A thirst for blood: How Theranos swindled billions

Biotech company Theranos’ bloody downfall may lead to future breakthroughs

Quick notes

• Theranos was a health tech company founded in 2003
• Theranos claimed to have created revolutionary blood-testing technology
• The company went under in 2018, and its founders face criminal and civil charges

Just a few years ago, Theranos was a much-hyped health tech company. The world fell for its astounding claim that it would revolutionize medical tests by only requiring patients to give a drop or two of blood. The company’s over-the-top promises were pushed by founder Elizabeth Holmes and boyfriend, Theranos’ Chief Operating Officer Ramesh “Sunny” Balwani. The two conned investors, corporations, and the public into believing their revolutionary devices worked.

Here’s how the Theranos scandal unfolded.

Holmes was 19 when she founded Theranos

Elizabeth Holmes was a teenage science prodigy. The gifted student filed her first patent application for a drug delivery patch while she was a freshman at Stanford University. Her invention could adjust a drug’s dosage and communicate wirelessly with physicians. In 2003 at the age of 19, Holmes dropped out of school and started Theranos.

Holmes derived the company’s name using a combination of the words “therapy” and “diagnosis,” and assured the public that Theranos would democratize medical care by lowering costs. She said Theranos’ devices could test for hundreds of different diseases and medical conditions. “The right to protect the health and wellbeing of every person, of those we love, is a basic human right,” She told an audience during a 2014 TEDMED talk.

Wikipedia

Theranos’ signature inventions were the “Nanotainer” and the “Edison”

Theranos’ “breakthrough” propriety devices were the Nanotainer and the Edison. The Nanotainer was the company’s tiny blood sample collection device. The company’s website marketed the devices as their “MiniLab” and called it a “less painful and less invasive way than the traditional venous puncture needles.”

Slightly larger than a blender, the Edison was Theranos’ signature blood analyzer, created to perform specialized tests that looked for antibodies and antigens (foreign substances that create an immune response). Once a Nanotainer was placed in the Edison, the machine allegedly produced fast, accurate results.

Holmes soon enticed a lengthy list of prominent people to join her board. It wasn’t long before pharmacies and health care providers were also lining up to partner with the rising firm. At its peak in 2013 and 2014, Theranos was valued at a stunning $10 billion.

Theranos offered 240 different tests, but its machines only produced a handful of results. Scientists were baffled. No one could understand how Theranos’ results could be accurate when blood collected from the vein provides the most precise data. Red flags went up when the company wouldn’t reveal how their technology worked.

Theranos crashes after a Wall Street Journal article is published

In 2015, everything unraveled for Theranos, Holmes, and Balwani, when Wall Street Journal investigative reporter John Carreyou began debunking Theranos’ claims. It wasn’t long before the Securities and Exchange Commission (SEC), Medicare, Medicaid, investors, and scientists began scrutinizing Theranos. The company’s scientists and engineers were forced to admit that the technology didn’t live up to the hype.

In 2018 Theranos collapsed under the weight of its lies. That March, the SEC accused Theranos, Holmes, and Balwani of raising more than $700 million through “an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.”  One year after the story broke, Forbes reported that Holmes’ net worth had plummeted from $4.5 billion to zero.

The SEC removed Holmes as the company’s head, required her to pay a $500,000 penalty, and forced her to return 18.9 million shares of stock. She was also barred from serving as a company officer or director for 10 ten years. The SEC’s said it hoped the sanctions would remedy “the harm done to shareholders.”

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Theranos, Holmes and Balwani face charges

In June 2018, Holmes and Balwani were indicted by a federal grand jury. They pleaded not guilty to 11 criminal counts of wire fraud and conspiracy to commit wire fraud. According to the Department of Justice, Holmes and Balwani face up to 20 years in prison and a $2.75 million fine.

A class-action civil case was filed against Holmes, Theranos and Walgreens in Phoenix’s U.S. District Court by plaintiffs claiming they’d received fraudulent blood-testing service. On September 30, 2019, Holmes’ lawyers filed a motion asking to withdraw representation, stating that Holmes was unable to pay them for their work on her civil suit.

Future breakthroughs from Theranos’ failure

Could something good come out of all of Theranos‘ lies? Several companies believe Theranos’ greatest asset was pinpointing what the public wanted: blood testing that’s fast, easy, cheap, and relatively painless. Tests performed with a small, easy-to-use device like the Edison could advance healthcare in developing countries.

Companies also learned that patients want decentralized testing. On-demand testing will give patients control over when and where they can test their blood, and who can see the results. Thanks to Theranos’ insight, we may be seeing more at-home medical testing soon.

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