I looked up what those laws referred to are, and... this is very very serious and Theranos is unlikely to survive it.
The first two laws they are cited as having broken are about quality control standards. The next two laws they are cited as having broken are about qualifications that must be held by the laboratory director and technical supervisor. The last law they are cited as having broken is about qualifications that must be held by technicians. They have ten days to come into compliance, but in order to address these violations they will have to either hire new staff for key leadership and other positions, or pull their product from the market. They will do the latter.
This same company was previously forced to pull their "nanotainer" testing system from the market because when regulators sent them control samples, they fraudulently tested them on different equipment and with different procedures than they used with patient samples. I will be surprised if no criminal charges are brought against Theranos CEO Elizabeth Holmes.
They aren't laws, and they have ten days to submit a plan, not to execute the plan. Are you sure you know enough about this sector to weigh in on whether survival is likely?
Federal regulations (created by the executive) are technically different from statutes (created by legislators), but there can certainly be criminal penalties for violating them. I wouldn't be at all surprised if that were the case here, given the public safety implications of medical testing.
The letter says that Theranos must provide "acceptable evidence of correction documenting that the immediate jeopardy has been removed". "Has been" is past tense, so Theranos really is required to fix the problems (at least the most serious ones) in ten days, not just plan to fix them.
Not laws? Those are section numbers from the US Code of Federal Regulations. Are you trying to point at the distinction between civil and criminal law?
But regulations are derived from statutes. What's more, they are enforceable in the same way as statutes. Regulations have what is referred to as the "force and effect of law".
I'm really not sure about that. There are so many conditions spanning when documents need to be signed, how to clean a nursing bag, when to hold meetings, what credentials personnel need to hold, how close to the floor/ceiling supplies can be stored.
What are some examples of COP violations leading to jail time?
Law - what is put together by Congress and signed by the President. This can involve tasking Federal agencies to do a specific task, referred to as a mandate.
Regulation - How the Agency turns its mandate, which is often broadly stated and sometimes nebulous, into concrete actions and policies. An example - I worked at the DOJ as an intern. There was a law passed to provide benefits to the families of public safety officers who died in the line of duty. What those benefits are? Who qualifies as a public safety officer? If a fire fighter gets in a car crash on his was home from a shift, does that qualify? The answers to these questions are determined by lawyers and experts in equal measure - the experts to determine what should be done to solve the problem, the lawyers to make sure the agency actually has the power to enact the policies the experts recommend. To put it in OOP terms, regulations are instances of law.
The stuff you mentioned - who is allowed to sign form 22a, minimum size of cleaning closets - is still law. The agencies also have the power to determine penalties for breaking regulations, not all of which involve going to jail. This power is again derived from what powers Congress assigns them when it writes the law.
These are rules for being a Medicare participating provider and the consequence of violating them is that you can't bill Medicare. I want to see one example of an individual doing time or even paying a fine for failing a CMS condition.
There are providers who don't bill Medicare, don't undergo CMS surveys, and don't follow the COPs. You guys are going overboard in calling it "the law."
A lab at Cleveland Clinic was placed in Immediate Jeopardy status a few months ago. They voluntarily stopped some services temporarily and were fined $600,000.
Whether or not regulations are technically "laws" is beside the point, and arguing about it so much is pedantic. The feds show up with a gun and have full authority to fine you or even padlock your lab (which has happened plenty of times). Theranos is in plenty of legal (or regulatory, who cares) hot water right now, whatever you call it.
Thanks for posting (and to seanccox who posted a similar link). I'm wrong, and it appears the lab business is different from other health care businesses where most surveys contain deficiencies and everybody just keeps working.
As someone kinda correctly identified, here is what happens:
Agencies are either directed by congress to make certain regulations, or more broadly delegated rulemaking authority.
They exercise that rulemaking authority through an administrative rulemaking and publishing process that ends up with stuff in the CFR.
This part is simple.
You can find a parallel table GPO/etc conveniently publishes, of which USC code gave rulemaking authority for which CFR parts here:
https://www.gpo.gov/help/parallel_table.pdf
I honestly feel bad for the person who has to keep that up to date.
Now, the larger question that was asked - can you be sentenced to jail for violating a CFR.
The answer is "yes". You will likely be charged with some USC violation, whose regulations/etc are interpreted through some CFR regulations.
Notice the regulations are in the CFR, violations of them are explicitly punishable under USC (IE "knowingly and in violation of the regulation ...."). With criminal penalties.
Now, this is not the same as the related question of "can you be sentenced to jail by the FCC for violating the CFR. The answer to this is "well, maybe".
The courts these agencies set up, and their administrative law judges, tribunals, whatever, are generally known as article I courts.
The current state of the law on article I courts is kind of a mess. In general, they have some power, but if it involves deprivation of life liberty or property, it must at a minimum meet various requirements (including being reviewable by a standard article III court).
Honestly, this is a super-complex and super-esoteric topic to get into on hacker news.
So yeah, you should worry about the CFR, but you maybe shouldn't worry the FCC will throw you in jail. It'll be federal prosecutors instead :)
I'm not sure if this is what you are asking for, but here goes:
"Rustom Ali, Ph.D. appealed a January 13, 2005 decision by Administrative Law Judge (ALJ) Keith W. Sickendick. Sonali Diagnostic Laboratory, DAB CR1267 (ALJ Decision). The ALJ Decision upheld the actions by the Centers for Medicare & Medicaid Services (CMS) revoking the certificate issued to Dr. Ali's laboratory under the Clinical Laboratory Improvement Amendments of 1988 (CLIA), and imposing a civil money penalty of $10,000 per day for the period August 4-6, 2001. The appealed actions were based on a review by the Arizona Department of Health (the State agency) finding deficiencies at Sonali Diagnostic Laboratory (Sonali) that posed immediate jeopardy to patient health and safety."
"Based on the foregoing discussion, we affirm and adopt the ALJ's Findings of Fact and Conclusions of Law and affirm the ALJ's decision to uphold CMS's revocation of Sonali's CLIA certificate and imposition a $30,000 CMP. By operation of 42 U.S.C.§ 263a(i)(3), Dr. Ali is subject to the two-year prohibition on owning or operating a CLIA-certified laboratory."
