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Stanford dropout’s $9B health tech company built on an idea that didn’t pan out

By 2004, Holmes had raised $6 million in capital to fund Theranos, even after being warned by several experts that the technology she proposed would not be able to do what she was saying it could do.


By Lisa Mullen


-History-


Are you someone who quakes at the sight of a needle heading for your arm or maybe seeing your blood coursing through a tube gives you the heebie-jeebies? Elizabeth Holmes sought to ease your fears by creating a machine that could test a tiny amount of blood obtained by pricking a finger which by most standards is relatively easy and painless.


At the age of 19, Holmes, a 2003 Stanford chemical and electrical engineering dropout, began her start-up company Theranos.


By analyzing a blood droplet drawn from a patient’s fingertip, Holmes claimed her proprietary “Edison” testing device could offer a cost-effective test that could measure drug levels, hormone levels and certain markers for cancer.


By 2004, Holmes had raised $6 million in capital to fund Theranos, even after being warned by several experts that the technology she proposed would not be able to do what she was saying it could do.


Disregarding all naysayers, Holmes kept a low profile and continued doing research and fundraising for her company until 2013 when she went public with a website, press releases and media features about her work during the past decade.


By September of that same year, Holmes had hammered out a partnership with Walgreens to launch in-store blood sample collection centers.


Holmes acquired famous donors such as Henry Kissinger, Rupert Murdoch, Betsy Devos, and the Walton family (owners of Walmart). She even convinced former Secretary of State George Shultz to join the Theranos board of directors.


By 2014, Holmes had raised a total of $400 million in funding which led to a $9 billion valuation for Theranos. All these investors would lose millions of dollars when the company was found to be a fraud.


Theranos’s technology had never been submitted for peer review even at the late date of December 2014 nor had Holmes ever clearly stated publicly how the technology worked.

According to a New Yorker profile piece, Holmes explained the device worked by, “a chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel.”


With statements like that, people were beginning to question the veracity of Holmes and her company.

Tipped off by a medical expert early in 2015, John Carreyrou of the Wall Street Journal began a months long investigation into Theranos even as Holmes was lauded as the youngest, wealthiest female billionaire in the United States by Forbes.


The medical expert said the Edison blood testing device and the results Theranos claimed to get from the device were suspicious. Carreyrou dug in and obtained company documents and spoke with ex-employees turned whistleblowers as he researched the tip.


In October 2015, Carreyrou published an article revealing the Edison device’s results were inaccurate and that Theranos had been using other manufacturer’s commercially available machines to do its blood testing. The article led to further investigations.


By July 2016, the Centers for Medicare and Medicaid Services (CMS) warned Theranos they had uncovered irregularities with Theranos’s procedures, equipment and the proficiency of their staff. CMS officially banned Holmes from owning, operating, or directing a blood-testing service for a period of two years.


In March 2018, the U.S. Securities and Exchange Commission (SEC) charged that Theranos and Holmes were deceiving their investors by “massive fraud” through false claims about the accuracy of the company’s blood-testing equipment. Holmes paid a $500,000 fine and returned 18.9 million shares to the company thereby relinquishing control over it.


In June 2018, after two years of investigation by the U.S. Attorney’s Office in San Francisco, a federal grand jury indicted Holmes and Theranos’s Chief Operating Officer and President, Ramesh Balwani on nine counts of wire fraud and two counts of conspiracy to commit wire fraud.


If convicted, the pair face a maximum sentence of up to twenty years each in prison as well as a fine of $250,000 and restitution for each count of wire fraud and conspiracy.


Bloomberg News reported in September 2020, that Holmes’s defense team is exploring a “mental disease” defense in her case.


Holmes’s federal fraud trial is set to start on July 13, 2021 after being pushed back several times due to COVID-19 concerns.

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