What is Theranos? And who is Elizabeth Holmes?
Before 2015, those who were familiar with Elizabeth Holmes, or her company Theranos, likely looked upon her with admiration. A Stanford University drop-out and the female CEO of an innovative Silicon Valley medical startup worth $9 billion USD, Elizabeth Holmes was seen as a visionary, able to revolutionize the future of medical testing. However, whistleblower accounts released to The Wall Street Journal in 2015 depicted Theranos as “struggling with its flagship testing device”, the Edison. The technology in question was combined into two parts. The first was a nanotainer device, which was used to collect blood through a finger prick, after which it would be tested by the Edison device. Soon after the initial whistleblower account, Theranos was investigated and the seams of the company began to slowly unravel. Within a year, Theranos’s product was exposed as fake; by 2018, the company had collapsed.
Investigators into the company had found that only a limited number of tests could provide accurate results. It was around these claims that the U.S. District Attorney’s office was able to build its case. The ongoing trial looks into Elizabeth Holmes and Ramesh Balwani, who have been charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud. The charges stem from allegations that the two engaged in a multi-million dollar scheme to defraud investors, as well as a separate scheme to defraud doctors and patients.
The Mechanisms Behind the Crime
In the wake of the case, one wonders how a company that had garnered so many investments and press throughout its lifespan was able to defraud investors on such a wide scale. Theranos was generating as many as 890,000 results a year: how were they able to test such a vast amount of patients and not get caught?
In the United States, any product that is considered a medical device is regulated by the U.S. Food and Drug Administration (FDA). The FDA decides how much regulation to offer devices depending on their risk adversity. Theranos operates under the Class I division, meaning there are very low FDA regulations on the product. Under typical regulations, a Class I division would be given to items such as toothbrushes whereas a Class III division to items such as implantable pacemakers. Products with higher risk have more regulations and requirements to meet before being allowed to become available to consumers. The nanocontainer would be classified as Class II, requiring it to have special labels, certain performance standards, and post-market surveillance; however, loose regulations allowed Theranos to maintain its Class I division standing.
In addition to manipulating its classification, Theranos operated under an FDA regulatory loophole. Since the tests performed fell under the category of Laboratory-Developed Tests (LDTs), they did not have to submit to pre-market reviews. As such, Theranos could offer tests to patients before having them evaluated by regulators, allowing the company to authorize the use and sale of tests that held little to no accuracy.
A Nation-wide Loophole
Theranos is not the only company profiting from this loophole. Pathway Genomics, Admera Health, and Strand Life Sciences are three diagnostic companies currently avoiding regulation. None of these companies have been required to publish data about their tests in peer-reviewed journals; they also have not been required to display the efficacy of their tests before they could begin marketing them to patients and physicians.
Greater than Theranos- and the three aforementioned companies- is the knowledge that any company who is able to develop and conduct a diagnostic test in their own lab can avoid submitting that test to the FDA before it is used on patients. In a world before Theranos, and the exploitation of this loophole, this regulation had utility. Research hospitals often modify commercial tests, so there was no need for heavy regulation. After Theranos, startups realized the potential benefits of this exploitation. If companies could conduct all tests in their own labs, they do not have to pass regulatory standards before product launch.
Ultimately, this problem is larger than Elizabeth Holmes, than Theranos, and than the three aforementioned companies. As companies became comfortable exploiting this loophole, the trust in LDTs to produce accurate results weaned. This lack of trust became a problem when in February of 2020, the FDA made a ‘turning point’ decision in regards to the COVID-19 pandemic. The commissioner at the time, Stephen Hahn, declared that any labs wanting to evaluate patient samples for the coronavirus with their own LDTs would require sign-off from the FDA. The choice was made to ensure that the tests deployed were accurate, as the FDA wanted to diminish the possibility of fraudulent results.
However, what eventually became clear was that the adverse impacts of this decision were infinite. In the first few months of the pandemic, the virus spread mostly undetected across the country. In the attempt of eradicating fraudulent tests, the U.S. had destroyed any fighting chance of eradicating the virus. Would the deregulation of at-home rapid LDTs have changed the outcome?
What next?
It becomes that U.S. Congress is faced with a difficult choice: to regulate, or not to regulate? Currently, there are two competing bills looking into the promotion of safety and access to laboratory testing. The first act, known as the VALID Act, would allow the FDA to increase the regulations around lab-developed tests. The VITAL Act is its opposer, and it aims to prevent the FDA from overseeing LDTs at all. However, the bills only offer only a temporary solution to the larger problem at hand: morality in medicine. In an ideal world, health companies would exist to ameliorate health not wealth. The Theranos case offers only a small glance into the exploitative nature of corporate companies under American capitalism. Congress can close as many regulatory loopholes as possible; the exploitation will just move elsewhere.
Edited by: Yu Xuan Zhao
Claudia Velimirovic is in her fourth and final year at McGill University pursuing a major in honours International Development and a minor in Social Entrepreneurship. This is her third year writing for Catalyst and she is particularly interested in politics, gender inequality, and women’s health.