Limiting personal liability is the purpose for incorporation... She can't have criminal charges brought against her unless she commits an SEC violation and uses corporate resources for personal or unrelated purposes in conflict with the best interests of investors, which is what they are claiming shkreli did, for example.
If you're a digital health entrepreneur and treating what's happening with Theranos as a wakeup call to do rigorous science, you could do worse than to work with the UCSF Center for Digital Health innovation:
I'm a machine learning engineer working with UCSF cardiology. I certainly don't know all the answers, but I'm happy to try to answer questions or direct people to the right place.
I think it's quite dangerous when there's a company that says "we have breakthrough science, but we definitely can't tell you what it is", which was Theranos's M.O. for a long time.
Working in medicine is hard, working with biology is hard, not just because of regulatory hurdles, but because fundamentally the problems in those fields are much more commonly questions of basic science than engineering.
Good science leads to good companies, and if you can't do good science you're probably going to fail in this space. Good to see solid research institutions creating spaces to nurture good science at startups.
"we have breakthrough science, but we definitely can't tell you what it is"
Haven't followed the story but that is stock snake oil marketing boilerplate. If they really were/are saying that, no surprise that they were shown to be frauds.
Yep. I think there's room for scientists, engineers, and designers to contribute, but you have to publish peer-reviewed studies showing hard outcomes. Secrecy doesn't work in medicine.
They claim that it's because they can't patent their inventions and are instead relying on trade secrets. Revealing their trade secrets wouldn't make them trade secrets anymore.
A lot of the things they've claimed to be developing (microfluidic devices, signal amplification strategies, novel assays, etc.) are totally patentable. Maybe they don't want to reveal their secrets to inhibit competition, but in medicine you have to prove the thing works before you actually use the thing.
I don't much care if they want to hide some aspects of how their process works, but under no circumstances should anyone in this space operate without conclusively, publicly and openly proving that the technology works. The standard for that is scientific publication, and the ability of disinterested parties to test the equipment and verify it does what it claims to do.
Plenty of medical/biotech/diagnostics companies have cleared that bar while maintaining trade secrets. Theranos should be submitted to the same standards, and as far as I can tell, whenever they have been tested, they have failed.
From a funding standpoint the first question that comes to mind is, "How did this happen?"
Theranos to date has raised $88.4M. The Series C was raised in 2010 following a 4-year hiatus.
In the ten years since the founding of Theranos, they were unable to hire anyone who would help them figure all this shit out?
It seems insane to me that a well respected venture firm like DFJ, who invested in their Series A,B and C, would not have done their due diligence and understood where Theranos would become vulnerable. Everyone knew that government regulators would be involved since day one.
I am bullish on Elizabeth. She is obviously extremely intelligent and charismatic but I'm bearish on her investors. Step one of funding should have been building a blood test that actually works and step two is getting that $88M test approved.
Without knowing the whole story it's hard to form an opinion about the situation but I am super interested in the psychology of how all "this" happened.
> It seems insane to me that a well respected venture firm like DFJ, who invested in their Series A,B and C, would not have done their due diligence
She's childhood best friends with Tim Draper's daughter.[0]
It really is that simple. If you saw a state construction contract going to a firm controlled by a friend of the Chinese Premiere's daughter you wouldn't be confused at all right? So why should anyone be confused now?
> Clinkle had a polished demo that came before things like Apple Pay, said one former employee, who declined to be named. But most importantly that person added, Duplan “was charismatic when he wanted to be” and could “raise money in absurd abundance.”
You really want to change the world? Forget being a programmer, learn to be be charismatic.
More like learn to be a wealthy, elite, and well-connected.
These founders are as privileged as Bill Gates but totally lacking his work ethic and sincere passion. They're pedigreed out the ass, so those involved (including themselves) think they're actually good. In fact they just seem like they should be.
So the VCs keep pumping more and more money into them, knowing that at least people won't blame them so much when they fail, given how elite the founders are. It's easier to keep funding them than to admit you were fooled. That's the mystery behind why they burn through such huge quantities of money.
I wouldn't say that either Theranos or Clinkle have changed the world.
I would say that Apple, Google, EBay, Uber, Android, and Twitter have, but Steve Wozniak, Larry Page, Pierre Omidyar, Garrett Camp, Andy Rubin, and Evan Williams are far from charismatic.
This is more an example of "You can fool some of the people all the time or all of the people some of the time, but you can't fool all the people all the time." Charisma can help fool a critical mass of people early on, but once you try to expand to a product all the people use all the time, you'll fall flat on your face. Build something useful and then you don't have to fool anyone.
I don't think you picked up on Jeff's snark. I read it as "the key to successfully getting funding is to be charismatic" and "successfully getting funding" is currently synonymous with the sentiment that you would be "changing the world".
The author gave a great talk in the Stanford Entrepreneurial Thought Leaders lecture series. She opens her talk with a delightful story about Marilyn Monroe, and the ability to flip charisma on and off like a light switch. Watch it and learn you some charisma.
It seems to be endemic to these biotech darlings: 23 & Me pulled the same thing and faced the same consequence. They thought as a tech prima donna that they did not have to adhere to the FDAs medical device regulations (or even publish efficacy data). They got smacked in the mouth - serves them right.
23&Me was presenting patients with studies based on genes they actually found in the samples. They got busted because the studies weren't clinical trials done by the FDA. I've got a rare genetic disease for which there is no FDA approved test: too few patients, and it's 100% penetrant, so the geneticist just looked at the sequence. 23 & Me wasn't so different from that.
Taking your sequence data to a counselor is a solid use of 23&Me data. RE: risk prediction - they need to show efficacy & describe methodology in a clinical trial. Otherwise one is just taking their word for it that your risk is what they say it is -- or that they didn't mix up your sample/lose chain of custody.
23 & Me's tests worked, though. And it's possible for a reasonable person to believe that the regulations they violated are BS. Their actions were arguably no more inherently immoral than Uber's "disruption" of the taxi incumbents and their captive regulators.
