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Theranos

From Alfawiki
Theranos Inc.
Company typePrivate
IndustryHealth technology
Founded2003
FounderElizabeth Holmes
DefunctSeptember 2018
FateDissolved after legal and regulatory actions
Headquarters
United States
Key people
Elizabeth Holmes (Founder and former CEO), Sunny Balwani (former president), David Taylor (final CEO)
ProductsBlood testing devices (nanotainer, Edison)
Number of employees
~800 (peak), fewer than 25 (2018)

Theranos Inc. () was a privately owned American health tech firm established in 2003 by the then 19-year-old entrepreneur Elizabeth Holmes. The company secured over US$700 million from venture capital and private investors, reaching a peak valuation of $9 billion during 2013–2014. Theranos asserted that it had created fast, precise blood tests requiring only minimal blood samples through proprietary automated technology. These assertions were ultimately discredited.

In 2015, leading medical experts and investigative journalist John Carreyrou of The Wall Street Journal publicly questioned the legitimacy of Theranos's technology. Following this exposé, the company underwent intense legal and regulatory examination by the SEC, CMS, state attorneys general, investors, and former collaborators. By June 2016, Holmes’s net worth estimate dropped sharply from $4.5 billion to nothing. After prolonged litigation and penalties, Theranos was officially dissolved in September 2018.

In 2018, Theranos, Holmes, and ex-president Sunny Balwani faced fraud charges from the SEC. Holmes was convicted on four counts involving wire fraud and conspiracy in January 2022 and later sentenced to over 11 years imprisonment. Balwani was found guilty on all charges in July 2022 and received a sentence of nearly 13 years plus probation.

History

While studying at Stanford University, Holmes envisioned a wearable patch designed to adjust medication dosages and monitor blood levels in patients. She then advanced lab-on-a-chip technology with the goal of making blood testing more affordable, user-friendly, and widely accessible. Holmes left Stanford in 2003, using her parents’ education trust funds to launch the company that would become Theranos—a name combining "therapy" and "diagnosis." The original name "Real-Time Cures" was changed to avoid skepticism associated with the term "cure."

Partnerships

In 2012, Safeway invested $350 million to upgrade 800 stores with clinics offering blood testing services; however, after missing deadlines and unsatisfactory trial outcomes, the agreement ended in 2015. Theranos partnered with Walgreens in 2013 to provide blood tests at more than 40 locations. Although Theranos claimed its testing was utilized in drug development trials for GlaxoSmithKline and Pfizer, both companies denied involvement by October 2015. Walgreens terminated its partnership in June 2016 and filed a $140 million breach of contract lawsuit, ultimately settling for less than $30 million in 2017.

In March 2015, the Cleveland Clinic collaborated with Theranos to assess its technology and lower laboratory test expenses. By July that year, Theranos became the laboratory provider for Pennsylvania insurers AmeriHealth Caritas and Capital Blue Cross. That same month, the Food and Drug Administration approved Theranos’s fingerstick device for herpes simplex virus (HSV-1) testing outside of clinical laboratories. The Arizona BioIndustry Association (AzBio) recognized Theranos as the Bioscience Company of the Year in 2015.

Exposure and downfall

In February 2015, Stanford professor John Ioannidis highlighted in the Journal of the American Medical Association that no peer-reviewed studies from Theranos had been published. In May 2015, University of Toronto Professor Eleftherios Diamandis evaluated Theranos’s technology and concluded many claims were overstated. To enhance credibility, Holmes invited then-Vice President Joe Biden to tour their facilities; however, this visit involved a staged lab designed to conceal actual operations.

In October 2015, The Wall Street Journal reporter John Carreyrou disclosed that Theranos relied on conventional blood testing equipment instead of its proprietary Edison devices, which potentially produced inaccurate results. Tyler Shultz, a former employee and grandson of board member George P. Shultz, was a major whistleblower who reported company violations to regulatory authorities.

Theranos dismissed these accusations as "factually and scientifically incorrect." Nonetheless, Walgreens paused plans to expand blood-testing centers. The Cleveland Clinic agreed to validate Theranos’s technology independently. Theranos responded aggressively to investigations by targeting whistleblowers and attempting to remove critical information online.

FDA inspections conducted in 2014 and 2015 uncovered regulatory breaches including unapproved blood collection tubes. The FDA classified Theranos's nanotainer as a Class II medical device requiring compliance with regulations, contradicting Theranos's claims it qualified as Class I. Following these inspections, Theranos voluntarily halted most tests except for an FDA-approved herpes simplex virus assay.

The Arizona Department of Health Services identified compliance problems at the Scottsdale laboratory in late 2015. In January 2016, the Centers for Medicare and Medicaid Services (CMS) declared that the Newark lab posed an "immediate jeopardy" risk to patient safety due to inaccurate warfarin dosage testing. Walgreens and other partners suspended services at impacted sites.

Subsequent CMS penalties included barring Holmes and Balwani from operating clinical laboratories for two years along with revoking lab certification. Federal prosecutors launched criminal inquiries alongside SEC investigations into alleged investor fraud. Congressional committees requested documentation regarding compliance measures.

