Theranos, the privately held blood-analysis company valued at $9 billion, faces new charges of finagling with its herpes test, a product essential to its success, according to the Wall Street Journal. Unless the firm wins vindication from independent experts, the damage may be too serious to fix. That harms similar startups, whose survival depends on investor trust.
The U.S. Food and Drug Administration is investigating claims by former employees that Theranos continued administering tests despite allegations of inaccuracy. One contention is that the company modified its equipment while its herpes study was already underway. That would be a fundamental violation of research practices. The company denies it did anything wrong, and says it provided complete and accurate information to regulators.
This isn’t just any kerfuffle. A big part of Theranos’ valuation is based on its proprietary technology for detecting medical conditions cheaply and effectively, using miniscule blood samples. The company aims to roll out more than 100 tests with the FDA’s blessing. The problem is that Theranos hasn’t subjected its technology and methods to experts’ strict review. With the news of the investigation, its precarious situation could reflect badly on all so-called unicorns, private startups ostensibly valued at $1 billion or more.
There are more than 140 unicorns, according to CB Insights. While publicly traded companies must disclose reams of information, including audited financial statements, private firms don’t face anywhere near as much scrutiny. In fact, that’s one reason many large enterprises choose to remain private.
The lack of disclosure means that investors must in many ways take what unicorns tell them on faith. That will be harder to do in the wake of Theranos’ self-inflicted wounds, a development that could hobble all single-horned creatures.