The ignorance of, and/or disregard for regulatory standards is the common thread here.
Also, How do you know they work? They got slapped for giving people risks of disease using genetic data over the internet -- a method which was not peer-reviewed or shown to be accurate and precise. That is not bullshit - that is effective regulation.
The saddest thing is - even if you are right, all the FDA asked 23&Me to do was file a premarketing authorization -- something that many tiny companies do all the time to buy time to generate solid evidence.
"They got slapped for giving people risks of disease using genetic data over the internet -- a method which was not peer-reviewed or shown to be accurate and precise."
So if they delivered the results by mail or phone call they would have been in the clear? That is bullshit.
Nope. It doesn't matter if the results came by courier pigeon: The test has not been validated in controlled trials or even published in peer-reviewed literature -- let alone approved by the FDA. If it were so simple don't you think they would have obtained approval by now? The sad thing is any idiot can invent a glucose meter and file their PMA properly -- but a company essentially backed by Google blows it horribly.
I disagree with your opinion on the CEO. Intelligent? clearly, but also weird to the point that it's uncomfortable to watch her speak, and she's clearly very bad at handling the press.
I can't say Theranos's comments about the matter even begin to assuage the concerns this brings. Trying to pass off the immediate jeopardy fault in hematology (i.e. blood testing) as "not apply[ing] to the whole lab" is absurd. It's like a restaurant saying that the board of health complaint that shut them down focused too much on the rat feces in the kitchen, and not enough on the well watered house plants in the dining room. It's so tone deaf.
> It's like a restaurant saying that the board of health complaint that shut them down focused too much on the rat feces in the kitchen, and not enough on the well watered house plants in the dining room
To be fair, that has been Theranos' response to ALL criticism for the past 7 months. "Everyone is begging us for our secret recipes, but that is company secrets/proprietary science!"
For the record, I'm pretty sure Theranos is up to something very shady. Spend a couple hours watching just interviews with Holmes and reading the glassdoor reviews by current and former employees and you'll quickly start to piece together some pretty sketchy stuff.
Their glassdoor profile is full of some of the most obviously fake reviews I've ever seen, I wouldn't at all be surprised if about half of them were written by Holmes herself instead of running the company.
I've since spent some time looking into the company and asking some people I know in the industry about the company and the opinion seems to run from "scam" to "gross ineptitude".
Something smells really bad about Theranos and it's probably going to ruin a lot of people's careers while a select few are going to walk away with a nice percentage of the VC money in the end. The story on this will probably get caught up in post-Theranos litigation for many many years and I'll probably be retired long before the whole story is known.
The real problem is trying to ascertain motive. Money seems too easy for Holmes to have been working at it for so long. But it could be that simple.
I can't imagine what Liz's end game might be. What did she expect to happen in this situation? The healthcare industry is very tightly regulated. If you want to (temporarily?) mislead investors or customers, it's one of the worst options out there.
And after a decade in stealth mode, why did she make things public in 2013, before the technology was working? If she's as much of an attention-seeker as some say, how did she survive for the first decade without anyone caring?
> What did she expect to happen in this situation?
In my more charitable moments thinking about what they're up to the best I can come up with is "AirBnB/Uber". Just ignore the law and hope it goes away long enough to make money.
But both of those companies actually offer a working and viable service/product while Theranos doesn't seem to be even at that MVP point yet so that doesn't really even make sense either. At this point they're just taking VC money and lighting it on fire.
I'm not comparing Theranos to a ponzi scheme (e.g., Madoff) but the path may be the same -- they tell a small lie, then another lie to cover it up, then a bigger lie. Pretty soon there is great press, they are in too deep to backtrack and have to keep exaggerating just to keep up the baseline.
Holmes should havs finished college and got a Med Tech degree rather than becoming fluent in Mandarin. A bench level Med Tech would have done a better job.
But slaps forehead the Mandarin is for the money.... Duh
While it does sound like she's trying to sound like a man, I'm not sure if it's forced. Even if it's not her real voice, it's natural to have a different voice when speaking as a CEO in an interview (it may only be slightly off from her real voice). Her voice is consistent across interviews, so I don't think it's as fake as you might assume.
This is a little sensationalist - it's a list of deficiencies in their labs, not in their tests. More akin to an OSHA violation letter than a cease and desist letter.
This is definitely not a good thing for Theranos, but it isn't them being called out for bogus biotech. (Not that that would surprise me immensely if it happened.)
It's only "sensationalist" if you cherry-pick the most bureaucratic-sounding requirement, and ignore the first one in the list, which is a lot more fundamental to what a diagnostic lab does -- they're violating some unspecified part(s) of the quality system requirements for labs:
This also is a section, it's worth nothing, that consists mainly of references to lots of other, more specific, requirements. There's really no way of knowing what the violations are, other than to take the letter at its word that the violations are serious.
This isn't taxi medallions -- mess this basic stuff up, and you're putting people's lives directly at risk.
I only randomly picked a CFR to look up. This is totally a big deal! It just isn't the definitive 'none of these tests work' that many people have been expecting.
When it comes to biotech companies working in clinical diagnostics, lacking the proper credentials is way WORSE than 'none of these tests work.' Most diagnostics companies self regulate by hiring an FDA certified lab managers and technicians who share responsibility for making sure that the marketed product, in this case blood tests, is properly carried out and that it is comparable to the gold standard (usually much more expensive tests with known performance and false negative/positive rates). The FDA set it up this way because otherwise regulating all of the labs and their output like pharmaceuticals would be insanely more expensive and wildly impractical.
A company like Theranos selling blood tests without properly certified staff is the equivalent of Genentech or Pfizer marketing and selling snake oil disguised as cancer medication. It's the equivalent of selling something without having ever tested it to begin with.
No, it's worse -- this is basic blocking and tackling stuff that is table stakes for entering the medical testing space. This is not stuff that you "disrupt." As the letter says, these deficiencies could be putting customers' lives at risk.
