Elizabeth Holmes and Theranos: How “The Change in Healthcare” Turned Disastrous and Its Larger Implications

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By Madeline Olds, Web Editor

Healthcare is always trying to be advanced to be more safe, effective, and simpler for patients and doctors alike. This was the ambition and mission of Elizabeth Holmes who started a company called Theranos in 2014.[1] Theranos was a private health care company, with a mission to revolutionize lab testing through innovative methods for drawing blood, testing blood, and interpreting resulting patient data.[2] This was done through a medical device called a nanotainer, which drew, retained, and analyzed mere droplets of blood from the patient’s fingertip and received accurate results from the Edison testing machines[3]. The testing, according to Holmes and Theranos, could give results for a variety of health conditions, including but not limited to cancer, kidney disease, cholesterol, HIV, and diabetes.[4]

Theranos quickly became a multibillion-dollar business, raising 1.3 billion dollars in funding, with some of the biggest name investors including Rupert Murdoch, Time Draper, and Larry Ellison.[5] Along with big name investors, the Theranos board included some high-powered individuals including George Shultz, former United States Secretary of State, and William Foege, former Director of the Centers for Disease Control.[6] In 2013, Theranos and Walgreens, one of the largest pharmacy store chains in the United States, announced a partnership that would have testing devices in Walgreen’s Wellness Centers across the country, where consumers would have easy access to the novel blood testing technology.[7]

In December of 2014, Theranos had raised more than 400 million dollars and Holmes was named one of the richest women in America.[8] After a decade in business, the company seemed extremely successful, with it valued at 10 billion in 2015.[9] However, the downfall for Holmes and Theranos was about to begin. 

In 2015, journalist John Carreyrou had received a tip about Elizabeth Holmes and Theranos.[10] This began his large-scale investigation of Theranos and Holmes, with Carreyrou discovering that Theranos’ blood-testing machine couldn’t give accurate results.[11] Carreyrou exposed the alleged fraud in a series of articles published in the Wall Street Journalwhich led to an investigation by the Food and Drug Administration (FDA) of Holmes’ labs.[12]

Closely behind Carreyrou and the FDA was the Department of Justices’ investigation of Holmes and Theranos. The Department of Justice had been closely investigating the financial aspects of Theranos since 2013.[13] In June 2018, Holmes and Balwani, Chief Operating Officer and President of the startup, were indicted on two counts of conspiracy to commit wire fraud and eight counts of wire fraud.[14] According to the Indictment, “from a time unknown but no later than 2013 through 2015, Holmes and Balwani and other known and unknown to the Grand Jury, through their company, Theranos, engaged in a scheme, plan, and artifice to defraud investors as to a material matter and to obtain money and property by means of materially false and fraudulent pretenses, representations, and promises by making materially false and misleading statements, and failing to disclose material facts with a duty to disclose.”[15] The Indictment also states that Holmes and Balwani through Theranos “through advertisement and solicitations, encouraged and induced doctors and patients to use Theranos’ blood testing laboratory services.”[16]

After many delays, Holmes’ trial began in September 2021.[17] The prosecution is arguing that Holmes was desperate to keep Theranos from bankruptcy, so she lied to investors, and was in control of what was happening within the company.[18] Holmes’ defense claims that her errors were merely human, that they did not constitute fraud, and that Balwani may have been controlling and manipulating her.[19] So far, the prosecution has presented testimony from former Theranos employees, the whistleblower, and a patient that used Theranos’ technology.[20] Currently, the prosecution has rested their case, and Holmes herself testified in her own defense.[21]

With such a highly publicized trial and an even larger company, the rise and fall of Theranos has had a large impact on a variety of different industries, starting with governmental regulation in health.[22] With the lack of FDA regulation over laboratory developed tests, many organizations, including Theranos, created testing devices and methos that led to dangerous and harmful results.[23] In the case of Theranos, the testing results were inaccurate and caused many patients harm due to both the misdiagnosis and/or misinformation.[24] The lesson in Theranos may be that the FDA needs more regulation and guidance over laboratory developed tests as a variety of new industries step forward into the healthcare community.[25]

