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Blood-Test Company Theranos Faces Lawsuit for Consumer Fraud

Class-action complaint alleges misrepresentation, false advertising

Embattled blood-test company Theranos Inc. is under investigation by the U.S. Securities and Exchange Commission, federal prosecutors in San Francisco, and federal and state health regulators. Now, adding to its woes, the company has been accused in a lawsuit of misleading consumers about the accuracy of its test results and the reliability of its technology.

The lawsuit, filed in federal court in San Francisco, seeks class-action status on behalf of consumers whose blood was tested through the Palo Alto, California-based company. The suit alleges misrepresentation, false advertising, and unfair business practices.

At issue are the company’s so-called Edison machines, proprietary devices that Theranos claimed could generate lab tests using only a few drops of blood. Last week, the company voided two years of Edison data as well as tests run on other machines.

The complaint was filed by an Arizona resident, identified only as “M.P.B.”

“Theranos assured its customers that these tests were highly accurate, industry leading in quality, and developed and validated under, and compliant with, federal guidelines,” the complaint says. “Thousands of people, including Plaintiff M.P.B., believed the Company’s representations and paid for Theranos’ tests.”

The suit adds: “Tens of thousands of patients may have been given incorrect blood-test results, been subject to unnecessary or potentially harmful treatments, and/or been denied the opportunity to seek treatment for a treatable condition.”

Theranos spokeswoman Brooke Buchanan called the lawsuit “without merit” and said the company plans to “vigorously defend itself against these claims.”

Theranos has blood-collection locations in dozens of Walgreen pharmacies. That deal helped Theranos earn a $9 billion valuation, more than any other venture-backed company in health care. Walgreens went ahead with the partnership despite never fully vetting Theranos’ technology, according to reports.

Theranos’ troubles began in October 2015 when the Wall Street Journal published an article claiming that the company wasn’t using its vaunted Edison technology to perform most of its tests. This news was followed in March 2016 by a report from the Centers for Medicare and Medicaid Services (CMS) that a Theranos laboratory in California employed underqualified personnel and was failing to implement quality safeguards for a number of tests. The CMS threatened to revoke the company’s federal license for its California lab and to ban CEO Elizabeth Holmes and President Ramesh “Sunny” Balwani from the blood-testing industry for at least two years. Balwani resigned from the company earlier this month.

Sources: Bloomberg; May 25, 2016; STAT; May 25, 2016; and Fortune; May 26, 2016.

 

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