I wonder how far Liz Holmes is going to take this thing. I wonder when it hits the breaking point where even she accepts the cold hard truth that this company that was famously valued at $9b is pure vaporware, built on little more than smoke and mirrors. Does the company need to file bankruptcy? Do investors need to sue to recover what money is left? Do insiders need to be criminally charged? I wonder...
Serious question: Even if Theranos goes down in flames, won't she walk away from this with a fortune? Maybe not quite the fortune she thought, but still many millions?
Quite likely. In later rounds, founders are often strongly encouraged to take money off the table by selling equity.
This isn't shady, it's so the founding team stops worrying about money and focuses full-time on the company. Ramen-profitable is good in the short term, but time becomes increasingly valuable as a company grows.
> This isn't shady, it's so the founding team stops worrying about money and focuses full-time on the company.
Uh, no. It's so that the founders won't sell the company at a mere 4-5x rather than then 20-100x that the VC's want.
If it was genuinely about the company, they'd let all the initial people take some stock off the table. Instead they only allow the people who could sell the company to take stock off the table.
This is true for many companies, but in the case of gross negligence[1], simply the action of her cashing out could be securities fraud and/or grounds for clawing back the money she took out.
[1] which I'm not accusing Holmes of, but it's not out of the question, either.
It's common and its bullshit. If founders take from funding then so should employees. They should be able to stop worrying about money as much as the founders.
I've seen her driving around town, she has some insane sports car that looks like a rocket ship. I couldn't even recognize what it was (Ferrari? Lamborghini?) it was so unusual looking.
Interesting, I hadn't seen that! But even if it only works for finding herpes and other there-or-not infections, they still might justify their valuation.
they will pivot. If i remember correctly from the magazine articles her original idea 10+ years ago was cell-phone attached to some diagnostic gadget. May be time to revisit, now with all the money and manpower.
Having a Unicorn go bust is akin to having a house get foreclosed on in your neighborhood in 2008. It doesn't reflect kindly on the value of the other homes in the neighborhood.
That is one of the reasons why venture capitalists not even affiliated to Theranos had suspiciously optimistic responses to the initial allegations last year:
The Theranos saga is incidentally one of the reasons I wrote the "You Can't Criticize Startups" rant on Monday. (to be fair, ignoring federal regulations is a different scope than mere criticism.)
I saw your post on the front page the other day but didn't have time to read it. I'll check it out. I'm a fan of your other posts. Keep up the solid writing!
Actually, minimaxir, when the stories first broke a few months ago, it was the rare case where VCs and SV insiders did criticize publicly. Google Ventures (bill Maris), e.g. I can dig up the other examples too.
A related potential signal in the other direction: Draper made it surprisingly clear that they only provided seed money and no further investment. I believe the Theranos founder was friends with Draper's daughter and that makes it an even stronger signal imo (as you usually tend to stick up more for people you're friends with).
It is worse for the non-software startups like biotech. With a software startup it normally does not take long for the investors to get an idea if the tech is real or not, but with biotech this can take many years.
Biotech investment is based on trust that the scientists are telling the truth. A bad actor in this area can really poison the environment for all other biotech startups - if you can’t trust the scientists then you have nothing.
Perhaps. A VC portfolio full of unicorpses does look kinda like a bad neighborhood. Limited partners might get scared off.
Or maybe a good VC firm that also has some huge hits would just explain that they're just swinging for the fences, so sometimes they'll have a spectacular miss or two.
Honestly, I can't wait for a few unicorns to fizzle. But only because maybe then the whole "unicorn" meme will finally fade away.
The corollary of "it's better to ask forgiveness than permission" is "sometimes, you will ask forgiveness and be told 'hell no, what were you thinking?'"
Unbelievable. I really dislike this company for trying to pull a fast one with people's health.
I really hope some lawyers file a suit against Elizabeth Holmes or something bad happens to create a strong disincentive from someone ever trying to do something like ever again.
The chinese milk crisis is an extreme example of what could be done. The executives were executed or imprisoned, which again could be extreme, but I doubt anyone in china would ever try it again.
http://news.bbc.co.uk/2/hi/asia-pacific/8375638.stm
CMS surveys, deficiencies, and plans of correction are to some extent business as usual for large health care providers. The article doesn't mention what they got hit with so it could be a big deal, or just an isolated incident that a surveyor happened to observe.
Correcting the problem tends to be easy, but measuring and reporting back your progress creates administrative expense. An example is paying for someone to train your employees on something related to the deficiency and then doing a random audit of their records at regular intervals for a few months afterwards.
Technically you can get shut down, but it isn't common.
Agreed, but I've been through multiple CMS surveys, some with deficiencies, some without. Some POCs were scary, some laughable. Personnel issues can be trivial (somebody's cpr certification expired yesterday) or serious (you hired somebody who claims to be a doctor but isn't). It's really hard to weigh in as an outsider.
I've actually had the (dis)pleasure of doing a fair bit of work in this area and have found LinkedIn to be pretty directionally accurate - for tech companies, I'd ballpark it at closer to 80-90% in most cases. They may very well be one of the outliers - I typically saw that in businesses structured in a way that made it readily understandable (ie 75 core employees, but hundreds of hourly warehouse employees without LinkedIn accounts). Not sure if Theranos has such a structure - perhaps the medical/research side is much less likely to have LinkedIn accounts than the tech side.
Without the actual statement of definicinies, there's not much to this letter other than that they have ten days to be in compliance with... something?
You can look up the regulations listed in the letter although you won't know exactly what their deficiencies are.
What is interesting to me is that this is CMS, not the FDA. CMS runs Medicare and Medicaid and is basically saying that if they don't improve their compliance, CMS will stop paying for their lab tests.
