Raised $1.3B and lied to patients to keep partners and investors happy leading to it’s demise in 2018.
In 2003, 19-year-old Elizabeth Holmes left Stanford University to found Theranos, a diagnostics startup that aimed to run hundreds of tests using just a few drops of blood drawn from a finger prick.
“Elizabeth was an incredibly smart, charismatic, charming young woman,” said John Carreyrou, who as a then-Wall Street Journal investigative reporter broke the story in 2015 that led to Theranos’s downfall, in a 2018 video about his reporting.
Holmes had studied chemical engineering and had no medical background. She idolized Apple founder Steve Jobs, adopting his trademark black turtlenecks and keeping a photo of him on her desk. Holmes deepened her voice to sound more authoritative.
By 2007, Theranos had developed an early version of a device later dubbed Edison, after the famous inventor. The small machine could purportedly quickly analyze very small amounts of blood, which Theranos collected from finger pricks in tiny tubes it developed called “nanotainers.” Holmes, who spoke of her phobia of needles, said drawing tiny amounts of blood from fingers instead of using big syringes would make people more willing to get blood tests and lead to earlier, life-saving diagnoses.
Ramesh “Sunny” Balwani, who became a millionaire when the dot-com he worked for was acquired in 1999, joined Theranos as president and chief operating officer in 2009. He had met Holmes in 2002 when both were enrolled in Stanford’s Mandarin program.
In late 2013, Theranos opened 45 “wellness centers” in Arizona, California and Pennsylvania, mostly in Walgreens Boots Alliance stores. A new Arizona law for which Holmes had lobbied allowed patients to get blood tests without a doctor’s order. Theranos said it charged less for its tests than traditional labs. The next year, the company had a valuation of $9 billion. With her majority stake, Holmes was considered the youngest self-made female billionaire.
On Oct. 15, 2015, the Journal published a front-page bombshell investigation by Carreyrou reporting that Theranos wasn’t using its proprietary Edison device for most lab tests but instead relied on traditional machines, something it hadn’t disclosed publicly.
Theranos employees said they worried about the accuracy of tests. They claimed some samples obtained by finger pricks were diluted because the traditional machines weren’t designed to run on just a few drops of blood, a practice experts said could lead to erroneous results. One employee had sent a complaint to regulators alleging Theranos wasn’t reporting test results that might cast doubt on Edison’s precision.
Carreyrou then reported that the FDA had conducted an unannounced inspection of Theranos’s California lab in August related to concerns it had about data the company had voluntarily submitted as it sought approval for its testing methods. The agency said it considered Theranos’s nanotainer an unapproved medical device.
Less than a week later, Holmes appeared onstage at the Journal’s technology conference and denied many of the assertions in Carreyrou’s reporting. She said Theranos never used finger-prick blood draws on commercially available machines and didn’t dilute blood samples. Holmes characterized the FDA’s inspection as a routine audit of the lab’s quality systems.
Behind the scenes, she went directly to Murdoch, then-chairman of News Corp, as part of an unsuccessful attempt to quash the story. The Journal ultimately published many more articles about the challenges at Theranos.
“I’ve been a reporter for 20 years and in all those years I had never encountered the amount of pushback and the amount of resistance and the counterattack, frankly, that I encountered reporting this story,” Carreyrou said in the 2018 video.
Holmes’s lawyers didn’t respond to a request for comment on this newsletter. Executives at Walgreens learned from the Journal’s reporting that Theranos wasn’t using its proprietary devices to conduct blood tests and hadn’t known about the FDA inspection. The pharmacy chain said it wouldn’t open any new Theranos wellness centers until questions about the technology were cleared up.
In January 2016, federal inspectors said they had found “deficient practices” at Theranos’s California lab that posed “immediate jeopardy” to patients. Separately, Theranos became the subject of a criminal probe and an SEC investigation into whether the company misled investors.
In May 2016, Balwani left Theranos. Unbeknownst to employees, board members and investors, Holmes and Balwani had been dating since not long after she dropped out of Stanford.
Later that month, Theranos notified federal health regulators it had voided all tests conducted on its Edison devices in 2014 and 2015. It sent tens of thousands of corrected blood-test reports to doctors and patients.
Walgreens ended its partnership with Theranos in June and shut down lab-testing services in its pharmacies. Such facilities had been the primary avenue for Theranos to make money.
The next blow came in July when regulators revoked Theranos’s license to operate its California lab and banned Holmes from owning or operating a lab for at least two years.
In October, the company announced it was shutting down its blood-testing operations and cutting 40% of its workforce, or around 340 employees. Instead, Theranos planned to sell a new device called the miniLab to other lab companies.
Theranos faced lawsuits from multiple investors for allegedly misleading them about the company’s technology during fundraising efforts. Walgreens sued for breach of contract. Several consumer lawsuits sought class-action status.
At the start of 2017, Theranos laid off another 155 employees and voided more test results—including one for diabetes that Carreyrou had undergone in April 2015. The company ultimately voided nearly one million test results.
In April 2017, Theranos agreed not to operate a clinical lab for at least two years in exchange for reduced penalties from federal health regulators. The company also reached a settlement with Arizona’s attorney general to pay $4.65 million into a state fund to reimburse patients, without admitting wrongdoing.
Theranos agreed to pay tens of millions of dollars to settle lawsuits brought by Walgreens and investors, a costly exercise for a company running short on cash.
In December, Fortress Investment Group offered Theranos a $100 million loan, on the condition it met certain business targets. Theranos only received $65 million upfront.
Theranos and Holmes in March 2018 agreed to a settlement with the SEC that stripped the founder of her voting control in the company, banned her from being an officer or director of any public company for 10 years and imposed a $500,000 penalty. The company and Holmes neither admitted nor denied wrongdoing.
A month later, Theranos shrank even further, laying off all but around two dozen employees.
Federal prosecutors filed criminal fraud charges against Holmes and Balwani in June. Theranos said Holmes was no longer CEO.
As it struggled to stay afloat, the company reached out to more than 80 potential buyers, but no deal emerged. In September 2018, Theranos’s cash levels dipped below the threshold dictated by its agreement with Fortress. The private-equity firm took ownership of the blood-testing company’s patents and Theranos dissolved. “The company that was once among Silicon Valley’s most valuable unicorns will go down in the annals of the Valley as its biggest fraud,” Carreyrou told the “What’s News” podcast after the announcement.
After multiple delays due to the Covid-19 pandemic and Holmes’s pregnancy, the Theranos founder’s criminal trial began in September 2021 and lasted 15 weeks. She was found guilty on four of 11 fraud charges. In November 2022, Holmes’s motion for a new trial was denied, and she was sentenced to 11 years, 3 months in prison. She began her sentence in May 2023. Her conviction is under appeal.
⚖️ Balwani’s trial began in March 2022. He was convicted on all 12 charges of defrauding investors and patients. In December 2022, Balwani was sentenced to nearly 13 years and reported for prison soon after. He also appealed his conviction. 🩸 Holmes’s vision is finally becoming a reality. Becton Dickinson and Babson Diagnostics rolled out a finger-prick blood test in May 2024; samples are sent to a traditional lab, rather than analyzed on-site. Truvian Health is working on a device that can process small blood samples close to the point of collection that it plans to launch commercially in 2025.
