The story of Elizabeth Holmes and the company she founded is in the news, but not in a good way. She was a brilliant student who dropped out of Stanford to pursue her ideas of revolutionizing medical testing, and started up a company called Theranos to make it happen.
The concept was the development of special automated instruments that could use a small sample of blood to do a whole battery of standard medical tests. The technology was supposed to be almost painless, the blood volume minimal compare to a standard draw, and the machinery so automated, they could be set up like walk-up kiosks at a drug store chain. It would have speeded up testing, brought costs way down, and made significant improvements in health care quality. It almost sounded like something out of a Star Trek sick bay.
She was able to attract billions in investment capital and attracted a lot of ‘buzz’ around her efforts. Forbes magazine featured her as the youngest billionaire ever. But then it all started to unravel. According to the Washington Post,
Elizabeth Holmes, founder and chief executive of the blood-testing company Theranos, has been charged by the Securities and Exchange Commission with an “elaborate, years-long fraud” in which she and former company president Ramesh “Sunny” Balwani allegedly “deceived investors into believing that its key product — a portable blood analyzer — could conduct comprehensive blood tests from finger drops of blood,” the SEC said.
Holmes agreed to a $500,000 penalty and a 10-year ban on serving as an officer or director of a public company to settle the charges, but she did not admit or deny the allegations.
It appears to have been a classic Silicon Valley tale of Overpromising and Underdelivering. Holmes was attempting to make use of computing power and robotics to automate standard medical tests, by creating instruments that could handle 90% of those tests all on the same equipment. The small sample sizes would have minimized the reagents needed, a major source of expense, and the automation would have minimized the need for humans to oversee the testing (another source of expense) while providing more consistent results.
Without access to inside information, it’s difficult to know where it all went wrong, but I’d guess that, assuming Holmes original assumptions of what could be done were valid, translating them into actual hardware either did not work out, or was taking too long to justify the spending — ‘the burn rate’. According to the WP,
When the technology was due to be launched in the first drugstores in September 2013, it was not ready, according to the complaint. Instead, Holmes and Balwani allegedly asked company engineers to modify technology already commercially available to analyze samples — but did not tell their commercial partners. Holmes and Theranos created elaborate technology demonstrations in which they showcased their proprietary analyzers but actually processed the samples on machines made by other vendors...
Other claims being made to investors included exaggerating the number of tests the machines could do, and claiming the technology was already being used by the military. Theranos had lined up an impressive collection of board members to add credibility.
Did the technology fail to live up to its promises, or was Holmes mistaken about its potential? Did Theranos set out to defraud investors, or did they simply get caught in a trap of needing more money and time than they had, and gambled on making it all work eventually? Did the image of Holmes as a brilliant innovator who was also charismatic allow her to damp out the kind of scrutiny investors might have otherwise directed at Theranos? How much of this was driven by people eager to throw money at “The Next Big Thing”— whatever it was?
There’s no question there’s a market for what Holmes promised. The question is, how did it come down to this? Holmes is effectively ruined, the ideas she promoted have been discredited, and investors are likely to avoid similar proposals in the future, having been burned.