The Cost of the Rare Fraud in the Biomedical and Diagnostics Industry

April 1, 2021

Cover image of the Spring 2021 issue of Microcosm Magazine, showing a lab technologist at a microscope.

From the Spring 2021 issue of "Microcosm."

In vitro diagnostics (IVDs) are an integral part of our health care system. Medical providers regularly rely on these diagnostic tests, which analyze samples like blood, saliva or urine, to assist with the diagnosis of disease or other medical conditions. Laboratory tests are routinely included in ~1/4 of adult patient care visits to assist with improved disease management and overall patient wellness. There are approximately 13 billion laboratory and diagnostic tests performed in the U.S. each year. This equates to the IVD and clinical laboratory services industries generating an estimated $87.3 billion in revenue! The extraordinary number of tests performed and the estimated revenue present an enticing opportunity for potential abuse and fraud, however. Although the number of cases tried for abuse and fraud in the biomedical industry is relatively low, results from investigations suggest that the losses due to fraud can be in excess of "tens or as high as hundreds of millions of dollars."

Unfortunately, the COVID-19 Pandemic Allowed for a Surge of Companies to Profit from and Prey on People's Fears by Selling Unproven Products that Made Bogus Claims of Efficacy and/or Prevention to Offer a Fake Sense of Security

The U.S. Food and Drug Administration (FDA) plays an incredibly valuable role in both the approval of IVDs and identification of fraudulent products. The FDA regulates IVDs as medical devices for which there is an established "risk-based device classification system" (Classes I [low risk]-III [significant risk of illness or injury], accounting for regulations needed to ensure reasonable safety and effectiveness assurance). The Food, Drugs, and Cosmetics Act, Section 201(h), defines a medical device as a health care product for the "use in the diagnosis of disease or other conditions … that does not achieve its principal intended purpose by chemical action or by being metabolized."

Illustration of the steps involved from an original product idea to its market release.
Illustration of the steps involved from the original idea for a product to its market release. (Click on image for a larger view.)
Source: Illustration is based on information from the FDA’s 'Pathway to Approval.'

Biotech companies are not analogous to tech companies. It takes significantly longer to develop a medical device, new drug or vaccine. Taking a product from the idea phase to approval takes an average of 3 to 7 years and often involves several regulatory reviews and multiple clinical trials (Figure 1). The FDA provides two principal premarket review pathways for IVDs. Generally, for IVDs that fall into Class I or II, the pathway is premarket notification, or the 510(k) pathway. This pathway is largely for products that can be considered "substantially equivalent" to one that is currently in the market or products that are low to moderate risk. Class III products (approximately 10% of IVDs) go through a more rigorous process, a premarket approval pathway, which requires a demonstration of both safety and efficacy before the product can be marketed. Even after a product comes to market, there is continued surveillance and post-market studies that occur to ensure the continued safety and evaluation of the product.

However, like in all other human endeavors, there are people who make false claims for their own personal profit. A few examples emphasize what can go wrong. A widely publicized example was the rise and fall of Theranos, a company that claimed it would transform the diagnostics industry. The company claimed that they had developed a technology to quickly and accurately perform 70 diagnostic tests on a drop of blood; this is roughly 1/100-1/1000 of what other tests require. Thus, the company also claimed that the cost of their test was also significantly lower — approximately 10% compared to the cost of centralized laboratories.

Theranos, founded in 2003, quickly raised more than $700 million from investors. This allowed the company to boast of an astounding $9-10 billion valuation at the company’s peak in 2014. Consequently, the CEO, whose own net worth was estimated at $4.5 billion, revealed in the company’s recognition and publicity, promoted the technology in a variety of venues, from a TEDMED conference to the Clinton Global Initiative, among others. In July 2015, Theranos received its first (and only) FDA approval, for a herpes test. Shortly afterward, the company began to tumble because data (or lack of it) does not lie.

A steep downward spiral soon started for Theranos following reports about the inaccuracy of the tests. A researcher wrote in the Journal of the American Medical Association that the company had not published any studies in academic or peer-reviewed journals. Others in the scientific community scrutinized the technology and determined that "most of the company’s claims are exaggerated." In late 2015, the company lost a major partnership with the Safeway grocery store chain. Then in January 2016, Theranos failed a laboratory inspection. By that April, the U.S. Attorney’s Office and the Securities and Exchange Commission (SEC) were involved and investigating the company. The company lost its Clinical Laboratory Improvement Amendments (CLIA) certification. Subsequently, Walgreens terminated its partnership with Theranos and sued the company for breach of contract in federal court.

Despite all of these reports and red flags, Theranos could have harnessed several opportunities for redemption, but it ignored them. At an American Association for Clinical Chemistry meeting in August 2016, the CEO delivered a 90-minute presentation during which the public had been expecting to see the data behind the company’s robust claims. However, the presentation failed to meet expectations. After the presentation, the moderator commented, "The evidence you presented fell far short…." The data shown (which were neither independently validated nor confirmed) were primarily from conventional blood draws, taken from arms in larger volumes, and not from single drops of blood from finger sticks. Then as the company was nearing bankruptcy in 2017, it was able to secure a loan from Fortress Investment Group (FIG) for $100 million, using its patents as collateral. In the conditions of the load, FIG required Theranos to produce an independently audited financial statement. Ironically, it was the monetary scandal and not the shady science that led to the ultimate demise of Theranos. The SEC charged both the CEO and COO in early 2018 with "massive fraud." There was a hasty search for a potential buyer of the company, but that too fizzled, and the company finally dissolved in September 2018. Theranos was ultimately required to turn over the ownership of its patents to FIG.

