Theranos will stop operating labs and fire 40% of its workers, plans to sell devices instead

Embattled medical testing firm Theranos has made the decision to get out of the laboratory testing industry. This is a major reversal for the company, following government scrutiny that resulted in a 2-year ban on CEO Elizabeth Holmes running a laboratory. Instead of running labs, Theranos will try selling its testing equipment to companies that run labs. But this change comes with significant layoffs: Theranos will be cutting 340 jobs, or about 40% of its workforce.

It was almost a year ago that the Theranos house of cards started to collapse. The company was valued at $ 8 billion, and Holmes herself was believed to be worth $ 4 billion thanks to her 50% ownership of the firm. The pitch that got Theranos to such a lofty position was that the medical testing industry was too slow and mature to truly innovate. Theranos said its Edison testing equipment could use microfluidic technology to test for multiple diseases and health values using just a few drops of blood. That’s obviously more appealing than having multiple vials of blood drawn.

Holmes left college a decade ago to build Theranos, and attracted significant investment from Silicon Valley insiders. It opened several of its own blood testing storefronts, where tests were marketed directly to consumers, and even scored a deal to offer tests in some Walgreens stores. Then, The Wall Street Journal published its bombshell piece on Theranos last October. In it, reporter John Carreyrou revealed Theranos’ Edison testing was inaccurate, and the company wasn’t even using it for some of the tests it offered. Following that report, the government’s Centers for Medicare and Medicaid Services (CMS) identified multiple manufacturing and testing errors at Theranos’ California lab. The result was a ban for Theranos from billing Medicare or Medicaid dollars, as well as the band for Holmes. Walgreens backed out, of course, and now Theranos is closing its own testing labs.

Theranos has been running on investor funds this whole time as it developed its testing and lab protocols, so shedding 40% of its workforce will certainly help it bring costs down. The company has labs in California and Arizona, as well as five blood collection storefronts that send samples to those labs. All these locations will be closed, although the California lab has been closed since July when the government revoked its license.

minilab

As the full scope of its problems unfolded several months ago, Theranos CEO Holmes attended a conference where it was assumed she would address the issues with the firm’s Edison testing. Instead, she announced a new piece of testing hardware called miniLab. Holmes failed to offer much data on the efficacy of miniLab — we don’t even know if it’s just Edison by a different name. It is this device that the new Theranos will try and sell to third-parties. We do know it uses a similar small-volume testing method, but it has yet to be cleared by the FDA.

Whatever the company’s plans, it’s running out of time to start making money. Its backers can’t possibly let this go on much longer. Even if its equipment is worthless, the patents must be worth something. Selling off the company would at least return some value to investors, and that may be the way things are headed.

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