Theranos-Elizabeth Holmes: The 9 Billion Dollar Silicon Valley Vampire
In 2014, a blood-testing startup became introduced to the world, and it was named Theranos, and the founder, Elizabeth Holmes, was at the top.
During that time, Theranos was a groundbreaking idea thought up by a woman who was hailed as a genius and styled herself as a female Steve Jobs. Holmes was the world’s youngest female self-made billionaire, and Theranos was one of Silicon Valley’s unicorn startups, valued at an estimated $9 billion.
But then it all came crashing down.
Her Early Life
Holmes went to St. John’s School in Houston. During her time in high school, she was interested in computer programming and claimed that her first business was selling C++ compilers to some Chinese universities. Her parents had also arranged for her to learn Mandarin Chinese. Partway through high school, Holmes had the opportunity to attend Stanford University’s summer Mandarin program. In 2002, Holmes got accepted at Stanford and studied chemical engineering while also working as a student researcher and laboratory assistant at the School of Engineering.
After her freshman year, Holmes operated in a laboratory at the Genome Institute of Singapore. She tested for severe acute respiratory syndrome through the compilation of blood samples with syringes. Additionally, she filed her first patent application for a wearable drug-delivery patch in 2003. In March 2004, she dropped out and used her tuition money as seed funding for a consumer healthcare technology company.
The Story of Theranos
Her motivation for her company came when she attended a summer internship at the Genome Institute of Singapore. She worked on researching and testing for Severe Acute Respiratory Syndrome. Her original plan, for which she received a U.S. patent in 2003, was for a drug delivery system that would administer the drugs, test the effectiveness, and then adjust the dosage as needed, all in one little patch.
But, in 2004, Holmes left Stanford at age 19, and used her college tuition money as seeding, founded a company called “Real-Time Cures.” After several years, Holmes shifted her focus to creating a new form of blood testing, claiming it was based on her terror of needles.
Holmes started the company Real-Time Cures in Palo Alto, California, to “democratize healthcare.” Holmes portrayed her fear of needles as motivation and sought to perform blood tests using only small amounts of blood. When Holmes initially pitched the idea to her Medicine Professor, Phyllis Gardner, at Stanford. Gardner responded, “I don’t think your concept is going to work,” describing it was impossible to do what Holmes was arguing could be done. Many other expert medical professors told Holmes the same thing. Nevertheless, Holmes did not relent, and she triumphed in getting her advisor and dean at the School of Engineering, Channing Robertson, to back up her idea.
In 2003, Holmes created a new company for her idea and named it “Theranos” (a combination of “therapy” and “diagnosis”), and Robertson turned into the company’s first board member and introduced Holmes to many potential investors.
Holmes was a fan of Apple founder Steve Jobs and purposefully copied his style, commonly dressing in a black turtleneck sweater. During most of her public appearances, she talked in a deep baritone voice, even though a former Theranos colleague later said that her natural voice was a bit higher. In a 2005 interview by Moira Gunn, Holmes spoke in a higher voice than she had in later appearances.
Funding and expansion
By December 2004, Holmes had raised $6 million to finance the firm. Before the end of 2010, Theranos had more than $92 million in venture capital and fast forward to July 2011; Holmes had been introduced to former Secretary of State, George Shultz. During their two-hour meeting, he joined the Theranos board of directors. Holmes was acknowledged for forming “the most distinguished board in U.S. corporate history” for the following three years.
Holmes operated Theranos in “ninja-mode” without press releases or a company website until September 2013, when the company revealed a partnership with Walgreens to launch in-store blood sample collection centers. Media attention rose in 2014 when Holmes showed up on the front covers of big-time magazines such as Fortune, Forbes, T: The New York Times Style Magazine, and Inc. Additionally, Forbes acknowledged Holmes as the world’s youngest self-made female billionaire and placed her #110 on the Forbes 400 in 2014. Theranos was estimated to be worth $9 billion and had raised more than $400 million in venture capital. Before the end of 2014, her name appeared on 18 U.S. patents and 66 foreign patents. In 2015, Holmes established agreements with Cleveland Clinic, Capital BlueCross, and AmeriHealth Caritas to use Theranos technology.
The Edison Machine
In theory, the Edison machine was supposed to run a handful of blood tests from a single drop of blood, which sounds as crazy as it is, and we know now that it couldn’t do that. To put it in technical terms, the Edison was designed to perform “immunoassays,” which search for the presence of an antibody or antigen in blood or fluid.
Before the Edison was called “the Edison,” some Theranos employees jokingly called it the “gluebot,” because it was based upon a robot that gives out glue. Inside the device, the robotic arm was supposed to mimic what a chemist did in an IRL lab: take samples, dilute them, add antibodies and a reagent, and reveal a result.
But Edison didn’t even work as it should have. Some of the pieces of the machine would fall off, doors wouldn’t close, and the device couldn’t regulate its temperature properly, and that’s not for lack of trying; engineers had been working tirelessly to work out solutions and were dismissed or fired by Holmes when they tried to raise concerns.
Even though tests weren’t working with the machine, Holmes over and over again lied to investors, including Walgreens, which had the Edison systems in stores — or made up excuses as to why it wasn’t working at the present time. In 2016, Theranos “voided” two years of blood tests because federal regulators said they were putting patients’ health and safety at immediate risk.
