Federal regulators dealt a major blow to troubled blood-testing startup Theranos, banning its founder and CEO from owning or running a medical laboratory for two years.
The sanctions, announced late Thursday by the company, follow months of investigation by government testing regulators at the CMS. Theranos, which was reportedly worth $9 billion two years ago, is the latest much-hyped Silicon Valley firm to stumble while trying to enter the healthcare field.
Medicare officials first proposed these sanctions in March, which include revoking the license of the company's Newark, California laboratory and barring CEO Elizabeth Holmes from owning or operating a similar facility for at least two years.
Government inspectors found a number of violations of federal testing standards at the company's site. The action followed stories by The Wall Street Journal in which former employees said the company's tests were unreliable.
In a statement, Holmes said she's disappointed by the decision, but the company accepts "full responsibility for the issues." The company said it will continue to offer services through a second lab in Scottsdale, Ariz.
The 32-year-old Holmes started Palo Alto-based Theranos in 2003, pitching the company's technology as a cheaper way to run dozens of blood tests. Holmes, once considered the nation's youngest female billionaire, said she was inspired to start the company in response to her fear of needles. Theranos raised millions in startup funding by promoting its tests as costing a "fraction" of what other labs charge.
But in April Theranos disclosed it was under investigation or inspection by multiple government regulators, including the Securities Exchange Commission and the U.S. Attorney's Office for the Northern District of California. And last month Walgreens, the nation's largest drugstore chain, severed ties with the company, closing all 40 of its Theranos Wellness Centers
Privately held Theranos said Thursday the sanctions from Medicare will not take affect for 60 days, but the company has suspended testing at its Newark lab. The government also revoked the company's ability to receive Medicare and Medicaid payments related to bloodwork.
It's not the first time an ambitious Silicon Valley startup has run afoul of Washington regulators.
Google-backed DNA testing company 23andMe was forced to stop selling its personalized health reports in 2013, after the Food and Drug Administration said the tests fall under federal testing laws. The company had promoted more than 250 test reports that purported to tell users if they were likely to develop diseases like Alzheimer's and Parkinson's.
Currently the company's offerings focus on genetic ancestry and a few dozen tests for clearly-defined inherited diseases, such as cystic fibrosis. The company's health risk reports and others related to drug reactions remain unavailable in the U.S.