This story has been updated to reflect comments from Theranos and Wallgreens Boots Alliance.
For startup darling Theranos, the hits keep coming.
In October, the Wall Street Journalpoked holes in the company’s startling success story by raising questions about the precision of its blood-testing system and whether the company was actually using its much-lauded products and technology, which promised to transform the medical diagnostics industry by running tests on just a few drops of blood at a low cost.
On Sunday, the Journal, citing anonymous sources, reported that health inspectors have discovered serious deficiencies at a Theranos laboratory in Newark, Calif. What those deficiencies are is not yet known, but they are said to be more serious than violations discovered at that same lab in December 2013, according to the Journal.
The Centers for Medicare and Medicaid Services discovered the latest problems during an inspection, the results of which are expected to be released to the public soon, the Journal says. The CMS is the chief federal regulator of clinical labs. If Theranos fails to address the deficiencies cited by CMS, the company—founded in 2003 by then-19-year-old Elizabeth Holmes and valued at $9 billion in 2014—could be suspended from the Medicare program.
Theranos spokeswoman Brooke Buchanan told Fortune that the company doesn’t have a copy of the “routine” CMS audit of its California lab and that it “continue[s] to build world-class systems and engage in partnerships with our regulators.”
The news of the laboratory deficiencies comes as Walgreens Boots Alliance (WBA), Theranos’ main retail partner, stalls plans to expand blood-drawing wellness centers that are Theranos’ primary point of contact with consumers. The drugstore chain currently operates such centers in Arizona and California and wanted to open more nationwide, but it’s waiting for Theranos to provide answers to questions raised about its technology. The Journal said that the CMS inspection results could prompt Walgreens to further reexamine its Theranos partnership.
Walgreens spokesman Jim Cohn told Fortune that it completed the rollout of Theranos Wellness Centers at 40 stores in the Phoenix market in September 2014 and that it’s “currently in discussions about the next phase” of its relationship with the company. “Plans to open more Theranos Wellness Centers are dependent upon both companies’ ability to reach a mutually beneficial arrangement,” he said.