The rise and fall of Theranos, the blood-testing startup that went from a rising star in Silicon Valley to facing fraud charges over a wild 15-year span
The darling blood-testing startup had racked up a $9 billion valuation with its big vision to test for a number of conditions off just a small sample of blood, and its CEO Elizabeth Holmes was featured on the cover of business magazines and lists of top executives. But then questions started being raised about how the company's technology worked.As Wall Street Journal reporter John Carreyrou details in his new book, "Bad Blood: Secrets and Lies in a Silicon Valley Startup," the events leading up to the imminent downfall of the company started unraveling even years earlier. The book gives a behind the scenes look into the events propelled the biotech startup, Theranos, into chaos and deceit.
Elizabeth Holmes dropped out of Stanford University in 2003 at the age of 19 to start Theranos, which was then called Real-Time Cures. She was inspired both by her grandfather's medical career, and her summer 2003 internship at the Genome Institute of Singapore. Briefly after the internship she wrote up a patent application for an arm patch that had the ability to diagnose and treat medical conditions.
Shaunak Roy, a PhD student Holmes was assisting in Professor Channing Robertson's lab, joined her at Theranos in May 2004 as its first employee. Robertson joined the company's board as an adviser.Advertisement
In order to raise initial funding, Holmes leveraged several family connections. The first two investors in Theranos were Tim Draper, the father of her childhood friend and former neighbor, and Victor Palmieri, one of her father's long-time friends. By the end of 2004, Holmes had raised nearly $6 million.
The initial design for the Theranos device in 2005 was a cartridge-and-reader system that was dependent on microfluidics and biochemistry. This prototype was dubbed the Theranos 1.0, and the company had plans to license the technology out to pharmaceutical firms to help them catch adverse drug reactions during clinical trials.Advertisement
In November 2006, Henry Mosley was fired from the position of chief financial officer at Theranos after questioning the reliability of its technology and the honesty of the company.
In August 2007, Holmes used the premature Theranos 1.0 in a patient study with terminal cancer patients in Nashville, Tennessee. Theranos also announces that it would be suing three former employees for stealing intellectual property.Advertisement
Theranos developed a new prototype in September 2007, named the Edison. The device was a modification of a glue-dispensing robot from New Jersey company Fisnar. By then, Holmes had poached some of Apple's designers and put them in charge of architecting the overall look and feel of the Edison.
Sunny Balwani joined Theranos in September 2009. He had known Holmes since summer of 2002. Balwani had a background in software engineering and business.Advertisement
By 2010, a startup boom had hit Silicon Valley. That year, Holmes and Balwani approached Walgreens with a business proposition to run health clinics. At the same time, Theranos was also pursuing a partnership with Safeway.
The new partnerships meant that Holmes had to create a new device that could perform more than just one class of blood tests. The miniLab was created in 2011, and was nicknamed the 4s after the iPhone model.Advertisement
In early 2012, Theranos took over blood testing at a Safeway employee health clinic as a beta run. The chief medical officer of Safeway had concerns about the discrepancies and differences between the values given by Theranos. Safeway's CEO brushed it off and retired the following year. Theranos also signed a deal with Walgreens in 2012 to launch its devices in-store but continuously missed agreed-upon deadlines.
Lieutenant Colonel David Shoemaker raised concerns about Theranos' regulatory strategy to the FDA in 2012 after Holmes approached him about deploying the device in the military. The Center for Medicaid and Medicare Services (CMS) then did a surprise inspection, where Balwani told them that the device was still under development. After battling James Mattis, who was on the Theranos board, Shoemaker ultimately agreed to a more limited experiment.Advertisement
At Theranos, things were getting tense. Ian Gibbons, a former scientist at Theranos, committed suicide in May 2013.
In September 2013, Theranos launched its 4s model with a new website and an op-ed piece by Holmes in The Wall Street Journal, despite protests from several of the company's scientists saying that the technology was not ready.Advertisement
Partner Fund purchased 5.6 million shares of Theranos at a price of $17 a share in February 2014. Theranos was valued at $9 billion and Elizabeth Holmes had a net worth of almost $5 billion.
Theranos and Holmes started gaining media attention, gracing the cover of Fortune magazine in June 2014.Advertisement
Wall Street Journal investigative reporter John Carreyrou got a tip about Theranos in early February 2015. On February 26, he contacted a former lab director at Theranos who told him about unethical and harmful practices there. At that time the company was operating at a limited capacity and had been generating false and unreliable results for patients. Theranos had also been thinking of conducting HIV tests before the former lab director talked Holmes and Balwani out of it.
While Carreyrou was investigating the company, business carried on as usual. In July 2015, Theranos got its first FDA approval. By this point, scientists were starting to raise some questions about the company's technology.Advertisement
Shortly before Holmes was scheduled to speak at a conference, Carreyrou published his first story, revealing the company's struggles to develop its blood-testing technology. Holmes went on stage and appeared on TV to defend her company over the coming weeks.
But the facts were starting to come out. In documents related to the FDA's visit to Theranos' lab, the agency told the company that it was shipping an "uncleared medical device."Advertisement
By November, the partnership with Safeway had fallen through, and the Walgreens relationship was on thin ice.
By early 2016, more regulators were finding problems with Theranos. In January, the Centers for Medicare and Medicaid Services, which regulate blood-testing labs, cited concerns that one of Theranos' labs posed "immediate jeopardy" to patients. Later in April, the SEC started its investigation into the company.Advertisement
In May 2016, Theranos President Sunny Balwani left the company, leaving Holmes as the sole top executive.
In June, Walgreens ended its partnership with Theranos and closed all of the Wellness Centers it had opened in Arizona and California.Advertisement
In July, CMS banned Holmes from the lab-testing industry for two years. Theranos later in 2017 settled with the regulatory body for $30,000. As part of the settlement, Theranos agreed not to own or operate a clinical lab until 2019.
The following month, Theranos finally presented at a scientific conference, though the details about the company's technology were still lacking. Theranos appeared to be pivoting toward focusing on its new sample processor, the miniLab.Advertisement
The presentation over the summer foreshadowed Theranos' pivot just a few months later, in which the company shut down its clinical labs, laid off about 340 employees, and went to work solely on its miniLab technology.
Lawsuits then started piling up from all angles including Walgreens, investors and patients in Arizona. Those cases all ultimately got settled, with Theranos paying millions to refund patients who took its tests in Arizona.Advertisement
Some of the big names on Theranos' board departed shortly after, including former US Secretaries of State Henry Kissinger and George Shultz. The company also went through another round of layoffs.
By the end of 2017, Theranos was in need of a cash infusion and made a deal with Fortress Investment Group for $100 million in secured debt financing to get it through 2018. The deal relied on Theranos hitting certain development milestones as it worked to get its Zika virus approved by the FDA.Advertisement
Then in March, the SEC charged Holmes, Balwani, and the company with "massive fraud," though Theranos and Holmes settled. As part of the resolution, Holmes paid a fine and cannot be a director or officer of a publicly traded company for 10 years.
Facing setbacks in its Zika test development, Theranos laid off the majority of its remaining employees and appealed to investors for more funding.Advertisement
Theranos said in its December letter to investors that the Department of Justice is still investigating the company, meaning that criminal charges could come to Holmes and Balwani. The company is still in danger of defaulting on its agreement with Fortress. Either event may mark the end of the 15-year-old company's saga.
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