Theranos

• 1. Introduction

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  Theranos was an American health technology company that promised a new kind of blood test, and it was founded by Elizabeth Holmes in 2003, when she was 19 years old. The privately held company went on to raise more than $700 million from venture capitalists and private investors. At its peak in 2013 and 2014, it carried a valuation of $9 billion. Its pitch was simple. Compact automated devices would run blood tests that were fast and accurate and needed only a very small sample. Those claims were proven to be false. How did a young founder gather so much money and so many famous supporters? Who finally demanded proof, and what did they find? And what became of the people who built the company, trusted it, or paid for it?

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• 2. An Idea at Stanford

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  As an undergraduate at Stanford University, Elizabeth Holmes imagined a wearable patch. It would adjust the dose of a drug and alert doctors to changes in a patient's blood. From that sketch she moved on to lab-on-a-chip technology for blood tests. Her goal was a company that made testing cheaper, more convenient and open to ordinary consumers.

  Holmes left Stanford and used an education trust from her parents to start the business. Her first name for it was Real-Time Cures. She dropped that after deciding that people were skeptical of the word cure. The new name, Theranos, was built from the words therapy and diagnosis.

  The early operation was modest. In 2004 the company worked from a rented basement near the Stanford campus. By December of that year Holmes had raised more than $6 million at a valuation of $30 million. Channing Robertson, a chemical-engineering professor at Stanford, signed on as technical adviser and became the company's first board member.

  Sunny Balwani arrived in 2009 as president and chief operating officer. He was a software engineer, Holmes's boyfriend at the time, and someone she had met during high school. Holmes held the post of chief executive from the start until 2018.

  By the end of 2010, Theranos held more than $92 million in venture capital.

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• 3. The All-Star Board

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  In July 2011, Holmes was introduced to George Shultz, a former US secretary of state. After a two-hour meeting, he joined the Theranos board of directors that same month. Over the next three years, Shultz helped bring in almost all of the outside directors. Observers later described the result as "the most illustrious board in U.S. corporate history".

  The roster read like a Washington directory. William Perry was a former secretary of defense, and Henry Kissinger was a former secretary of state. Sam Nunn and Bill Frist were former senators, and Frist was also a heart-transplant surgeon. Gary Roughead was a retired admiral, and Jim Mattis was a Marine Corps general. Richard Kovacevich had led Wells Fargo, and Riley P. Bechtel was chairman of the board and a former chief executive of Bechtel Group. Critics pointed out that the board consisted mainly of directors with diplomatic or military backgrounds, not medical ones.

  In April 2016, Theranos announced a medical advisory board of laboratory experts, which included past leaders of the American Association for Clinical Chemistry. Another member was William Foege, a former director of the US Centers for Disease Control and Prevention. By May 2016 the directors included David Boies, a founder and chairman of the law firm Boies Schiller Flexner, and Fabrizio Bonanni, a former Amgen executive.

  The grand lineup did not last. In November 2016, Theranos announced that its celebrity-studded board of counselors would be scrapped in January 2017. Bechtel departed in December 2016, and Mattis resigned in January 2017 as the incoming nominee for secretary of defense. By December 2016 the board had shrunk to Holmes, Foege, Bonanni and Daniel Warmenhoven, a former chief executive of NetApp.

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• 4. The Edison and the Nanotainer

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  "We tried everything else and it failed, so let's call it the Edison." That is how Holmes reportedly explained the name of the company's analysis machine, which honored the inventor Thomas Edison. Refinery29 suggested a link to a famous Edison line: "I've not failed. I've just found 10,000 ways that won't work."

  The process began with a finger prick. The blood passed through a sample collection device into a small vessel that Theranos called the nanotainer. It stood just 12.9 mm tall and held a couple of drops.

  One Edison patent described a point-of-care system connected to the Internet. It would receive instructions about which tests to run and send the results back online. The results would be compared against medical data available on the Internet, and the Edison would then run extra, more targeted tests.

  The patent was oddly unclear about how much blood the machine really needed. One section said a sample of about 10 drops was required. Another said the Edison would need less than one drop.

  Critics also noted that the technology had never been peer reviewed. Theranos said it had data proving the accuracy and reliability of its tests and that the data would be published. In February 2016, the company said it would let the Cleveland Clinic complete a validation study.

