Too good to be true? The Rise and Fall of Theranos

THE RISE AND FALL OF THERANOS

KelliCorona

In March 2004, 19-year-old Elizabeth Holmes, a sophomore at Stanford University at the time studying chemical engineering, dropped out of school to found Theranos, a company that promised to revolutionize the future of diagnostics and healthcare. The name is a clever blend of the two words “therapy ” and “diagnosis.

Motivated by her own phobia of needles, Holmes created Theranos with the purpose of offering an inexpensive, effective, and less painful alternative to the traditional blood test, claiming to be able to screen for a wide array of ailments such as cancer and diabetes with just a few small drops of blood, essentially reproducing effects of a full-scale laboratory. There is a plethora of Silicon Valley companies claiming to make world-changing products, so what made Theranos in particular stand out? One might argue its remarkable origin story-- painting Holmes to be a fearless trailblazer and an innovative force to be reckoned with within the male-dominated tech industry-- was responsible for its initial success. Theranos also vowed to solve a problem that was relatable, taking into consideration that most people will get a blood test at some point in their life. Based on this framework, it wasn ’t a surprise that Holmes was often found at the center of beneficial press, emanating the image of Steve Jobs by wearing black turtlenecks on the covers of Forbes and Fortune Magazines. Spanning the next decade, Holmes rallied her own Stanford professor and

https://www.vox.com/2015/10/26/11620036/theranos-ceo-elizabeth-holmess-five-best-cover-story-appearances

mentor to come aboard the project, but more impressively, attracted $400 million from venture capitalists. She further assembled an all-star board of support that included former US Secretaries of State Henry Kissinger and George P. Shultz, former President Bill Clinton, and Mexican billionaire Carlos Slim, among others, which helped Theranos ’ value soar to a staggering $9+ billion at its peak. Holmes ’ stake in it was worth half of that, making her one of the youngest selfmade billionaires in history. She was named “the world’ s youngest self-made female billionaire

” by Forbes,

“America ’ s Coolest Billionaire

” by Inc. Magazine, and even made Time Magazine

’ s list of the

“100 most influential people

Her pledge to revolutionize the billion-dollar lab industry that she believed was swindling people with expensive, antiquated, and needlessly painful needle jabs resonated with both customers and investors. The Theranos method required “99.9 percent less blood, ” according to Holmes and would be taken from the prick of your finger instead of a vein. The sample would be sent to a lab in a “ nanotainer ” and tested using Theranos ’ s patented technology, the “Edison Machine ” . Theranos also claimed it would be able to deliver results in 4 to 24 hours, which would reduce anxiety associated with waiting. According to Holmes, the tests would also cost about half of current Medicare and Medicaid reimbursement rates for blood tests.

In 2013, Theranos even secured a massive deal with Walgreens Pharmacy and struck up a long-term partnership, which further propelled its success and credibility within the healthcare industry. The first Theranos “Wellness Center ” , as it was coined, launched in a Walgreens in Palo Alto, California where patients could access the Theranos blood test. Another 44 wellness centers located in Walgreens pharmacies would soon follow, traversing the states of Arizona, California, and Pennsylvania. Holmes also lobbied multiple state governments to allow patients to order Theranos tests without the need for a doctor ’ s referral—a move that would theoretically reduce time and cost for patients. By 2015, Holmes had succeeded in this goal and had influenced Arizona ’ s legislature to pass a law allowing patients to bypass the need for a doctor ’ s prior approval and order whatever test they wanted. Therefore, Holmes was not only aiming to transform the way traditional blood tests were performed, but also how patients were able to operate within the healthcare system.

Many of Theranos

’ claims were never actually proven though, which raised suspicions and prompted critics to demand evidence that this technology produced scientifically accurate and diagnosable results. The FDA had never approved Theranos ’ technology and Holmes failed to have any peerreviewed publications regarding the efficacy of it.

The science behind the “Edison machine

” was regarded as classified information, and Holmes

’ s description of the process when asked by a reporter from The New Yorker was damningly ambiguous. She stated: “A chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel” . Holmes added that, thanks to “ miniaturization and automation, we are able to handle these tiny samples

The Wall Street Journal then launched its own investigation in October 2015, where reporter John Carreyrou had sought out to answer some of the questions critics have been requesting.

