Theranos

History

Elizabeth Holmes

Elizabth Holmes, born February 3, 1984, is an American former biotechnology entrepreneur who founded Theranos in 2003 at the age of 19. Holmes was born in Washington, D.C. to her dad Christian Holmes an entrepreneur who started an energy company called Enron then moving to the government agency USAID and her mom Noel, a Congressional committee staffer . The family moved from Washington, D.C. to Houston, Texas when she was a young (source e). At the young age of nine Holmes wrote a letter to her dad saying that she “really want[ed] out of life is to discover something new, something that mankind didn’t know was possible to do” (source d). This entrepreneurial spirit was also seen through her starting a business selling coding translation software to Chinese universities (source e).

Holmes attended Stanford University in 2002 where she studied chemical engineering and worked in a laboratory as a student researcher in the School of Engineering . At the end of freshman year, she worked in the Genome Institute of Singapore; at the lab she collected samples of blood with syringes to test for severe acute respiratory syndrome coronavirus (SARS-CoV-1). Seeing the great amount of blood needed to test for this diseased prompted Holmes to take action and seek to improve blood testing processes .

Founding

While at Stanford University, Elizabeth Holmes came up with the idea of developing a technology in the form of a patch that could adjust the dosage of a drug delivery and notify doctors of variables in patients’ blood . Her goal was to build a company that would make blood test available directly to consumers and eliminate the need for large needles and tubes of blood. She started developing lab-on-chip technology for blood tests and claimed to have developed a technology that could run more than 200 tests from just a few drops of blood . In 2003, Holmes dropped out of Stanford and founded the company “Real-Time Cures” which later became Theranos, derived from the words “therapy” and “diagnosis” .

Partnerships/Investors

Theranos raised about $1.3 billion in funding over the course of its history. The company first raised money with a $500,000 seed round in June of 2004 led by Draper Fisher Jurvetson, now called Threshold . By 2007, Theranos valuation hit nearly $200 million after three years of fundraising and support from Media mogul Rupert Murdoch and venture capitalist Tim Draper. By 2010, the company is valued at $1 billion and Theranos files a U.S. Securities and Exchange Commission forms stating it has raised $45 million. In 2012, Safeway invested $350 million into creating 800 locations that would offer in-store blood tests. However, this partnership fell through as Theranos missed deadlines and more questions surfaced about the company’s technology .

In 2013, Thernos took a huge step and announces itself and its technology to the public through press releases and publishing a website. This shift to operate publicly created mainstream attention resulting in more partnerships and investors. The Pharmacy giant Walgreens partnered with Theranos, raising $50 million and offering in-store blood tests at more than 40 locations . However this high-profile partnership ended in 2016 when Walgreens sued Theranos after questions were raised about the validity of its tests and alleged a breach of contract .

By 2014, Theranos' value exceeded $9 billion. In the next few years the company continued to grow and announced partnerships with the Cleveland Clinic in March 2015 as well as Capital BlueCross in July 2015. While the company continued to gain attention and raise money, members of the medical community criticized the lack of public research in peer-reviewed medical journals .

Timeline

2003: Holmes drops out of Stanford and founds Theranos

At the young age of 19, Elizabeth Holmes dropped out of Stanford’s School of Engineering and started Theranos. Her goal was to create a test that could detect diseases and health problems with the same accuracy as traditional blood tests but with only a few drops from a finger prick .

2004-2010: Theranos grows with early funding

By 2004, Theranos was valued at $30 million and Holmes had raised at least $6.9 million dollars (source 4). With this strong start, Thernaos continued to gain investors as well as mainstream attention. By 2007, Theranos’s value grew to $197 million and raised another $43.2 million. The startup continued to fundraise for three years and by 2010 the company was valued above $1 billion .

September 2013: Theranos partners with Walgreens and goes public

With the initial fundraising and research out of the public eye, Theranos partners with Walgreens and blood tests are offered to the public in Arizona and California .

2014: Theranos values at over $9 billion while doubts surface

Theranos’s valuation reaches $9 billion dollars, making Holmes worth $4.5 billion with 50% stake in the company and the youngest self-made billionaire . However, suspicions rose in the medical community about the legitimacy and reliability of the technology developed by Theranos with the lack of public research and peer-reviewed medical journals. A New Yorker profile about Holmes describes her explanations of the technology as “comically vague” .

July 2015: FDA Approves Theranos herpes simplex virus 1 test

Theranos continues to expand with the FDA approving Theranos’s test for detecting herpes simplex virus 1 and Capital BlueCross choosing Theranos as its main lab work provider. Theranos was not valued at $10 billion dollars .

October 15, 2015: John Carreyrou of the Wall Street Journal publishes scathing article

The Wall Street Journal publishes a series of articles exposing the questions surrounding Theranos’s technology. Carreyrou interviewed ex-employees of Theranos and reported that Theranos had drastically overstated the capabilities of its technology .

