Theranos Walks Away From Zika Test

Theranos Inc. withdrew its request for emergency clearance of a Zika-virus blood test after federal regulators found that the company didn't include proper patient safeguards in a study of the new test, said people familiar with the matter.

The move is another setback for the Palo Alto, Calif., company as it tries to recover from crippling regulatory sanctions that followed revelations by The Wall Street Journal of shortcomings in Theranos's technology and operations. Theranos has said it is appealing.

Theranos founder Elizabeth Holmes announced Aug. 1 a new blood-testing device called miniLab that she said was designed for use outside a clinical laboratory and could run accurate tests from a few drops of blood.

Ms. Holmes also said Theranos was seeking clearance for its Zika test, and a company news release said Theranos had collected finger-stick blood samples from patients, including in the Dominican Republic, and run the tests on the new miniLab device, which showed that the Zika test worked.

But during an inspection by the Food and Drug Administration earlier this month, regulators concluded that Theranos had collected some data supporting the accuracy of the Zika test without implementing a patient-safety protocol approved by an institutional review board, according to the people familiar with the matter. Institutional review boards ensure that patients are treated safely and ethically during medical studies.

"We hope that our decision to withdraw the Zika submission voluntarily is further evidence of our commitment to engage positively with the agency," said Dave Wurtz, Theranos's vice president of regulatory, quality and clinical affairs. An FDA spokeswoman declined to comment on the inspection, citing the agency's policy on pending product applications.

It isn't clear if the problem affected any patients. Some data in the submission was collected under review-board-approved protocols, the people said. Theranos didn't contest the agency's findings and withdrew its submission for authorization of the new Zika test, according to people familiar with the matter.

Theranos executives told employees about the setback during a staff meeting last week, one person familiar with the meeting said.

In an email to Theranos investors Saturday, the company said it plans to collect additional data requested by the FDA under properly reviewed protocols and resubmit the Zika application. The letter said Theranos would handle a submission for an Ebola test "in the same manner."

The miniLab that Ms. Holmes, Theranos's chief executive, unveiled to laboratory scientists in Philadelphia signaled a potential shift in the closely held company's business model and a new source of revenue. FDA approval of the miniLab would allow Theranos to sell the device for outside use even if she is banned from owning or running a lab for at least two years.

The federal agency that oversees labs, the Centers for Medicare and Medicaid Services, imposed the ban and other penalties in July because of problems it found at a Theranos lab. The agency said the deficiencies affected test accuracy and put patients at risk.

Theranos is appealing the lab's closing, Ms. Holmes's ban and other sanctions imposed by CMS and is continuing to negotiate a possible settlement.

Theranos also has said it is doing no patient testing at the lab where the deficiencies were found. In its investor email Saturday, Theranos said its appeal will argue that CMS hasn't "fully accounted for the progress we have made toward correcting" problems.

A CMS spokesman said Tuesday the agency is "reviewing a copy of Theranos's appeal." He declined further comment.

Theranos has pursued a manufacturing-focused business model before. An initial agreement with former retail partner Walgreens, now part of Walgreens Boots Alliance Inc., called for Theranos to sell blood-testing devices directly to the drugstore giant and have Walgreens perform the tests, according to a 2010 contract between the two companies.

The arrangement later shifted as Theranos sought tighter control over its proprietary technology and operations, according to people familiar with the negotiations. Michael Polzin, a Walgreens spokesman, declined to comment.

The FDA's inspection in August was triggered by Theranos's request for "emergency-use authorization" to sell its new Zika test, a person familiar with the matter said.

The FDA has cleared Zika tests from several other companies since invoking a rule allowing the agency to lower hurdles for new medical products during emergencies.

An epidemic of the mosquito-borne Zika virus has swept through parts of South and Central America and reached into South Florida in recent months. The virus can cause serious birth defects in developing fetuses, including distinctively undersized heads and brain abnormalities.

Theranos's news release on Aug. 1 as Ms. Holmes spoke at the American Association for Clinical Chemistry's annual meeting said the company believed no other test for Zika that uses tiny blood samples collected by finger sticks was available.

"Theranos scientists conducted the tests reflected in the AACC presentation in 2016 under IRB-approved protocols," the company added, referring to the review-board process.

Theranos told investors that company officials "recognized" during the FDA's inspection that some patient data was collected before the review-board protocols were in place.

After an inspection in August 2015, the FDA declared Theranos's finger-stick collection device, called the "nanotainer," an uncleared medical device, and the company said it stopped using it on patients in the U.S. The agency earlier approved the use of nanotainers for a herpes test.

Theranos said in its news release that it used the nanotainer as part of its blood-collection system for the Zika study, which included the Dominican patients.

Separately, Theranos's general counsel, Heather King, is leaving the company to return to law firm Boies Schiller & Flexner LLP, according to the email sent to investors.

Theranos announced Ms. King's hiring in May 2015, and she led the company's legal response to accusations of technological snags. Boies Schiller Chairman David Boies is a Theranos director.

"We appreciate Heather's leadership and we wish her the very best," Theranos said in its email to investors Saturday.

In a sign that the blows to Theranos's credibility during the past year continue to hang over the company, leaders of the University of Washington's medical laboratory division balked when a Theranos manager approached the lab in late July about working with Theranos on research.

"This is a disgraced company that has not responded to the sanctions in an honorable way," the lab's compliance officer wrote in an email to the University of Washington technician who fielded the inquiry from Theranos. "As such, do not set up a client account for this company," according to the email, which was reviewed by the Journal.

Write to John Carreyrou at john.carreyrou@wsj.com and Christopher Weaver at christopher.weaver@wsj.com