The Theranos Dream Turning into a Fraud Nightmare and Scam
In 2003, a 19-year-old Stanford University dropout named Elizabeth Holmes promised to revolutionize the medical testing industry with a device that could run numerous tests using just a few drops of blood from a finger prick. Motivated by a fear of needles, she saw a unique opportunity to change the practice of blood draw, blood analysis, and the associated business model. Despite skepticism from most medical experts, Holmes believed in her idea and pursued it relentlessly.
She founded her company, initially called Real-Time Cures, with the dream of “democratizing healthcare.” She quickly renamed it Theranos, a portmanteau of “therapy” and “diagnosis.” Her company developed a technology called the “Edison” machine, claimed to be capable of running hundreds of tests quickly, accurately, and cheaply.
Seduced by the young woman’s intellect, charisma, and determination, prominent public figures in the finance and political world, such as George Schultz, Henry Kissinger, and James Mattis, joined Theranos’ board of directors. With strong support from this influential board, Holmes raised over $700 million on the promises of her revolutionary idea. At its peak in 2015, Theranos employed over 800 people and was valued at around $9 billion, with Holmes owning more than 50% of the company. Theranos established high-profile partnerships with major companies like Walmart and Safeway, which paid Theranos hundreds of millions of dollars for exclusivity on the innovative, all-in-one blood collection and analysis hardware.
Holmes’ rise as a self-made young female entrepreneur was remarkable and unprecedented. She received widespread media attention and accolades, gracing the covers of Fortune, Forbes, and Inc. magazines, and was often compared to Steve Jobs for her vision and ambition.
Everything seemed to be running smoothly for Holmes and Theranos until questions began to emerge about the accuracy and reliability of Theranos’ technology. In 2015, a Wall Street Journal journalist published a series of articles exposing the flaws and inaccuracies in Theranos’ testing methods. The Center for Medicare & Medicaid Services (CMS), a federal agency, found serious deficiencies in Theranos’ California laboratory. In 2016, the CMS banned Holmes from owning and operating blood-testing laboratories for two years.
From that point, the downfall was swift. Walgreens and other partners severed ties with Theranos. The company voided two years of blood test results and faced numerous lawsuits from patients, investors, and partners. In 2018, Holmes and her former partner Ramesh “Sunny” Balwani were charged with multiple counts of fraud. In January 2022, Holmes was found guilty on several counts of fraud and received an 11-year prison sentence. Theranos was dissolved in 2018, and its technology and patents were sold off to pay creditors.
Is There Anything Left from the 19-Year-Old Idealist Entrepreneur’s Story?
The Theranos scandal is often cited as a cautionary tale about the dangers of overhyping unproven technology and the importance of regulatory oversight. Yet, one might wonder if the Theranos saga left anything positive, a silver lining contrasting with the false claims, misled investors, and outright fraud.
Indeed, there is. Elizabeth Holmes can be given credit for at least one thing: her vision and her dream as a very young entrepreneur who genuinely wanted to change the world with an idea everyone thought was not viable. Her approach to fulfilling her vision can be criticized, but the innovative concept of blood collection and testing had merit and is now being leveraged by other companies. These companies are marking the beginning of a new medical practice and business model, guided by a new set of reinforced regulations designed to prevent another Theranos-like debacle.
Aware of the stain Theranos left on the diagnostic blood testing ecosystem and with the public, these companies are advancing cautiously, communicating transparently, and striving to commercialize viable and safe solutions. As Theranos touted a full solution with capabilities their technology could not meet, these companies are taking progressive steps, explaining, validating, and obtaining FDA approval for each stage.
For instance, Becton, Dickinson & Company (BD) designed a hand-held finger-prick blood collection device (BD MiniDrawTM), while Babson Diagnostics proposes a sample-handling machine. BD and Babson collaborate to offer an end-to-end process that still involves full-scale lab testing. Drawbridge Health received approval for their upper arm blood collection system, OneDrawTM, and Truvian Health is planning to launch a benchtop blood testing system in 2025, designed to accommodate very small samples of blood and perform routine tests like blood count with differential, metabolic panel, lipid panel, and more.
Eric Olson, founder and chairman of Babson Diagnostics, summarizes today’s opportunity: Theranos has “always been a two-edged sword in that it put a stain on the integrity of the industry that I don’t think will ever go away, and at the same time, it awoke the idea that things can be different.”
I wonder what would Elizabeth Holmes say to her younger self if she could talk to her today?
