What will happen to Theranos now that U.S. health regulators banned Elizabeth Holmes from operating labs for two years? originally appeared on Quora - the knowledge sharing network where compelling questions are answered by people with unique insights.
All roads ahead for Theranos are now legal because the legal issues need full and clear resolution before trust can be reestablished.
The sanctions by CMS are serious. From theon July 7:
- Revocation of the laboratory's CLIA certificate which, as dictated by the regulations, includes a prohibition on owners and operators of the lab from owning, operating or directing a lab for at least two years from the date of revocation
- Limitation of the laboratory's CLIA certificate for the specialty of hematology
- A Civil Money Penalty
- A Directed Portion of a Plan of Correction
- Suspension of the laboratory's approval to receive Medicare and Medicaid payments for any services performed for the specialty of hematology
- Cancellation of the laboratory's approval to receive Medicare and Medicaid payments for all laboratory services
All of this is in addition to lawsuits filed against the company earlier this year by at least 2 separate patients. Even though they aren't today, these could easily expand to become class action status. Other legal actions (from investors and partners like Walgreens) may well be in the works - or pending.
Beyond a dated and high profile valuation of $9B (effectively zero'd out recently), the company's capacity to weather all these expensive legal storms is largely unknown.
Assuming there's a relatively large sum of "cash-on-hand" (from earlier rounds of venture financing), there's a new risk that investors will want to quickly liquidate whatever assets remain and partners may want to recoup any losses. All this pressure is greatly increased by the CMS sanctions. It may be easy to quell investor concerns individually and privately - but CMS is a public lashing that instantly validates many of the clinical arguments against the accuracy of the technology itself.
Beyond this, Elizabeth Holmes herself could be subject to new law suits against her personally for either securities violations or even personal liability for the mistakes of the technology. Those mistakes may well have caused serious patient harm - including (possibly) death.
The resulting loss of time dealing with all these legal challenges cannot be trivialized. The market has already moved on and there are other competitors who will benefit directly from this.
The new partnership between Safeway and Quest Diagnostics is a great example - and there are others targeting the Direct Access Testing (DAT) market. While Safeway originally partnered with Theranos, they dissolved the partnership after missed deadlines and questions around accuracy began to surface.
As evidenced by, the new Safeway/Quest partnership is now producing results and, not coincidentally, in the same city - Phoenix - that Theranos rolled out their (now failed) partnership with Walgreens.
MADISON, N.J., June 15, 2016 /PRNewswire/ -- Quest Diagnostics (NYSE: DGX), the world's leading provider of diagnostic information services, and Safeway, one of the largest food and drug retailers in the U.S., are teaming up to offer diagnostic testing in 12 Safeway locations, in addition to the two locations currently operating in Arizona through Quest's Sonora Quest Laboratories joint venture with Banner Health.
Quest Diagnostics will provide diagnostic testing services offered in company-branded Patient Services Centers (PSCs) in 12 Safeway locations in California, Colorado, Texas, Virginia and Maryland.
Publicly traded Quest Diagnostics () has about 44,000 employees and operations in the U.K., India, Mexico, Brazil, and Puerto Rico. Founded in 1967, it has revenue today of about $7.5B and it's #358 on the .
As it is today, the DAT market is very small compared to doctor-ordered tests and clinical lab services through hospitals. While the forecast for DAT may be attractive, it's also poised for new innovations that threaten to disrupt the blood testing market yet again. One - called- is designed to be low cost, disposable, needle-free, and available for home use.
[The] ping pong ball-sized HemoLink blood sampler can be operated by the patient at home, and needs only to be placed against the skin of the arm or abdomen for two minutes to do its job.
While it's always hard to predict the future for any startup - including high profile ones like Theranos - the legal challenges ahead are daunting, expensive, and time consuming. They are also necessary for any company to restore trust in every direction - especially with a critical healthcare process like diagnostic testing. Trust in general - and patient trust in particular - is earned in ounces and lost in gallons.
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