The Theranos story, ch. 17: closing the barn door after the horse

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2016/04/Yak_52__G-CBSS_FLAT_SPIN.jpg” thumb_width=”150″ /] And it may work, though the horse is in the next county. Late last week, with American eyes elsewhere, Theranos announced that they hired two executives with regulatory responsibility–a chief compliance officer and an VP regulatory and quality–and formed a new board committee focused on same. The CCO is Dave Guggenheim, the former assistant general counsel for regulatory law at HIT/medical distribution giant McKesson. The VP, Daniel Wurtz, comes from a similar senior director position at biotech Thermo-Fisher Scientific.

The country maxim, ‘closing the barn door after the horse has bolted’, applies. In fact, the horse is in town and having a growler of beer at the local tavern. The Newark, California lab is shut and the principals, including the CEO Ms Holmes, are technically prohibited from operating a lab for at least two years (that means you, Ms Holmes) starting in a month. Messrs Guggenheim and Wurtz (or similar) should have been on board years ago. Even small companies in our field realize they HAVE to do this!

This also doesn’t affect the interesting interest that DOJ and SEC have in Theranos. [TTA 10 July]

However, this Editor will take the contrarian view that somehow, some way, the ‘fix’ is being worked out, if not in. Don’t make reservations for the fire sale quite yet. The ban on Ms Holmes won’t take place for another month, minimum. That gives time for David Boies, their legal supremo, and his firm to stall for more time, and time for some calls to ask favors from friends, of which he has many in this administration. More than likely, Boies on behalf of Theranos will appeal the CMS rulings to an administrative judge. Ms Holmes may take the hit, but may get a handsome payday to depart despite her reported control, if the investors can salvage something out of the company.

At HQ, they may be rehearsing saying ‘mea culpa, mea culpa, mea maxima culpa’ three times, kneeling deeply, in preparation to Going Forth And Sinning No More.

The Object Lessons taught by the Theranos Troubles, to us in healthcare tech, continue.

WSJTheranos Hires Compliance, Regulatory Executives  (more…)

More reflections on, significance of the Theranos quagmire (updated)

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2016/04/Yak_52__G-CBSS_FLAT_SPIN.jpg” thumb_width=”150″ /]Theranos’ spin towards the Auger In continues. Truth or Consequences are apparent. So are setbacks.

Wired has put together a timeline of the key events in The 9 Events That Have Pretty Much Doomed Theranos, most of which our Readers in following our coverage (index here from 2013) are already familiar with. One interesting point is #7, which touches on another gift to the legal profession–the class action lawsuit. Eight lawsuits are already in process, and at least one names former partner Walgreens Boots.

SEC and DOJ’s interest. The SEC, limited in its action because Theranos got big without going public (see below for more), is likely seeking misrepresentation of technology to investors–as in, ‘it really didn’t work’. Penalties may include repayment or settlements to investors and barring principals from ever leading a public company. The DOJ will likely focus on consumer impact. Knowing that your blood tests are inaccurate but continuing to sell them violates all sorts of Federal health regulations, and can earn the principals orange mock turtlenecks and a long stay in a place with iron bars, pesky regulations and no choice of wardrobe. Sadly, Theranos’ legal counsel and board member David Boies won’t have a chance to unleash one of his favorite intimidation weapons, the libel lawsuit. Instead, he’ll be uncomfortably playing defense (but for how long?) Give the man a crying towel, and remind him to bill in advance. Wired (from April)

*Updated: Here’s the CMS letter, courtesy of the WSJ. (If John Carreyrou doesn’t receive a Pulitzer Prize, the fix is in!–Ed.)

The market demonstrated inefficiency in allowing companies like Theranos to get big without going public. You cannot short or sell the stock (a negative ‘opinion’) which demonstrates that investor-backed Unicorns represent ‘incomplete markets,’ according to Robert Shiller’s Efficient Markets Hypothesis. Of course, before going public, the SEC would have demanded disclosure–another reason why Theranos (and possibly other Unicorns) aren’t. Forbes.

‘Theranos has probably set back the tremendously promising field of microfluidics by a decade.’ An investor who was rooting for Theranos (but didn’t invest) recounts the dodgy behavior of entrepreneurs from eToys.com to Tesla. ‘Hype is what entrepreneurs do best’; fabbed-up PowerPoint decks are par for the course. “Sadly, the journey from charisma to coercion to lying is quick and often complete.” Ms Holmes, you have a lot of company. When Startups Put The Fab in Fabricate. (WSJ; if paywalled, PDF attached)

Where do we go from here? We’ll close with advice to startups in biotech and medical innovation: pace thyself, know thyself. What’s needed: an internal culture amenable to science–and external regulation–and knowing when to apply the brakes to prevent slamming into The Wall Marked Failure. (Mentioned is a useful tool called a pre-mortem) Wired

Theranos denouement: CMS closes lab, fine, 2-year ban on Holmes (breaking)

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2016/04/Yak_52__G-CBSS_FLAT_SPIN.jpg” thumb_width=”150″ /]Breaking News. Theranos has been slapped very soundly by the Centers for Medicare & Medicaid Services (CMS) for violations arising from operations at their Newark, California laboratory. The fine is not disclosed. CMS has revoked the lab’s certificate and also prohibits the owners and operators of the lab from operating a lab for at least two years. That means that Elizabeth Holmes, the CEO, her management and anyone immediately involved with the Newark lab is effectively out of a job.