As a medical laboratory professional I can shed some light:
The Immediate Hazard Hematology citation comes from an expired reagent being used on a Hematology analyzer (clearly a standard Siemens analyzer, not the mysterious new technology they won't disclose). This is easily fixable, but reveals a great deal about what is ACTUALLY going on in that lab
The Laboratory Director and Technical Consultant citations are standard when you have an Immediate Hazard citation. But they also reveal how poorly organized this lab is and how whomever is responsible for the laboratory leadership at a directorship level knows NOTHING about CMS laboratory regulations, or tried to pull a fast one on CMS/CLIA by hiring a patently unqualified Dermatologist to be a part-time director of a CLIA high-complexity lab. This is a MASSIVE glaring error in leadership and quality assurance at the very highest level. The executive leadership of this company appears to know nothing about the business they seek to upend. I am sure the Cleveland Clinic is wondering WTH they got themselves involved with. Also very telling that Holmes was at Cleveland Clinic the day after this letter was released.
They are clearly operating as a bog-standard lab doing conventional testing to be able to report patient results and be a traditional CLIA-certified lab (except may be one test they have - the HSV) This significant fact seems to have escaped everyone. They can't report any tests performed by their top-secret technology because it ain't FDA approved.
For a conventional refererence lab like Quest or Labcore, their inspection faults would be embarrasing but fixable. For Theranos, it's likely fixable but the PR fiasco may be ultimately fatal.
Someone shoukd really have studied the industry they seek to upturn and worked with real professionals rather than pusing global dominance and glossy PR. The cart is miles ahead of the horse at Theranos
Hmm... I have a very good friend who is looking for a better job doing quality, regulatory, or compliance work at a biotech/medical device company. From what I understand, this seems kinda like the stuff a company in this area deals with regularly; It's just that most companies just don't publicize it. Anyway forwarded this to him.
edit: I should clarify, I mean general regulatory issues, I'm not commenting on the specifics, but every company faces audits and inspections.
Do you remember when the WSJ first started really dismantling the Theranos house of cards last fall, how a bunch of prominent VCs and publications like TechCrunch, with a lot to lose if the startup bubble pops, immediately circled the wagons? There was a lot of "this is a media hit piece", "we need time to evaluate the technology", "Liz Holmes is a visionary", etc. I wonder if we'll be getting retractions and apologies from those people.
What I saw was a lot of tech people and VCs cautioning against a rush to judgment. Which is totally reasonable. I for one will leave this up to the regulators to figure out. The people who invested in the company will lose (some/most/all) of their money. No need for us to get whipped up into outrage.
I'm not outraged by Theranos, but I do feel that stuff like this makes it all the harder for legitimate science to get investment, by "raising the bar" on the number of stupid, oversimplified, breathless claims you need to make to get noticed.
Real science is too messy to be able to compete with a press release from a sufficiently motivated huckster -- and investors love a huckster in lab coat.
Don't worry. Theranos failed even some of the simplest tests so how is that going to raise the bar at all? Work safety should not be a casual business gesture. It is as if you expect you raise money and you don't provide some insurance for your startup hires. No way. Anyone doing laboratory work should be careful with regulations. Wearing goggles and no smoking in the lab should be really basic. I don't expect anyone following the whole manual, but common sense yes. Simple tests, yes. Standard procedures should still be practiced.
Doesn't real science ... publish real papers? Or at least file patents. It's the secret sauce that's so suspcious. To a skeptical outsider, it whiffs of e-Cat.
Yeah, but investors don't often read papers...let alone have the expertise to know if they're any good. It's pretty common for investors to commit money based on good spin and social proof. Theranos has excelled at both.
Plenty of investors were straight up reaching for the conspiracy theory handbook. They did outright accuse the media of a smear campaign and suggested it was some greater corrupt conspiracy.
Silicon Valley has a very hard time accepting the possibility (nay, certainty) that there are some bad actors in our midst (even well-meaning bad actors). A very large portion of the scene seem to respond to accusation of malfeasance with hostility.
A certain amount of skepticism against claims of malfeasance, sure, but in Theranos' case there were a lot of comments not unlike Dave Morin's.
Nope. All I remember was hit after hit. So many, I actually started to feel sorry for Theranos. Despite that it's looking more and more like it doesn't have the goods and may not get there. And has operated very oddly.
If you want to see a long list of those "Theranos should ignore the haters" statements, just check out Elizabeth Holmes' own Twitter feed's Likes. She basically curated her own handy list of everyone who was holding their fingers in their ears and saying la-la-la-can't-hear-you:
Rupert Murdoch is also very powerful, and he's no doubt personally OK'd this WSJ-led takedown of Theranos, even though Kissinger and pals can't be too happy.
I've been very impressed with the WSJ coverage of Theranos. The same reporters broke the CMS Medicaid Fraud in 2014 and won a Pulitzer Prize. http://www.wsjplus.com/invites/medicare
I think WSJ got to play the role where they finally pull the trigger on this company, to help it move along to its demise.
Sometimes you hope the management and the board get the message and unwind things when the reality shows you that that particular game is done. And if they don't, then somebody has to come along and provide the kick.
Theranos is done, for all intents and purposes: no proven new technology and nothing interesting at all on the business execution side. Just pure founder ambition and aggressive PR/marketing. Not enough to string things along too much.
Therano's problems neither indicate a "startup bubble" exists nor would it pop it if there was a bubble. The bay area economy is larger than the economies many countries and one company that doesn't yet have significant revenues doesn't have make much of an impact. Theranos isn't the Bear Sterns of San Francisco. The problem many troubled unicorns face is that they guaranteed results to get high valuations in their late stage investor financing. Their problems are exactly that, just their problems.
Oh yes. This company exists in a vacuum, just like all the private capital that's propping up your local economy. I can't possibly imagine the mechanism by which the perception of failure might cause private investors to stop investing in things. Certainly, most investors don't read the news or sites like this one, so there's no way they might know that the unbridled optimism that fuels growth of unproductive companies could be approaching a precipice. Investors will obviously stay the course, continue dumping ever more capital into pointless apps and SaaSy startups, not to mention mysterious vaporware technologies like the one in question. It's nothing like that shameful bubble from the late 1990's when more public investment was involved, since everyone knows that perception requires a public market.
It is unlikely that this is the only start-up with such large problems, it's just that this is one of the more obviously fraudulent ones. There is rarely just one cockroach.
