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The Theranos controversy, explained

Everything you need to know about the super-secret, controversial blood testing company.

 Theranos chair, CEO, and founder Elizabeth Holmes.
Theranos chair, CEO, and founder Elizabeth Holmes.
Steve Jennings/Getty Images

Over the past two years, a highly secretive Silicon Valley biotech startup called Theranos has been trying to disrupt the multibillion-dollar US blood testing industry.

When you go to a clinic and get your blood drawn, the doctor or nurse typically sends it off to a lab for testing, say, to do routine cholesterol to vitamin D checks or look for signs of disease. This ritual — which almost all Americans endure at some point in their lives — usually requires a painful needle jab, multiple vials of blood, and days or weeks of waiting on results.

Theranos wanted to change all that. Two years ago, the company started offering blood tests that it claimed required only a finger prick — and could deliver results of up to 30 tests in hours using its own lab testing instrument (called "Edison machines"). In numerous interviews, Elizabeth Holmes, the 31-year-old founder of the company, argued that this technology would be revolutionary, slashing costs in the $75 billion-a-year blood testing industry. Investors and media loved it, and last year the company was valued at $9 billion.

But recently, Theranos has started attracting doubters and critics. Over the past several months, both health researchers and some journalists have started wondering whether Holmes's claims actually held up, whether they would really be as revolutionary as Holmes promised.

Then in October, the Wall Street Journal published an eye-catching investigation into Theranos, finding that the company's revolutionary claims were overblown. Theranos has allegedly been collecting blood samples the traditional way and then diluting them so they could be run on machines made by other companies — not their much-hyped Edison technology.

What's more, the Journal's investigation, as well as a follow-up story, suggested there were major concerns about the accuracy of Theranos's test results. It's a messy story, full of wild claims and regulatory clashes. Here's a primer on what we know so far.

Theranos claimed to offer faster, cheaper, painless blood tests

Every startup promises to solve a problem, and Theranos was focused on fixing our blood testing system.

Currently, when you go to the doctor for a blood test, you have to endure a long needle, and the nurse or phlebotomist often has to draw several vials of blood in order to run multiple tests. It can be painful — and costly.

Theranos, by contrast, claimed that it had the technology to take blood from a simple painless prick and run multiple tests on that tiny, raindrop-size sample. The sample would be sent to a lab in a "nanotainer" and tested on Theranos’s proprietary technology, known as "Edison machines." Theranos also promised to deliver results in a few hours, to eliminate anxiety-inducing waits. Holmes said the tests would cost about half of current Medicare and Medicaid reimbursement rates for tests.

It seemed promising. In 2013, Theranos opened 42 "wellness centers" in Walgreens pharmacies in Arizona, two in California, and one in Pennsylvania. Holmes had also started lobbying state governments to allow patients to order Theranos tests without having to go through the cumbersome annoyance of getting a doctor's note — a step that, in theory, would further cut down on time and cost to patients.

By 2015, Holmes had persuaded Arizona's legislature to pass a law allowing patients to skip right to her labs and order up whatever menu of testing they wanted, without doctors' approval.

So not only was Holmes trying to upend the way blood testing is done, she was also trying to change how people interact with the health care system. Considering that every person gets blood tests at some point, the change she promised was a big deal.

Many of Theranos's claims were never validated, raising suspicions

More recently, however, critics had begun asking for proof that Theranos's technology actually works, and that its results are accurate. After all, the evidence on this wasn't public: The Food and Drug Administration (FDA) hadn't cleared Theranos's tests. And Holmes had never published her claims in peer-reviewed journals.

Holmes and Theranos's PR team deflected these critics by citing intellectual property concerns and suggesting that any complaints were being planted by rival testing companies, such as Quest and Laboratory Corporation. Here's how Ken Auletta of the New Yorker described Holmes's stonewalling:

What exactly happens in the machines is treated as a state secret, and Holmes’s description of the process was comically vague: "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." [Holmes] added that, thanks to "miniaturization and automation, we are able to handle these tiny samples."

Then in October 2015 came the massive Wall Street Journal investigation on Theranos. For about half a year, reporter John Carreyrou had tried to answer some of the questions critics have been asking: What actually goes on behind the scenes at Theranos? Did the company's tests really work?

Carreyrou eventually discovered and reported that it appears Theranos rarely even used its much-hyped Edison technology in its tests. Instead, the startup allegedly relies mostly on older technology by companies like Siemens for the bulk of its testing. (This was in contrast to the company's claims that it used older machines only for "certain esoteric and less commonly ordered tests.")

