The Theranos Takedown

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The riveting chronicle of Elizabeth Holmes’ Theranos, where innovation’s allure masked a tale of manipulation.


Elizabeth Holmes was born on 3 February 1984, to mother Noel, a Congressional committee staffer, and father, Christian Holmes, an employee at USAID. At the age of seven, Elizabeth became obsessed with building her own time machine. When she was nine, she told her extended family, with utmost seriousness and determination that she wanted to become a billionaire when she grew up. Her compulsive obsession with winning often came to light during childhood Monopoly matches where she played patiently if she was winning, but stormed off whenever it seemed as if the game would turn against her.

CREATING THERANOS

Elizabeth was a straight-A student in high school, and even started her own business, selling C++ compilers, a software that translated computer codes, to Chinese schools. A Stanford summer program in chemical engineering landed her a research scholarship and she spent her freshman summer researching at the Genome Institute in Singapore.

While she was still a sophomore at Stanford, Elizabeth dropped out to start her own company. Inspired by her great-great-grandfather, who was a surgeon, Elizabeth decided to delve into the field of medicine. With the blessing of one of her professors, Channing Robertson, who was later recruited as one of her first board members, she founded Real-Time Cures, a name which was later changed to Theranos. The company claimed to revolutionise the way in which blood work was done across the country, using only a smear of blood instead of the vials it currently requires of its patients. It also made tall claims of carrying out over 200 tests ranging from diabetes to cancer, making the process a smoother, quicker and less painful one for all parties.

HAND-IN-HAND TO SUCCEED

Channing Robertson was pivotal in Elizabeth’s life, getting her in touch with various investors and venture capitalists, and she went on to raise USD 6 million for her company by the end of 2004. The company’s operations were stealthy in the initial years, without a website or even so much as a press release, and while Elizabeth was shining as a young entrepreneur by 2013, the company would remain shrouded in mystery until its demise.

Theranos went public in 2013, and only two years later, she entered into a partnership with a popular US drugstore chain called Walgreens. Her company’s tests were now being offered in more than 40 shops across town. Elizabeth, however, was more ambitious. She wanted her tests to be available within a five-mile radius of every American household.

Celebrated as an overnight success, Elizabeth was hailed as a visionary entrepreneur, appearing on the covers of publications such as Fortune, Forbes and Inc. Theranos was being valued at USD 9 billion, making Elizabeth Holmes the youngest billionaire in the USA. The same year, she made the Time’s list of 100 Most Influential People and was even praised by then Vice President, Joe Biden for her inspirational career trajectory.

Throughout the lifetime of Theranos, Elizabeth received support from some of the most influential names in America, and perhaps, the world. Channing Robertson was crucial in maintaining a credible façade of the company, rooting it in indisputable science, defending it against more invasive scrutiny and evading any doubts about the effectiveness of the tests. He did so with such conviction that it has still not been proved beyond a reasonable doubt whether the professor was even aware of the deficiencies within the system himself.

Besides Robertson, Elizabeth met with former US Secretary of State, George Shultz, and convinced him to become a board member of Theranos. His connections proved crucial to the company’s investments as the board quickly filled up with more influential names such as former Secretary of State Henry Kissinger, former Secretary of Defence William Perry, former General Jim Mattis, and former Wells Fargo Bank CEO Richard Kovacevich. The list of investors grew to include the Walton family (founders of Walmart), media mogul Rupert Murdoch, and former Secretary of Education, Betsy DeVos. All these investors would lose money when Theranos subsequently collapsed.

CRACKS IN THE SYSTEM

The red flags were evident from as early as 2009, although kept well under wraps. When Ramesh Balwani joined Theranos in 2009, nobody knew that he was in a secret relationship with Elizabeth. Balwani became known for his quick temper and forceful attitude towards the employees, who were all too certain that the man had no previous knowledge of biomedicine and definitely no experience of working in a tech start-up. One other thing that should have raised more concern but did not was a mismatch in the number of tests the company claimed it could carry out. Some people maintained it was 200. Another company profile of Theranos found with Inc. said the number was 250.

