The Theranos saga: a wake-up call for the LDT market

The Theranos case has highlighted an important loophole in FDA regulation. Kezia Parkins hears from the director of the Pew Charitable Trusts' healthcare products project, Liz Richardson about how Theranos’ tests slipped through the net and why regulation of lab-developed tests (LDTs) needs to be updated to protect patients.


tanford School of Engineering dropout Elizabeth Holmes fooled the world with her seemingly revolutionary blood test that she developed at the tender age of 19 in 2003. Holmes, now a convicted felon, claimed that her invention could perform an outrageous amount of tests with blood from a single prick that could detect anything from opioids and marijuana to a wide range of sexually transmitted diseases and cancers.

Charismatically presenting the company and the tests’ capabilities in high-profile interviews and TED Talks, Holmes secured millions in investments, including large sums from the likes of media mogul Rupert Murdoch and former US Secretary of State Henry Kissinger.

But Holmes’ sincere and heartfelt messaging on how the tests could revolutionise diagnostics and help the millions of people with a phobia of needles seemed too good to be true. It turned out that this was in fact the case when everything started to crumble.

In 2014, after Theranos went public and signed a deal with Walgreens to commercialise the tests, Fortune magazine announced that the company had raised $400m in equity sales and was valued at over $9bn. With a 50% stake in the company, Holmes was now a multi-billionaire. But 2014 also brought the initial doubts on the company’s claims, with a New Yorker profile on Holmes describing her explanations of Theranos’ technology as “comically vague”.

In 2015, Holmes famously declared: “This is what happens when you work to change things, first they think you're crazy, then they fight you, and then all of a sudden you change the world”.

In January, Holmes was found guilty on four charges of defrauding investors and could now face up to 20 years in jail. She has been accused of advertising an unapproved medical test that didn’t work, allowing it to get into the hands of consumers with some damaging consequences - one man was told he was HIV positive when he wasn’t and a woman was informed she was miscarrying whilst actually having a healthy pregnancy. But how did she get so far?

The Theranos debacle has shone a spotlight on a loophole within the FDA’s labyrinthine rules and regulations and its methods for categorising tests that remain to date. Now, thought leaders, regulators and non-profits like The Pew Charitable Trusts are calling for US Congress and the FDA to close this loophole.

A 40-year-old legal loophole

Theranos’ technology comprised of two medical devices - the first was a tiny ‘nanotainer’ used to collect blood from a finger-prick and the second was ‘the Edison’, a home-printer sized device used to run the tests.

Theranos’ offerings fell in the lab-developed tests (LDT) category that the FDA has little control over. This means that if a test is designed and used in a single lab, that lab can market the tests without the US authority’s approval.

This ‘enforcement discretion’ was set in 1976 when US Congress gave the FDA the nod to regulate medical devices including in vitro diagnostic tests. Then, LDTs were far simpler and meant for small patient populations such as in the case of rare diseases where other diagnostics may not be available.

There’s been an explosion of what we can measure, and the technology has gotten a lot cheaper, so you could find it everywhere.

“What's happened since 1976 is two things,” explains Liz Richardson, who directs the healthcare products project at The PEW Charitable Trusts. “One, there's been huge advances in diagnostic technology, particularly with genetic tests.

“There’s been an explosion of what we can measure, and the technology has gotten a lot cheaper, so you could find it everywhere. The other is the industrialisation of the laboratory industry in the United States”.

Richardson says that 40 years ago, blood samples were likely to only go as far as the local hospital or lab. But now, you can have your blood drawn and flown across the country within hours.

That’s how Theranos, for example, was able to operate with patients in Arizona whose samples were flown to California to be analysed, says Richardson, which changes the risk calculation.

“That's why, through this legislative effort, we're trying to ensure that tests are regulated according to their risk, and not where they are developed and used,” she adds.

The push for better regulation

A bipartisan bill called the Verifying Accurate Leading-edge IVCT Development (VALID) Act could be the key to closing gaps in testing oversight and ensuring patient safety. It was reintroduced to Congress for the third time in June 2021 - the first two times it didn't get anywhere.

The bill establishes a novel regulatory category called in vitro clinical tests (IVCTs), which would include current LDT services and in vitro diagnostics in a single class that is distinct from other medical devices.

“Right now, if a lab director or Theranos, for example, never runs their test outside the four walls of their lab, it is considered an LDT and the FDA doesn't require it to be reviewed, even if it's a high-risk test. We don't think that that should continue,” Richardson explains.

Another issue is that there is no central adverse event reporting system for LDTs like there is for FDA-approved diagnostics. Even if something bad happens to a patient because they got a false positive, nobody would know. This can be very harmful to patients as tests are often the first point-of-call to inform treatment decisions around patient care, especially in the case of cancer.

So, what’s the hold-up?

Given that it caused such a high-profile scandal, the Theranos case has been a wake-up call, but there are many other companies marketing similar unregulated tests that could be putting patients at risk.

Richardson explains that often, the FDA will set a policy, like enforcement discretion for LDTs, and then whole industries are built around that enforcement discretion, adding: “After a while, it becomes harder for the agency to rein that industry back in.”

Additionally, Richardson explains, there are some people in the lab industry and at academic medical centres who believe the agency should not have authority over these tests because they are in the practice of medicine, and the agency should not have legal authority in that area. But this is a legal question that has not been decided in court. Meanwhile, there appears to be some confusion and calls for more clarity.

Finally, one potential reason the VALID act has not yet been passed could be the sheer undertaking required of the 245-page bill, and unfinished negotiations and discussions between the medical device industry and other concerned parties. It could also be partly due to how much Congress has on its plate with the state of public health and the pandemic.

“Covid-19 has only highlighted the importance of accurate testing. That's why Congress needs to act on this bill,” Richardson says.

On the topic of Covid-19

To tackle the Covid-19 pandemic and return to something like normality, the world has heavily relied on LDTs. 

When the public health emergency was declared in 2020, the FDA, as it has done for previous emergencies, told both device companies and labs developing a Covid-19 test that they must first get emergency use authorisation (EUA), before the test hits the market. 

“I actually think the case of the EUAs for Covid-19 tests really highlights why the ongoing legal ambiguity of the FDA’s authority over LDTs is not great,” says Richardson.

In the case of Covid-19 tests, Richardson says the LDT loophole for regulatory oversight didn’t really apply, as in light of the public health emergency, the agency couldn't allow the enforcement discretion to continue. 

Now that the FDA requires any Covid-19 test developer to submit an EUA, they have had a chance to “get a look under the hood” and see what’s happening in a lot of labs.

If a public health emergency was not declared, the same LDT loophole that allowed Theranos to market faulty tests would have applied to Covid-19 diagnostics, meaning they would not have needed external review to ensure they were accurate.

Richardson says that now that the FDA requires any Covid-19 test developer to submit an EUA, they have had a chance to “get a look under the hood” and see what’s happening in a lot of labs.

In an October 2020 paper, published in The New England Journal of Medicine, Jeffrey Shuren and Timothy Stenzel of the FDA analyzed 125 EUA requests from laboratories and identified 82 with design or validation problems, several being denied authorisation.

“In the majority of cases, the FDA worked with the laboratories to correct the issues and permit continued testing. Similar problems were seen with commercial manufacturers,” they wrote.

“The fact the agency was able to work with these labs to address these issues, is a good indication that there's room for improvement and that the agency has a real role in protecting public health,” says Richardson.

Main image: Elizabeth Holmes, founder and former CEO of Theranos, arrives for a hearing at the US District Court House in San Jose, California, on 4 November 2019. (Photo by Yichuan Cao/NurPhoto via Getty Images)