By mid-2016, CMS revoked Theranos's Clinical Laboratory Improvement Amendments (CLIA) certification, suspended Medicare/Medicaid reimbursements, and imposed civil fines. The company ceased testing operations at Newark while appealing regulatory sanctions.

In May 2016, Theranos invalidated two years’ worth of Edison device test results; approximately one percent of total results were corrected or voided by June. Walgreens ended its partnership soon after this announcement. In August 2016, Theranos withdrew its emergency use authorization request for a Zika virus test amid regulatory concerns.

By October 2016, Theranos shut down laboratories and wellness centers while reducing staff by roughly 40% to concentrate on developing miniaturized testing devices. After failing a second major inspection in January 2017, the company closed its final blood-testing facility and laid off an additional 41% of employees amid multiple lawsuits from partners including Walgreens and Arizona’s Attorney General.

In April 2017, investors holding preferred shares worth over $96 million accused Theranos of threatening bankruptcy as a tactic to avoid litigation; these allegations were denied by the company. That month also saw a settlement with CMS imposing a two-year ban on blood testing operations along with a consent decree with Arizona’s Attorney General over consumer fraud claims—agreeing to reimburse $4.65 million to state residents.

Theranos reached a settlement with Walgreens in August 2017. By December of that year, Fortress Investment Group—owned by Softbank Group—provided a $100 million loan for a four percent equity stake to maintain solvency into 2018; this loan was secured against patents held by the company. In April 2018, headcount was drastically reduced from its peak of approximately 800 employees to fewer than twenty-five through mass layoffs.

Softbank’s Fortress subsequently acquired Theranos patents and founded Labrador Diagnostics to enforce patent rights during the COVID-19 pandemic period. Despite operational collapse, patent applications continued filing into 2019 due to lengthy processing timelines.

Closure

Theranos declared on September 4, 2018, that it would terminate its business operations and allocate its remaining assets to creditors after unsuccessful attempts to secure a buyer. By August 31, the majority of the workforce had been dismissed, leaving only CEO David Taylor and a small number of employees temporarily on staff. The company's equity investments became entirely worthless. On September 12, Theranos assigned its patent portfolio to Fortress Investment Group in exchange for liquid assets intended for creditor distribution.

Legal actions: civil and criminal

In March 2018, the U.S. Securities and Exchange Commission initiated civil fraud charges against Theranos, CEO Elizabeth Holmes, and former president Ramesh "Sunny" Balwani, accusing them of misleading investors about the capabilities of their portable blood testing device. Holmes reached a settlement with the SEC, paying a $500,000 fine, surrendering 19 million shares, and receiving a ten-year ban from serving as an officer or director of a public company; Balwani opted not to settle.

By June 2018, both Holmes and Balwani faced indictments on multiple counts of wire fraud and conspiracy for deceiving investors, medical professionals, and patients while concealing flaws in their product. The case was assigned to U.S. District Judge Lucy H. Koh. Due to delays caused by the COVID-19 pandemic, Holmes’s trial commenced in August 2021, whereas Balwani’s trial was postponed until 2022.

In February 2021, prosecutors alleged that Holmes and other executives destroyed evidence concerning Theranos’s internal testing records. On January 3, 2022, Holmes was convicted on four wire fraud charges and one conspiracy count; she received a sentence in November 2022 exceeding eleven years imprisonment. She began serving her sentence in May 2023 at Federal Prison Camp in Bryan, Texas.

Balwani’s trial began in March 2022; he was found guilty on twelve fraud counts in July 2022 and sentenced in December to nearly thirteen years in prison followed by probation.

Technology and products

Theranos asserted that it had created devices capable of automating and miniaturizing blood testing processes using very small blood samples. The blood collection device was known as the "nanotainer," while the analytical instrument was called the "Edison," named after Thomas Edison to symbolize perseverance through failure. The nanotainer contained only a few drops of blood obtained via finger prick.

A principal patent described the Edison as a point-of-care system linked to the Internet to receive testing instructions and send results for comparison with medical databases, facilitating targeted additional testing when necessary. However, the patent inconsistently indicated required blood volumes ranging from less than one drop up to approximately ten drops. Despite Theranos’s assertions of data verifying test accuracy and reliability, no peer-reviewed studies supported these claims.

In 2016, Theranos permitted the Cleveland Clinic to perform a validation study. Nevertheless, research published in the Journal of Clinical Investigation reported that Theranos’s results often fell outside normal parameters and were inconsistent with those from other laboratories. That same year, Theranos introduced the "miniLab," an automated capillary blood testing system designed to conduct multiple assays from small samples; however, it failed to provide corroborative data. Due to ongoing skepticism regarding exaggerated performance claims and test inaccuracies, Walgreens terminated its collaboration with Theranos. It was subsequently disclosed that Theranos invalidated two years’ worth of test results due to errors associated with Edison technology.

