Theranos CEO Elizabeth Holmes is banned from running medical labs

Blood-testing start-up Theranos Inc. has been dealt a major blow: Federal regulators banned founder and Chief Executive Elizabeth Holmes 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 Centers for Medicare & Medicaid Services. 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, Calif., laboratory and barring 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.

Holmes said in a statement that she’s disappointed by the decision, but that 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 start-up 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 and 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 that the sanctions from Medicare would 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 blood work.

It’s not the first time that an ambitious Silicon Valley start-up has run afoul of Washington regulators.

Google-backed DNA testing company 23andMe Inc. 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 such as Alzheimer’s and Parkinson’s.

23andMe’s offerings now 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.

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UPDATES:

11:22 a.m.: This article was updated throughout with additional details.

This article was originally published at 6:56 a.m.