A second FDA approval frees Theranos to do a blood test outside lab by Roger Parloff @FortuneMagazine July 16, 2015, 7:03 AM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons In its second FDA approval this month, the Palo Alto-based diagnostic company Theranos won a right yesterday evening that no one knew it was seeking: It is now authorized to process a complex, authoritative blood test outside of a lab, signaling a sea-change that could greatly diversify the company’s business model. “This is a milestone in bringing our technology and services not only to our Wellness Centers, but also to physician offices and hospitals,” Theranos founder and CEO Elizabeth Holmes says in an email. “Now the lab can come to people at the time it matters, rather than the other way around.” The clearance is technically known as a CLIA waiver, the term used when the U.S. Food and Drug Administration gives permission to run a device outside a laboratory—labs being regulated under rules set up by the Clinical Laboratory Improvement Amendments of 1988, or CLIA. (The company’s press release is here.) Yesterday’s FDA action involves a test that detects the presence of the sexually transmitted disease known as herpes simplex virus (HSV-1), which is a procedure that has never before been the subject of a CLIA waiver, according to Theranos. Though yesterday’s waiver extends only to that one particular test, the company has said that it is pursuing FDA clearances on more than 120 other diagnostic exams it performs using very similar hardware and software, so it appears that the company is seeking wide-ranging capacity to eventually run all these tests outside the centralized lab context. Historically, the FDA granted waivers of this kind only to fairly simple, single-function, “point-of-care” devices—like glucose meters—or to preliminary screening procedures, like pregnancy test strips, whose results must later be confirmed by more authoritative tests performed in a regulated lab by credentialed technicians under the supervision of a pathologist. Theranos’s tests, which are currently done in regulated labs, are authoritative themselves, like those performed by incumbent rivals Quest Diagnostics DGX and Laboratory Corporation of America LH , which must also be performed in labs. But with technical advances, the FDA is gradually permitting more complex diagnostic procedures to be performed outside the lab. Yesterday’s approval means that Theranos has succeeded in so automating the process of running the herpes simplex virus assay as to render it virtually foolproof in the FDA’s eyes, even when run by minimally trained workers. (As described below, Theranos granted Fortune unprecedented access to two of its analyzers earlier this month to show how simple they are to operate.) “This is certainly a positive step for making what previously was considered complex lab testing—such as a definitive virus assay—broadly available outside of the classic, central lab setting,” says Eric Topol, director of the Scripps Translational Science Institute and the author of The Patient Will See You Now. “We’re seeing the first stage of the creative destruction of lab medicine, and how this important part of healthcare is getting democratized.” Theranos was founded by Holmes in 2003, when she was 19. Her goal, she has said, is to facilitate the early detection and prevention of disease by making “actionable information accessible to everyone at the time it matters most.” (It was announced this month that Holmes will be joining the Harvard Medical School Board of Fellows.) Theranos’s tests have two signature features. First, they generally cost less than those of competitors. (The company has committed not to charge more than half the Medicare reimbursement rate.) Second, for most of the hundreds of tests it performs, the company uses just a few drops of blood drawn from a pricked finger, rather than taking, as competitors do, a vial or two of blood using a needle in the arm, known as venipuncture. (Theranos does use venipuncture for tests it has not yet adapted for use with its platform, in order to provide patients with one-stop shopping, it says.) Last Thursday, the FDA gave formal clearance to the same Theranos herpes simplex test involved in yesterday’s waiver, finding that it was at least as accurate as the yardstick, FDA-approved lab test. It credited Theranos research showing no difference in result whether blood was taken by the company’s finger-stick method or by traditional venipuncture. At the same time, it effectively cleared the proprietary hardware, software, and blood-drawing equipment Theranos uses to perform the herpes test. (As discussed in this article last week about that clearance, Theranos does not need FDA approval to perform its tests in the context of a regulated lab—subject to proficiency testing and other safeguards—but has sought it voluntarily. The company began seeking these FDA clearances in September 2013, around the time it first began offering tests commercially to the public.) With respect to yesterday’s waiver announcement, it is easy to see the potential advantages that such point-of-care approvals could eventually bring to the company and patients. At the moment, for instance, Theranos draws blood at “wellness centers” it has established at 42 Walgreens in Arizona, a Walgreens in Palo Alto, and at a Capital Blue store in Harrisburg, Pennsylvania. (The company’s entry into central Pennsylvania, in partnership with Capital BlueCross, was just announced