Theranos Fraud Perhaps Reaching The End Of The Line
Yesterday, Theranos, the over-hyped company that promised a blood-testing device that would just need a few drops of blood, announced the layoff of almost half of its workers and that the company would now be focusing its efforts on miniature medical testing machines. In addition, the company announced it would be closing its blood-testing centers.
At this point, this move is as close to an admission that the whole company was built on a totally fraudulent product. Elizabeth Holmes, a Stanford University student, came up with the idea for a blood-testing machine that would need only a few drops of blood as opposed to the usual vial when she worked on drug delivery patch that would also wirelessly monitor changes in a patient’s blood. By the end of 2004, the company had already raised about $45 million by 2006 and that amount had doubled by 2010. In 2011, Holmes started to recruit some heavy-hitting board members – including former Secretary of States George Schultz and war criminal Henry Kissinger, former Secretary of Defense William Perry, and former Senators Sam Nunn and Bill Frist. Of those, the only one with any real medical experience was Frist who had been a surgeon.
In 2013, Theranos began offering its blood-testing services. The test were done using its Edison machine that only need a few drops of blood and provided results for basic tests in as little as 15 minutes. And the appeal to Silicon Valley was irresistible. Here was a company that was going to “disrupt” the $75 billion blood diagnostic business which was dominated by Quest Diagnostics and Laboratory Corporation Of America Holdings. It could provide the same basic services for far less money with a quicker turnaround time. With that story in hand and its powerhouse board, the company had raised around $400 million by 2014 and had signed a deal to do blood-testing with Walgreens. There was only one problem – the Edison machine never really worked. There were some warning signs. In 2013, Ian Gibbons, a biochemist who specialized in micro-fluids that Edison relied on in its analysis, committed suicide, although it is unclear whether that was related to his health or what was going on at Theranos. According to his wife, Gibbons admitted that the technology did not really work. In addition, in 2014, a whistleblower inside the company reported the NY State Health Department that the company may have manipulate the proficiency testing procedures that were required in order to get approval to do drug testing. In fact, the company was using traditional blood-testing devices and not its Edison machine to provide the results for the proficiency testing.
The scam came crashing down in late October of 2015, when the Wall Street Journal ran an expose on the company. It detailed how many of the blood tests came back with unreliable results and also reported that, by the end of 2014, hardly any tests were being run anymore using the Edison machine. Instead, the company would use a dilution method to increase the sample size that was needed for traditional blood-testing machines and then run the test on those machines. The dilution process created even more inaccurate results. Even in the face of these revelations, the company continued to deny that there were any real problems. But the story prompted the FDA to order the company to stop using its flagship Edison machine entirely and in May, 2016 Theranos announced that two years worth of blood-test results by the machine were voided. Subsequently, certification was pulled for its lab testing facility in California where the Centers for Medicare Services found nearly 1 out of 3 tests were inaccurate and Theranos was barred from owning or operating a lab for two years.
Yesterday’s announcement is probably the final unraveling for the company. Millions of dollars have been raised and the principals, including and especially Holmes, have probably made some nice money. But it was all a fraud. Incredibly, Holmes is still running the company and has really not accepted any responsibility for what has occurred. The SEC and federal prosecutors are investigating the company and there assuredly will be some penalty. The real question is will any of these people actually go to jail. Not only was this a clear case of fraud but it also impacted patient’s health with its faulty lab results. Or will these white-collar criminals get off with just a slap on the wrist once more.