Elizabeth Holmes and her startup Theranos have been in the spotlight since 2013, initially for positive reasons but gradually facing negative attention. The 39-year-old founder of the failed blood-testing company, once a billionaire in Silicon Valley, is now expected to begin serving her 11-year sentence in a Texas federal prison on Tuesday, May 30.
Let’s delve into the rise and fall of Theranos and its founder:
The rise of Theranos Theranos, founded in 2003 by a 19-year-old dropout from Stanford University named Elizabeth Holmes, was a privately held healthcare technology company that aimed to revolutionize the blood-testing industry. The company name was a combination of “therapy” and “diagnosis.”
Theranos claimed to have developed a device that could draw, retain, and analyze a few droplets of blood from a patient’s fingertip, detecting a wide range of diseases including cancer and high cholesterol. Over the years, Theranos raised millions of dollars from venture capitalists and private investors based on these claims.
Reports suggest that Holmes initially shared her idea with her professor at Stanford, Dr. Phyllis Gardner. Despite Gardner deeming it ambitious but impossible, Holmes proceeded to launch the company and continued to misrepresent its capabilities for years to come.
In 2013, Theranos gained significant recognition after partnering with the second-largest pharmacy chain in the US, Walgreens. This collaboration led to the opening of the first Theranos Wellness Center in Palo Alto, California, where consumers could access the company’s blood tests. At its peak in 2015, Theranos was valued at nearly $10 billion.
However, it wasn’t until 2015 that the US Food and Drug Administration (FDA) cleared Theranos to use its proprietary blood-collection vials for finger-stick blood tests for herpes simplex 1 virus. This approval turned out to be the only one Theranos would receive for a diagnostic test.
Holmes, named Forbes’ youngest self-made woman billionaire in 2014, held a 50% stake in the company, which contributed to her personal wealth being valued at $4.5 billion.
What did the billion-dollar start-up do? Theranos’ downfall began with explosive reports by The Wall Street Journal (WSJ) in 2015, which revealed that the company relied on other blood machines instead of its own device, named Edison. The reports also highlighted that only a fraction of the tests were performed using Theranos’ proprietary technique, while the rest were conducted with traditional blood vials drawn from the arm. Some patients reported receiving inaccurate diagnoses from Theranos’ device.
Meanwhile, Holmes, who emulated Steve Jobs’ obsession with secrecy, attempted to defend Theranos’ testing practices and dismissed the WSJ’s report as factually and scientifically erroneous. She claimed to have provided over 1,000 pages of documentation to refute the allegations.
The fallout The WSJ persisted with its claims, and in a subsequent article, it revealed that Theranos had been forced to cease using its unapproved device for all tests except one—herpes. The FDA’s reports released in October 2015 raised numerous concerns, labeling Theranos’ proprietary vial as an uncleared medical device.
Later that year, the WSJ published another article alleging management and strategy gaps at Theranos, accusing the company of manipulating tests to produce better results for the Edison machines. Around this time, Holmes removed former Presidential cabinet members Henry Kissinger and George Shultz as directors and established a separate medical board.
Safeway, an American supermarket chain that had invested $350 million in offering Theranos blood tests, withdrew from the deal due to skepticism about the validity of the test results.
The real blow came when the Centers for Medicare and Medicaid Services (CMS) released a damning report in 2016, stating that Theranos’ California lab failed to comply with federal standards, putting patients in immediate jeopardy. Walgreens halted sending lab tests to Theranos’ lab and suspended its services in Palo Alto, eventually closing 40 Theranos Wellness Centers. Additionally, the Securities and Exchange Commission (SEC) launched an investigation into the company.
Closure of Theranos By May 2016, Theranos executive Ramesh “Sunny” Balwani had left the company. During that time, Theranos attempted to rectify the situation by voiding two years’ worth of blood test results and correcting tens of thousands of blood test reports from its proprietary devices. Forbes revised Holmes’ net worth to zero and lowered Theranos’ valuation from $9 billion to $800 million.
Holmes was also banned from running a blood-testing lab for two years by the CMS. In 2018, the SEC charged Holmes and Balwani with massive fraud.
Balwani and Holmes sentenced for fraud Theranos faced numerous lawsuits and ceased operations in September 2018. Holmes agreed to pay a $500,000 fine and relinquish her shares in the company as ordered by the SEC. In late 2016, both Balwani and Holmes were indicted. Holmes tried to shift blame onto others, including Balwani, but acknowledged making mistakes while denying committing crimes. She also claimed that Balwani, her former COO, was sexually and emotionally abusive, affecting her judgment.
Balwani, charged with conspiracy and fraud, received a nearly 13-year prison sentence in late 2022. Holmes, sentenced to 11 years for defrauding investors, will begin her prison term at the Federal Prison Camp Bryan in Texas. Both Holmes and Balwani have been ordered to pay $452,047,268 to the affected investors.
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