Theranos: A Cautionary Tale

By Halloran Consulting Group, Inc

Recently, we’ve been receiving inquiries from some of our IVD clients about the latest developments with Theranos, Inc. They want to know if Theranos’ troubles indicate a shift in FDA policy toward regulation of IVDs or whether it is merely another indication of FDA enforcement action against CLIA laboratories offering LDTs. The answer to the first question is “No”, but the answer to the second is “Definitely yes”.

For background, Theranos, Inc. is a Silicon Valley “teenage startup” that offers laboratory-developed tests (“LDTs”) through its CLIA-licensed laboratory in Palo Alto, CA. Currently, FDA is exercising enforcement discretion over such tests while it digests public comment on a controversial draft guidance that will implement a risk-based approach to regulation of LDTs. Theranos claims to have a technology that will “reinvent the lab test” and deliver actionable test results for more than 150 standard clinical blood tests in 10 to 15 minutes at a cost of less than $10 – heady stuff that, if it works, would stand the competitors Quest Diagnostics and LabCorp on their collective heads. The company was hyped in the media and according to the Wall Street Journal, it is valued at $9 billion on the basis of – well, not much apparently.

On October 16, 2015, the Wall Street Journal (WSJ) published an article about Theranos that called into question the veracity of the company’s public statements regarding its IVD technology and throwing a spotlight on the company’s CEO. The article, and a subsequent WSJ report of FDA inspections of Theranos, set the social media buzzing with volumes of commentary across the spectrum of opinion. This was followed by a press release from Theranos rebutting the contents of the WSJ articles. Then on October 27, the Office of Regulatory Affairs in FDA released redacted versions of the forms FDA 483 Inspectional Observations from inspections conducted during August and September. These documented systemic violations of the Code of Federal Regulations (CFR) regarding establishment registration and listing and the Quality System Regulation (QSR).

Notably, Theranos appears to have begun its relationship with FDA on the right path. The company is on record that it agrees with FDA oversight of LDTs and that it is in the process of submitting to FDA premarket applications for all of its tests.

The company properly registered and listed its devices with the FDA.

And, Theranos has achieved clearance for one of its tests.

So, what happened? Where did Theranos go wrong?

I believe that the hype exceeded the company’s core understanding of FDA regulations and internal capacity to prepare for FDA oversight, despite the company’s self characterization of “building the infrastructure and quality systems necessary to ensure that our tests meet the highest quality standards”.

The observations documented in the forms FDA 483, heavily redacted as they are, illustrate that the company has a long way to go in achieving its goal of implementing a quality system that conforms to the QSR. The observations include deficiencies in many of the core requirements such as design controls (including software validation), document controls, complaint handling, CAPA, supplier quality, production and process controls, and internal quality audits. Additionally, the company failed to recognize that its “Nanotainer” blood collection device was a Class II medical device requiring premarket clearance. The annotations on one form FDA 483 promising to correct such significant violations “within 7 days” appear naively optimistic to this observer.

In summary, it remains to be seen whether Theranos can respond to the FDA inspectional observations without suffering further enforcement action. Our advice to clients strongly emphasizes robust planning and implementation of a quality management system and a comprehensive regulatory submission strategy as the keys to successfully navigating the FDA.

We’d like to hear your comments regarding Theranos and are ready to assist you in preparing for FDA regulatory and quality compliance.

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