November 2015: Safeway partnership ends

The US supermarket conglomerate Safeway worth $350 million dollars fell through when Theranos failed to meet deadlines after Safeway had built testing facilities in over 800 supermarkets. The executives at Safeway did not trust the validity of the Theranos product .

January 2016: CMS letter released warning about patient health threat

The Centers for Medicare and Medicaid Services (CMS) announces that after an inspection of Theranos’s California lab deficient practices were uncovered that pose immediate jeopardy to patient health and safety .

October 2016: One of Theranos’s largest investors sues and Theranos closes it medical lab operations

One of the largest investors, Partner Fund Management (PFM) , accused the company of securities fraud . Theranos also closes its medical lab operations with continued scrutiny and shrinks its workforce by more than 40% .

March 2018: Theranos is charged with massive fraud

The Securities and Exchange Commission charged Holmes and Balwani with civil-securities fraud; “raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance” .

June 2018: Holmes and Balwani indicted

A federal grand jury indicted Holmes and Balwani with 11 criminal charges. Holmes stepped down as CEO but remained on the company board .

September 2018: The end of Theranos

Theranos was forced to close as it was unable to find a buyer. The company said they would pay off its creditors with its remaining funds .

September 8, 2021: Trial begins

Criminal Investigation

Criminal proceedings

On June 15, 2018, Holmes and Balwani were indicted on two counts of conspiracy to commit wire fraud and nine counts of wire fraud. The charges derived from allegations that both engaged in a multi-million-dollar scheme to defraud investors as well as doctors and patients . Both Holmes and Balwani pleaded not guilty . The trial was delayed by the COVID-19 pandemic as well as the birth of her child; it began on December 7, 2021 in San Jose, California .

The trail lasted for 11 weeks as fascination was sprawling outside of the courtroom. During the trial, led by prosecutor John Bostic, federal prosecutors called 29 witnesses to testify which included past Theranos employees, retail executives, as well as a former US Defense Secretary . In the closing arguments, the prosecution alleged that faced with a business running out of money, Holmes “chose fraud” rather than “failure” .

Holmes testified for seven days and her testimony was focused on her belief in the company’s technology as well as pointing fingers at others, specifically her ex-boyfriend Balwani . She testified that her relationship with Balwani was abusive and that he tried to control all aspects of her life. Balwani denies all of these allegations .

The jury deliberated for seven days .

Jury Verdict

The jury convicted Holmes of the investor wire fraud conspiracy count and three wire fraud counts relating to the scheme to defraud investors . The jury acquitted Holmes of the patient-related conspiracy wire fraud count and three other wire fraud counts. Additionally, one count of wire fraud was dismissed during the trail relating to one count of wire fraud. The last three investor fraud-related counts were dismissed as the jury could not reach a unambiguous verdict .

Elizabeth Holmes faces a maximum sentence of 20 years in prison and a fine of $250,000 plus restitution .

Corporate

Location

Theranos was headquartered in Palo Alto, California. The company had laboratories in Newark, California and Scottsdale, Arizona .

Management

From the founding of Thernaos in 2003 until 2018, Elizabeth Holmes was the company’s CEO. At the start of the company, Channing Robertson, a chemical-engineering professor at Stanford was a technical advisor and Theranos’s first board member. In 2009, Ramesh Balwani, a software engineer joined as the president and chief operating officer .

Technology and Products

Theranos claimed to have created a technology that could automate blood tests with just a few drops of blood through the blood collection vessel called the “nanotainer” and the analysis machine, the “Edison.” Typically blood tests require a trip to a doctor’s office or lab to draw a significant amount of blood that then goes through a complicated process of testing with different chemicals and pieces of equipment. However, Holmes claimed to have created a technology that can test just a few drops of blood from a finger print and be analyzed in just a few hours.

The Edison was the system that analyzed the blood and could communicate with the Internet to receive instructions on what tests to run and then communicate back the results. This technology was criticized by the medical community for not being peer reviewed while Theranos claimed to have data backing the accuracy and reliability of the technology and tests.

In 2016, Theranos announced a new technology named “miniLab” at the American Association for Clinical Chemistry annual meeting. This robotic capillary blood testing device was allegedly capable of carrying out a range of tests from a few drops of blood .

Ethical Implications

Misinformation

Misinformation is incorrect or misleading information . Today, in modern high-choice media democratic societies, exposure to misinformation can be harmful and result in negative repercussions for governance and trust in news and journalism . In the case of Theranos, the company spread misinformation in order to secure millions of dollars in investments. According to the SEC, in order to secure a deal with Walgreens, Theranos created a fake demonstration of the technology and Holmes told her employees to put Theranos’s equipment in the room where blood samples were collected but instead of using Theranos machines, employees secretly ran tests on an outside lab equipment .