Diagnostics

Three twists in the Theranos saga in two eventful days

Theranos has settled with the Centers for Medicare & Medicaid Services and agreed to reimburse all Arizona residents that purchased its beleaguered blood tests. It sounds like a good start to the week, but a bigger challenge looms.

Theranos glucose monitoring blood test Finger with drop of fresh blood

In November 2013, a ribbon-cutting ceremony was held to celebrate the first Theranos Wellness Center opening in Phoenix, Arizona. It was the Palo Alto, California-based startup’s first foray outside of California, with trusted partner Walgreens at its side.

As the now infamous story goes, the new-age diagnostics dream combusted and Walgreens went on to sue Theranos for $140 million for an alleged breach of contract. As of Tuesday, Theranos has also agreed to fully refund all tests sold to Arizona residents.

Between 2013 and 2016, the privately-held company sold around 1.5 million blood tests to 175,000 Arizonans. According to Theranos, approximately 10 percent of those tests were voided or corrected.

In a statement, Arizona Attorney General Mark Brnovich said residents will receive a refund regardless of the result. That amounts to a bill of $4.65 million, along with $200,000 in civil penalties, $25,000 in attorney fees, and administrative costs. The company also pledged to not own or operate a CLIA-licensed laboratory in Arizona until March 28, 2019.

In a separate announcement just one day earlier, the former unicorn promised the Centers for Medicare & Medicaid Services (CMS) that it would not “own or operate a clinical laboratory within the next two years.” In return, the federal agency has withdrawn the revocation of the company’s CLIA operating certificates and reduced its civil monetary penalty to $30,000.

The two settlements close the loop on some of the carnage of last year. And at this point in time, stepping out of the clinic is not the end of the world. Theranos publicized a new direction in October 2016, moving resources from its clinical lab and retail business to focus on its miniaturized, automated testing platforms and related chemistries. Some deep cuts were made to its employee base last year to help it start to pivot.

Unfortunately for Theranos, a third legal ruling came in late on Tuesday.

A U.S. District Judge upheld fraud claims raised in an investor class-action lawsuit against the company, founder and CEO Elizabeth Holmes, and former President and COO Ramesh “Sunny” Balwani. The ruling sets the stage for a full-blown lawsuit by a class of Theranos investors represented by Hagens Berman.

In a prepared statement, the firm’s managing partner Steve Berman said thousands of investors duped.

“We’re pleased that the court saw through the smoke and mirrors of Theranos’ extensive marketing tactics that duped investors into placing their bets on Holmes and her company,” Berman said. “Theranos’ promises were built on false statements, and we look forward to bringing this case on behalf of the thousands of investors who believed what they were told.”

Filed in November 2016, the complaint states that the company’s iconic blood tests were flawed and unproven. Beyond that, it claims that Theranos and its officers knew all along that the “revolutionary” diagnostic platform “was essentially a hoax.” With the dissolution of its clinical laboratories and the deal with Walgreens, at least half a billion dollars of investment has been wiped since 2013, Hagens Berman alleges.

So the theranovela continues.

Photo: bluebeat76, Getty Images

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