Lessons Learned from Theranos' Misfortunes

Theranos has been charged with being too secretive for its own good. The firm's founder Elizabeth Holmes is now vowing to be more forthcoming with data. Much of the recent controversy swirling around the company is related to avoidable regulatory missteps the company has made. Here's how you can avoid making similar mistakes.

Qmed Staff

Just a few weeks ago, Theranos was one of the hottest companies in the medical technology field and one of the hottest Silicon Valley startups. But then, the Wall Street Journal and other press outlets sullied its reputation by questioning its science and alleging the company had cheated on its proficiency tests maintain its lab certifications. While the company's CEO, Elizabeth Holmes, asserts that its technology will "absolutely" pass FDA muster, according to a Fortune interview (see the video below), many of the company's problems could have been avoided. Two 483 documents cited a host of problems ranging from inadequate complaint handling to marketing an uncleared medical device.

Reach Out to Regulatory Experts Early

"The single-most important thing that Theranos could have done differently to avoid the fallout, would be to either hire an experienced consultant early in their development or use a quality system software to enforce compliancy," says Alvin Tai, founder of FastQS (San Francisco, CA).

Be Forthcoming with Data

When asked about the two Form 483s that the company received, Tai says: "To be fair, receiving 483s are not uncommon, especially for a growing medical device company. However, in my opinion, Theranos attracted unnecessary attention to their technology by being a little too evasive and secretive about their practices."

Don't Hesitate to Reach Out to FDA with Questions

One of the observations pointed out in a 483 letter was FDA's charge that Theranos had been selling a Class II medical device without clearance. This topic is something of a gray area because FDA has not traditionally regulated Laboratory Developed Tests (LDTs), but companies making such products should still be cautious. "Companies that develop LDTs have to be extra careful because the FDA reserves the right to exercise discretionary enforcement on these products," Tai says. "This means that the FDA can choose to enforce the regulations if the technology risks are high enough. For new technology, it's always better to reach out to the FDA and request feedback on regulatory paths," he adds. While some young companies are sometimes hesitant to contact the FDA, Tai says that the agency is "generally very responsive and reasonable with their advice."

Document, Document, Document

"It's also entirely possible that Theranos was doing all the right things, but just wasn't documenting their actions," Tai explains. "From an FDA perspective, if it's not documented, it didn't happen. It's hard to know without having inside information whether that was true though."

Make Sure to Invest Sufficiently in Your Quality Management System

While Theranos had managed to file significant IP and managed to convince VCs to invest more than $400 million in the company, the company apparently did not invest sufficient time in ensuring compliance with quality system regulations. This is common for growing companies, which focus more on activities directly linked to a financial reward. "However, not maintaining compliance with quality system regulations, which include establishing procedures for complaints, corrective action, supplier management, etc., can have a long-term financial impact for many startups," Tai says.

Be Bold with Your Technology but Conservative with Your Complaint Management System

Up until recently Theranos had been largely viewed as a case study of a Silicon Valley startup with the potential to disrupt the lab testing industry. The company managed to secure hundreds of millions of dollars from prominent Silicon Valley investors--a rare feat for a healthcare technology firm--especially considering that the company was on a trajectory of reaching a double-digit billion-dollar valuation.

In retrospect, it seems like the company would have been better served by devoting more of its funding towards setting up an appropriate complaint management system. "For startups, complaint management regulations can sometimes be complicated and interpreted in different ways," Tai says. While some healthcare startups tend to derive best practices from the consumer technology industry, complaint management in medtech is much more standardized by comparison. "There are specific things that the FDA is always looking for during inspections, including a designated team of trained complaint specialists, documented reviews of all complaints, documented investigations, etc.," Tai says.

Ensure That Your CAPA System Fits Your Needs

There is no such thing as a one-size-fits all CAPA system; medical device companies should ensure that their system reflects the maturity of the company. "A system too complicated will overburden the team and can lead to non-compliance to their own procedures," Tai says. "However, an immature system may not meet the requirements of the regulations. A CAPA system needs to grow with the company."

Brian Buntz is the editor-in-chief of MPMN and Qmed. Follow him on Twitter at @brian_buntz.