I mean, talking your own book is a thing. Did anybody really think that the money hovering over Silicon Valley wouldn't do this? I am put in mind of the parable of the scorpion and the frog.
It's a little unclear how this letter changes any of that. You seem to be jumping on the "attack bandwagon" without actually examining the details of the letter. "Must mean the company is a fraud."
I examined the letter; here's what it says: Theranos's lab isn't CLIA-compliant in a way that potentinally puts patients at serious risk. DHHS is giving them 10 days to remedy some serious noncompliance issues (without reading the CMS-2567 form, I can't see for certain what magnitude they are), but this is very serious. If Theranos doesn't reply satisfactorily, DHHS will fine them daily and possibly revoke their CLIA certs as well as their ability to take Medicare money.
I think most people had already concluded that the company, if not outright fraudulent, was being very careful to hide a number of negative facts about their product's deficiencies. At this point nearly every scientist I know thinks their tech doesn't really work as well as they claimed, so it seems unlikely the company should have the valuation it does.
Are you sure? Here's the sentences I read:
"when ... pose immediate jeopardy, CMS requires the laboratory to take immediate action to remove the jeopardy" ... "10 days to with a credible allegation of compliance and acceptable evidence of correction".
I see the part below that makes it sound like just a plan has to be filed, but I interpreted the text above as meaning they needed to comply within 10 days to even file the form. My interpretation may be wrong.
All the news articles I'm reading say that they actually have to remedy the problems within 10 days, not just file a form with their plan. But those articles also say that the investigation was limited to a secondary facility, so the impact may be smaller than I predicted.
Sections 1215 and 1250 say that they don't follow manual procedure requirements. Not surprising, given that the focus of the enterprise is automating laboratory procedures.
The remaining sections cited are requirements on the staff operating the lab. The letter infers that the staff do not conform to regulatory requirements. Again, this is not surprising given that the function of the enterprise is to remove humans from the process.
Note that any automated lab today still requires many manual procedures, and the staff have to conform. It's totally inexcusable, within the current legal environment, to not satisfy those conditions. Their lab isn't some gleaming, hermetically sealed iLab with only mechanics and computers inside.
I will note that I placed a caveat that I didn't know the magnitude of the violations, but be aware, this is an extremely serious problem for Theranos, they have no excuses, they would have known what to do ahead of time, and they certainly wouldn't use the reasoning that their lab is partially automated so they don't need to comply with manual procedure requirements.
That is a very odd whitewashing. Even if its all automated, you still need a lab director with qualifications to run the lab. And somebody has to fill reagent bottles. People are involved. That they fail when so few people are involved is a lot worse.
I doubt there is any meat here. The real complaint should be their failure to anticipate and accomodate the perverse but very real requirements of regulatory compliance in the near term. In the long run, the regulations will have to change in light of technological reality, but investors don't usually care about the long run.
There IS meat here, but it isn't the hematology problem. It's that their medical director is unqualified to direct this lab. CLIA is very stringent about what qualifications are needed for a lab doing high-complexity testing. This is such a huge mistake by Theranos that I have to truly believe they do not know what they are doing, or perhaps felt they were above these laws. CLIA is indeed the law, passed by Congress many years ago. Even Kissinger can't throw his weight around and bypass it. Duh
To start with, I am a clinical lab medical director and clinical pathologist. I've commented on Theranos a few times before on HN. That said, I think three things have been missed in all of this
1) There are a lot of bad labs out there like Theranos, and Theranos' story is thus only unique because of how pumped up it got. Clinical labs are "old economy" businesses, and the idea that someone could sprinkle "new economy" fairy dust and turn it into an Uber or Netflix success story is more about the echo chamber that is Silicon Valley, the general lack of scientific interest or rigor in clinical diagnostics in the tech industry, a somewhat Aspergey yet charismatic CEO, black turtlenecks, and friendship with important ex-government officials and VC folks than anything special about what was going on in their laboratory. Plenty of labs have been caught and shut down for what Theranos has done, and while I didn't think that it was actually occurring there, I am not terribly surprised.
2) The magic of their Edison box, even if it had turned out to work, was not nearly as impressive if you know anything about how clinical labs operate today. The claims that they have made (can do tests on MICROLITERS and have imprecision LESS THAN 5-10%!) are actually standard these days for many assays. As a lab director, I was always disturbed by the lay press puff pieces that said things about Theranos that were totally uninteresting and unimpressive to anyone knowledgeable...what clearly happened was that no one at Forbes, etc.. actually asked anyone who works in a clinical lab to comment. The commentary always focused more on the phenomenon of Theranos, rather than the substance...probably because the substance was super boring.
3) What has consistently been missed, and is still missed today, is that even if Theranos' technology worked and their labs weren't being run with a criminal disregard for standard laboratory practice, is that Theranos' business objectives would STILL be a horrible idea. Their push to democratize health information, to do more testing early to prevent disease rather than detect late, to test for lots of things in healthy people to increase "wellness", etc... is all total bullshit. With few exceptions, lab tests are for sick people, and testing healthy people with lots of tests simply consumes money and generates false positive results that are expensive to work up. Also, there are NO TESTS for all of the conditions (cancers, etc...) that they claim to be helping you detect early. Getting your sodium and potassium levels weekly won't help you avoid kidney disease, cancer, or diabetes, but it will make your pocketbook shrink and it will give you some falsely abnormal values 1 in 20 times you do it. This has been the true play of Theranos, which is to do a massive amount of testing on well people, marketed directly to healthly people without the advice of doctors, with the intent of arming a bunch of worried well people with an avalanche of insignificant noisy information to present to their physicians. This helps no one other than Theranos.
I have often seen a lot of objections to (3) from people on HN, especially tech-sorts who think that they are better able to handle data than the average person. However, this is fundamentally flawed. For those who are interested in Bayesian analyses, consider the utility of any test when the pre-test probability is low - the answer is that positive results are almost always false positives, or at least difficult to interpret. The answer is not getting more tests, even if it's cheap. Lab tests these days ARE cheap...it's the clinical followup that is expensive.
