Theranos Pivots From Blood Tests to New Lab Product; Will “Phoenix” Effort Succeed?

Beleaguered startup Theranos Inc. (Palo Alto CA) will close its blood-testing labs and fire about 340 workers, shifting its focus to an experimental technology following months of run-ins with regulators and questions about whether its existing products work, says Bloomberg News.

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The company also has a new executive team who will work on obtaining regulatory approvals, partnerships and pursuing publications in scientific journals, Chief Executive Officer Elizabeth Holmes said in a statement posted Wednesday on the company’s website. Holmes will remain as CEO, said a representative for the company.

Once acclaimed as a potentially ground-breaking startup in the medical testing field, Theranos has been beset by questions about the accuracy and viability of its technology. The shift announced Wednesday may allow Holmes to keep running the company despite being banned from the clinical lab industry. Theranos was sanctioned in July after U.S. inspectors found failures so severe as to jeopardize patients’ health at a lab in Newark, CA. Theranos has appealed those sanctions.

Theranos will now focus on miniLab, a 95-pound diagnostic tool that can fit on a tabletop. The company caused a stir in August when scientists and researchers gathered in Philadelphia to hear a scientific presentation on Theranos’s controversial blood-testing technology–and instead got a product launch for the miniLab.

“We will return our undivided attention to our miniLab platform,” Holmes said in the statement Wednesday, according to Bloomberg. “Our ultimate goal is to commercialize miniaturized, automated laboratories capable of small-volume sample testing, with an emphasis on vulnerable patient populations, including oncology, pediatrics, and intensive care.”

In August, Theranos withdrew its submission for emergency clearance of a diagnostic blood test for the Zika virus after regulators found problems with how the blood-testing startup gathered patient data. While a Zika test wouldn’t help to spare the company from the sanctions, clearance by the Food and Drug Administration (FDA) would have helped Theranos regain some credibility in the eyes of increasingly skeptical consumers and physicians.

It’s been a dazzling fall from dizzying heights for a company that at one time commanded a $9 billion private valuation. Holmes had been profiled as a genius after dropping out of Stanford University to found Theranos, promising to revolutionize the blood-testing industry dominated by Quest Diagnostics Inc. (Madison NJ) and Laboratory Corp. of America Holdings (Burlington NC)–with cheap, less-painful tests that could be run on what the company said was a breakthrough analysis technology.

The workers losing their jobs are in Arizona, California and Pennsylvania, according to The New York Times. A company spokesman said Theranos would have no additional comment beyond Ms. Holmes’s letter.

The decision to abandon its clinical labs is the latest setback for Ms. Holmes, a self-made billionaire who founded Theranos when she was 19. She became a darling of Silicon Valley and was able to persuade several high-profile investors to back Theranos, valuing her privately held company at a staggering $9 billion.

After a series of hard-hitting articles in The Wall Street Journal cast doubt on whether her technology actually worked, the company found itself under intense scrutiny from federal regulators, including the FDA.

Theranos has said it accepted “full responsibility for the issues” at its California lab and had “worked to undertake comprehensive remedial actions,” including improvements in quality, training procedures and systems. After the regulatory sanctions were announced, Theranos said its research and development unit “has developed many technologies that are not dependent on running a clinical laboratory, according to The Wall Street Journal.”

Theranos also faces federal criminal and civil investigations into whether it misled investors. The company has denied wrongdoing. As part of its appeal of regulatory sanctions, Theranos has asked the federal Department of Health and Human Services’ Departmental Appeals Board to conduct a hearing, according to appeals official Eric Lester. He said administrative law judge Leslie Weyn has been assigned to the case.

The proceedings are set to start Dec. 1, when the Centers for Medicare and Medicaid Services must reveal its evidence and arguments against Theranos, according to Mr. Lester.

A spokesman for CMS said the agency doesn’t comment on ongoing enforcement or legal cases. Thomas Barker, a former HHS general counsel who represents Theranos, said the company continues “to work closely with CMS” and is “following the [appeals board’s] timeline at this point.”

While Wednesday’s announcement did not address the status of various investigations into the company, including one by the Securities and Exchange Commission, Ms. Holmes appeared to try to address concerns that Theranos was overly secretive about its technology, as well as the skepticism among many of the scientists who saw her presentation in August.

“We have a new executive team leading our work toward obtaining F.D.A. clearances, building commercial partnerships and pursuing publications in scientific journals,” she said.

Steve’s Take: I must admit to being in a complete quandary. On the one hand I am compelled to submit Theranos and its CEO Elizabeth Holmes for the Phoenix award for rising and resurrecting itself from an utter, absolute death spiral earlier this summer. On the other, I feel equally duty-bound to confer on them the Pinocchio award for compulsive fibbing.

Steve's Take: Is Theranos more deserving of a Phoenix award or a Pinocchio award? Click To Tweet

What’s so striking about her latest corporate shuffle is how quickly and adeptly Ms. Holmes pivoted from the many questions about the accuracy and viability of her company’s own medical testing business to the launch of the revolutionary “miniLab,” capable–according to her–of carrying out an array of tests, including detecting the Zika virus, all from a finger prick of blood and a machine the size of a desktop printer. I mean, where do I go to order one right now?

