U.S. Bans Theranos CEO Holmes from Owning, Operating Medical Labs

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United States regulators have banned Elizabeth Holmes, the chief executive of Theranos Inc. (Palo Alto CA), from owning or operating a medical laboratory for at least two years, in a major setback for the embattled blood-testing start-up and its once widely lauded founder.

In a statement late Thursday, Theranos said the regulators revoked the certification of its Newark, CA, laboratory and prohibited the laboratory from taking Medicare and Medicaid payments for its services. Regulators also levied a monetary penalty that Theranos did not specify. The sanctions take effect in 60 days, Theranos said.

Theranos represents the promise and the pitfalls of the start-up era, as money floods into young companies with new technologies in an effort to find a so-called “unicorn”–a billion-dollar business that transforms its industry and makes its backers rich in the process. The high-profile start-up rose to prominence on the promise that it could detect health ailments by testing blood drawn cheaply by the mere prick of a finger.

The government scrutiny stemmed from questions about the effectiveness of Theranos’s technology and the way it operates its labs. Authorities who reviewed its practices last year found that all 81 patient results they inspected were inaccurate in a test of blood clotting administered from April to September on patients who take the blood thinner warfarin.

What Theranos and Ms. Holmes will do next is not clear. Lab operators have the right to appeal a canceled certification.

“We accept full responsibility for the issues at our laboratory in Newark, CA, and have already worked to undertake comprehensive remedial actions,” Ms. Holmes said in a statement.

Theranos and its young founder in particular offered a compelling narrative in the crowded start-up universe: a brilliant college dropout with an audacious idea that would upend the medical testing business. Ms. Holmes invited comparisons to the Apple Inc. (Cupertino CA) co-founder Steve Jobs because of her youth, her tight control of the company she founded and even her customary black turtleneck sweaters.

Ms. Holmes began the company in 2003 after dropping out of Stanford University at the age of 19. Her goal was to create a new way to perform blood tests that relied on a few drops of blood rather than the larger amounts that medical testing often requires. Tests would be cheaper, the argument went, and more people would be inclined to get them. In interviews focused on Theranos’s success, she said the idea came from her fear of needles.

Steve’s Take: Well well. Another high-profile startup, poised to crash back to earth but after first making its chic founder, Elizabeth Holmes, a billionaire. Heard that before? I may be missing something again, but all that capital thrown at the promise a mere finger prick could detect health problems.

When the investment banks and Ms. Holmes were on the IPO dog and pony circuit, what did the feasibility study say? (Frankly, during my time on Wall Street, I never saw a financial feasibility study’s forecast met, let alone exceeded. And that was with assurances from the consultants that all of the important assumptions were extremely conservative.)

The New York Times reported that all 81 patient results government authorities reviewed last year were inaccurate in a test of blood clotting administered by Theranos on patients who take the blood thinner, warfarin.

I’m on warfarin, and I do a weekly test at home using a small, spring-loaded lancet. I hardly feel the prick and the results always fall in line with occasional tests at the hospital. The home test has been around for decades. Like Ms. Holmes, who has said she has a fear of needles, I’m not a fan either. But such home testing is growing with the trade-off the avoidance of a trip to the hospital, clinic or lab.

Fairly or unfairly, The Times reported Ms. Holmes has invited comparisons to Apple co-founder Steve Jobs because of her youth, even her customary black turtlenecks. A Steve Jobs she isn’t–yet. But a good storyteller? Absolutely.

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