A deeply reported story by the Wall Street Journal has pulled the curtain back on Theranos, the hot and intensely secretive Palo Alto, Calif., company that aims to revolutionize how we get our blood tested. The newspaper's investigation raises questions about the accuracy and also the novelty of what the company is doing. Here's a guide to the growing questions about this company, the industry, and why it matters.
What is so innovative about what Theranos claims it's doing?
When you get your blood drawn at the doctor's office, it's often sent off to an external laboratory to be tested. Theranos captured the attention of busy consumers, doctors and investors when it announced it had developed a technology that could provide results for nearly 200 tests with only a single, capsule-sized amount of blood drawn by a finger stick rather than a needle in the arm. Moreover, the company claimed that it could do the testing faster (in less than four hours) and cheaper than traditional labs.
But the company's appeal has been as much about its founder's efforts to empower consumers as about Theranos technology. Elizabeth Holmes, Theranos's chief executive, is a Stanford dropout who is believed to be America's youngest self-made female billionaire. She has touted the potential benefits of being able to order blood tests on your own without going through your doctor. In 2013, the company announced a major partnership with Walgreens to offer its tests at wellness centers located at the retail centers. In April, Arizona passed a law allowing any lab test to be ordered without a physician's request. Theranos's tests are available to consumers in 42 Walgreens in Arizona and one in California.
What's at stake for the blood testing industry?
Blood diagnostic tests, ranging from a herpes test to cholesterol checks, are a huge industry, valued at about $75 billion in the United States. The market is projected to grow to $90 billion by 2018, according to Divyaa Ravishankar, a senior industry analyst at Frost & Sullivan.
The biggest piece of the business -- about two-thirds -- come from blood samples taken outside hospitals, according to Michael Cherny, a managing director at Evercore ISI. About half of that testing is done by independent labs -- a $25 billion, fast-growing market, which is dominated by two big companies, Quest Diagnostics Inc. and Laboratory Corporation of America (LabCorp).
Holmes clearly sees those companies as her competitors. In an interview with The Washington Post in July, when asked about medical and scientific professionals who had raised questions about the company's technology, Holmes said that critiques were being leveled by "laboratory companies" that had "hired people to make statements about peer review."
How do we know for sure that their tests work?
We don't, really. The Food and Drug Administration reviewed data and gave clearance for a herpes simplex 1 test last summer. But that is just one of more than 200 tests offered by Theranos. Many have taken the company's high-profile partnership with Walgreens and its work conducting tests for GlaxoSmithKline, Pfizer, the Cleveland Clinic and the U.S. military as a validation of Theranos technology. That's based on the assumption that those organizations did their due diligence before entering into any deals with Theranos.
However, Theranos has yet to publish any peer-reviewed studies comparing its tests to traditional ones. It also has not given access to any independent third-party inspectors to go over its work or visit its laboratories in a public way, saying it needs to protect its intellectual property from competitors.
“We believe the model for the lab of the future is to take all tests through FDA review,” the company said in a statement. “The FDA is putting our tube that transports the blood for our devices through its rigorous review process. That’s what we are advocating for. During this process, we also made the decision to move our existing quality systems operations over to FDA quality systems completely, while we work with FDA for clearance on our tubes.”
In media interviews, Holmes has appeared to dodge questions about its process. "Comically vague," is how the New Yorker's Ken Auletta described Holmes's explanation of the process in a December 2014 profile he wrote about her: "A chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel." Earlier that year Holmes told Fortune that the company's advances have something to do with "optimizing the chemistry" and "leveraging software."
How did this company become such a darling?
Theranos's chief executive has appeared on the cover of Fortune, Forbes and Inc. She's been profiled in the New Yorker. She was named a tech visionary by the New York Times. She made Time's list of the "100 most influential people."
Michael Cherny of Evercore ISI said that analysts generally credit Theranos with two major innovations: making the pricing of diagnostic tests transparent (there's a price list on their Web site) and a very effective marketing campaign.