  Outside scientists did not wait. In March 2016, a study by 13 scientists appeared in the Journal of Clinical Investigation. It found Theranos results flagged outside their normal range 1.6 times more often than results from other testing services. It also reported that 68 percent of the lab measurements evaluated showed significant variability between services. Lipid panel results were called nonequivalent.

  In August 2016, Theranos introduced a robotic unit called the miniLab at the annual meeting of the American Association for Clinical Chemistry. The company presented no data to support the device's claimed abilities.

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• 5. Partners and Investors

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  In 2012, Safeway invested $350 million to retrofit 800 locations with clinics that would offer in-store blood tests. Deadlines slipped, and a trial clinic at Safeway's corporate offices produced questionable results. The deal was terminated in 2015.

  Walgreens signed on in 2013, planning in-store tests at more than 40 locations. Theranos tests were also reportedly used on drug trial patients for GlaxoSmithKline and Pfizer. In October 2015, both drug companies said they had no active projects with Theranos.

  Several announcements arrived in 2015, the company's most respectable year. In March, the Cleveland Clinic announced a partnership to test the technology and cut the cost of lab tests. In July, Theranos became the lab-work provider for the Pennsylvania insurers AmeriHealth Caritas and Capital Blue Cross. That same month the Food and Drug Administration approved the company's fingerstick device for the herpes simplex virus HSV-1 outside a clinical laboratory. The Arizona BioIndustry Association named Theranos its 2015 Bioscience Company of the Year.

  The money behind it came in stages. A raise of $45 million in 2010 valued the company at $1 billion. Heavy news coverage began in September 2013, after profiles in the San Francisco Business Times and The Wall Street Journal. By 2014, Theranos had raised more than $400 million.

  The timing helped. Between 2004 and 2016, the cash available to private equity and venture capital firms grew from $400 billion to $1.5 trillion. Investors were under pressure to put that capital to work. Insufficient due diligence and fraudulent business practices then produced the losses.

  In May 2018, the reporter John Carreyrou wrote that American business and government leaders had lost more than $600 million by investing privately in Theranos. The biggest stakes belonged to the Walton family at $150 million, Rupert Murdoch at $121 million, Betsy DeVos at $100 million and the Cox family of Cox Media Group at $100 million. Larry Ellison also invested.

  A year earlier, in May 2017, holders of more than 99 percent of the shares had released their claims against Theranos in return for a new class of preferred stock.

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• 6. The Exposure

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  In February 2015, the Stanford professor John Ioannidis pointed out in the Journal of the American Medical Association that Theranos had published no peer-reviewed research. In May 2015, Eleftherios Diamandis, a professor at the University of Toronto, analyzed the technology. He concluded that "most of the company's claims are exaggerated".

  Holmes tried to answer doubt with prestige. She invited the then Vice President, Joe Biden, to tour the facility, and he praised what he saw. To hide the lab's true operating conditions, Holmes and Balwani had built a fake lab for the visit.

  Then came October 2015, when John Carreyrou of The Wall Street Journal reported that Theranos ran its tests on traditional blood testing machines, not its own Edison devices. He also reported that the Edison might give inaccurate results. A key source was Tyler Shultz, a Theranos employee from 2013 to 2014 and the grandson of the director George Shultz. Tyler Shultz first took his concerns to company management. When that failed, he spoke to Carreyrou. He also reported the company to the New York State Department of Health for violations of laboratory rules, using an alias.

  Theranos called the allegations "factually and scientifically erroneous". It sent lawyers after sources in the story, including Shultz, to stop them from talking to the press. Walgreens suspended its plans to expand blood-testing centers, and the Cleveland Clinic said it would work to verify the technology.

  The damage to Holmes herself was swift. By June 2016, Forbes estimated that her personal net worth had fallen from $4.5 billion to "nothing". Balwani had left his post as president and chief operating officer the month before.

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• 7. Regulators and Collapse

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  The Food and Drug Administration had already been looking at the company. In 2012, the Department of Defense asked it to examine the Theranos devices, which were not yet on sale and so needed no approval. Inspection reports from 2014 and 2015 found that the blood collection containers were "not validated under actual or simulated use conditions". The agency classified the nanotainer as a Class II medical device, which carries labeling, performance and surveillance duties. Theranos insisted it was Class I and free of such rules. After the 2015 inspection, the company suspended all tests except the HSV-1 test.