What's more, there are real concerns that the company's signature Edison machines — the ones that have garnered all the hype — aren't nearly as accurate as claimed. On this point, Carreyrou cited former employees, internal emails, and doctors. One Theranos employee even complained to regulators that Theranos had been gaming the system, "failing to report test results that raised questions about the precision of the Edison system."

Since the Journal's story, other critics have come forward and claimed that their blood test results from Theranos didn't quite match those from standard labs. In a follow-up, the Wall Street Journal confirmed that the FDA had pressured Theranos to stop using its Edison technology on almost all of its blood tests save for one (a test for Type 1 herpes simplex) because of concerns about the machine's accuracy. Last week, Holmes admitted that Theranos had stopped taking pinprick blood samples for all but one of its tests.

The company says it has been working with FDA to validate its blood tests, though those results are still pending. Until it receives FDA blessing, it seems Theranos has been mostly operating as a mainstream blood testing lab, taking blood through needles in patients' arms and using traditional technology to analyze the blood. There's nothing wrong with that, per se, but it's hardly likely to revolutionize the industry.

So how did Theranos get so much hype with such weak claims?

There's no shortage of Silicon Valley companies that claim to be changing the world, but Theranos stood out for a couple of reasons: It had an amazing origin story, it was led by a young woman in a mostly male tech industry, and it promised to solve a problem that was relevant to most people.

Holmes, the company's founder, dropped out of Stanford as a sophomore in 2004. She said she'd started the company both to address her phobia of needles — one that she realized many people shared — and out of the desire to help people diagnose potential diseases faster and at more accessible prices. Her message that billion-dollar lab companies were ripping people off with costly, outdated, and unnecessarily painful technology deeply resonated.

Over the next decade, Holmes managed not only to get her own Stanford professor and mentor on board, but also to attract $400 million from venture capitalists, and assemble a star-studded board that included former US Secretaries of State Henry Kissinger and George P. Shultz.

Interestingly, the company board included hardly any health care professionals, as Business Insider's Lydia Ramsey pointed out in Slate. All told, Ramsey writes, "[There are] six former government officials, two former military leaders, two corporation leaders, two members of Theranos' leadership, and two men who graduated from medical school." That's pretty unusual for a medical company.

Nonetheless, by 2014, Theranos was valued at $9 billion, with Holmes's stake in it worth half that, making her one of the youngest self-made billionaires around.

In this context, it's not surprising that favorable press followed: Holmes could be found, always in Steve Jobs–esque black, on the cover of Forbes and Fortune, and was even the subject of an in-depth New Yorker profile. She was named "the world's youngest self-made female billionaire" by Forbes and "America's coolest billionaire" by Inc. magazine, and even made Time magazine's list of the "100 most influential people."

Theranos still hasn't fully answered questions about the effectiveness of its technology

The Wall Street Journal stories, however, have shed a different light on Theranos and its corporate culture. The story noted that one former employee, Dr. Ian Gibbons, had killed himself. But when Carreyrou tried to speak to Gibbons's widow, "a lawyer representing Theranos sent her a letter threatening to sue her if she continued to make 'false statements' about Ms. Holmes and disclose confidential information."

That sort of combative attitude turned out to be the norm. Theranos repeatedly hit back at Carreyrou as he reported the story, even sending representatives to the homes of some of his sources, asking them sign statements saying the newspaper "mischaracterized their comments."

Unsurprisingly, almost as soon as the story went up, Theranos published a statement denying many of the facts in the piece:

Today’s Wall Street Journal story about Theranos is factually and scientifically erroneous and grounded in baseless assertions by inexperienced and disgruntled former employees and industry incumbents. Theranos presented the facts to this reporter to prove the accuracy and reliability of its tests and to directly refute these false allegations, including through over 1,000 pages of statements and documents.

Theranos still hasn't answered important questions about the effectiveness of its testing, however. Instead, Holmes simply told Bloomberg that this is just a transition phase, and that once all of its tests are validated by the FDA, the blood testing revolution will continue.

Perhaps that's true. But the questions remain about whether Theranos's technology actually works as promised — questions the company has mostly avoided answering while it rolled out its tests out across the United States. Until the Journal story, no one had realized it was hitting regulatory barriers or struggling to verify the accuracy of its tests.

This whole episode should be a cautionary tale: If a secretive tech company is claiming to revolutionize an entire industry with technology that still hasn't been validated, be skeptical.

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