Bad blood: US govt bans bio-test biz Theranos' CEO for two years

Board should fire her but can't: She owns controlling stake


It's game over for controversial blood-testing company Theranos with the news that its CEO Elizabeth Holmes will be banned from owning or running a medical laboratory for two years.

The decision by the Centers for Medicare & Medicaid Services (CMS) also shuts down the company's California testing lab (it has another in Arizona) and comes with an unspecified fine.

The sanctions do not come into effect for 60 days, and Theranos is entitled to appeal, but experts say there has never been a successful appeal to CMS.

The decision to ban Holmes and shut down the lab is unprecedented for such a large company. It is also within the CMS' ability to extend the two-year ban to the company as a whole rather than just Holmes personally.

Under any normal circumstances, Theranos' board would fire its CEO and seek to regain credibility. But due to the company's unusual make-up – which has contributed in no small part to its failure – that's unlikely to happen: Holmes owns a controlling stake in the company and so would have to vote to fire herself.

It is possible that Theranos' board could negotiate an exit for Holmes, but if it does, she is likely to leave with little compensation and a shattered reputation. Last month, her net worth was reduced from $4.5bn to $0 despite owning 50 per cent of a company once valued at $9bn.

"We accept full responsibility for the issues at our laboratory in Newark, California, and have already worked to undertake comprehensive remedial actions," Holmes said in a formal statement announcing the CMS decision.

"Those actions include shutting down and subsequently rebuilding the Newark lab from the ground up, rebuilding quality systems, adding highly experienced leadership, personnel and experts, and implementing enhanced quality and training procedures.

"While we are disappointed by CMS' decision, we take these matters very seriously and are committed to fully resolving all outstanding issues with CMS and to demonstrating our dedication to the highest standards of quality and compliance."

One after another

The CMS decision is just the latest in a wave of problems to hit the company.

It began last October when the Wall Street Journal revealed that despite building its reputation on a revolutionary new technology that could run a range of diagnostic tests using just a single drop of blood, the company was using traditional testing machines for the vast majority of its work because its "Edison" machines simply weren't accurate enough. The company responded defensively but soon after stopped all testing using its machines.

Then followed a series of embarrassing revelations. The CMS warned in January that its California lab was so badly run that it presented "immediate jeopardy to patient safety." When Theranos failed to fix its "major problems," in April it proposed the two-year ban.

The company responded by firing its COO, but the fire-fighting tactic amounted to nothing when just a week later it was forced to void two years worth of test results. Hundreds of outlets were told that the tens of thousands of tests were no longer valid. Less than a month later, its biggest customer, Walgreens, said it was shutting down its partnership with the company.

If all that wasn't bad enough, the company has admitted that it is being investigated by both the US Securities and Exchange Commission and the US Attorney's Office over claims it had misled investors and government officials – a criminal offense.

And in what may be the most extraordinary badge of dishonor ever to befall a once-hailed startup, it recently emerged that Hollywood was planning a feature film on Theranos with Jennifer Lawrence slated to play Holmes.

A studio exec revealed the plot to Vanity Fair: "They basically tell the story of how Elizabeth Holmes created these fraudulent blood-testing machines, raised $9 billion through venture capitalists in Silicon Valley, and refuses to admit they don't work even when it is obvious the testing is inaccurate. They employ a big-time litigator and threaten to sue anyone who challenges her."

And in the tech world, "Theranos" is already being used as shorthand for a company that claims to have revolutionary technology that doesn't actually exist. ®

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