The Whistle Blower
Shultz began as an intern at the company in 2013, before his senior year at Stanford University. He’d met Holmes over lunch at the home of his grandfather, George Shultz, an emeritus professor at Stanford Business School who had joined Theranos’ board of directors in 2011. After graduation, Tyler joined Theranos full time.
Red flags immediately started going up. On his first day, Tyler saw Holmes get into a screaming match with a manager, who was then fired. He heard skepticism from coworkers about the firm’s blood-testing technology. He also personally saw that the company’s blood-testing devices did not meet the advertised capabilities of diagnosing illnesses.
At first, Tyler was optimistic that leadership might address his concerns. He met with Holmes, who listened and forwarded the concerns to Chief Operating Officer Ramesh “Sunny” Balwani. In a follow-up meeting, according to Shultz, Balwani berated him, calling him arrogant and ignorant and adding that if his last name weren’t “Shultz,” he’d have already been fired.
John Carreyrou, a journalist of The Wall Street Journal, launched a secret investigation of Theranos when he received a tip from a medical expert who believed the blood-testing device seemed questionable. Carreyrou spoke to many ex-employees who assisted him in acquiring company documents. When Holmes learned of the investigation, she launched a campaign through her lawyer David Boies to stop Carreyrou from publishing. While also making legal and financial threats to the Wall Street Journal and the whistleblowers.
In October 2015, despite Boies’ legal threats and forceful tactics, Carreyrou published a “bombshell article.” The article described in detail how the Edison blood-testing device by Theranos gave inaccurate results and showed that the company had been using commercially available machines made by other manufacturers for much of its testing. Carreyrou continued to expose Holmes in a series of articles and, in 2018, published a book titled, Bad Blood: Secrets and Lies in a Silicon Valley Startup, describing his investigation of Theranos.
Holmes denied all the claims and promised the company would publish data on the accuracy of its tests. She appeared on Jim Cramer’s Mad Money the same evening the article was published. Cramer said, “The article was pretty brutal,” to which Holmes responded, “This is what happens when you work to change things. First, they think you’re crazy, then they fight you, and then all of a sudden, you change the world.”
In January 2016, the Centers for Medicare and Medicaid Services (CMS) sent a warning letter to Theranos after an inspection of its Newark, California laboratory found anomalies with staff proficiency, procedures, and equipment. CMS regulators recommended a two-year ban on Holmes from owning or operating a lab after the company had not resolved complications in the California lab. In March 2016, on The Today Show, Holmes said she was “devastated we did not catch and fix these issues faster” and said the lab would be reconstructed with help from a new scientific and medical advisory board.
In July 2016, CMS officially barred Holmes from owning, operating, or directing a blood-testing service for two years. Theranos appealed that decision to a U.S. Department of Health and Human Services appeals board. Shortly after that, Walgreens put an end to its relationship with Theranos and closed its in-store blood collection centers. The FDA also ordered the company to end the use of its Capillary Tube Nanotainer device, one of the core inventions.
In 2017, the State of Arizona filed suit against Theranos, alleging that the company had sold 1.5 million blood tests to Arizonans while concealing or falsifying essential facts about those assessments. In April 2017, the company settled the lawsuit by agreeing to reimburse the cost of the tests to consumers and to pay $225,000 in civil fines and attorney fees, for a total of $4.65 million. Other reported actions include civil and criminal investigations by the U.S. Securities and Exchange Commission and the U.S. Attorney’s Office for the Northern District of California, an unspecified FBI investigation, and two class-action fraud lawsuits. Holmes denied any wrongdoing.
On May 16, 2017, approximately 99 percent of Theranos shareholders reached an agreement with the company to terminate all current and potential legal action in exchange for shares of preferred stock. Holmes released a portion of her equity to offset any weakening of stock value to non-participating shareholders.
On March 14, 2018, Holmes settled an SEC lawsuit. The charges of fraud included the false claim that the U.S. Department of Defense has been using their technology in combat situations. They also lied when, back in 2014, it claimed to have a $100 million revenue stream. When in actuality, the company only made $100,000. The terms of Holmes’ settlement included relinquishing voting control of Theranos, a ban on holding an officer position in a public company for ten years, and a fine of $500,000.
During its prime in 2015, Theranos had more than 800 employees. Unfortunately, 495 staff members between October 2016 and January 2017 were fired. In April 2018, Theranos filed a WARN Act notice with the State of California, revealing its plans to permanently lay off 105 employees, with only about two dozen employees left. The Employees remaining were laid off in August 2018. On September 5, 2018, the company announced that it had begun the process of dissolving formally, along with its remaining cash and assets to be distributed to its creditors.
The Future of Elizabeth Holmes
Elizabeth Holmes now lives in a luxurious rental building in San Francisco with Billy Evans, who is heir to a hotel chain. The two are reportedly engaged.
Elizabeth Holmes’s lawyers appealed to postpone the case hearing in July 2020 in the event of the pandemic. However, the request to the California Federal Judge was denied. In light of this, the court hearing will happen as scheduled in the summer of 2020. If found guilty, Holmes could be sent to prison for 20 years