Theranos slides deeper into the quicksand with federal criminal investigation

Theranos' Palo Alto, CA, headquarters--Courtesy of Theranos

Things keep sliding down a slippery slope for Theranos, and now the beleaguered testing company is sinking even deeper. Federal prosecutors are launching a criminal investigation into Theranos, claiming that the company misled investors about its technology and operations.

Theranos' partner Walgreens Boots Alliance ($WBA) and the New York State Department of Health got subpoenas from the U.S. Department of Justice (DOJ) asking for information about how the Palo Alto, CA-based company described its technologies and its progress in developing those technologies, The Wall Street Journal reports. Investigators are also looking at whether Theranos misled government officials, a crime under federal law.

But the fallout doesn't stop there. The Securities and Exchange Commission is also looking at whether Theranos deceived investors when it raised funding, people familiar with the matter told the newspaper.

The company's lab license application in New York said that Theranos wanted to test patients' blood on traditional lab machines and didn't mention any of its proprietary testing devices, according to the WSJ story.

Theranos also enrolled in a proficiency testing program in New York, where regulators monitor a lab's accuracy by sending it samples to test. A Theranos employee subsequently said that the company manipulated proficiency testing by selectively reporting back results.

Theranos is remaining characteristically elusive about the recent probes. "The company continues to work closely with regulators and is cooperating fully with all investigations," Theranos told the newspaper in a statement.

The SEC and the DOJ declined to comment to the WSJ.

The criminal probe adds to Theranos' disastrous load. The Centers for Medicare and Medicaid Services (CMS) wants to take away the license for the company's Newark lab and ban CEO Elizabeth Holmes and President Sunny Balwani from the company for at least two years. The move follows a November inspection by the agency, which turned up 5 major lab infractions at Theranos' Newark facility, including one that posed "immediate jeopardy to patient health and safety."

Theranos CEO Elizabeth Holmes

Meanwhile, Theranos is facing pushback from its biggest partner, Walgreens. Earlier this year, Walgreens told Theranos that it would cut ties with the company unless it fixed problems uncovered during the CMS' November inspection.

Even though things seem pretty bleak for Theranos, Holmes is staying stoic under pressure. The CEO of the embattled testing company in an interview earlier this week said that while she's "devastated" by the recent turn of events, "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."

That confidence is taking Holmes to the 68th AACC Annual Scientific Meeting & Clinical Lab Expo in Philadelphia on Aug. 1. Holmes, for the first time, will present data about the company's technologies, including its small sample volume testing and finger-stick collection, the AACC said in a statement.

- read the WSJ story (sub. req.)
- here's the statement

Special Report: The most influential people in biopharma today – Elizabeth Holmes - Theranos

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