As the Theranos press release was issued well after hours Thursday night US Eastern Time, there’s no mention of the board actually removing her, but that is another shoe that this Editor expects to drop sooner, not later. COO Sunny Balwani was removed in May [TTA 19 May] Who is not tainted who can actually run the company? Is there a capable person in the industry who wants to touch it? As has been revealed, Ms Holmes still controls the company [TTA 27 Apr].

The revocation will be in effect in 60 days, according to the Wall Street Journal*, but the Newark lab has been closed. There is no mention of the Palo Alto lab which was also under scrutiny [TTA 20 Apr].

The details appear to be lifted or nearly lifted from the CMS order, and are quoted directly from the Theranos release: (more…)

Theranos–the drama and examination continues

The latest chapters:

Theranos’ boards–the advisory board chock full of Blast From The Past political figures like George Shultz, Sam Nunn, Bill Frist and Henry Kissinger–and a governing board–are standing by CEO/founder Elizabeth Holmes. Of course, they have essentially no choice, because Ms Holmes utterly and completely controls the company in the Silicon Valley Manner. The governing board, split off from the advisory board after The Troubles started last October–consists of Ms. Holmes, COO Sunny Balwani, Riley Bechtel of the eponymous construction firm, retired Marine Corps General James “Warrior Monk” Mattis and David Boies, prominently featured in both articles below. Mr Boies is politically well wired and the kind of attorney you call in when you are facing Big Trouble and need Big Defense–or Offense. These boards of course bear responsibility for the governance of the company, including fiduciary, and the actions being taken by CMS, the US Attorney’s office in San Francisco and the Securities and Exchange Commission (SEC) may be making for some sleepless nights. New York Times, Vanity Fair (which overlaps the NYT article)

Trust But Verify is the extraordinarily apt ‘eyebrow’ on this ‘rise and fall’ Quartz article reviewing l’affaire Theranos by a professor of medicine at Dartmouth College. For the non-scientists among us, it gives a layman’s explanation on why venous blood for most tests is needed versus fingerpricks (the latter mixes blood and tissue fluid, and doesn’t accurately measure large molecules such as proteins and lipids–but fine for the smaller blood glucose molecules, as testing diabetics know). It also touches on the Icahn Institute/Mount Sinai study [TTA 26 April, see comment] and points to the Smoking Gun of boards largely not constituted of those with medical or biochemical expertise.

Update: Bloomberg explores a POV in an opinion piece that blood tests are inherently variable, and only one factor in a proper diagnosis. Theranos’ promises to run multiple blood tests on a tiny quantity of blood are not only suspect but also that the “assumption that succeeding in this quest would improve public health” is specious indeed. Theranos and the Blood Testing Delusion

The stakes are high, and getting higher, for Ms Holmes, indeed.

[Ed. Donna’s comment below our earlier article, Theranos’ triple whammy: CMS, DOJ and SEC, addresses some concerns our Readers may have about our coverage. While we are a website interpreting the news and the Editors generally refer to multiple published sources in an article to supply various points of view, we also express our opinions. We try our level best to be fair, to stay in good humor and buttress our points. When you the Reader has a point to add, differs with our interpretation, or believes that your Editors are hanging too far out on that swaying limb, please feel free to comment. We do have a Comments policy which isn’t onerous…it’s posted here.]

Theranos’ triple whammy: CMS, DOJ and SEC

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2015/11/shockedshocked.jpg” thumb_width=”150″ /] Shocked, shocked! Theranos CEO Elizabeth Holmes is a bit more wide-eyed than ever. On the popular morning (breakfast=UK) program Today, interviewed by the oddly ‘browed Maria Shriver and sans the usual Steve Jobs-channeling black turtleneck, she stated she was ‘devastated’ that they didn’t catch the lab testing issues faster. On CNBC, she was mildly defiant and justifying:

“I know what we’ve built and I know what we’ve created and I know what it means to people and it is a change that needs to happen in the world”

(Yes, it does mean a lot to people when their test results are wrong or not reliable. And the disappointment of those of us who’d like simple, less expensive testing that works.)

Last week CMS proposed (but not yet imposed) sanctions that include banning Ms Holmes and president Sunny Balwani from running or owning labs for two years, and removing licenses from Theranos’ labs in Newark and Palo Alto California. Wall Street Journal. The effect would be to remove them from the company. Yesterday, Federal prosecutors started the process of discovery by subpoenaing Walgreens Boots Alliance, their former customer, and the New York State Department of Health seeking broad information on how Theranos described its technologies to gain Walgreens’ business and NYS licensure. That information may also have misled government officials.

