Shaunak would prick his finger and milk a few drops of blood from it. Then he would transfer the blood to a white plastic cartridge the size of a credit card. The cartridge would slot into a rectangular box the size of a toaster. The box was called a reader. It extracted a data signal from the cartridge and beamed it wirelessly to a server that analyzed the data and beamed back a result. That was the gist of it.
Well, there was a reason it always seemed to work, Shaunak said. The image on the computer screen showing the blood flowing through the cartridge and settling into the little wells was real. But you never knew whether you were going to get a result or not. So they’d recorded a result from one of the times it worked. It was that recorded result that was displayed at the end of each demo.
The pharmaceutical companies were going to use Theranos’s blood-testing system to monitor patients’ response to new drugs. The cartridges and readers would be placed in patients’ homes during clinical trials. Patients would prick their fingers several times a day and the readers would beam their blood-test results to the trial’s sponsor. If the results indicated a bad reaction to the drug, the drug’s maker would be able to lower the dosage immediately rather than wait until the end of the trial. This would reduce pharmaceutical companies’ research costs by as much as 30 percent. Or so the slide deck said.
During his career in public service, Chris Holmes had overseen humanitarian efforts like the 1980 Mariel boatlift, in which more than one hundred thousand Cubans and Haitians migrated to the United States. There were pictures around the house of him providing disaster relief in war-torn countries. The message Elizabeth took away from them is that if she wanted to truly leave her mark on the world, she would need to accomplish something that furthered the greater good, not just become rich. Biotechnology offered the prospect of achieving both.
Elizabeth incorporated the company as Real-Time Cures, which an unfortunate typo turned into “Real-Time Curses” on early employees’ paychecks. She later changed the name to Theranos, a combination of the words “therapy” and “diagnosis.”
The TheraPatch, as the document called it, would contain a microchip sensing system that would analyze the blood and make “a process control decision” about how much of a drug to deliver. It would also communicate its readings wirelessly to a patient’s doctor.
MedVenture Associates wasn’t the only venture capital firm to turn down the nineteen-year-old college dropout. But that didn’t stop Elizabeth from raising a total of nearly $6 million by the end of 2004 from a grab bag of investors.
As the money flowed in, it became apparent to Shaunak that a little patch that could do all the things Elizabeth wanted it to do bordered on science fiction. It might be theoretically possible, just like manned flights to Mars were theoretically possible. But the devil was in the details. In an attempt to make the patch concept more feasible, they pared it down to just the diagnostic part, but even that was incredibly challenging.
Eventually they jettisoned the patch altogether in favor of something akin to the handheld devices used to monitor blood-glucose levels in diabetes patients.
By late 2005, eighteen months after he’d come on board, Shaunak was beginning to feel like they were making progress. The company had a prototype, dubbed the Theranos 1.0, and had grown to two dozen employees. It also had a business model it hoped would quickly generate revenues: it planned to license its blood-testing technology to pharmaceutical companies to help them catch adverse drug reactions during clinical trials.
He had noticed that employee turnover at the company was already high and that it wasn’t confined to the rank and file. Top executives didn’t seem to last long either. Henry Mosley, the chief financial officer, had disappeared one day. There was a rumor circulating around the office that he’d been caught embezzling funds. No one knew if there was any truth to it because his departure, like all the others, wasn’t announced or explained. It made for an unnerving work environment: a colleague might be there one day and gone the next and you had no idea why.
Ed had never encountered anyone as driven and relentless. She slept four hours a night and popped chocolate-coated coffee beans throughout the day to inject herself with caffeine. He tried to tell her to get more sleep and to live a healthier lifestyle, but she brushed him off.
Larry Ellison, whom she’d met through Lucas, was also an influence. Lucas and Ellison had both invested in Theranos’s second funding round, which in Silicon Valley parlance was known as a “Series B” round.
Ellison might be one of the richest people in the world, with a net worth of some $25 billion, but he wasn’t necessarily the ideal role model. In Oracle’s early years, he had famously exaggerated his database software’s capabilities and shipped versions of it crawling with bugs. That’s not something you could do with a medical device.
In March 2008, Todd and Michael approached Tom Brodeen, one of Theranos’s board members, and told him the revenue projections Elizabeth was touting to the board weren’t grounded in reality. They were hugely exaggerated and impossible to reconcile with the unfinished state of the product, they said.
After some discussion, the four men reached a consensus: they would remove Elizabeth as CEO. She had proven herself too young and inexperienced for the job.
But then something extraordinary happened. Over the course of the next two hours, Elizabeth convinced them to change their minds. She told them she recognized there were issues with her management and promised to change. She would be more transparent and responsive going forward. It wouldn’t happen again.
And Elizabeth was so persuasive. She had this intense way of looking at you while she spoke that made you
After they hung up, Hunter took aside Renaat Van den Hooff, who was in charge of the pilot on the Walgreens side, and told him something just wasn’t right. The red flags were piling up. First, Elizabeth had denied him access to their lab. Then she’d rejected his proposal to embed someone with them in Palo Alto. And now she was refusing to do a simple comparison study. To top it all off, Theranos had drawn the blood of the president of Walgreens’s pharmacy business, one of the company’s most senior executives, and failed to give him a test result!
Renda’s husband was battling lung cancer. His blood had to be tested frequently so that doctors could adjust his drug regimen. Each blood draw was an exercise in torture because his veins were collapsing. Theranos’s fingerprick system would be a godsend for him, she thought.
