Majority of Theranos Board Gone After FDA Report

Biotech sensation Theranos was supposed to be Silicon Valley’s next hot IPO. But late Thursday evening, the company told Fortune Magazine that its board of directors had shrunk from 12 members to five as it battles a perfect storm of negative publicity.

The new board is comprised of Theranos founder Elizabeth Holmes, Theranos Chief Operating Officer Sunny Balwani, construction executive Riley P. Bechtel, retired Marine Corps General James N. Mattis, and Al Gore’s former lawyer David Boies.

The Food and Drug Administration just carpet-bombed what was left of the company’s credibility by questioning statements about the risk profile of Theranos’s proprietary blood test, and making 14 “problem observations” regarding the company’s testing lab.

Theranos was valued at $9 billion as a private company this summer for its supposedly pioneering development of a hand-held device that could test for hundreds of potential medical issues with just a pinprick amount of blood.

The company gained huge credibility by attracting a very high profile board that included former Secretary of State George Shultz; Chairman of Bechtel Group Riley P. Bechtel; former Wells Fargo Chairman and CEO Richard Kovacevich; former Senators Sam Nunn and Bill Frist; former Secretary of State Henry Kissinger; and former Secretary of Defense William Perry. Theranos also formed a partnership with Walgreens to use its equipment in the Phoenix area as a test market.

But as Breitbart News reported on October 23, the company may have made numerous false claims earlier this year to gain FDA approval in July to test for herpes simplex virus (HSV-1) using the Theranos “platform,” which consists of hardware, software and blood-drawing equipment.

Analysts believed the evidence submitted by Theranos at the time must have been overwhelmingly compelling to the FDA, because just days later the FDA granted a “CLIA waiver” that allowed the blood test to be administered by non-laboratory personnel and trained workers outside of a clinical lab. Theranos claimed it intended to expand the FDA clearances for another 120 other diagnostic exams using the same hardware and software.

The FDA operates a tiered regulatory structure that classifies medical devices by categories–Class I, Class II, and Class III–according to a device’s safety and effectiveness. Class I devices are deemed to be very low risk and are therefore subject to the least regulatory controls, such as dental floss. Class III devices are generally the highest risk devices and are therefore subject to the highest level of regulatory control, such as replacement heart valves. Class II devices fall between low and high-risk devices.

Theranos’s test platform was always categorized as a Class II risk device, but the FDA just disclosed that Theranos has been inappropriately advertising its test as an extremely low risk “Class 1” device. Furthermore, in FDA examinations of Theranos labs, the company was subject to 14 Form 483 “problem observations.”

FDA inspections sometimes find problems at medical labs, and the regulatory agency did issue 972 separate “483 Form” problem observations over the 12 months ending September 2014. However, that was for thousands of laboratories across the United States and a number of foreign countries.

Multiple “problem observations” issued to a single med-tech lab might be deemed by the FDA as a pattern of non-compliance. Such determination could result in a catastrophic FDA letter suspending business and canceling government healthcare reimbursements.

The FDA reports detail that inspectors of Theranos’ manufacturing and engineering operations from late August through mid-September found that Theranos: 1) failed to investigate or reveal possible failures of its proprietary device; 2) failed to document that its “nanotainers” to hold blood samples were too opaque to inspect for clotting blood; and 3) the company shipped a medical device interstate that not been cleared by the FDA.

Perhaps the most ominous finding regarding the future of Theranos is the FDA’s determination: “Complaints involving the possible failure of a device to meet any of its specifications were not reviewed, evaluated and investigated where necessary.”

The Silicon Valley blog reported that Theranos issued a statement in response to the FDA concerns: “We believe that we addressed and corrected all the observations at the time of, or within a week of, the inspection and have submitted documents to F.D.A. that say so.”

It may be too late.