Carreyrou eventually discovered that Theranos rarely even used its touted Edison technology for their tests, as they allegedly mostly used older, already well-established technology from companies such as Siemens, instead. This differed from the company's claimthat it used these machines only for "certain esoteric and less commonly ordered tests" and

"[A Theranos] customer, who was pregnant at the time, was falsely told she had miscarried her baby.

exposed the Edison machine as a mere façade. Carreyrou referred to former Theranos employees, internal emails, and doctors. One former employee even filed a complaint to regulators that Theranos had been rigging the system, “failing to report test results that raised questions about the precision of the Edison system

This marked only the beginning of the fall of Holmes ’ mighty empire, as she and her former business partner, Ramesh Balwani, were charged in 2018 by the U.S. government with multiple counts of wire fraud and conspiracy to commit wire fraud.

In April 2018, a large database containing three years ’ worth of blood-sample lab reports were subpoenaed, which could have assisted in Holmes ’ prosecution by determining a pattern of inaccurate results shown via statistical analyses on the data. Months later, Theranos had informed the court that the entire database had been physically destroyed.

Overall, an estimated $700 million was lost in the collapse of Theranos. Prosecutors claim that governments, businesses, and other investors were conned by Holmes ’ fraudulent statements and talks. However, these were not the only people who suffered losses, as the very people this company promised to benefit were now victim to incorrect diagnoses. Some had been told they were HIV-positive, and another customer, who was pregnant at the time, was falsely told she had miscarried her baby.

’ high-profile criminal trial began. Deliberations so far have spanned 44 hours over the course of six days, involving a jury of 8 men and 4 women, and 29 witnesses the government had called to testify, one of them being former Walgreens CFO, Wade Miquelon. Miquelon told prosecutors that Holmes impressed the company with her promising proposal for in-store blood tests that could be provide results in 30 minutes using their advanced medical device. Walgreens spent $140 million on the endeavor, $40 million of which could be converted to equity in the company and thus made them a vital partner for Theranos.

When allegations came out that Theranos was using standard equipment to run most of its tests, Walgreens had sued them for the initial $140 million investment. Miquelon quotes “My understanding is, the blood would be tested on the Edison device, and the base level testing would be able to do 96 percent of the testing done at labs. ” He claims Walgreens was led to believe that the use of standardized third-party devices was used for calibration and accuracy purposes only.

According to the Wall Street Journal, Miquelon stated in his testimony: “This was one of the most exciting companies that we had seen, maybe not just in lab but in general” . Former Safeway CEO, Steven Burd, also testified and explained how Safeway was initially drawn to Theranos ’ substantial promises but became gradually suspicious when the company consistently missed deadlines and experienced delays.

In my opinion, I believe this case could have extensive implications for the tech startup culture and its relationship to the medical world. Specifically, it emphasizes the importance of making data-driven decisions, especially when its being marketed as something that will have real consequences on real people. The technology used in Theranos ’ blood testing devices was sold as a transformative agent in healthcare, yet it didn ’t have any clinically relevant data to support the viability of it. This led to its premature release and subsequent failure, ultimately costing hundreds of millions of dollars in losses.

The trial is still ongoing, and deliberations are scheduled to continue starting on Monday January 3, 2022. Holmes has been charged with a dozen counts of wire fraud and conspiracy to commit wire fraud. If convicted by the jury, Holmes faces up to 20 years in prison as well as a fine of $250,000 plus restitution

https://www.nbcnews.com/business/consumer/how-9-billion-blood-testing-startup-theranos-blew-n671751

Sources:

Allyn, Bobby.

“Elizabeth Holmes Promised Miracles by a Finger Prick. Her Fraud Trial Starts Tuesday. ” NPR, NPR, 30 Aug. 2021, https://www.npr.org/2021/08/30/1031314018/elizabe th-holmes-theranos-fraud-trial.

Gibney, Alex, Jessie Deeter, Erin Edeiken, Elizabeth Holmes, Ken Auletta, Lincoln Else, Antonio Rossi, Andy Grieve, and Will Bates. The Inventor: Out for Blood in Silicon Valley., 2019.

Siddiqui, Faiz.

“Former Walgreens CFO Testifies about Pharmacy's Troubled Partnership with Blood-Testing Start-up Theranos. ” The Washington Post, WP Company, 13 Oct. 2021, https://www.washingtonpost.com/technology/202 1/10/13/theranos-walgreens-holmes/.