Employees observed that even Edison, the device responsible for carrying out these tests, was not delivering the correct reports. Reliable blood reports were the cornerstone of the company’s claim to fame, but it was here that the company was floundering the most. In fact, it was only the Herpes virus that was recognised as reliable by the US Food and Drug Administration (FDA) in July of that year. In order to actually perform the large number of tests advertised by the company, Theranos bought new equipment from Siemens, a fact that was cleverly concealed from patients, business partners and investors.

Employees and consequent whistleblowers did their best to draw the management’s attention to the erroneous reports but their observations were largely ignored. Rather than looking for a solution to the problem, the company focused on sifting through the erroneous results to only filter out the correct data. Meanwhile, Balwani tried to pressure the more outspoken employees into silence. Ex-staff from Theranos retrospectively described the culture of the company as a mix of distrust, mental pressure and deceit. It was mentioned that even Elizabeth was known to lie to her employees from time to time, alleging that she was out of office, when in reality, she was just a few feet away, in her cabin. Employees either resigned or were fired when they probed too much or became too critical.


Employees observed that even Edison, the device responsible for carrying out these tests, was not delivering the correct reports. Reliable blood reports were the cornerstone of the company’s claim to fame, but it was here that the company was floundering the most.


FALL OF THE CURTAIN

The two whistleblowers who finally brought the entire company down – Tyler Shultz and Erika Cheung –  joined in 2013. Tyler was a supporter of the Holmes vision and was placed in a full-time position on the diagnostic team. He soon started to encounter problems with the test results, and fuelling his suspicions further were the facts that in spite of the errors, reports were being recorded in the internal statistics department and data was being altered. He also found it odd that no one really knew how the Edison worked. In fact, no one was allowed inside the laboratory where the machines were installed. He had no idea at the time that the tests were not being run on the Edison at all, but through third-party equipment. When he told Elizabeth of his grave observations, she refused to grant him a second meeting. Instead, Balwani asked him, in derogatory terms, to summarise his findings in an email.

Cheung too, was lured into the company inspired by Elizabeth’s strong sense of purpose. Working at the Theranos lab for six months between 2013 and 2014 quickly made her realise that things were not as they seemed from the outside. She found out that faulty tests were being erased – a fact she proved when she decided to have her own blood work done by the Edison. The machine came up with an erroneous result of Vitamin D deficiency, even though the same blood results from other labs showed no such deficiency. She brought the problems to Balwani who questioned her competence. Hurt and alarmed by everything she saw at the company, Cheung resigned.

What was even more alarming in the entire situation, was how these employees were treated after they quit the company. Cheung was followed by private investigators who were hired by Theranos, to the point where she had to change her residence, as well as her phone number, more than once. She was subsequently sent a threatening email from a Theranos corporate lawyer. The grandson of the former Secretary of State and board member of Theranos, George Shultz, took the matter to his grandfather, who promptly asked him to leave the company. Theranos lawyers also pressured him to sign a confidentiality agreement, which he refused. The whistleblowers finally turned to regulatory agencies such as the Centers for Medicare & Medicaid Services (CMS), and journalists like Carreyrou.

The house of cards finally came down with Walgreens terminating its contract with Theranos, a warning of Theranos endangering patient health by CMS, an investigation by law enforcement and the Financial Industry Regulatory Authority (FINRA), and finally, the resignation of Balwani. Walgreens and the other partners sued Theranos and in 2018, the SEC announced charges against Elizabeth and Balwani. Elizabeth stepped down as CEO of the company and was banned from running a public trading company for the next decade. June 2018 saw California law enforcement press charges against both Holmes and Balwani, and Theranos was shut down in September, only five years after its official launch in 2013. Balwani surrendered himself on 20 April 2023, and Holmes on 30 May 2023 after a series of trials and appeals. They have both been held responsible for their actions and have been ordered to pay USD 452 million to the victims of the Theranos fraud.

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