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Harsh sanctions for Theranos founder Elizabeth Holmes: Two-year ban on running labs

Theranos chief executive Elizabeth Holmes. (Glenn Chapman/AFP/Getty Images)

In a severe turn of events for former blood testing darling Theranos, which has been defending itself against accusations of wrongdoing for months, U.S. regulators slapped strong sanctions against the company and its owner.

Theranos said in a statement issued late Thursday that the certificate for its lab in Newark, Calif., had been revoked, its approval to receive Medicare and Medicaid payments "cancelled," and that it would have to pay an unspecified fine. In addition, chief executive Elizabeth Holmes, the company's founder, will be banned from owning, operating or directing a lab for at least two years.

The company is one of a number of Silicon Valley start-ups in the health industry that have come under scrutiny by the federal government in recent years, with regulators focusing on products marketed directly to consumers. The Food and Drug Administration has previously raised questions about personalized genetic testing company 23AndMe and Pathway Genomics, which had been selling a "liquid biopsy" test that it claimed could detect cancer in its early stages through blood.

Consumer nightmare: Theranos ‘voids’ or revises tens of thousands of blood test results

Theranos was perhaps the most celebrated of these young companies. Holmes was at one time compared to Apple's Steve Jobs, and the company's valuation was estimated to be a staggering $9 billion at its peak.

Holmes said in the statement that the company is "disappointed" with the decision by the Centers for Medicare & Medicaid Services. However, she said the company is committed to fully resolving the issues and that the Newark lab would be shut down and rebuilt "from the ground up" and that "highly experienced leadership, personnel and experts" would be put in charge.

“We accept full responsibility for the issues at our laboratory in Newark, California, and have already worked to undertake comprehensive remedial actions," she said.

Under the sanctions, Holmes would be unable to continue to run the company after 60 days; it's not yet clear what she will do next.

[Study raises questions about accuracy of some Theranos blood tests]

In March, a study in the Journal of Clinical Investigation reported that the Theranos tests were substantially more likely to flag results as abnormally high or low compared with the industry leaders Quest Diagnostics and Laboratory Corporation of America Holdings. And in May, the Wall Street Journal reported that the company had “voided” two years of results from its supposedly revolutionary blood-testing machines and issued "tens of thousands" of corrected reports to doctors and patients.

Theranos said that its certificate would not be revoked for 60 days but that it would not be doing any more patient testing in Newark until further notice. Customers can still get its blood test, but the analysis will be handled through another Theranos lab in Arizona.

Read more:

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