Quinn: Theranos and Elizabeth Holmes May Be Out of Options

July 9, 2016 GMT

It’s hard to see how Elizabeth Holmes and her company will ever make it out of this mess.

The latest in the Theranos saga hit this week with news that U.S. regulators sanctioned the Palo Alto medical testing company and banned Holmes from operating the company’s lab in Newark for two years.

There are many unknowns at this point. If Holmes can’t operate the lab -- or any lab -- what are the options for a company that has promised to revolutionize personal medicine with better, faster and cheaper access to blood tests?

Trouble has been swirling around Holmes and Theranos for months, ever since a Wall Street Journal article in October raised questions about the reliability of the firm’s claim that its technology could perform blood tests from a single prick on a finger.


Since then, Theranos and Holmes have faced regulators from the Centers for the Medicare & Medicaid Services, who have taken issue with the company’s lab practices.

Separate from the sanctions, Theranos faces a criminal investigation from the Department of Justice, and the Securities and Exchange Commission is looking into whether the firm misled investors. Holmes’ No. 2, COO Sunny Balwani has resigned and the firm lost Walgreens as a partner.

Silicon Valley companies have been knocked around by regulators, but the ongoing pressure on Theranos raises the question of how long Holmes and Theranos can survive.

In a statement, the company said it plans to keep its lab open in Arizona, although its not clear whether the latest sanctions cover that lab as well.

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

It’s probably too little too late.

Here are three possible outcomes for Holmes and Theranos. 1. Holmes resigns This option might be a solution. Then again, it might not. Holmes is believed to be the privately-held company’s largest shareholder. She is now not only banned from operating a lab, but also prohibited from owning or being a shareholder in a lab doing clinical work.

“The whole purpose of the sanction is to eliminate the problem,” said David Gee, a health care attorney with Davis Wright Tremaine. “There is a quality problem that has risen to a certain level. The purpose of the sanction is to eliminate to ability of the owners to have any control of the laboratory operation.”

Holmes would not only have to resign, it appears she’d also have to sell her stake for Theranos to continue doing lab work. Would there be a buyer? 2. Theranos appeals The sanctions don’t go into effect for 60 days. If the company appeals -- and the company hasn’t said -- it could buy itself more time to figure out a path forward.


“The government doesn’t always get it right,” said Patric Hooper, a founding partner at Hooper, Lundy & Bookman who has represented laboratories in regulatory matters. “People are counting Elizabeth out prematurely.”

But appealing isn’t easy, and settling with federal regulators will be difficult given that this is such a high-profile case. 3. The company outsources its lab work or sells itself In a statement Friday, Holmes said that the company was in the process of shutting down and rebuilding its Newark lab. Perhaps it would contract someone else to operate the lab for two years -- or sell the labs -- and then step back in?

This has happened in some cases involving hospital labs that have been shut down. An outside company comes in and runs the operation.

But it’s hard to imagine that happening with Theranos, since without labs, it’s not clear what’s left of Theranos, say industry observers.

These are some of Theranos’ and Holmes’ darkest days to be sure. She is expected to speak Aug. 1 at the American Association for Clinical Chemistry’s annual scientific meeting in Philadelphia. If she does, it will be the first time Holmes has presented data at a scientific conference describing her technology, event organizers say.

Robert Michel, editor-in-chief of The Dark Report, a business intelligence service for pathologists and clinical laboratory professionals, plans to be there. He hopes she sheds light on Theranos’ technology. “If it really works, why hide it?”

The tragedy of Theranos will be if there was indeed something that really worked but that has been botched by mismanagement. Holmes needs to explain what’s going on if there’s any hope of her saving Theranos. Contact Michelle Quinn at 510-394-4196 and mquinn@bayareanewsgroup.com . Follow her at Twitter.com/michellequinn .