Seriously, though, it used to be that in the science of medicine things like evidence, consistency and scholarship had supreme power. Today, at least in the political sphere, a growing number of politicians and pundits simply no longer care about the truth.

Helped by new technology, a deluge of facts and a public much less given to trust that it once was, some politicians are getting away with a new depth and pervasiveness of falsehood. If this continues, the power of truth as a tool for solving society’s problems could be reduced significantly, and enduringly.

But I digress; although not entirely.

Let’s rewind to August and Philadelphia where Ms. Holmes boldly and assuredly took her company’s technology to a completely new venue. No, it wasn’t a dog-and-pony-show of potential equity funders with deep pockets of direly needed capital after the lab-test fiasco. It was: a medical conference.

During a crowded session, Holmes claimed her company had developed a sophisticated “miniLab” capable of carrying out an array of tests, including detecting the Zika virus, from a finger prick of blood.  Holmes made her statements in front of a skeptical audience of scientists, doctors, and lab professionals at the American Association for Clinical Chemistry in Philadelphia.

Holmes’ presence at the meeting was controversial because everyone present knew her company, which had claimed it would revolutionize blood testing, was instead found earlier in the year by federal investigators to have marketed inaccurate tests and potentially endangered patients. Holmes, once compared to a young Steve Jobs, wound up banned for two years from operating a clinical lab, which she is appealing.

Holmes called the new automated miniLab the result of years of secretive research and described it as “a single platform” able to carry out a wide array of different test types using small volumes of blood. “We chose this meeting to begin engaging in a scientific exchange,” said Holmes, according to MIT Technology Review. “We wanted to introduce the invention.” Holmes seemed to view the event as a chance to re-launch her company, calling it an “inflection point.”

But instead of presenting data on the accuracy of its earlier tests, as expected, Holmes instead proceeded to unveil what she called the “latest version” of Theranos’s device. The technology she described, however, roughly echoed the unproven breakthroughs previously claimed by the company. The new miniaturized device, Holmes indicated, would allow lab tests to be “decentralized” and carried out at more locations. She said it would communicate over the Internet, allowing centralized verification of test results.

Here is where we see the first signs that the Theranos corporate nose–a la Pinocchio–is starting to grow. Serious researchers began airing doubts about Theranos, pointing out that its big claims weren’t backed up by any scientific publications. That remains the case, despite Holmes’ presentation in Philadelphia, including videos of the instrument in action.

Theranos’s story began to unravel in earnest last October, when a probing Wall Street Journal investigation alleged its technology, a special device then known as Edison, and apparently the predecessor of the miniLab, didn’t work and that Theranos had been diluting samples to run them on regular lab machines.

According to MIT Review, Joel Dudley, a researcher at the Icahn School of Medicine at Mount Sinai, was an author of the only peer-reviewed evaluation of Theranos’s blood test results, which it carried out without the company’s involvement by recruiting 60 volunteers to undergo Theranos finger prick blood tests as well as standard tests.

“We were sort of shocked to find that there were no data on Theranos,” says Dudley. He says the Theranos results were different from standard tests although “they didn’t deviate as much as you’d think.” Nevertheless, the U.S. alleged that Theranos’s lab was so poorly run it put patients in danger.

Holmes’ new technology is unlikely to convince skeptics of the company, whose value has fallen to close to zero.

“I can’t imagine anything that would be said at this point to resurrect Theranos,” said Arthur Caplan, a bioethicist at NYU. “This is more like buffing a very dirty magical lantern than it is the proper way to reclaim scientific standing.”

Ahead of Holmes’ minilab presentation in August, Eleftherios Diamandis, a researcher at Mount Sinai Hospital who has written a series of opinion papers in the journal Clinical Chemistry and Laboratory Medicine critiquing the Theranos technology, said that any claim made by the company “will be speculative until validation shows that it is true.” When asked if Theranos would be sharing its miniLab device with other scientists, Holmes said that she is “working on it right now.”

Stephen Master of Weill Cornell Medical College was part of a panel of experts given the chance to ask Holmes questions at the August conference. He was applauded for reminding Holmes that she had once claimed to be able to run scores of tests from a single blood sample, a claim she did not repeat in Philadelphia, says MIT Review.

So what is it with Ms. Holmes. Is she rising out of the ashes, Phoenix-like? Or is she descending further, albeit incredibly unflappably, into the realm of what late-night talk-show comedian Stephen Colbert calls “truthiness;” ideas which “feel right” or “should be true.” Ideas like a machine with all the phenomenal capabilities of the Theranos minilab.

There should be such a mind-blowing, blood-testing device as the miniLab, don’t you agree? Think of all the good it would do. Ms. Holmes’ says she has just that device; so it must be true, yes?

I’ll wait for the scientific evidence, where at least in the field of medicine, the day that “truthiness” reigns over cold, hard facts is still a long way off.