US bans Theranos founder from running lab for two years

United States regulators have banned Elizabeth Holmes, the chief executive of Theranos, from owning or operating a medical laboratory for at least two years, in a major setback for the embattled blood-testing firm and its once widely lauded founder.

In a statement late Thursday, Theranos said the regulators also yanked the operating license of its Newark, California, laboratory and forbade the laboratory from taking Medicare and Medicaid payments for its services. Regulators will also levy a monetary penalty that Theranos did not specify.

The government's moves follow a review last year of the Newark plant, which came after questions arose about the effectiveness of Theranos's technology. The high-profile start-up rose to prominence on the promise that it could detect health ailments by testing blood drawn cheaply by the mere prick of a finger.

"We accept full responsibility for the issues at our laboratory in Newark, Calif., and have already worked to undertake comprehensive remedial actions," said Ms. Holmes in a statement. "Those actions include shutting down and subsequently rebuilding the Newark lab from the ground up, rebuilding quality systems, adding highly experienced leadership, personnel and experts, and implementing enhanced quality and training procedures."

Elizabeth Holmes
David Orrell | CNBC
Elizabeth Holmes

The company "is disappointed" with the decision, Ms. Holmes added, but said the company is committed "to demonstrating our dedication to the highest standards of quality and compliance."

The revocation of the Newark laboratory's license will not take effect for 60 days, Theranos said, but it will stop patient testing out of that facility immediately. In the meantime, it will continue to offer services through its lab in Arizona, it said.

The Theranos story was a natural draw in a time of billion-dollar start-ups and reverence for technology entrepreneurs. Ms. Holmes began the company in 2003 after dropping out of Stanford University at the age of 19. Venture-capital investors saw a company with the potential to revolutionize laboratory testing with cheap and easy medical tests.

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By last year, the company had drawn an eminent board of directors and commanded a valuation of about $9 billion. Ms. Holmes, who controls the company, appeared on magazine covers and was widely considered a business leader to watch.

But The Wall Street Journal and other publications questioned in a number of articles how well the technology really worked. As the questions mounted, Theranos came under investigation by government officials and saw an alliance with Walgreens, the drugstore chain, fall apart. Forbes magazine last month estimated that Ms. Holmes's wealth had fallen from $4.5 billion to zero.

The sanctions disclosed on Thursday were leveled by the Centers for Medicare and Medicaid Services, an arm of the United States Department of Health and Human Services that regulates laboratory testing performed on humans.

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