I will be very interested to see how this all plays out now. The big players, Labcorp and Quest, have both tried the direct-to-consumer/in-drugstore model for testing, and amusingly actually shut their offerings down years ago because of lack of interest. The truth of the matter is that making health information more available to people sounds great, but really, the only people who end up collecting that information are affluent, worried-well people who should be discouraged from testing in the first place. The people who need more routine testing are poor, socially-underserved and neglected people with chronic illnesses, but I do not think that Theranos is planning on opening test facilities in Flint, Michigan to give Hemoglobin A1c monitoring tests for free to the elderly impoverished people there. To the contrary, they've tried to open in areas where they can get customers who they can trap into believing that they need lab tests like they need step counts from a fitbit. Hopefully, this bump in the road will caution others trying to do the same thing, but I really doubt it.
This interview snippet (only 4 minutes long) with the CEO Elizabeth Holmes is a revealing look into the mind of a possibly crazy person (crazy with power).
Please look past your possible distaste for the source, but Zerohedge has an interesting angle on the situation regarding the composition of the board. At least take a look at the bottom half of the analysis, but make sure not to read the comments.
That article makes me think that it's possible that Theranos is more concerned with their government contract work than this "blood test for the common man" spiel.
Wasn't she supposed to be God's own anointed founder CEO?
All kidding aside, wasn't there some other controversy or someone revealed something about Theranos not too long ago? I guess I was right https://news.ycombinator.com/item?id=10984035
I'm guessing you're referring to the series of events consisting of (1) the original WSJ investigative report, (2) the Theranos rebuttal pointing out a missing piece of information in WSJ's report, and (3) WSJ coming back the very next day after the Theranos rebuttal with the very information they were called out on.
We USAians believe that Theranos will either work out a viable business or run out of money and close doors. It may not be a perfect meritocracy, but it's more so than most of rest of the economies of the world.
The accepted English demonym is American, and it has been for the last 200 years. Did you think you would be misunderstood if you said American?
The USA is the only country in the world with the word America in the name. Part of the world does consider North and South America to be one continent, but most of the English speaking world does not. Therefore in English there is no ambiguity when referring to someone as an American.
You'll also note that no one has any issue with Australians calling themselves Australian, despite the fact that Australia is not the only country on the Australian continent.
Yeah, that it's an ugly, ungainly bastardizaton of language. American as referring to someone from the US has been correct English usage since before the United States was a nation state.
I agree with just about everything you said except that Australia is really just home to one country. or am I about to learn something new? Oh I see the shelf includes other islands
Any science or medicine types know if a potential solution to the problem this company wants to fix can be achieved by a 'hack' of sorts: just make a finger-prick, but keep it bleeding somehow (using mechanics or other chemical agents) until you can collect enough of a blood sample?
Seems like an easier approach than inventing breakthroughs in microfluidics.
The problem is that the finger prick actually hurts a lot more than a traditional venous draw. There aren't any real benefits to a "finger prick" other than marketing spin that it's so easy breezy and good for people who can't stand needles.
imo if Theranos had stayed out of microfluidics and stuck with fundamentals of testing but done it well- regular draws but used the best trained phlebotomists who can find the vein on the first stick, do a painless draw and really improved their model of "easy access" walk in Walgreens testing, immediate/fast under 24 hour results, pay up front and low cost, they could have overtaken Quest and Labcorp just by exploiting inefficiencies in that market. Instead they got too sidetracked focusing on razzle dazzle nanotainer microfluidic science that doesn't even work.
"...There aren't any real benefits to a "finger prick" other than marketing spin..."
"...regular draws but used the best trained phlebotomists who can find the vein on the first stick..."
That's the advantage of a finger prick. You don't need to be a trained phlebotomist to do it. The microfluidics drove the idea that you only needed "a few drops" to perform the tests (since drawing 100mL out of a finger would take forever). Put those two together and you had the concept of a test that any semi-skilled person could perform in a drugstore. That was the hook Theranos was banking on.
> You don't need to be a trained phlebotomist to do it.
Yes, but Theranos still had phlebotomists doing their finger pricks. Also, phlebotomists aren't that expensive. Even in the Bay Area I think they only make around $18 an hour. Cheaper than a nurse, for sure.
They had phlebotomists because, as we discovered in the fall, they were still drawing the standard vacutainers for all of the tests except the one that actually worked on the microfluidic system.
The remainder were run through traditional ELISA and clin-chem machinery from other companies.
Part of the excitement around Theranos was that their finger prick approach opened up blood diagnostic technologies to situations (e.g., combat) and countries where it is difficult to get access to trained phlebotomists.
2. What others who know more have stated is that for many tests, there's a fundamental difference between venous blood (taken from a high-volume vessel) and capillary blood taken from a tiny blood vessel in an extremity. It seems that it's not all about volume.
Because the linked site seems flaky - no references. A google search for the title of the 'Harvard paper that is about to be published' only returns that site.
I don't understand the schadenfreude and hostility toward Theranos (and the founder). From everything I've seen there's very little actual information publicly available either way about what's going on (aside from some weak pop tech journalism).
I'd imagine this negative media attention is stressful for them - like it is for any startup. Should minimally wait for something substantial to see if there was any actual wrongdoing - there's not much here so far.
From everything I've seen there's very little actual information publicly available either way about what's going on (aside from some weak pop tech journalism).
Not sure why you're being deliberately obtuse about what Theranos' failings are. Their alleged disruptive technology has never been shown to work. Their lab where they use other companies' technologies is in such a state of disarray that Medicare has publicly stated that they may be endangering patients' lives (i.e., through cross-contamination of samples, inaccurate labeling, etc.).
Multiple former employees have talked about Theranos' failings, and multiple government agencies have audited/inspected Theranos and found it severely deficient.
I'd imagine this negative media attention is stressful for them - like it is for any startup.
Good. They should be stressed out. They've taken almost $90 million dollars and all they've accomplished is putting people's lives at risk so they can play startup.
Should minimally wait for something substantial to see if there was any actual wrongdoing - there's not much here so far.
