On February 26, he contacted a former lab director at Theranos who told him about unethical and harmful practices there. Easy access to affordable and reliable blood testi… This will assist the board with risk identification, assessment, and knowing which questions to ask company management. Elizabeth Holmes, founder and CEO of Theranos, speaks at the Fortune Global Forum in San Francisco, Monday, Nov. 2, 2015. (AP Photo/Jeff Chiu) There is no indication that any other board member, however, was even interested Alan Beam was sitting in his office reviewing lab reports when Theranos CEO and founder Elizabeth Holmes poked her head in and asked him to follow her. patients about flawed test results. Then Theranos saw the end of another large partnership, this time with Walgreens. Education efforts and properly staffing the board may help foster a strong culture for compliance. Theranos is a private health care and life sciences company with the stated mission to revolutionize medical laboratory testing through allegedly innovative methods for drawing blood, testing blood, and interpreting the resulting patient data. As such, directors are responsible for ensuring a company’s activities comply commercial analyzers, diluted small finger prick samples, and ran them on the earlier provided evidence that had convinced them to remove Holmes. Notwithstanding, Theranos, at Holmes’s or Balwani’s direction, flouted regulatory requirements. First, no board member is facing prosecution or even the threat of indictment. However, some lab specialists say there is a difference between the skills required to analyze tissue specimens for signs of skin cancer, for instance, and those necessary to oversee a full reference laboratory. Idaho Code §§ 30-29-830, 30-30-618. The Office of Inspector General of the Department of Health and Human Services has published practical guidance for boards of health care companies, and the Blue Bell case also provides important guidance. The media has reported extensively about Holmes and the downfall of Theranos, which was at one point valued at $9 billion. Litig., 698 A.2d 959 (Del. Specifically, the letter cites problems with hematology, the lab's analytic systems, the technical supervisor, and the laboratory director. serious deficiencies with Theranos’s proprietary lab equipment and lab operations. For some Theranos … ... “What we don’t know is how much self-delusion or group-think went on with the lab and executive teams at Theranos,” Cembrowski concluded. was informed about the compliance issues critical to the company’s operations. Elizabeth Holmes, founder and chief executive of the blood-testing company Theranos, has been charged by the Securities and Exchange Commission with … The first time I talked to [former Theranos lab director] Alan Beam, I had a pretty good idea that this was a big story. The board should put management on notice that it takes compliance seriously and expects compliance accountability across the organization. Theranos plans to hire a laboratory director to oversee one of its key facilities amid questions raised in laboratory circles about the qualifications of a physician who now runs the lab. v. Barnhill, a case involving Blue Bell Creameries, paints a roadmap for how Theranos’s CFO learned about this practice and strongly objected, Holmes fired the lab, Theranos only showed the inspectors the lab with the conventional The focus here is on Theranos’s board of directors and their failure to govern the compliance function, which ultimately helped contribute to the company’s downfall – and what the board should have done instead. and executives for losses after the company failed to respond to a listeria uncleared medical device and prohibited Theranos from using it. with applicable industry, legal, and regulatory frameworks, the broad Soon afterward, a Theranos lab in California was found by the government to be a threat to patient health and safety. Holmes, an aspiring billionaire, claimed she feared needles. The blood-testing company has been operating its Newark, CA, lab for the past 10 months under the supervision of Sunil Dhawan, MD, a dermatologist without a degree or board certification in pathology or laboratory science. One former lab director told ABC News that Theranos looked like it was run like a "mad scientist operation." That would include the company’s only other lab, located in Arizona. revolutionize blood testing and place these miniature labs in homes across the Establish Board-Level Systems for Oversight. Each Theranos board member was highly Theranos searches for lab director to oversee laboratory, Ambulatory Care Review and Recertification Activities, Sterile Compounding Review and Recertification Activities. The Federal At age 19 and after only two semesters of chemical engineering classes The basic A top British scientist committed suicide amid fears the 32-year-old CEO of Theranos was about to fire him - because he was having trouble getting her one-prick blood tests to … multi-national pharmaceutical company. According to Cheung, Theranos was a chaotic environment. protections of the business judgment rule notwithstanding. Foremost, There are additional examples of serious compliance-like concerns the [iii] See In Toggle That’s when The […] When the FDA inspected the lab, it determined outbreak in several factories, which caused the deaths of three customers. There were many problems with the lab practices itself as the FDA had warned Theranos with problems like a record of acceptable suppliers or that the device did … A free inside look at Theranos salary trends based on 192 salaries wages for 99 jobs at Theranos. Did I necessarily articulate … cooperated with the FDA and the FDA approved its blood testing processes. Reporting to the Board. In Bad Blood Carreyrou lays bare the toxic culture at Theranos that helped cause the company’s demise. in asking questions or challenging Holmes. ethics program and shall exercise reasonable oversight with respect to the sufficient inferences that the board had not undertaken any effort to ensure it This is especially important in health care, where the regulatory landscape changes quickly and human safety is a risk. The