize-winning journalist John Carreyrou took the company to task for marketing its new blood-testing process as a groundbreaking new innovation when, behind the scenes, it was actually processing a vast majority of the blood samples it collected with conventional analyzers acquired from its competitors. The initial story was followed by another reporting that the FDA had ordered the startup to stop using its “nanotainer” blood storage device, a key component of its testing process, because it was an “unregulated medical device.” Shortly after, questions arose as to the accuracy of the company’s lab analyzer, and accusations were cast suggesting that the company took steps to hide potentially dangerous variances in accuracy from auditors.

Now, Theranos is on the cusp of what will likely be another major blow to its public image and long-term viability. Citing sources “familiar with the matter,” The Wall Street Journal reports that during a recent inspection of Theranos’ lab facilities, CMS auditors discovered serious issues that may put the company in jeopardy of being suspended from the Medicare program. Details are not yet available on what issues might have been discovered during the inspection, which lasted several months, but the inspection reports from the visit are expected to be released publically soon.

Theranos acknowledged in October 2015 that it had stopped using its own testing equipment for all but one test, its FDA-approved Herpes test, but now accusations are being made suggesting that the company is outsourcing many of the tests it had previously claimed to be processing in house on traditional analyzers, suggesting that even its traditional lab setup may be substandard. The company is reportedly paying as much as $300 per test to have local labs process comprehensive metabolic panels when it still advertises the same test on its own website for just $7.19, suggesting that it is taking significant losses by outsourcing its tests. The company has raised more than $400 million in equity-backed funding since its 2003 formation, but now faces a situation in which it has set test prices based on disruptive technology that it cannot yet use.

A damaging inspection report, at this point, could pile on the losses for Theranos. Walgreens, one of its largest corporate customers, halted the expansion of Theranos lab testing centers in October, and has publically debated closing the 41 centers it currently operates. If Theranos is suspended from the Medicare program over the deficiencies found in its latest inspection, the repercussions among its other customers could be swift and financially devastating.


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