  In September 2015, the Arizona Department of Health Services reported problems at the Scottsdale lab, and the Arizona Republic revealed them in November. In January 2016, the Centers for Medicare and Medicaid Services wrote to Theranos about its Newark, California lab. The letter cited "immediate jeopardy to patient health and safety", tied to a test that determines the correct dose of the blood thinner warfarin.

  In May 2016, Theranos announced that it had voided two years of results from the Edison device. In June, it said about 1 percent of results from its own machines had been voided or corrected. Within two weeks, Walgreens terminated the partnership. In July, the regulators revoked the Newark lab's certificate. They also barred Holmes and Balwani from owning or operating a clinical laboratory for two years, and Medicare and Medicaid payments were suspended. In August, Theranos withdrew a request for emergency clearance of a Zika virus test after inspectors found missing safeguards.

  The layoffs followed. In October 2016, Theranos said it would close its labs and wellness centers and cut about 40 percent of its workforce. In January 2017, a further 41 percent, about 155 people, lost their jobs, and the last blood-testing facility closed after a second failed inspection.

  The lawsuits kept coming. In April 2017 the company settled with the regulators, agreeing to stay out of blood testing for at least two years. It also signed a consent decree with Arizona Attorney General Mark Brnovich and agreed to refund $4.65 million to residents who had paid for tests. Walgreens sued in November 2016, first seeking $140 million. A settlement was announced in August 2017, and Theranos told investors it was for less than $30 million.

  The last rescue attempt came in December 2017. Fortress Investment Group, owned by Softbank Group, loaned Theranos $100 million for 4 percent of the company, secured by its patents. In April 2018 the company laid off most of its workers. It now had fewer than 25 employees, down from 800 at its peak. The Page Mill Road headquarters in Palo Alto, which cost $1 million a month in rent, had been vacated in 2017.

  On the 4th of September 2018, Theranos told investors by email that it would cease operations and give its remaining cash to creditors, since no buyer had appeared. Equity in the company became worthless. On the 12th of September, it transferred its patents to Fortress in exchange for cash to be distributed to creditors.

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• 8. Verdicts and Retellings

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  In March 2018, the US Securities and Exchange Commission charged Theranos, Holmes and Balwani with civil fraud. It described an "elaborate, years-long fraud" in which investors were deceived about a portable blood analyzer. Holmes settled by paying $500,000, giving up 19 million shares and accepting a ten-year bar from leading any public company. Balwani did not settle.

  On the 15th of June 2018, Holmes and Balwani were indicted on charges of wire fraud and conspiracy to commit wire fraud. The indictment said investors, doctors and patients were defrauded. The case was assigned to Judge Lucy H. Koh. The COVID-19 pandemic pushed the trial back repeatedly, and Holmes's trial finally began on the 31st of August 2021. In February 2021, prosecutors accused Holmes and other executives of destroying evidence, namely the history of internal testing, including accuracy and failure rates.

  On the 3rd of January 2022, Holmes was found guilty of wire fraud and of conspiracy to commit wire fraud. She was sentenced in November 2022 to 11 years and 3 months in prison. On the 30th of May 2023, she began serving her sentence at Federal Prison Camp, Bryan, in Bryan, Texas. Balwani's trial began in March 2022, and in July he was convicted on all 12 counts. In December 2022 he received 12 years and 11 months in prison, plus three years of probation.

  The patents had a strange second life. Fortress later took advantage of market conditions during the COVID-19 pandemic and set up a shell company called Labrador Diagnostics. That company sued a maker of COVID-19 tests, claiming the test violated the Theranos patents. Theranos was still being issued new patents in 2019 because applications take so long.

  The story soon reached bookstores and screens. In May 2018, Carreyrou published Bad Blood: Secrets and Lies in a Silicon Valley Startup. In January 2019, ABC News Nightline released a podcast and documentary called The Dropout. Hulu, Star+ and Disney+ premiered a miniseries of that name in March 2022, with Amanda Seyfried as Holmes. Alex Gibney's documentary The Inventor: Out for Blood in Silicon Valley debuted at the Sundance Film Festival and reached HBO platforms in March 2019.

  A feature film of Bad Blood was reportedly planned, written by Vanessa Taylor and directed by Adam McKay, with Jennifer Lawrence as Holmes. In January 2022, McKay said preparations had resumed and that Lawrence was learning Holmes's speech pattern. In November 2022, Lawrence announced she was no longer involved.

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