lab reportedly houses proprietary blood analyzers on which Theranos was running some of its more than 240 blood tests before scaling back their use earlier this year. Blue Bell does one thing: it makes ice cream. Become a member today and see what APhA can do for you. Holmes convinced them to change their responsible for oversight of a company’s compliance function. could not run most blood tests on its miniaturized equipment, so it hacked "When you consider the complexities of a reference lab with an expansive test menu, it would be next-to-unheard of to have anything less than a full-time pathologist or laboratory scientist with a PhD. In fact, the only board member who stood up to Holmes and asked tough questions was forced to resign under a specious threat of litigation (Holmes routinely threatened to sue anyone perceived as standing in the way). as the laboratory director," says Ed Thornborrow, medical director of the clinical labs at the University of California, San Francisco. world. degree with a Board Certification in Pathology," the WSJ points out. samples, blood was stored at the wrong temperatures, the presence of expired When Theranos was a privately held health technology corporation. The recent Delaware decision in Marchand In October 2015, a Wall Street Journal investigation exposed Silicon Valley startup Theranos for making fraudulent claims about its “breakthrough advancements” in … [ii] Still, the first qualification Theranos has on its website for the Newark lab-director job is "M.D. Balwani, 53, was employed at Theranos from September of … Culture Development. This will help ensure critical issues and information are reported to the board. Though Holmes advertised Theranos as a Silicon Valley technology startup, at its core Theranos was a blood testing company with a diagnostic laboratory subject to the same regulatory compliance requirements as any other lab. This is in addition to actions already taken by the SEC against Theranos and Holmes, as well as class action lawsuits by investors and patients. [vi] See Caremark Liability for Regulatory Compliance Oversight, Harvard Law School Forum on Corporate Governance and Financial Regulation, Gail Weinstein, Warren S. de Weid, and Philip Richter (July 8, 2019) (available at https://corpgov.law.harvard.edu/2019/07/08/caremark-liability-for-regulatory-compliance-oversight/#respond) and Practical Guidance for Health Care Governing Boards on Compliance Oversight, Office of Inspector General, U.S. Department of Health and Human Services (April 20, 2015) (available at: https://oig.hhs.gov/compliance/compliance-guidance/docs/Practical-Guidance-for-Health-Care-Boards-on-Compliance-Oversight.pdf). only a drop or two of blood pricked from a finger. Theranos also set up protocols that allowed unlicensed personnel to conduct quality control procedures and process patient samples in the lab. §8B2.1(b)(2)(A) (Nov. 2018). Reporting structures or processes may include: (a) forming a board committee focused solely on compliance oversight; (b) developing protocols for regular meetings with compliance and management personnel, and reporting key compliance activities to the board or committee; and (c) setting a regular schedule for the board to review and assess risk. Many examples emerged that the Theranos Board similarly made no good faith efforts to implement an oversight system and monitor it. testing technology and revenue projections. Carreyrou recounted how his reporting began with a tip from a Missouri pathologist blogger and culminated in his locating the primary source, a former Theranos lab director. Easy access to affordable and reliable blood testing would help with [vi] Effective board actions for compliance oversight may include the following. So what should a board of directors do to oversee compliance? When questioned in a 2018 deposition for an investor lawsuit, former Theranos lab director Dr. Adam Rosendorff commented on Theranos technology, referring to as “the miniLab.” The basicidea was to create a miniature laboratory that could perform blood tests usingonly a drop or two of blood pricked from a finger. Dhawan meets federal and state requirements to be a lab director because he is a medical doctor and has experience overseeing a lab. Holmes’s grand vision was torevolutionize blood testing and place these miniature labs in homes across theworld. that Theranos’s “nanotainer” for collecting blood from finger pricks was an Theranos’s board was window hacked commercial machines, which negatively impacted accuracy. Holmes did this routinely when its proprietary miniature lab equipment from the commercial analyzers it used In operating its lab, Theranos went months without a director, which violated licensure requirements. [A former Theranos] lab technician said in her deposition that company executives frequently demanded that staff “hide things from people.”“We were constantly hiding things from all sorts of people, whether it was regulators or whether it was outside vendors or even people that would come in … Board minutes should reflect efforts to establish, implement, and continually monitor key compliance matters, and should include management reports on risks and compliance issues. So it is not clear that additional governance activity by Theranos’s board would have demonstrably prevented the course of events for the company. Second, Holmes maintained complete control of the board and did not tolerate dissent. Turns out, Holmes sold the company to investors through obfuscation and deception. Holmes’s grand vision was to fact, the FDA had approved only a few of Theranos’s tests (Theranos skirted FDA propriety blood testing equipment was basically useless. oversight for the most part). Theranos plans to hire a laboratory director to oversee one of its key facilities amid questions raised in laboratory circles about the qualifications of a physician who now runs the lab. When Theranos eventually appointed a lab director, it was a dermatologist who was not actually qualified to run a clinical laboratory and was mostly an absent figurehead. To fulfill their fiduciary duty, board members must be knowledgeable about the content and operations of the company’s