Blood lab Theranos under federal investigation
SAN FRANCISCO - Theranos, the blood testing company that once was the darling of investors and media, is under federal investigation that it misled investors and partners about the readiness of its industry-disrupting technology.
The Palo Alto, Calif., startup is facing scrutiny from the Securities and Exchange Commission as well as the U.S. Attorney's Office for the northern district of California, the company acknowledged in a memo sent to its partners Monday.
"The investigations by the SEC and the U.S. Attorney's Office, which began following the publication of certain news articles, are focused on requesting documents and ongoing," the statement read. "The company continues to work closely with regulators and is cooperating fully with all investigations."
Theranos has long been emblematic of high-flying technology "unicorns," or companies that have rocketed to billion-dollar or more valuations. The company has raised more than $700 million, valuing the company at $9 billion - half of which would belong to its young founder, Elizabeth Holmes, 32, who started the company when she dropped out of Stanford at 19.
Board member and company attorney David Boies, who made his name as the Department of Justice attorney in the Microsoft anti-trust case of the late '90s, defended Holmes Tuesday, telling Bloomberg that she "is clearly equipped to be CEO of the company," adding that “the marketplace and the scientific community will determine the company’s future, not what happens in the media."
Theranos has been on the defensive ever since an initial Wall Street Journal article last October by Pulitzer Prize-winning investigative reporter John Carreyrou that first broke the news that the lab was having trouble with the accuracy of its results. Theranos' truly secret sauce was promising to deliver complex blood results via just a pin-prick of blood collected via fingertip in its patented nanotainers. That promise helped raise millions and garner board members such as former secretary of state Henry Kissinger.
Theranos initially blasted the media outlet's reporting, calling it inaccurate, misleading and based on disgruntled employees. But in the ensuing six months, Theranos faced growing scrutiny from media, regulators and partners alike.
First, Walgreens officials said they would be halting their expansion of their Theranos partnership. The Food and Drug Administration determined that the nanotainer was not an approved device for collecting blood, and gave Theranos its seal of approval to use its technology for only one test: herpes simplex 1.
The Centers for Medicare and Medicaid Services then investigated Theranos' California lab and found it both deficient and likely to caused flawed test results. And just last week, news landed that the Centers for Medicare and Medicaid Services was seeking to ban Holmes and Theranos president Sunny Balwani from operating a lab anywhere for two years.
On Monday morning, Holmes appeared on NBC's Today Show and said she was "devastated" by the reports about the lab's deficiencies. Mere hours later came news that her troubles have only increased as she battles not just to salvage a multi-billion-dollar teen-age dream, but also fight off inquiries that could well find her criminally liable.
But Holmes and her team continue to strike a defiant pose, one that assures its partners that its leadership and technology will ultimately be vindicated, perhaps by the very investigations that it now faces.
The company's memo concludes by saying, "We welcome further review of our technologies, performance, and data, which is why we voluntarily engaged with FDA years ago. We recently hosted three scientific review sessions in Palo Alto with leading laboratory and medical experts, many of whom joined our Scientific and Medical Advisory Board as a result, and are now working with us to introduce our technologies through peer reviewed publications."
Follow USA TODAY tech reporter Marco della Cava on Twitter: @marcodellacava