There isn't just actual wrongdoing--some of the allegations rise to the level of criminal wrongdoing. Felonies, not misdemeanors. It's very possible that the founder ends up in jail when all of this is done.
A bubble company like this is an event of staggering inefficiency, it sends huge amounts of very valuable resources (money, but also things like people's careers, creativity, press attention) into a situation where they are ultimately squandered.
Asset bubbles can be like wars, they can waste the promise of an entire generation, never to be recovered.
Nobody wants to see a collapse for collapse's sake, but there is quite a bit of social good in avoiding or deflating an asset bubble, be it in residential mortgages, late stage technology companies, or a 20 year old college student who was allowed to lose tens of millions of dollars of people's pension money just because she happened to be born in the right neighborhood.
I certainly don't disagree with your analysis, but surely most of the blame should be placed on the shoulders of those that controlled the pension money ?
We, rightly, have a concept of "fiduciary duty" deeply embedded in our common law and in the practice of investing. That applies to all the people entrusted with the assets in question, from the pension fund manager to the VC firm to the firm receiving the investment. There's a difference between a bad or risky bet that doesn't pan out and violations of that duty like misrepresentation and self-dealing.
The blame should go to those who breached that duty. It seems that at minimum they engaged in misleading statements about the degree of progress they had made with their technology. That's certainly unethical and possibly fraudulent.
Not unreasonable, but Clinkle and Color were both huge wastes of money and so far were more legitimately worthless than Theranos has been shown to be. The reaction seems more negative than I would expect with the information currently available - it's like the community wants to see them fail.
Maybe they are being unethical or it will turn out they don't actually have a real product, but it seems kind of early to lay on the kind of hostility people have been. A small part of me wonders if it's because there's a female founder.
1) Clinkle and Color are the butt of many many recurring jokes and a perennial punchline for people in startup land.
2) Neither of those companies had anything even a little bit close to a ten year run and a $9bn valuation. It's one maybe two entire orders of magnitude bigger as a flame out.
Read the letter. The conditions at the lab pose "immediate jeopardy" to health and safety. They go on to define immediate jeopardy as conditions that have caused, or are likely to soon cause, injury or death.
> Clinical Laboratory Improvement Amendments (CLIA) of 1988 are United States federal regulatory standards that apply to all clinical laboratory testing performed on humans in the United States
At this point, we (HN community) are just treating this like a season of Jersey Shore.
She's working her ass off to build a company with a mission far more important than email marketing or advertising or Candy Crush or blockchains.
Were they overly optimistic in their projections? Probably, but try starting a company and not being optimistic. You'll never get off the ground.
Did they not take reasonable precautions in an industry (biotech/healthcare) with serious repercussions? Absolutely. There are very real questions about her empathy and ethics.
That said, let's stop getting giddy every time Theranos (or some other startup) shows weakness. As founders — those "playing startup" excluded — it is incredibly hard. Let's have some empathy ourselves for those who have (likely) fucked up.
> She's working her ass off to build a company with a mission far more important than email marketing or advertising or Candy Crush or blockchains.
And from all accounts, she's too busy playing PR games, as opposed to treating this like a mission far more important than email marketing.
Theranos is in the business of medical testing. This is not an industry where you can half-ass your way through certification... Or where scrutiny like "Does the product you've been selling even work?" is misplaced.
Theranos could dismiss this entire charade, if they could only provide evidence that what they claim to have built actually works.
You have to understand that's a ludicrous fallacy of the excluded middle argument you're making.
There is a long way between wanting nobody to work on this problem, and thinking it's a good idea to give tens of millions of dollars to a bright but utterly inexperienced college student to work on this problem because she happened to be school friends with some VC's daughters.
> How do we invest in potentially innovative ideas in more complex fields before they have proven it out?
Honestly, you invest in carefully proving out those potentially innovative ideas before you release them. That way you have good data convince people who claim your ideas don't work.
When people deal with live samples more ethic and certifications than for IT scaming techs is expected by the stake holders .
And the cohorts of bad news on theranos, the misdoings and also the handling of PR with spin doctors does not inspire "an ethical empathy" with theranos.
VC funded startups really don't seem to be able to have any ethic. They look like psychopaths right now that use their so called hard work as an excuse for their lack in the fundamental of trustable business and respect of consumers.
Vae Victis.
Theranos may pay for a little more than their own share of wrongdoings. They may pay a tad for a broader distrust of so called "new tech" scams also known as unicorns.
The bigger you try to manipulate opinions, the more the opinion may resent you.
For now I have a solid hammer against them, I am waiting for sharp factual nails to seal their coffin.
Why hurry? It is clear they cheated the wrong people (investors) and investors are gonna provide us the nails. Polished, sharp, hurtful provided by audits and leaks.
Let's get some popcorn and tomatoes and watch the world of some selfish aristocrats burn.
I don't show sympathy to people who have no track record as researchers, have never published their data or methods for peer review, over hype all their work, and rely on cute stories to get funding rather than good work.
I'm working on a hematological microfluidic diagnostic device in a loosely related space (which actually works), and if my team had her funding we would be flying right now. Too bad we aren't attractive women with inspiring stories so we have to settle for grant funding.
>At this point, we (HN community) are just treating this like a season of Jersey Shore.
well, cabin fever until the 3rd season of "SV" is out. In the meantime have to survive on daily ration of reality show like "guess whose horn is just a plastic cone", with today episode featuring Theranos.
The problem with your logic is that it can be used to justify both legitimate innovation and any kind of snake-oil peddling. This just won't do as an argument.
The first two laws they are cited as having broken are about quality control standards. The next two laws they are cited as having broken are about qualifications that must be held by the laboratory director and technical supervisor. The last law they are cited as having broken is about qualifications that must be held by technicians. They have ten days to come into compliance, but in order to address these violations they will have to either hire new staff for key leadership and other positions, or pull their product from the market. They will do the latter.
This same company was previously forced to pull their "nanotainer" testing system from the market because when regulators sent them control samples, they fraudulently tested them on different equipment and with different procedures than they used with patient samples. I will be surprised if no criminal charges are brought against Theranos CEO Elizabeth Holmes.