last week.) The samples must then be couriered to one of the company’s two centralized labs in Newark, Calif. or Scottsdale, Ariz., adding costs and slowing turnaround times for results. With more waivers of the sort the company won yesterday, however, the company may eventually be able to place its analyzers—capable of performing tests for infectious diseases, say—directly in physicians offices and hospitals, for instance, or in field hospitals near epidemics, or in airports where passengers returning from hot zones could be screened rather than quarantined. (As I describe below, Theranos is now seeking FDA emergency use authorization for a patent-pending DNA-based test for Ebola virus based on blood drawn from a finger stick.) Longer term, such waivers might even grease the company’s plans to expand nationwide. To expand while still using centralized labs, as it is doing today, the company either has to win time-consuming regulatory approvals for additional centralized labs to service each new location, or incur significant logistical costs to transport blood to its existing labs. Quest and LabCorp, for instance, command fleets of planes and trucks to ferry samples to giant hub labs. In contrast, if the company could eventually place its analyzers right on premises at its patient centers, for instance, turnaround times and expansion costs could be slashed. To show me its analyzers’ simplicity, earlier this month Theranos sent two of them to the New York office of its law firm, Boies Schiller & Flexner, where it set up a make-shift field lab in a small conference room. There I was tested for potassium as well as for the lethal Ebola Zaire virus, using blood drawn by finger stick. The analyzer testing my potassium ran what’s known as a general chemistry test, while the one checking for Ebola used a DNA-based exam for which Theranos is now seeking FDA emergency use authorization (a form of limited approval granted to fight specified epidemics). Though the company has never formally announced its work on the Ebola test, a member of its board of directors, former U.S. Secretary of State George Shultz, let the cat out of the bag last March. For Ebola—where infected blood is a key source of contagion—finger-stick tests are considered less prone to deadly accidents than venipuncture-based tests, with their long needles. DNA tests are also more authoritative than paper test strips, known as lateral-flow tests. (On the other hand, some argue that lateral-flow technologies, like the 15-minute Corgenix assay approved by the FDA in February, are more practical for field use, because of their portability and lack of need for electricity. Sunnyvale, Calif.’s Cepheid won FDA emergency use authorization last March for a DNA-based, venipuncture Ebola test, which, in the U.S., must be used in a lab.) Each matte black, metal Theranos analyzer was a little less than 1 foot high, 1.5 feet wide, and 2 feet deep, with an approximately 8″ x 5″ touch pad control panel angled into the top front face. (They were slightly smaller than the devices I saw a year ago, while writing a cover story about Holmes and Theranos that came out in June 2014.) Theranos does not permit the analyzers, whose inner workings are trade secrets, to be photographed for publication. For the demonstration, a Theranos staffer first drew blood from my finger using the company’s standard technique. He wrapped my finger with a patent-pending warming pouch, pricked it with a small-gauge lancet (like the kind used with glucose meters), and then pressed a proprietary, plastic capillary device against the wound, wicking the blood into a built-in “nanotainer,” which is a tiny vial the size of a small electric fuse. (This time the company used double-barrel nanotainers, which gather extra blood drops for potential backup testing, and consist of two of the tiny cylinders joined at a seam.) The nanotainer then detaches cleanly from the capillary device, which is disposed of as biohazard waste. For each test, the employee inserted a nanotainer containing my blood into a plastic cartridge, roughly the size of a watch case. The nanotainer clicks into place only if the orientation is right. The staffer then touched a circle on the control pad, and a small bay opened on the front of the analyzer. He fed in the cartridge, as you would with an old VCR. And that, basically, was that. The rest is fully automated, reducing the opportunities for human error, the company maintains—and evidently the FDA agrees. For the Ebola test, Holmes explains in an interview, the analyzer uses a proprietary nucleic acid-replication and detection process. The objective is to detect Ebola as close to the actual time of infection as clinically possible, she says. When the testing is completed, the analyzer automatically wires the results by either wi-fi, ethernet, cell- or satellite-phone to Theranos’s databases. The company says the potassium test ordinarily takes 20 minutes, while the Ebola test test takes “more than an hour.” (I did not wait to verify how long they took.) I received my results later that evening, as a password-protected email attachment, about five hours after my blood was drawn. (I was negative for Ebola.) Corrections: In an earlier version of this article I mischaracterized Theranos’s potassium tests as immunoassays, when they are general chemistry tests, and mistakenly said that Cepheid’s Ebola test, cleared by the FDA for emergency use, was a finger-stick test, when it uses venipuncture. I regret the errors.