By John Carreyrou
A top executive who helped build Theranos Inc. into a major
blood-testing laboratory is leaving the company amid regulatory
probes of the embattled Silicon Valley firm.
The departure of Sunny Balwani as Theranos president and chief
operating officer comes amid a broader board reorganization
announced by the Palo Alto, Calif., firm. In a release late
Wednesday, Theranos said it is expanding its board, adding three
members to beef up its scientific and medical expertise.
The 50-year-old Mr. Balwani, a top associate of Theranos founder
Elizabeth Holmes, leaves in the wake of last month's news that the
Securities and Exchange Commission and the U.S. attorney in San
Francisco are investigating whether the company misled investors
and regulators about the state of its technology and operations.
Theranos said it is cooperating with the investigations.
Theranos also is attempting to persuade the Centers for Medicare
and Medicaid Services, the federal agency that oversees clinical
labs, not to shut down its northern California laboratory. Closure
of the lab would result in Ms. Holmes and Mr. Balwani being barred
from the blood-testing business for at least two years, under
federal regulations.
Mr. Balwani joined Theranos as its No. 2 executive in 2009, five
years after Ms. Holmes founded the company upon dropping out of
Stanford University as a 19-year-old sophomore.
"I am deeply grateful for the opportunity to contribute to
Theranos' mission to make healthcare accessible through its
technology and products," Mr. Balwani said in a statement. "I will
continue to be the company's biggest advocate and look forward to
seeing Theranos' innovations reach the world."
Theranos spokeswoman Brooke Buchanan said Mr. Balwani isn't
being blamed for the company's regulatory problems. Rather, she
said, his departure is merely part of a broader reorganization that
will see the company appoint a new chief medical officer, to whom
its labs will report, a new head of research and a new operating
chief. The company is actively recruiting for those positions.
Depending on the new COO's profile and qualifications, he or she
could take on both the operating chief and head of research roles,
she added.
Theranos declined to make Mr. Balwani available for comment.
Since launching Theranos in 2003, Ms. Holmes has set out to
revolutionize the blood-testing industry. Before the company made
changes to its website earlier this year, the website cited
"breakthrough advancements" that made it possible to run "the full
range" of lab tests on a few drops of blood pricked from a
finger.
In October, The Wall Street Journal reported that Theranos did
the vast majority of more than 200 tests it offered to consumers on
traditional lab machines purchased from other companies. The
Journal also reported that some former employees doubted the
accuracy of a small number of tests run on the devices Theranos
invented, code-named Edison.
Theranos has declined to say how many tests or which ones it
runs on commercial machines. The company has said its technology
has the capability to handle a broad range of tests.
Along with the announcement of what Theranos described as Mr.
Balwani's retirement, the company also said it had made three new
additions to its board that it said would bring "a wealth of
scientific, medical and executive leadership to the company."
The three new directors are Fabrizio Bonanni, a 14-year veteran
of Amgen Inc., former Wells Fargo & Co. Chief Executive Richard
M. Kovacevich, and William Foege, a former director of the Centers
for Disease Control and Prevention.
Mr. Kovacevich and Dr. Foege used to be on Theranos's board
until a previous board reshuffle last October, following The Wall
Street Journal's front-page articles raising questions about
Theranos's technology and operations. They spent the past six
months on a board of counselors along with former Theranos board
members George Shultz and Henry Kissinger.
During his tenure at Amgen, Dr. Bonanni served as senior vice
president of quality and compliance and corporate compliance
officer, Theranos said.
"Dr. Bonanni's leadership and guidance in operations, quality
and compliance is exceptional, and we are fortunate to add his
experience to our team both on the board and to work with us
internally," Ms. Holmes said in a news release about the new
appointments.
Mr. Balwani, Theranos's departing president, worked in the
software industry before joining Theranos, holding jobs at Lotus
and Microsoft. He also founded an e-commerce company that he sold
at the height of the dotcom boom in the late 1990s.
Despite not having any medical or science background when he
joined Theranos in 2009, he took charge of much of its research,
according to former employees.
Some former Theranos employees said they questioned his hiring
at the time because of his software background.
Ms. Buchanan told the Journal in December that Mr. Balwani had
an "extensive and successful background in technology."
Mr. Balwani's duties at Theranos included overseeing the
laboratory in Newark, Calif., where federal health inspectors found
major deficiencies last fall. Some of those deficiencies were so
serious that they posed "immediate jeopardy" to patient health and
safety, CMS said.
The Journal reported in October that internal emails showed
Theranos employees questioned the company's proficiency-testing
practices. Proficiency tests are submitted to organizations that
accredit labs to help ensure labs' accuracy. The employees
questioned whether Theranos's protocols complied with federal
regulations.
Mr. Balwani, the Journal reported, told them in an email, "I am
extremely irritated and frustrated by folks with no legal
background taking legal positions and interpretations on these
matters." He wrote, "This must stop."
He then ordered the employees to only report to the accrediting
organizations results from proficiency tests performed on
conventional devices, and not the results of those tests obtained
from the company's proprietary Edison machines, according to former
employees.
Theranos general counsel Heather King told the Journal last year
that Mr. Balwani's instructions were consistent with the company's
"alternative assessment procedures," which it said it adopted
because it believes its unique technology has no peer group and
could be thrown off by the preservatives used in
proficiency-testing samples.
When one employee separately brought to Ms. Holmes's attention
frequent quality-control failures involving the Edison devices, Mr.
Balwani responded in an email that the failures were due to the
"newness of some of our processes, which we are improving every
day," the Journal reported in December. "This is product
development, this is how startups are built," he wrote.
Ms. Buchanan said in December that the employee was too
inexperienced to "make these types of comments" and "struggled" to
grasp Theranos's scientific processes.
CMS noted in an extensive inspection report made public last
month that Edison devices often failed quality-control checks. For
instance, the report showed that 29% of quality-control checks for
tests run on Edison devices failed in October 2014.
Ms. Buchanan said last month the problems related to how
Theranos used various testing machines, including its Edison
devices, not "the fundamental integrity of the technologies
themselves."
--Christopher Weaver contributed to this article.
Write to John Carreyrou at john.carreyrou@wsj.com
(END) Dow Jones Newswires
May 11, 2016 22:55 ET (02:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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