Ian nodded. “It’s a folie à deux,” he said. Tony didn’t know any French, so he left to go look up the expression in the dictionary. The definition he found struck him as apt: “The presence of the same or similar delusional ideas in two persons closely associated with one another.”
When she inquired about the basis for the claim about Theranos’s superior accuracy, Kate learned that it was extrapolated from a study that had concluded that 93 percent of lab mistakes were due to human error. Theranos argued that, since its testing process was fully automated inside its device, that was grounds enough to say that it was more accurate than other labs. Kate thought that was a big leap in logic and said so. After all, there were laws against misleading advertising.
Elizabeth and Sunny regarded anyone who raised a concern or an objection as a cynic and a naysayer. Employees who persisted in doing so were usually marginalized or fired, while sycophants were promoted.
Elizabeth told the gathered employees that she was building a religion. If there were any among them who didn’t believe, they should leave. Sunny put it more bluntly: anyone not prepared to show complete devotion and unmitigated loyalty to the company should “get the fuck out.”
The brilliant young Stanford dropout behind the breakthrough invention was anointed “the next Steve Jobs or Bill Gates” by no less than former secretary of state George Shultz, the man many credited with winning the Cold War, in a quote at the end of the article.
Sunny and Elizabeth’s boldest claim was that the Theranos system was capable of running seventy different blood tests simultaneously on a single finger-stick sample and that it would soon be able to run even more.
The investment brought in another $96 million to Theranos’s coffers and valued it at a stunning $9 billion. This meant that Elizabeth, who owned slightly more than half of the company, now had a net worth of almost $5 billion.
Under the headline “Bloody Amazing,” the article pronounced her “the youngest woman to become a self-made billionaire.” Two months later, she graced one of the covers of the magazine’s annual Forbes 400 issue on the richest people in America.
Elizabeth became the youngest person to win the Horatio Alger Award. Time magazine named her one of the one hundred most influential people in the world. President Obama appointed her a U.S. ambassador for global entrepreneurship, and Harvard Medical School invited her to join its prestigious board of fellows.
Women like Yahoo’s Marissa Mayer and Facebook’s Sheryl Sandberg had achieved a measure of renown in Silicon Valley, but they hadn’t created their own companies from scratch. In Elizabeth Holmes, the Valley had its first female billionaire tech founder.
the Theranos devices didn’t work. They were called Edisons, he said, and were error prone. They constantly failed quality control. Furthermore, Theranos used them for only a small number of tests. It performed most of its tests on commercially available instruments and diluted the blood samples.
It was all beginning to make sense: Holmes and her company had overpromised and then cut corners when they couldn’t deliver.
He also explained the pitfalls of using blood pricked from a finger. Unlike venous blood drawn from the arm, capillary blood was polluted by fluids from tissues and cells that interfered with tests and made measurements less accurate.
Alan Beam had explained to me that, of the more than 240 tests Theranos offered on its menu, only about 80 were performed on small finger-stick samples (a dozen on the Edison and another 60 or 70 on the hacked Siemens machines). The rest, he’d said, required what Holmes had likened in media interviews to a medieval torture mechanism: the dreaded hypodermic needle.
Had she trusted the Theranos result and increased the patient’s medication dosage, the outcome could have been disastrous, Dr. Stewart said. The patient was pregnant. Increasing her dosage would have made her levels of thyroid hormone too high and put her pregnancy at risk.
Why had Holmes always been so secretive about her technology? Why had she never recruited a board member with even basic knowledge of blood science? And why hadn’t a single venture capital firm with expertise in health care put money into the company? For these observers, the story confirmed what they’d quietly suspected.
As for the lab itself, it was a mess: the company had allowed unqualified personnel to handle patient samples, it had stored blood at the wrong temperatures, it had let reagents expire, and it had failed to inform patients of flawed test results, among many other lapses.
Like her idol Steve Jobs, she emitted a reality distortion field that forced people to momentarily suspend disbelief.
on March 14, 2018, the Securities and Exchange Commission charged Theranos, Holmes, and Balwani with conducting “an elaborate, years-long fraud.”
To resolve the agency’s civil charges, Holmes was forced to relinquish her voting control over the company, give back a big chunk of her stock, and pay a $500,000 penalty. She also agreed to be barred from being an officer or director in a public company for ten years.
Hyping your product to get funding while concealing your true progress and hoping that reality will eventually catch up to the hype continues to be tolerated in the tech industry. But it’s crucial to bear in mind that Theranos wasn’t a tech company in the traditional sense. It was first and foremost a health-care company.
In December 2013, she forced through a resolution that assigned one hundred votes to every share she owned, giving her 99.7 percent of the voting rights. From that point on, the Theranos board couldn’t even reach a quorum without Holmes.
A sociopath is often described as someone with little or no conscience. I’ll leave it to the psychologists to decide whether Holmes fits the clinical profile, but there’s no question that her moral compass was badly askew.
In its indictment, the government alleged that she and Balwani had defrauded not just investors, but also physicians and patients by overseeing the electronic wiring of blood-test results they knew to be of questionable accuracy across state lines.
The trial is scheduled to start on July 28, 2020, and expected to last three months. If convicted, Holmes and Balwani face prison sentences of up to twenty years, a fine of $2.75 million, and potential restitution to the victims. Both have pleaded not guilty. Through the discovery process, federal prosecutors have handed over to the defense hard drives with more than twenty million pages of evidence.
As for Theranos itself, the company ran out of money in September 2018 and was dissolved. Fortress Investment Group, the private equity firm that provided it a loan in late 2017, took possession of its patents.
All told, investors in Theranos have lost nearly $1 billion.