Elizabeth Holmes, the CEO of Theranos Inc. , has been banned from owning or operating a medical laboratory for at least the next two years by U.S. regulators. On top of the injunction, the company was hit with several other harsh sanctions as well.
In a statement released Thursday, the company said the Centers for Medicare and Medicaid Services revoked certification of its laboratory in Newark, California. The lab is forbidden from taking any Medicare and Medicaid payments for its services. Theranos will also have to pay an unspecified fine.
While the company is frustrated by the decision made by CMS, Ms. Holmes said the company is taking the sanctions very seriously. They are implementing plans to “resolve all outstanding issues” and prove their commitment to higher quality standards.
“We accept full responsibility for the issues at our laboratory in Newark, California, and have already worked to undertake comprehensive remedial actions. 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.”
As a result of the sanctions, which take effect in 60 days, Theranos has ceased performing any patient testing in the California lab. Until further notice, customers will receive services through a lab in Arizona.
Once compared to Apple co-founder Steve Jobs, Elizabeth Holmes started Theranos in 2003 at the age of 19. The company promised technology capable of testing blood using only a few drops instead of the larger amounts normally required for medical tests. The tests would be less expensive, inviting more people to use them. Holmes often cites her fear of needles as the inspiration to create the company.
The idea seemed to be a winner. Big financial backers, like software magnate Larry Ellison, invested in Theranos. The company also landed a substantial contract with drugstore chain Walgreens to use their tests. Nearly 12 years later, the company was valued at $9 billion.
Theranos came under scrutiny by the government after former employees questioned the effectiveness of their technology. Last year, federal authorities found several issues at the Newark lab, including improperly trained employees, and poor sample storage. After the inspection, Theranos promised to hire new consultants and fix the problems.
In April, Theranos announced it was under criminal investigation from the United State Justice Department. The regulators requested several documents related to claims about the company’s technology. The Securities and Exchange Commission also opened their own investigation.
To make things worse, Theranos invalidated thousands of tests completed by its proprietary Edison device in 2014 and 2015, according to a May article in the Wall Street Journal . The company also had to correct many blood coagulation tests conducted by the Scottsdale, Arizona lab.
As the problems at Theranosmounted, the company’s COO Sunny Balwani decided to exit the company. The partnership with Walgreens was also dissolved.
Now that the ban of Elizabeth Holmes is official, it is unclear what steps Theranos will take next. The biotech company will need to recruit a new CEO and likely find ways to cut costs.
Ms. Holmes, who owns more than 50 percent of the company, can submit to the ban by placing her shares in a trust.
“My guess is that they would transfer her stake into a non-voting trust that is controlled by independent trustees,” Michael Greeley, General Partner of Flare Capital Partners, told Forbes .
In an effort to delay the sanctions, Theranos can request an appeal to an administrative law judge and a departmental appeals board. If the company chooses this route, the lab will keep its certification until the outcome of the appeals process.
[Photo by Lisa Lake/Getty Images]
