Theranos under increasing regulatory fire

The US government has its eye on Theranos, the blood-testing company once valued at $9 billion.

Founded in 2003with the goal of streamlining and standardizing blood tests using a blood-testing device named Edison that it developed, which is claimed to use a few drops of blood obtained via a finger-stick, rather than vials of blood obtained via through venipuncture, utilizing microfluidics technology.

Theranos claims to have developed a highly disruptive and revolutionary new means of conducting blood tests. These claims, however, were called into question by The Wall Street Journal back in October, causing shockwaves throughout the start-up world.

Regulators have found serious shortcomings at a medical laboratory run by Theranos, the latest in a series of setbacks for the blood testing start-up founded by billionaire entrepreneur Elizabeth Holmes.

In an inspection last November that has just come to light, the US Centers for Medicare and Medicaid Services (CMS) found that one of the company's laboratories was "not in compliance" with the conditions required for certification.

"It was determined that the deficient practices of the laboratory pose immediate jeopardy to patient health and safety," the agency concluded.

The story continues to get worse for Theranos. Earlier this week, the US Centers for Medicare and Medicaid Services delivered a strongly worded letter to the blood testing start-up. According to the letter, the company's California facility poses an ''immediate jeopardy to patient safety,'' and the company has ten days to make changes and provide ''acceptable evidence of correction.''

Theranos has hit so many roadblocks in recent months that many in the industry are beginning to question whether or not it will become the first 'Unicorn' company to collapse.

According to a Forbes report, Silicon Valley is as narrow and incestuous a place as has ever existed. While there is undoubtedly a lot of talent and passion to be found, the spirit of opportunity that once existed has given way to the overwhelming influence of the technocrats. The insularity and groupthink of these elites has led to a damaging culture of excess and intellectual dishonesty in the Valley.

Not too long ago, Jason Calacanis, an entrepreneur and investor, wrote, ''When you're at scale you will make money – it's guaranteed!''

Even without knowing the details - the complete CMS report has not yet been released - this kind of language "implies serious infractions that require immediate remedy," Jerry Yeo, director of clinical chemistry laboratories at the University of Chicago, told Tech Insider. "It is highly unusual and rare for a [government-certified] lab to get such a grave warning letter from CMS."

He called it "a very damning letter, but necessary to protect the safety and well-being of patients."

The Theranos lab's five areas of noncompliance, detailed in a cover letter to the report sent to the company and uploaded by The Verge, were:

• haematology
• analytic systems
• laboratories performing high-complexity testing (laboratory director)
• laboratories performing high-complexity testing (technical supervisor)
• laboratories performing high-complexity testing (testing personnel)

The deficiency related to haematology, a broad category that includes many of the basic requirements of laboratory tests, was the most serious. That was the one categorised as posing "immediate jeopardy" to patients. Only 0.5 per cent of labs in the country are deficient in haematology, according to a January 2016 report from CMS. That means that just 95 out of more than 17,000 labs surveyed had deficiencies in this category.

The other deficiencies found at the Theranos lab were also relatively rare: 1.3 per cent of labs are deficient in meeting the requirements for their analytic systems, 1.5 per cent are deficient in meeting the requirements for a laboratory director, 0.3 per cent are deficient in meeting the requirements for a technical supervisor, and 0.5 per cent are deficient in meeting the requirements for testing personnel.

According to Yeo, who reviewed the CMS letter, these kinds of deficiencies - especially in so many different areas - are not standard problems.

"I can see getting some deficiencies but getting serious deficiencies on something as basic as having qualified personnel is very disconcerting," he said. "My read on this is that CMS must have found that there is a pattern of serious violations that have gone on for a while."

Theranos has 10 days from the day it received the letter, January 25, to submit evidence to CMS showing that they have corrected the deficiencies.

In a statement, Theranos played down the deficiencies, noting that the report from months ago "does not reflect the current state of the lab."

It wrote, ''As the survey took place we were simultaneously conducting a comprehensive review of our laboratory's systems, processes and procedures  ... we are still reviewing the report, but we addressed many of the observations during the survey and are actively continuing to take corrective action.

''To be clear, [the hematology deficiency] does not apply to the whole lab, and none of these findings relate to our Arizona lab, where we currently process over 90 percent of our tests.''