The Curious Case of Theranos and Elizabeth Holmes

Photo by Steve Jurvetson.  Shared under the CC BY 2.0 license. 

Photo by Steve Jurvetson.  Shared under the CC BY 2.0 license. 

For the last few years, Silicon Valley biotech startup Theranos has been a darling of investors on the promise of revolutionizing the future of laboratory testing.  At one point, Theranos was valued at $9 billion.  However, recent revelations suggest that Theranos' technology may not be as revolutionary as the company claims.  The latest blow came when Theranos' founder and CEO Elizabeth Holmes was banned from running a lab for at least 2 years.  Let's review the rise and fall of Theranos and its charming founder.

The Rise of Theranos and Elizabeth Holmes:


After dropping out of Stanford, Elizabeth Holmes started Theranos - an amalgam of "therapy" and "diagnosis" - in 2003 at the ripe young age of 19.  And for the next 10 years, you never heard about it.  Then in September 2013, The Wall Street Journal reported on Theranos' revolutionary technology that "automate and miniaturize more than 1,000 laboratory tests."  Thereafter, Theranos and Elizabeth Holmes became bonafide rock stars.  The company became a silicon valley unicorn and Holmes became a celebrity in every sense of the word, including being on the cover of multiple magazines, one of TIME's most influential people in 2015, Glamour Magazine's Woman of the Year, becoming the youngest recipient of the Horatio Alger Award, and giving a TED talk (embedded below)... I can go on but you get the idea.

Theranos' promise that had everyone seeing green is actually very simple:

  1. Run comprehensive lab tests faster and cheaper using drops of blood from a fingerstick via the proprietary "Edison" device.
  2. "Democratize" lab testing by allowing patients to get lab tests without a physician middleman.
  3. The company is famously secretive in protecting its "ground breaking" technology, refusing to divulge any specifics regarding the Edison device on the grounds of "trade secret".  Hey it worked out for Coca-cola right!?

The Fall:

Much have been written about the Theranos scandal, but its origin can be traced to The Wall Street Journal - whose 2013 article launched Theranos to Unicorn status.  Roughly 2 years later in October of 2015, The Journal published a scathing expose of Theranos - which essentially cast into doubt everything the company ever claimed.  After that, the punches kept coming, culminating in the recent announcement of the CMS ban on Elizabeth Holmes.  If you are interested, Dan Primack at Fortune published a comprehensive review of the course of events.  To sum up the major accusations:

  1. Theranos was using conventional lab equipment purchased from 3rd parties such as Siemens AG to perform majority of the testing rather than its proprietary Edison device.
  2. Theranos was performing the mandatory proficiency tests using 3rd party equipment rather than its own device.  Translation: The technology on which Theranos built its castle is unproven.
  3. Most seriously - the test results from Theranos are wildly inaccurate (See Theranos Has Thrown Out Two Years of Blood-Test Results). Translation: The technology on which Theranos built its castle is worse than unproven, it's straight up wrong.

Future Proof Take:

The Theranos scandal is still unfolding.  However, I simply can not see a scenario where the company emerges undamaged.  Even if the science behind the "Edison" is validated, the fact that it's taken so long for the company to come forward will cast doubts on its future operations.  On the other hand, if the accusations of fraud and abuse hold up, then Elizabeth Holmes will soon be joining some other big names such as Andrew Wakefield, Hwang Woo-suk, and Martin Shkreli.  Here's the most important lesson for investors - if someone is offering you an opportunity to invest in the next scientific revolution, ask to see the science before you hand over the money.

Future Proof, MD

Dr. Bo Liu is an aspiring radiologist-in-training and the founder and editor of the White Coat Money Blog.  He has an interest in interventional radiology and helping his medical colleagues get ahead in this mad world of medicine and money.  When he's not crushing the list at the PACS station or typing up your next favorite blog post, you can usually find him at the local badminton club, movie theater or the most recently opened restaurant.