uBiome, a microbiome diagnostics company, was "once compared to Theranos" and hailed to be another example of an "up-and-coming" biotech company that exponentially grew and shined brightly in the limelight, only to be rapidly excreted from public favor. Founded not even a decade ago, the company initially provided a "Gut Explorer" service directly to the public. An individual would "submit" a stool sample to uBiome for analysis in its labs. uBiome then provided a report and analysis of the individual’s microbiome to those of other consumers who had also sent in stool samples to the company, all for around $100. The company’s founders subsequently expanded the scope of the company to develop "clinical tests" for both vaginal and gut microbiome analysis. According to the DOJ’s indictment release, "uBiome would seek reimbursement from health insurance providers in amounts up to nearly $3000." The SEC brought fraud charges against the company’s co-founders in March 2021. The SEC alleges that the founders "touted uBiome as a successful and fast-growing biotech pioneer while hiding the fact that the company’s purported success depended on deceit."

Other Companies Have Exploited the Current COVID-19 Pandemic. The Sheer Number of Products and Tests that Have Flooded the Market During the COVID-19 Pandemic Has Been Astounding

These products come in a plethora of categories, from supplements, vitamins and other foods to products claiming to be tests, drugs, medical devices or vaccines. A couple of examples that have come under scrutiny and recent investigation during the COVID-19 pandemic are Arrayit and Decision Diagnostics. Arrayit claimed that it could detect the coronavirus in dried blood samples. According to the Department of Justice (DOJ), the company’s president declared it could test for COVID-19 and allergies with a blood smear placed on an index card that would then be mailed to Arrayit’s lab. Similarly, Decision Diagnostics told its investors that the company had developed a rapid, 15-second blood test to detect COVID-19 at home using an automated device. However, this test was still in the idea phase and nowhere near the development of a prototype. Both of these cases are still pending adjudication by the DOJ.

The FDA and other government agencies have been working around the clock with retailers to remove "misleading products" from shelves and online marketplaces. As appropriate, the FDA can send "warning letters, or pursue seizures or injunctions against people, products, or companies that violate the law." Additionally, many public health officials continually sound the alarm and raise awareness of these fraudulent and misleading products. Education and engagement with the public remain integral parts of their understanding. Also, consumers need to pay attention to products that offer a disclaimer, such as, "These claims have not been approved or supported by the FDA." If a consumer does not purchase or buy into the hype of these products, then there will no longer be a market for them.

Fraudulent products and claims can have a long-lasting negative stigma on the broader scientific community and the public’s faith in science. The misguided "anti-vaccination movement" was largely built upon a now-retracted paper. Because its fraudulent conclusions continue to be perpetuated by some, its effects still ripple through the scientific community and beyond. A present-day outcome is that many individuals remain hesitant to receive one of the available COVID-19 vaccines, which have received Emergency Use Authorization (EUA) by the FDA. EUA allows the FDA to approve the use of "unapproved medical products … in an emergency to diagnose, treat, or prevent serious or life-threatening diseases or conditions." The FDA requires the EUA application to include the comprehensive safety data from clinical studies of both phases 1 and 2, along with an "expectation that phase 3 data will include a median follow-up … after completion of the full vaccination regimen." The COVID-19 vaccines were carefully tested and evaluated through multiple extensive clinical trials with "tens of thousands of study participants." Further, the FDA will continue to monitor the data and follow-up analyses with the individuals from the trials for the evaluation of safety and effectiveness for consideration during the subsequent approval and potential licensure process. Ultimately, vaccination remains key to getting the current pandemic under control.

Here Are Some Warning Signs to Watch Out for When Considering a New Product:

  • Products that claim to be effective for treating a wide range of health conditions and/or diseases.
  • Products that don't provide preliminary results from clinical trials, but rather rely on personal testimonials of the product.
  • Products marketed as "quick fixes" or "miracle cures," or that offer a "revolutionary change" from current products.
  • Products that claim 100% accuracy or effectiveness. (If it sounds too good to be true, it almost certainly is!)

As a consumer or potential investor, it is imperative to educate oneself on any product. Be mindful of the hype and the "one-pill magical cures," especially when there are not any data or trials to back it up. Similarly, it is important for the scientific community (from governmental agencies to academia, nonprofits and even industry) to remain as unbiased as possible and lean on moral guidance. Scientists play a pivotal role in evaluating the underlying data objectively of a company’s claims. It also is important to help friends, family and the broader community distinguish between justified claims and "magical cures."

Lastly, the focus should be on the treatment, cure or prevention of disease for the patient, not on the profits. Fraud can be aided by a charismatic CEO overselling the technology, investors who fail to request the preliminary data and the financials, or the fact that there was no data ever shown for the product as it was intended in the form of accurate numerous diagnostic tests. Fraud in biomedical diagnostics is rare, but the implications and stakes are high, because people’s health, wellness and even lives may be on the line. Detecting fraud demands the attentiveness of and proactive response from scientists who care and continuously work to preserve the integrity of the life sciences and biomedical industries.

Author: Amy Kullas, Ph.D.

Amy Kullas, Ph.D.
Amy Kullas, Ph.D., is the American Society for Microbiology's Director, Ethics.