Theranos Shutting Down Blood-Testing Centers and Labs

No news is good news when it comes to the fortunes of blood-testing company Theranos.

And yesterday, there was news.

Company CEO Elizabeth Holmes posted an open letter Wednesday announcing that Theranos will shut down its two clinical labs and its handful of remaining blood-testing centers. That will result in layoffs for about 340 employees -- approximately 40 percent of the company's workforce -- in Arizona, California and Pennsylvania.

Holmes said in her letter, addressed to "stakeholders," that the company will now focus on the development of a portable blood-testing device, which Holmes unveiled at a scientific conference in August.

Theranos calls that product a miniLab, and at least some lab experts who we and other media outlets spoke to did not think it represented a significant advance in the field.

Holmes' announcement yesterday comes in the midst of the company's appeal of severe sanctions imposed by the Centers for Medicare & Medicaid Services, which among other penalties banned Holmes from owning or running any clinical laboratory for two years. The sanctions stem from deficiencies at Theranos' Newark, California lab, including problems with a blood-clotting test that CMS judged to be life-threatening. That lab has been closed since July, when regulators revoked the company's license to operate it.

Theranos has another lab in Scottsdale, Arizona, so now that will be shuttered as well. But because the government's sanctions preclude Holmes from owning or operating any lab, it's unclear how Holmes could have stayed with the company should Theranos have wished to keep its Arizona lab open. And Holmes, apparently, isn't going anywhere. At least, that seemed to be the case in mid-July, when Theranos issued a sort of FAQ about what the government's sanctions meant for its operations.

"The clinical lab is just one of Theranos’ many opportunities to provide access to high-integrity, affordable and actionable health care information, and the company will continue to carry out its mission under the leadership of its founder and CEO, Elizabeth Holmes," the company said.

In her open letter yesterday, Holmes said Theranos had installed a new executive team "leading our work toward obtaining FDA clearances, building commercial partnerships, and pursuing publications in scientific journals. We are fortunate to have supporters and investors who believe deeply in our mission of affordable, less invasive lab testing, and to have the runway to realize our vision."

We sent Theranos and Hill+Knowlton Strategies, which Theranos uses for media relations, a query as to how the shuttering of its consumer blood-testing business might affect its appeal of the sanctions. Hill+Knowlton said Theranos would have no comment beyond Holmes' open letter "at this time."

CMS has said it routinely negotiates with companies that it penalizes, but the circumstances for which it lifts sanctions did not seem to apply to Theranos. CMS also said at one point that closing down its labs would not be enough to prevent the penalties from being implemented.

If Theranos has no further comment right now, here's someone who does: Wall Street Journal reporter John Carreyrou, whose investigative reporting heralded the beginning of the end for Theranos' status as a golden child of Silicon Valley "disruption." Carreyrou yesterday indulged in a victory tweet:

Litany of Woes

We won't go into the specifics of the many developments that have led to Theranos in just a year's time becoming -- it's probably fair to say -- a corporate pariah. (See our cartoon history of the company here for more.) Theranos made its name by touting what it said was a revolutionary diagnostic technology, which allowed for dozens of blood tests from just a few drops of blood, and for extremely low prices.

A high-profile partnership with Walgreens, opening dozens of Theranos blood-testing centers within the pharmacy chain’s stores,  gave its technology the imprimatur of a major health care provider.

Investors piled on, bestowing the company with a $9 billion valuation, according to Forbes, $4.5 billion of which would accrue to Holmes.

But it all came tumbling down -- rapidly. The lab testing community had already been grumbling that Theranos had never published in a a single word of proof in a peer-reviewed journal that its methods worked. Then came Wall Street Journal articles alleging, among other improprieties, that Theranos failed to report tests showing its vaunted tech may not be accurate. CMS soon threatened its sanctions, which were based on an  unrelated lab inspection. Scientific studies emerged that showed Theranos' test results deviated from norms; Walgreens bailed; the company invalidated tens of thousands of patient blood tests; lawsuits proliferated; the SEC and U.S. Attorney's Office for Northern California opened investigations; and an attempted comeback at the annual meeting of the American Association for Clinical Chemistry was a bust: attendees had fully expected, at long last, some hard validating data, but instead got what some characterized as a marketing presentation for a not overly exciting new product.

Plus there's the whole Jennifer Lawrence thing. ...

More to come, we're sure.

Here's yesterday's full open letter from Holmes on Theranos' website:

For our stakeholders,

After many months spent assessing our strengths and addressing our weaknesses, we have moved to structure our company around the model best aligned with our core values and mission.

We have decided to close our clinical labs and Theranos Wellness Centers, which will impact approximately 340 employees in Arizona, California, and Pennsylvania. We are profoundly grateful to these team members, many of whom have devoted years to Theranos and our mission, for their commitment to our company and our guests.

We will return our undivided attention to our miniLab platform. 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.

We have a new executive team leading our work toward obtaining FDA clearances, building commercial partnerships, and pursuing publications in scientific journals.

We are fortunate to have supporters and investors who believe deeply in our mission of affordable, less invasive lab testing, and to have the runway to realize our vision.

I look forward to sharing more with you as we progress along the way.

Sincerely,

Elizabeth Holmes

This posted has been edited. It originally said that Theranos does not have an in-house spokesperson, which it does.