Theranos was poised to become the next biggest tech company born in Silicon Valley. Elizabeth Holmes, its founder and former chief executive, was set to revolutionize the healthcare sector. At the heart of the company was the revolutionary idea of Holmes centered on using a small drop of blood as a sample to perform hundreds of medical tests.
However, several concerns were raised about the purported tech capabilities of Theranos. More experts and journalists started to uncover facts about the true nature of its blood testing tech and its specific Edison devices. A conclusion was reached. Holmes and her company were engaged in fraudulent activities.
Theranos ceased operations in September 2018. The U.S. District Court for the Northern District of California convicted Holmes of four counts of defrauding investors, three counts of wire fraud, and one count of conspiracy to commit fraud on 3 January 2022 and was later sentenced to 11 years and 6 months in prison on 18 November 2022
Blood Testing Scandal and Corporate Fraud: A Concise Look at the Important Events and Developments Leading to the Fall of Theranos and Elizabeth Holmes
What exactly went wrong with Theranos? What did it do? What was wrong with Elizabeth Holmes? Why did she become one of the most controversial figures in the history of corporate America? The following are the key events and developments pertinent to the entire Theranos scandal and the downfall of Holmes:
• 2002: Elizabeth Holmes began working on an idea that involved a lab-on-a-chip technology that can perform simplified and convenient blood tests while in her first and second years as a chemical engineering student at Stanford University.
• 2003: She dropped out of Stanford to start the company Real Time Cures. Palo Alto was the chosen location. She later renamed the company to Theranos, a portmanteau of the words “therapy” and “diagnosis.” Holmes was 19.
Respected Stanford professor and dean Channing Robertson backed the idea of Holmes. He introduced her to his network of capable and influential people who would later help in the expansion of Theranos and the development of its tech.
• 2005: Robertson convinced British biochemist Ian Gibbons to join Theranos as its chief scientist and the senior director of assay development. He spearheaded the development of the blood testing technology of the company.
• 2009: Ramesh “Sunny” Balwani joined the company as its president and chief operating officer. Holmes met Balwani during a Mandarin language immersion program in Beijing in 2002. The two were later revealed to be in a romantic relationship.
There is not much information about what was happening inside the company and its business dealings during its initial years. Holmes ran her startup in secrecy while developing its tech and to protect its trade secrets.
• 2010: Theranos had more than USD92 million in venture capital. The company was building its resource capabilities since it was founded through series A and series B funding from venture capitalists and individual investors.
• 2011: George Schultz, the former secretary of state of the Reagan administration, joined the Theranos board. He was responsible for recruiting other political figures in the company such as Henry Kissinger and William Perry.
Holmes was commended for forming the most illustrious board of directors in the history of corporate America. The company also began pitching its blood testing tech called the Edison device to different pharmaceutical companies and retail chains.
• 2012: Theranos landed a contract with supermarket chain operator Safeway. The retailer spent USD350 million to build in-store clinics offering blood testing services using the Edison devices from the company.
• 2013: It also partnered with pharmaceutical retailer Walgreens to offer in-store blood testing centers it called wellness centers. The company launched its official website after the announcement of this major partnership.
• 2014: A total of USD725 million in capital was raised. The potential of the company earned it a market valuation of USD9 billion. Holmes was hailed the youngest woman to become a self-made billionaire.
• 2015: Theranos landed another contract with the academic medical center Cleveland Clinic. It also became the lab-work provider for AmeriHealth Caritas and Capital BlueCross insurance companies which are based in Pennsylvania.
Australian-born American business magnate Rupert Murdoch who owns mass media conglomerates News Corporation and Fox Corporation invested USD125 million in the company. He became the largest individual investor in Theranos.
The company gained media traction and greater public mileage after landing several contracts and partnerships. It became more intentional to promote itself to the larger business community. Holmes became a rising star in Silicon Valley.
Holmes was on the Forbes 30 Under 30 list in 2014. She was also named one of the Time 100 Most Influential People and the Bloomberg 50 Most Influential in 2015. She was the recipient of the 2015 Horatio Alger Award and the 2015 Forbes Businessperson of the Year.
The numerous awards and recognitions of Holmes and the expanding mileage of Theranos also came with greater scrutiny. Experts and the media became doubtful of its purported blood testing technology beginning in 2015.
• 2015: The Wall Street Journal published a report by journalist John Carreyrou. It exposed the alleged inaccuracies of the Edison devices while also noting that Theranos was using traditional blood testing machines to run and complete its blood tests.
• 2016: The Centers for Medicare and Medicaid Services sent a warning to Theranos after its inspections revealed instances of irregularities in its lab. It proposed a two-year ban on Holmes from owning and operating a clinical laboratory.
• 2016: Forbes updated the valuation of the company to USD800 million and revised the estimated net worth of Holmes to zero because of her common stock ownership. Fortune named her one of the World’s 19 Most Disappointing Leaders.
• 2017: A lawsuit against the company was filed by the State of Arizona. It was alleged that the company sold millions of dubious blood tests to Arizonian residents. Theranos agreed to settle the lawsuit through refunds plus other legal costs.
• 2018: The Securities and Exchange Commission charged Holmes and Balwani with fraud in March. Holmes settled the lawsuit and agreed to surrender voting control. A federal grand jury indicted the two in June.
Theranos announced in September 2018 that it began the process of dissolving itself as a registered corporate entity. Furthermore, in consideration of its liabilities, it also announced that its remaining cash and assets would be distributed to its creditors.
• 2021: The United States v. Elizabeth A. Holmes, et al. trial began in August 2021 after being delayed for a year due to the coronavirus pandemic. The case was prosecuted by the United States Attorney for the Northern District of California
• 2022: Holmes was found guilty on four counts of fraud in January and was sentenced to 11 years and 6 months in prison in November. Balwani was found guilty on 12 counts in July and was sentenced to 12 years and 11 months in prison in December.
FURTHER READINGS AND REFERENCES
- Carreyrou, J. 2018. Bad Blood: Secrets and Lies in a Silicon Valley Startup. Penguin Random House. ISBN: 9781524731656
- Carreyrou, J. 2015. “Hot Startup Theranos Has Struggled With Its Blood-Test Technology.” The Wall Street Journal. Available online
- Diamandis, E. P. 2015. “Theranos Phenomenon: Promises and Fallacies: Clinical Chemistry and Laboratory Medicine. 53(7): DOI: 1515/cclm-2015-0356
- Ioannidis, J. 2015. “Stealth Research: Is Biomedical Innovation Happening Outside the Peer-Reviewed Literature?” JAMA: Journal of the American Medical Association. 313(7): 663. DOI: 1001/jama.2014.17662
- Kidd, B. A., Hoffman, G., Zimmerman, N., Li, L., Morgan, J. W., Glowe, P. K., Botwin, G. J., Parekh, S., Babic, N., Doust, M. W., Stock, G. B., Schadt, E. E., and Dudley, J. T. 2016. “Evaluation of Direct-to-Consumer Low-Volume Lab Tests in Healthy Adults.” Journal of Clinical Investigation. 126(5): 1734-1744. DOI: 1172/jci86318