Location

In June 2012, the company moved from its original address at 3200 Hillview Avenue to the former Facebook headquarters located at 1601 S. California Avenue. By 2017, Theranos had established its main office at 1701 Page Mill Road in Palo Alto, California, where it leased space in the Stanford Research Park for $1 million monthly. The firm operated laboratories in Newark, California, and Scottsdale, Arizona. Later that year, amid ongoing allegations of fraud, Theranos closed its Page Mill headquarters and consolidated its remaining workforce into the Newark laboratory facilities. Subsequently, Stanford University School of Medicine repurposed the Page Mill site for administrative offices and medical research labs.

Management

Elizabeth Holmes held the position of CEO from Theranos’s inception in 2003 until 2018. She brought on board Channing Robertson, a professor of chemical engineering at Stanford, who served as a technical advisor and early member of the board. Sunny Balwani, Holmes’s then-partner and a software engineer by profession, joined as president and chief operating officer in 2009. In July 2011, former U.S. Secretary of State George Shultz became a board member and played a key role in assembling an "all-star" board that included notable figures such as William Perry, Henry Kissinger, Sam Nunn, Bill Frist, Gary Roughead, Jim Mattis, Richard Kovacevich, and Riley P. Bechtel. The board attracted criticism due to its predominantly diplomatic and military background.

In April 2016, Theranos established a medical advisory board comprising leaders from the American Association for Clinical Chemistry and biomedical specialists like Susan A. Evans and William Foege to evaluate proprietary technologies and clinical integration strategies.

Balwani resigned from his roles as president and COO in May 2016 amid intensified regulatory investigations. At the same time, Theranos appointed Fabrizio Bonanni (former EVP at Amgen), Richard Kovacevich, and William Foege to the board to assist with technology advocacy. The board roster in May 2016 included Holmes (founder and CEO), Riley Bechtel (ex-CEO of Bechtel Group), David Boies (chairman of a law firm), William Foege (former CDC director), Richard Kovacevich (former Wells Fargo CEO), Jim Mattis (who would later become U.S. Secretary of Defense), and Fabrizio Bonanni.

Towards the end of 2016, Theranos announced it would disband its celebrity-filled "board of counselors" by January 2017. Riley Bechtel resigned from the board in December 2016; Jim Mattis stepped down in January 2017 following his nomination as defense secretary. By December 2016, the board comprised Holmes, Foege, Bonanni, and Daniel Warmenhoven (former NetApp CEO who replaced Bechtel).

Valuation

Theranos secured initial funding starting in 2004 while operating out of a rented basement near Stanford University. By December that year, it had raised over $6 million at a valuation of $30 million. Following Series B and C funding rounds in 2006, total capital raised approached $45 million. In 2010, an additional $45 million was raised which valued the company at approximately $1 billion. Media attention grew substantially from 2013 onward, significantly elevating its public profile.

By 2014, Theranos had accumulated more than $400 million in funding with an estimated valuation near $9 billion. Total investments from venture capitalists and private sources surpassed $700 million, reaching a peak valuation close to $10 billion between 2013 and 2014. However, by 2016 Forbes adjusted the company's estimated worth downward to $800 million based on $724 million raised capital. This period coincided with a dramatic increase in available private equity capital—from $400 billion in 2004 to $1.5 trillion by 2016—pressuring investors to allocate funds rapidly, which contributed to inadequate due diligence and losses linked to Theranos’s fraudulent activities.

In May 2017, shareholders consented to release claims against Theranos in exchange for new preferred stock; participation exceeded 99%. Founder Elizabeth Holmes contributed shares and surrendered equity stakes to avoid diluting shareholders who did not participate. By May 2018 reports indicated that business executives and government figures had collectively lost over $600 million through private investments in Theranos. Notable investors included the Walton family ($150 million), Rupert Murdoch ($121 million), Betsy DeVos ($100 million), the Cox family ($100 million), and Larry Ellison. The company’s liquidation in September 2018 rendered these investments entirely worthless.

Books and documentaries

John Carreyrou, the journalist from the Wall Street Journal who uncovered Theranos's deception, authored Bad Blood: Secrets and Lies in a Silicon Valley Startup, published in May 2018. A movie adaptation, originally planned for release in 2020 with Jennifer Lawrence portraying Holmes and directed by Adam McKay, resumed development in 2022 but saw Lawrence leave the project later that year.

In January 2019, ABC News Nightline introduced both a podcast and documentary titled The Dropout, chronicling the Theranos saga. The namesake miniseries debuted in March 2022 on Hulu (United States), Star+ (Latin America), and Disney+ (internationally), featuring Amanda Seyfried as Holmes. Additionally, in 2019, the documentary The Inventor: Out for Blood in Silicon Valley, directed by Alex Gibney, premiered at Sundance and was subsequently released through HBO platforms, offering a comprehensive examination of Theranos’s ascent and collapse.

See also

  • Ian Gibbons – Theranos's lead scientist who died by suicide in 2013
  • Richard Fuisz – involved as a defendant in a patent dispute with Theranos and its CEO

External links

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