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Innovative Blood Testing Company Theranos Under Criminal Investigation

ROBERT SIEGEL, HOST:

Theranos, the blood testing company that set out to revolutionize the industry, is now under criminal investigation. Federal prosecutors are looking into claims about its technology, mainly the claim that Theranos could run sophisticated blood tests at an affordable cost from a single finger prick. This is just the latest blow to a startup that was once considered a Silicon Valley darling, once valued at $9 billion.

Questions about Theranos arose last year, when a Wall Street Journal article raised concerns about its operation and that in turn prompted inquiries from federal regulators. John Carreyrou wrote that story for The Journal, and he joins us now to talk about the latest development. Welcome to the program.

JOHN CARREYROU: Thanks for having me.

SIEGEL: And bring us up to date, briefly, on the investigation.

CARREYROU: Right. So the investigation appears to have started in January. And there were informal inquiries made first by prosecutors from the Northern District of California out of San Francisco and assisted by the FBI and the U.S. Postal Inspector Service. And there's a separate probe also, it appears, by the Securities and Exchange Commission. Both of these investigations seem to be focused on whether Theranos and its founder, Elizabeth Holmes, basically lied to investors in order to get their investments and whether the company frankly exaggerated and misrepresented its blood testing technology.

SIEGEL: We should note that Theranos says that it is cooperating now with investigators. Your reporting last year put this story in the spotlight. What was it that you heard from your sources about how this company was actually doing blood tests as opposed to what they said they were doing?

CARREYROU: The company was saying that it could run the full range of laboratory tests from just a prick of blood from the finger. And in fact, former employees told me the vast majority of the more than 240 blood tests the company was offering consumers were actually being run on commercial analyzers that Theranos had purchased from the likes of Siemens and that only a small minority, 15 or fewer tests, were run on its proprietary devices, which were called Edison machines after the famous inventor. And they were also telling me that those Edison machines were not reliable and that they doubted their accuracy.

SIEGEL: I would've thought that blood testing would be a pretty highly regulated industry - is it? And how rare is this sort of investigation?

CARREYROU: That's a good point. Medicine in general tends to be highly regulated, and that's for a good reason. I think in this case, you had a clash between that highly regulated environment and the ethos of Silicon Valley, which is to say, you know, enough with regulation. It gets in the way of innovation. And then, you know, worry about regulation later.

SIEGEL: One thing I don't understand about this is that if Theranos was in fact doing lots and lots of blood tests with conventional tools rather than their proprietary device that was supposedly so great, wouldn't they have been spending more money doing it that way and not making any profit by simply outsourcing to typical laboratories?

CARREYROU: That's a good point, too. We actually availed ourselves of some records from a laboratory at the University of California, San Francisco from earlier this year and late last year showing that Theranos was actually outsourcing some of its tests to that laboratory and that in some cases, the laboratory was charging Theranos charging more than $300 for tests that Theranos was charging the consumer between $10 and $20 for.

SIEGEL: You can't make that up in volume, as they say. I mean, that's not a good business model.

CARREYROU: No, there's no way you can sustain profitability with the prices that Theranos is offering.

SIEGEL: John Carreyrou, thanks for talking with us.

CARREYROU: Thanks for having me.

SIEGEL: John Carreyrou is an investigative reporter for The Wall Street Journal. Transcript provided by NPR, Copyright NPR.

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