ENFORCEMENT

Theranos Faces Potential Consumer Fraud Litigation

The Arizona Attorney General’s Office (AGO) recently issued a request for proposal signaling a new legal battle for Theranos: state consumer fraud lawsuits. The AGO indicated in its request that it was initiating a lawsuit against Theranos and its subsidiaries alleging violations of the Arizona Consumer Fraud Act for representations related to its blood testing equipment and its Wellness Centers.

This is the latest litigation threat to the company previously hyped for its technology that promised to disrupt the diagnostic blood testing industry. In 2015, the Wall Street Journal questioned its testing platform and its claims about the accuracy of its finger-stick based blood testing. In July 2016, the Center for Medicare and Medicaid Services imposed sanctions against Theranos and excluded its CEO, Elizabeth Holmes, from operating a blood testing lab for two years. Thereafter, in October, the company released a statement indicating that “[a]fter many months spent assessing our strengths and addressing our weaknesses, we have moved to structure our company around the model best aligned with our core values and mission.” The company shifted its focus to developing technology—namely the miniLab (a compact 2.5 cubic feet device containing a mini-robot processing single use cartridges. “Our ultimate goal is to commercialize miniaturized, automated laboratories capable of small-volume sample testing, with an emphasis on vulnerable patient populations, including oncology, pediatrics, and intensive care,” the company’s Oct. 5 statement explained.

The legal troubles continued beyond CMS’s regulatory enforcement actions, with civil lawsuits, including a class action fraud suit by investors and a breach of contract claim by Walgreens. (See “Walgreens Terminates Contract with Theranos,” LIR, July 7, 2016.) But the Arizona consumer fraud case is the first by a state government. And it could spawn more consumer fraud suits from other states, including California where Theranos is based. (For more on the Theranos saga, see “Theranos Shifts Focus from Labs to Technology,” DTET, Oct. 26, 2016.)

The company, however, continues to put on a brave face with releases in January noting that a reengineering of its operations and streamlining of staff with a “core team of 220 professionals” to pursue its business plan including commercialization of the miniLab. It explained this “restructuring follows a period of significant change at the company that has included the building out of its executive team with substantial additional regulatory, compliance and operational expertise.” On Jan. 17, 2017, the company also announced formation of an eight-member Technology Advisory Board that will “work alongside Theranos’ leadership and internal research and development teams in various areas, including advising the company on peer-reviewed publication submissions and on presentations at scientific meetings.”

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