Written by Raheem Sheikh
Edited by Janie Chan
In just two years, Elizabeth Holmes went from being celebrated as the “world’s youngest self-made woman billionaire” with a staggering net worth of $4.5 billion in Forbes Magazine’s 2014 rankings to an astonishing net worth of $0.00 by 2023. To make matters worse, in 2023, she commenced an eleven-year prison sentence in Texas after being convicted on four out of eleven charges of fraud. This fall from grace raises a critical question: What were the catalysts behind this monumental downfall? While the credibility of her diagnostic startup, Theranos, first faced scrutiny in 2015, the roots of this captivating saga can be traced back to 2003 when Holmes made the fateful decision to abandon her Stanford University education and embark on a journey that would ultimately unravel as one of the most audacious frauds in biotechnology.
A Brief Recap
Teaming up with Ramesh “Sunny” Balwani, Holmes “promised Theranos would revolutionize health care with a technology that could quickly scan for diseases and other problems with a few drops of blood taken with a finger prick.” The company promised that its technology would enable early detection of diseases like cancer and diabetes, obviating the need for the traditional venipuncture method that required larger vials of blood. In 2014, Theranos secured nearly $1 billion in investments, boasted influential board members, and saw Holmes accumulate a paper fortune of $4.5 billion (Oyekanmi & Liedtke, 2023). However, Theranos’ demise was sealed when The Wall Street Journal exposed critical flaws in its technology.
The Wall Street Journal’s investigation unveiled that Theranos’ claims about their advanced technology lacked substantial evidence. It became increasingly apparent that many of the claims made by the company were either exaggerated or, in some cases, entirely fabricated. Independent investigations ultimately laid bare that Theranos’ technology fell short of its publicized capabilities, and the company’s precipitous downfall ensued as a result of these revelations. At its inception, Theranos even established wellness centers within Walgreens pharmacies and advocated for patients to order tests without requiring doctor’s notes, promising a transformative shift in healthcare interactions (Belluz, 2015). Concerns regarding the accuracy of the Edison machines’ results were raised by former employees and medical professionals, leading to heightened FDA scrutiny. However, the company failed to secure FDA clearance for its tests, and critics discovered that Theranos frequently resorted to using older technology from other companies for testing purposes instead of their highly publicized Edison machines. Investigative Reporter John Carreyrou of the Wall Street Journal uncovered the startling revelation that “Theranos has allegedly been collecting blood samples the traditional way and then diluting them so they could be run on machines made by other companies — not their much-hyped Edison technology” (Belluz, 2015).
In March 2018, the U.S. Securities and Exchange Commission (SEC) issued a press release, formally lodging charges against Theranos, its Founder-CEO Holmes, and former President Balwani. These charges pertained to an elaborate fraud scheme in which they allegedly procured nearly $1 billion from investors by disseminating false information about the company’s technology, business operations, and financial performance (Theranos, 2018). The SEC’s Press Release further disclosed:
“The complaints further charge that Theranos, Holmes, and Balwani claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than $100 million in revenue in 2014. In truth, Theranos’ technology was never deployed by the U.S. Department of Defense and generated a little more than $100,000 in revenue from operations in 2014.”
We find ourselves in a unique position to step back and analyze the factors that led to Theranos’ demise. It appears that the leadership at Theranos perhaps lacked the expertise required to develop a sophisticated medical testing technology (Relihan, 2018). The board of directors was primarily comprised of individuals with backgrounds in diplomacy and the military, rather than experts in healthcare or medical technology (Relihan, 2018). While it is possible for professionals of different backgrounds to unite and embark on a venture like this, it is perhaps more arguable that medical projects should be supported by science professionals. Holmes herself dropped out of Stanford without any medical training, and the public assumed she could single-handedly revolutionize the field.
Furthermore, there is clear evidence of a toxic workplace environment that hindered progress instead of inspiring it. As Tom Relihan of the Massachusetts Institute of Technology describes, the culture of “silence and secrecy” fostered unethical behavior, especially when employees were threatened by non-disclosure agreements and lawsuits. Those who attempted to blow the whistle were met with quick retaliation.
Moreover, Holmes’ attempt to apply the traditional Silicon Valley business model of “fail fast” and “fake it until you make it” to a tech startup developing a product with public health implications proved problematic (Carreyrou, 2018).
As Marco Della Cava, a technology and culture writer at USA Today, pointed out, “We were collectively enthusiastic about the potential [of Theranos]” during his early interview with Holmes in July 2014. Many experts were capable of grasping the basics of phlebotomy and the feasibility of the devices she was developing. Consequently, we can anticipate that a fraud of this magnitude “will pose significant challenges for other biotech companies seeking to secure investment” (Relihan, 2018).
The Theranos debacle now serves as a cautionary tale, highlighting the perils of hype and dishonesty in the realms of technology and healthcare. It is difficult to deny that Theranos had an amazing origin story of a young, female college dropout aiming to address a pervasive healthcare issue. The tenacity with which Holmes clung to her original narrative, even in the face of extensive investigations, is truly remarkable. Indeed, there is crippling pressure in scientific research to provide significant results. Nonetheless, the truth eventually unfolded, underscoring the undeniable lesson that one cannot “fake it ‘til they make it.”
Belluz, J. (2015, October 20). The Theranos controversy explained. Vox. https://www.vox.com/2015/10/20/9576501/theranos-elizabeth-holmes
Forbes Magazine. (n.d.). Elizabeth Holmes. Forbes. https://www.forbes.com/profile/elizabeth-holmes/?sh=54ac515747a7
Liedtke, M. & Oyekanmi, L. (2023, May 30). Elizabeth Holmes enters Texas prison to begin an 11-year sentence for notorious blood-testing hoax. AP News. https://apnews.com/article/elizabeth-holmes-theranos-prison-fraud-texas-71bcdf58a0db73252cc2697fb9f73c8a
Marinova, P. (Ed.). (2018, March 15). Is the media responsible for the Rise & Fall of Theranos? Cheddar News. https://cheddar.com/media/is-the-media-responsible-for-the-rise-and-fall-of-theranos
Relihan, T. (2018, October 29). 4 red flags that signaled Theranos’ downfall. MIT Sloan. https://mitsloan.mit.edu/ideas-made-to-matter/4-red-flags-signaled-theranos-downfall
Theranos, CEO Holmes, and Former President Balwani Charged With Massive Fraud. U.S. Securities and Exchange Commission. (2018, March 14). https://www.sec.gov/news/press-release/2018-41
Thomas, D. (2022, November 19). Theranos Scandal: Who is Elizabeth Holmes and why was she on trial? BBC News. https://www.bbc.com/news/business-58336998