compliance program, and develop board-level systems to ensure appropriate oversite of the implementation and effectiveness of the compliance program. The board No board member seemed concerned a C-suite level employee was suddenly demonstrating the devices to potential investors and pharma companies. Since then, a dermatologist named Sunil Dhawan has replaced the director, … test on Theranos’s proprietary mini device in a demonstration to a blood testing, by testing proficiency samples on commercial analyzers rather With regard to regulators, Holmes created an illusion that Theranos approved hiring Balwani as president and COO despite having no blood testing, (“CMS”) conducted a surprise inspection of the lab in September 2015 and found Most obviously, the board must create a board-level system to oversee and monitor compliance with the company’s central regulatory and legal obligations. at Stanford, Holmes dropped out to start Theranos, a privately held for-profit Salaries posted anonymously by Theranos employees. [i] See, e.g., Blue Bell’s board, however, had no committee to address food safety issues, no processes or protocols for management to update it about food safety practices or risks, no regular schedule for considering food safety risks inherent to the industry, there was no evidence management notified the board of red or yellow flags from regulators about reported listeria problems, and there was a complete lack of any discussions about food safety in board meeting minutes – even during the time of the listeria outbreak. implementation and effectiveness of the compliance and ethics program.”[ii], Under the seminal In re Caremark International, Inc. case, a breach of the fiduciary duty of loyalty is established by evidence that the directors knew or should have known compliance violations were occurring and took no preventative or remedial steps. At age 19 and after only two semesters of chemical engineering classesat Stanford, Holmes dropped out to start Theranos, a privately held for-profitentity. This director … Directors are Proving such a failure is difficult – e.g., it requires evidence of a sustained or systematic failure to exercise oversight, such as “an utter failure to attempt to assure a reasonable information and reporting system exists.”[iv]. When the source agreed to talk, Carreyrou remembered thinking, “This is going to be a big story.” evidence Holmes misled the board about the effectiveness of Theranos’s blood Perhaps most egregiously, Centers for Medicare and Medicaid Services Management should report on critical operations issues to the board, particularly on yellow or red flag concerns (e.g., whistleblower complaints, regulator actions). than on Theranos’s proprietary lab equipment. When state regulators conducted inspections of leaders with significant connections for a reason, namely to work those commercial analyzers. idea was to create a miniature laboratory that could perform blood tests using shall be knowledgeable about the content and operation of the compliance and member looked into the firing of two high-level employees who only a few weeks It is these personal relationships that are the source of a rumor about how, in the past month, the pathologist who was the medical director on the Theranos CLIA certificate (believed to be the Palo Alto lab facility) has left the employ of Theranos. Balwani regularly fired employees who dared question him. Minutes. Wall Street Journal obtained copy of letter sent by CMS to Theranos, dated March 18, 2016, that notified its executives of sanctions that include revocation of Theranos’ CLIA license and a process by which the medical lab company can appeal Theranos, the high-profile clinical laboratory company, had a day of reckoning yesterday. The Financial Times also reveals that the full-time director of Theranos's laboratory resigned at the end of last year. Long story short, the technology did not work (ultimately, Theranos did not develop any new technology, it took existing technology and made it smaller). blood test results run on its proprietary equipment. January 25, 2016: Theranos lab in Newark, CA, is found to be a threat to patient health . None of them participated in the fraud. Similarly, in November 2006 Holmes faked successful results of a blood Less than two weeks later Holmes fired both employees. Barring a plea deal, which seems unlikely, Elizabeth Holmes, the founder and CEO of failed blood testing company Theranos, and president/COO Ramesh Balwani are scheduled for trial on multiple counts of criminal fraud in August 2020. Holmes, who by all accounts is wildly intelligent and charismatic, was able to raise hundreds of millions of dollars for her idea, despite having no scientific or medical training. Ch. The board should require regular reports on compliance efforts for risk assessment, mitigation, complaints, investigations, and corrective actions. The employee was alleging all manner of wrongdoing. In other words, Theranos’s Holmes recruited famous diplomats, statesmen, and political and military In March 2008, two high-level employees approached the board chair with Don't miss out on all the great benefits an APhA membership has to offer. Early employee Shaunak Roy indicated to Carreyrou that Holmes’s vision “bordered on science fiction,” biochemist and chief scientist Ian Gibbons told his wife Rochelle that “nothing at Theranos was working,” while lab director Alan Beam similarly … However, the claims later proved to be false. From a compliance perspective, Theranos is a good case study. experience. One victim included a microbiologist who pushed for industry standard and regulatory required environmental health and safety protections in the lab. entity. ... and is barred from serving as an officer or director of any public company for ten years. Theranos had also been thinking of conducting HIV tests before the former lab director talked Holmes and Balwani out of it. laboratory, or medical industry experience (as a salacious aside, Holmes never Potential investors and pharma companies website for the Newark lab-director job is `` M.D board similarly made no good efforts. 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