A company once valued at $9-billion USD sits at the center of a huge controversy. Once poised to disrupt the medical testing industry, Theranos now stalls without funding and leadership.
The U.S. Securities and Exchange Commission (SEC) sanctioned Theranos founder and president in March 2018 for defrauding investors. But this only came to light thanks to a 2015 exposé penned by The Wall Street Journal reporter John Carreyrou.
The company still operates on a daily basis for now, but they are near bankruptcy. What’s worse, current Theranos employees made headlines again for the wrong reasons.
How did a vision of accessible, affordable blood testing transform into fraud?
Lofty Goals Proved to be Impossible
Some of you reading this might remember the buzz around a company named “Theranos” years ago. In fact, CEO Elizabeth Holmes dropped out of Stanford University in 2004 to start the company.
Similar to other tech startups, Theranos sought to disrupt the medical testing industry. The goal was to provide cheaper, more available, and more efficient alternatives for blood testing than is currently provided. Initially, they thought they could do all of this with just “a few drops of blood”.
Theranos relied on their chief device (coined “Edison”) to support their disruptive vision. The original goals of the company included five objectives:
- Extracting blood without using syringes
- Making a diagnosis from a just few drops of blood
- Automating tests in order to decrease the possibility of human error
- Processing the tests more quickly
- Executing all of these objectives more economically
As it turns out, they couldn’t live up to their promises. The 2015 WSJ exposé led to several revelations including:
- “failing to report test results that raised questions about the precision of the Edison system”
- Misled investors during product demonstrations, presentations, and media presence
- Lied about Theranos products being used by the U.S. Department of Defense
- Violating multiple stipulations of the SEC
News about the once-innovative company did not improve after the SEC sanction.
The Exposure of Elizabeth Holmes
CEO Elizabeth Holmes emulated Steve Jobs with black turtlenecks and lofty rhetoric. She appeared on various magazine covers from Forbes to Fortune to Glamour.
The New Yorker profiled Holme’s life, describing her privileged childhood where her parents encouraged her to “dream big”. She dropped out of Stanford University and incorporated Theranos in April 2004. Holmes raised $6-million USD in funding for the business in less than a year.
The world lauded Holmes as “being the next Steve Jobs” and the next Silicon Valley legend.
But Holmes never seemed to explain how the nano-trainers and “Edison” functioned. Despite this, Holmes garnered large-scale attention, eventually partnering with Walgreens.
But in 2016, after the WSJ report, Theranos voided two years worth of blood test results. Even before the WSJ bombshell, Theranos had to settle a lawsuit with one of its biggest investors in 2014. The revelations about fraudulent test results only exacerbated things.
In 2017, Theranos settled their suit with Walgreens to the tune of $30-million USD. Before this, Walgreens had operated around 40 Theranos blood-testing locations.
Theranos could not employ scientists to save itself since Holmes forbade scientists from writing peer-review papers. Holmes, once again, emulated Steve Jobs saying:
“This is what happens when you work to change things . . . First they think you’re crazy, then they fight you, and then, all of a sudden, you change the world.”
Only that change would never come for Holmes and her cohorts at Theranos.
The SEC sentenced Elizabeth Holmes and company president Ramesh “Sunny” Balwani in March of 2018. Neither of them has confirmed nor denied any allegations in the SEC complaint.
The Downfall Seems to Continue for Theranos
Though the company website still showcases its Theranos miniLab, news surrounding the company is not good.
Business Insider reported that Theranos employees played a video game similar to the classic “Space Invaders”. But there was one distinct difference: you shot at John Carreyrou’s face.
This comes after knowledge that employees also chanted “F— you, Carryrou” at an all-company meeting.
Despite the ire, the original goals of the company are noble and worth pursuing. Are any other startups taking up the mantle fraught with potential failure?
The Original Vision is Still Possible
The move into “disruptive diagnostics” didn’t stop with Elizabeth Holmes.
Several promising startups continue the work Theranos claimed to be doing. One has even raised almost $100-million USD in funding since 2007. Some of the stories sound familiar, while others approach slightly different goals. Here are some of the main frontrunners of this field:
- Genalyte – San Diego based blood-testing company with a machine to provide blood test results in 15 minutes from “a few drops of blood”
- Orphidia – part of the Houston Medical Center Innovation Institute, this company seeks to diagnose 40 blood tests in 20 minutes using microfluidics
- Athelas – a low-cost blood test alternative designed to detect diseases such as the flu, as well as cancer and bacterial infections even at home
- Karius – a diagnostic test to quickly detect infectious disease DNA from more than 1,250 pathogens using a standard blood draw
Some of the key differences between all of these companies involve methodology. For instance, Orphidia uses microfluidics to test using automation. Karius uses a full blood draw to detect infectious diseases through DNA fragment analysis.
With Theranos as a cautionary tale, as well as inspiration, perhaps these medical disrupting startups will be successful.