Holmes is a smart, black turtleneck-wearing college dropout whose personal story about not enjoying having her own blood drawn has been a perfect leaping-off point for stories about the high-flying startup. She is a tremendously effective fundraiser who has filled her board with prominent and connected political heavyweights. For industry watchers hungry for the next Steve Jobs, she's an exciting possible successor -- Holmes founded her company when she was 19, and she isn't afraid to respond fiercely to critics. Her recent remarks fighting back against the Wall Street Journal somehow make a company's calculated play to corner a fairly unsexy part of the health care market take on a moral weightiness. On CNBC's "Mad Money," Holmes said: "This is what happens when you work to change things. First they think you're crazy, then they fight you, and then all of a sudden, you change the world."
What is the Wall Street Journal investigation claiming?
Theranos's success ultimately depends on its ability to become a major player in the blood testing space. Its secret sauce was its technology. According to the Journal investigation, Theranos's system for blood analysis, called Edison, was only being used to analyze a small minority of its more than 200 tests at the end of last year. The "nanotainer" that uses just a few drops of blood is only being used for a single test, a follow-up story reported, and the company underwent an unannounced inspection by the FDA. Some employees doubted the accuracy of the technology, the story reported. And, perhaps most concerning of all, there were allegations that the company had selectively reported only some data to regulators.
Officials from the FDA and the Centers for Medicare and Medicaid Services declined to comment.
What's the role of federal regulators in all this?
The government's oversight of Theranos falls into a sort of regulatory black hole.
The Centers for Medicare and Medicaid Services are charged with certifying and inspecting clinical laboratories for things like quality control. But on the consumer side it's been unclear whether the FDA has the power to do much about such tests because they aren't really drugs, vaccines or medical devices. Theranos, as well as many of the newer personal genetic companies, have claimed that they do not need FDA approval for their direct-to-consumer tests, but a number have submitted information to the FDA anyway.
The FDA asserted its power over such tests when it issued a warning letter in November 2013 to personal genetics company 23AndMe (which uses saliva to determine a person's risk of certain disease and conditions), effectively halting its marketing of its health service. In February the FDA has cleared one of 23AndMe's tests, which focuses on a gene for a rare disorder called Bloom Syndrome that can cause short stature and an increased risk of cancer.
In order to clarify its role, the FDA last year issued a proposed guidance about how it would regulate "high-risk" laboratory-developed tests like Class III medical devices, which require pre-market approval. The FDA's draft guidance has met with a lot of resistance from industry, and a number of companies have argued that the agency is overreaching its authority.
The Journal reported Thursday that Theranos has recently stopped using finger pricks for all but one test due to concerns from the FDA that its “nanotainers” used to hold the blood were unapproved medical devices. The news organization also said CMS has also audited Theranos labs since the FDA raised its concerns. The company told the Journal that “Theranos remains deeply engaged with regulators, including FDA.”
What has been the reaction from Theranos partners and the medical community to the allegations?
Walgreens spokesman Jim Cohn said in a statement that Walgreens recently completed its rollout of Theranos testing centers at some of its Phoenix locations. “We have been evaluating next steps for further expansion. And that has not changed,” he said.
AmeriHealth Caritas and the Cleveland Clinic have announced deals with Theranos but do not currently use Theranos technology, Bloomberg reported.
The Cleveland Clinic said the medical center's long-term strategic partnership with Theranos to develop new tests and run clinical trials remains unchanged.
How is Theranos different from the other relatively new companies, such as 23AndMe and Pathway Genomics, that also sell health tests directly to consumers?
Theranos offers versions of tests like those that measure white blood cells, platelet counts and kidney function, to name a few that are already available through your doctor. 23AndMe was offering a test that would tell users their risk for a whole host of conditions, such as breast cancer or Parkinson's, based on their genetic make-up. Pathway Genomics, which announced its service in September, offers a test that it says is able to detect snippets of cancerous DNA in the blood of otherwise healthy people that could be an early indicator of cancer.
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