The third whammy is the Securities and Exchange Commission (SEC) looking into a parallel claim–that deceptive claims were made to investors.  No one at the above organizations is commenting to the Wall Street Journal, which broke the story earlier this year. While the company has $700 million in the bank, the famed $9 billion Unicorn Valuation is moving towards $9.

Ed. note: If the WSJ articles are paywalled, search on the headlines “Regulators Propose Banning Theranos Founder Elizabeth Holmes for at Least Two Years” and “Theranos Is Subject of Criminal Probe by U.S.” to get around them. Alternatively, see TechCrunch and MedCityNews, which is playing the World’s Smallest Violin about this.

IMS Health files to raise $100 million in IPO

In news late yesterday, IMS Health has filed with the US Securities and Exchange Commission (SEC) to raise up to $100 million in an initial public offering of stock. The preliminary prospectus listed JP Morgan, Goldman Sachs, Morgan Stanley and BofA Merrill Lynch as the underwriters. We have noted IMS Health’s expansiveness on entering mHealth through app curation, prescribing and data security at the mHealth Summit [TTA 23 Dec] and their previous acquisition of Diversinet [TTA 15 Aug] in mobile app security; the latter was only a small part of their 2013 acquisitions in several areas totaling $105 million. Clearly there are some plans which may very well include health apps and data. Reuters, GeekWire.

Breathing monitoring, Google Glassing, AngelListing at Rock Health’s Demo Day

The Rock Health accelerator premiered its fifth class of startup/early stage companies last week. The most interesting are the assistive technologies developed by Lift Labs in devices for everyday use–a spoon that counteracts the effect of active tremors; the Spire clip-on breathing monitoring device that takes an additional step into biofeedback and stress management (the similar BreathResearch was in TTA 24 Sept); the Google Glass-powered Augmedix service for doctors that serves up patient information during exams; ThriveOn which creates an on-demand 8-12 week custom-built programs for mental health issues. Rock Health also announced its alliance with AngelList  (more…)

Health tech funding reshapes, diversifies

In thinking how funding for health tech startups has changed since this Editor’s early days (2006) when VCs had a lock on the Letter Series (A, B, C) and your real goal was to ‘please, Lord, won’t you find me a strategic investor?’ (are there any of those left?), some more pointers to the future, both in EU and US:

Withings, known for its pioneering Bluetooth scale circa 2009, and more recently other Bluetooth monitors, nimbly moves to wearables with a fitness tracker about the size of a USB drive and priced at an affordable $99. It also has raised $30 million led by Bpifrance with $15 million, with participation from Idinvest Partners, 360 Capital Partners, and Ventech. (Most of us have forgotten that Withings is a French company.) A French challenge to Fitbit, Nike, Jawbone and a whole raft of smartwatches coming 2013-2014 including Sony, Pebble and Apple? VentureBeat

Angel funding diversifies geographically. No longer do the coasts have a lock on the action. Silicon Valley has had some problems [TTA 18 July], Silicon Alley (NY) is still finding its way and Boston/Cambridge is, well, Boston/Cambridge. We recently covered angel groups in Ohio (LaunchHouse), Texas (Wildcatters) and Arizona (SeedSpot). Now Delaware joins the list with FP Angels. And where are most of the companies? According to the Halo Report, in the US Southwest. Angel investing groups show love for the Southwest and healthcare in Q1 (MedCityNews)

And the rise of crowdfunding. As mentioned previously, angels and ‘FFF’ funding has been supplemented and market tested by crowdfunders such as Kickstarter, IndieGogo, MedStartr and Health Tech Hatch. Two kitchen-table entrepreneurs can market test their idea almost immediately. The problem is failure to deliver on time, on budget and as promised, as witnessed by the overwhelmingly successful Misfit Shine. The math of Hardware+Crowdfunding=Success has more than a few caveats in the formula. The hardware revolution will be crowdfunded (VentureBeat)

And a little-noticed change in Securities & Exchange Commission (SEC) regulations lifted the ban on ‘General Solicitation’ which according to this Forbes article will allow entrepreneurs seeking funding to cast a net beyond their network of ‘pre-existing relationships’–but they have to be accredited investors. It makes the reach to non-accredited investor interest just a little bit closer–for good or ill. The SEC’s Removal of General Solicitation Changes Everything

For our readers, health tech appears ‘siloed’ by region and country. What does it take to move beyond borders?:

  • If your startup is based in the UK or EU, have you thought about reaching out to US funding through a US base?
  • If you’ve considered and rejected it, why? (Health tech
  • Why are we not seeing more activity by UK/EU companies in the US (or Americas) markets?
  • What do you perceive as the differences between developing health tech ex US–and translating it to the US market?
  • Has anyone had experience extending in non-US/UK/EU markets?