Disruptive diagnostics firm Theranos gets boost from FDA by Roger Parloff @FortuneMagazine July 2, 2015, 12:25 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons In a strong endorsement of the integrity of its methods, the disruptive blood analytics firm Theranos received formal FDA clearance today of key elements of its platform—its hardware, software, and blood-drawing equipment—as well as of one of the specific tests it performs on that platform. As part of the approval, the U.S. Food and Drug Administration and the company are also making public for the first time details about precisely how the famously secretive business performs the particular test being approved—in this case, an assay to detect the sexually transmitted disease herpes simplex virus (HSV-1). “We don’t know of a higher bar for review of the performance of our system than the FDA,” Theranos founder and CEO Elizabeth Holmes says in an interview, hailing the agency’s action as a “milestone” for the company. The company’s press release is here. Though Theranos has been offering hundreds of low-priced, fingerstick diagnostic assays commercially since late 2013—it has performed millions of tests for tens of thousands of patients, according to the company—it has not been, and still isn’t, required to seek FDA approval because of the way its business model works, which differs from those of incumbent diagnostic labs, like Quest Diagnostics DGX and Laboratory Corporation of America LH . Yet because of this difference, Holmes and her company have been subject to criticism from competitors and some others in the medical community for offering medically vital procedures to the public that the critics claim have been insufficiently vetted. Last February, for instance, Stanford School of Medicine professor John Ioannidis accused the company in a Journal of the American Medical Association editorial of engaging in “stealth research,” because it treats its novel methods as trade secrets, and has declined, for the most part, to air them in peer-review journals. On the other hand, Holmes has voluntarily submitted voluminous data and validation studies to the FDA on more than 120 of her tests so far—without any legal obligation to do so—in an effort to persuade that body to grant formal clearance to her methods. She has done so, she says, because she regards the FDA’s imprimatur as the “gold standard” for safety and effectiveness. Some skeptics asserted that the FDA might never act on her submissions, since there seemed to be no established path for doing so, but today the agency proved them wrong. In addition, today’s agency action also seems to provide some vindication to Holmes on a second crucial point. The company’s signature claim has been that it is able to perform scores of diagnostic tests at the highest levels of accuracy by examining just a few drops of blood drawn via finger stick, rather than requiring the drawing of a vial of blood from a needles stuck in the crook of the arm (venipuncture). Detractors, including Quest officials, have publicly argued that tests based on blood squeezed from a finger stick contain interfering impurities that render results less reliable than those based on venipuncture. But in today’s announcement, the FDA endorsed Theranos studies involving 818 subjects which, among other things, appear to cut against the skeptics. At least in the context of the HSV-1 test, these studies concluded that Theranos’s finger-stick tests on either whole blood or plasma were at least as accurate as the conventional FDA-approved reference test performed on blood serum or plasma drawn by venipuncture. A Quest spokesperson said that officials were reading the FDA materials and could not immediately comment. In an interview, Holmes says that, because the FDA has today approved the basics of her system in the context of HSV-1 test, she is hopeful that clearances of her other tests will now be occurring at a faster pace. An inventor and chemical engineering student, Holmes dropped out of Stanford to found Theranos in 2004, when she was 19. A seminal patent she applied for in 2003 eventually matured into three granted patents, and today she is listed as an inventor on 26 issued U.S. patents held by Theranos. The company broadest goal, Holmes has said, is to advance the cause of preventive medicine by allowing patients to learn of disease before their symptoms become manifest. To achieve this objective she has tried to make blood tests more pleasant (hence, the fingerstick); far cheaper (she has committed to never charging more than half the Medicare reimbursement price); more transparent (she posts her prices online); and more convenient (her vision is eventually to place Theranos service centers in a significant percentage of Walgreens’ 8200 stores nationwide). Right now Theranos tests are available in 42 Walgreens in Arizona and one in Palo Alto. But her business model radically differs from that of traditional labs. Most labs perform most of their tests on third-party equipment, built by the likes of Siemens SIE , Olympus TYO , or Beckman Coulter, a unit of Danaher DHR . Those manufacturers, before they can sell their machines to the labs, must win FDA clearance for both the machines and the tests to be run on them. Theranos, by contrast, performs most of its tests on its own proprietary analyzers that it builds itself at its plant in Newark, Calif. Since it doesn’t sell these devices to anyone, neither the machines nor the tests run on them require FDA approval. Instead, Theranos’s diagnostic procedures are considered lab-developed tests (LDTs), which are lawful so long as they are performed, as they have been, in labs certified under a different regulatory structure, overseen by the Centers for Medicare and Medicaid Service. While the regulatory structure governing labs calls for periodic proficiency testing and oversight of standard operating procedures, technician credentials, and the like, it does not involve a searching inquiry into the safety and efficacy of specific test regimens, which FDA approval requires. (Theranos’s competitors also run many LDTs, which have never been FDA-approved, and the vast majority of these have never been made the subject of peer-reviewed articles. These competitors argue, however, that the most innovative LDTs have been subjected to peer-review, and that Theranos’s ought to fall into that category. I describe the regulatory landscape more fully in this June 2014 cover story about Holmes and Theranos.) The details of precisely how Theranos performs its herpes simplex virus test—listing all the chemical reagents involved and how they are used—are now explained in a 20-page summary endorsed by the FDA today and in related documents that Holmes says she’ll be posting on Theranos’s web site. The inner workings of the company’s analyzers, however—and how they perform this and other tests in a fully automated fashion—remains a closely held trade secret, at least as of this writing. Ioannides, the doctor who criticized “stealth research” in JAMA, said this in an email: “Obtaining FDA clearance for all its tests is a most welcome move of Theranos, I congratulate them for this and I hope that it will encourage also other companies to routinely assess their tests using similar FDA standards. … However, I still believe that this should be coupled with full publication of the data, methods and results in the peer-reviewed scientific literature.” Dr. R. Bruce Williams, the chair of the College of American Pathologists’ Council on Scientific Affairs, emailed the following statement: CAP “cannot comment on Theranos’ technology as we have not seen it. Any laboratory using any FDA-approved test must validate it in their own environment. However, the ability to draw less blood and spend less resources to obtain an accurate laboratory result is a positive diagnostic achievement. As the FDA found, there should be no difference between finger stick and venipuncture for HSV-1.” This post will be updated.