Along with FDA and government regulation, the biotechnology industry as a whole has been impacted by Theranos. Biotechnology is “technology that utilizes biological systems, living organisms, or other parts of biology to develop or create different products.”[26] Biotechnology has been one of the largest growing industries and one of the most financially lucrative. Theranos has especially brought forward a lot of criticism and caution to biotechnological startups and credibility.[27] Example includes Samumed, a company using biotech to create treatment for hair loss with already a $12 billion valuation.[28] Consumers and investors are a lot more cautious about the biotechnology being put out, such as requiring peer review and strong vetting of the process under medical direction.[29]

In direct connection to funding in healthcare, Holmes’ deceit of investors has led to a different perspective in investment into new healthcare companies.[30] Investors have not gotten shy as to investing, as it tripled in the years following the fall of Theranos, because the healthcare industry-specifically technology in healthcare-is one of the most lucrative industries to invest in.[31] However, scrutiny of Theranos has been seen on a smaller scale. Investors are more sensitive about searching for evidence of products efficacy.[32] Though the increased sensitivity has been productive for assuring quality products, there have been negative impacts for women in healthcare technology industry.[33] Holmes, being the strong central figure that led Theranos, is associated with the alleged fraud and failure of the company, which has caused there to be a negative association with the female entrepreneurs.[34] Scrutiny is a lot stronger against woman with reputable work and accomplishments than their male counterparts, so much so that women-led start-ups have declined 5%.[35]

The impact of Holmes’ trial and the collapse of Theranos has already been seen across many fields in health care, government, and business, and will continue to be seen well after the trial. The largest impact, however, is on the patients and investors that were deceived by Holmes and Theranos’ promise of effective and accurate blood testing technology. In the coming weeks, the public will see how the Department of Justice handles the alleged fraud by Holmes and Theranos.  

[1] Sara Ashley O’Brien, The Rise and Fall of Elizabeth Holmes: A Timeline, CNN (Sept. 8, 2021), https://www.cnn.com/2021/09/07/tech/elizabeth-holmes-theranos-timeline/index.html.

[2] Elizabeth A. Holmes’ Affidavit, at ¶ 4-5, United States of America vs. Elizabeth Holmes & Ramesh “Sunny” Balwani, Docket # 18-00258(Northern District of California San Jose Division/Jun. 14, 2018).  

[3] Avery Hartmans, Paige Leskin, et al., The Rise and Fall of Elizabeth Holmes, The Theranos Founder Who is Now on Trial for Fraud, Business Insider (Aug. 31, 2021), https://www.businessinsider.com/theranos-founder -ceo-elizabeth-holmes-life-story-bio-2018-4#holmes-family-moved-when-she-was-young-from-washington-dc-to-houston-2.; Zaw Thiha Tun, Theranos: A Fallen Unicorn, Investopedia (June 16, 2021), https://www.investopedia.com/articles/investing/020116/theranos-fallen-unicorn.asp.

[4] Id.

[5] Sophia Kunthara, A Closer Look At Theranos’ Big-Name Investors, Partners, and Board As Elizabeth Holmes’ Criminal Trial Begins, Crunchbase News (Sept. 14, 2021), https://news.crunchbase.com/news/theranos-elizabeth-holmes-trial-investors-board/.

[6] Id.

[7] Sara Ashley O’Brien, The Rise, and Fall of Elizabeth Holmes: A Timeline, CNN (September 8, 2021), https://www.cnn.com/2021/09/07/tech/elizabeth-holmes-theranos-timeline/index.html.

[8] Id.

[9] Avery Hartmans, Paige Leskin, et al., The Rise and Fall of Elizabeth Holmes, the Theranos founder who is now on trial for fraud, Business Insider (Aug. 31, 2021), https://www.businessinsider.com/theranos-founder-ceo-elizabeth-holmes-life-story-bio-2018-4#holmes-family-moved-when-she-was-young-from-washington-dc-to-houston-2.

[10] Lachlan Cartwright, ‘Bad Blood’ Author John Carreyrou on Why He Left the Wall Street Journal and What He’ll Do Next, Daily Beast (Aug. 29, 2019), https://www.thedailybeast.com/bad-blood-author-john-carreyrou-on-why-he-left-the-wall-street-journal-and-what-hell-do-next.

[11] Sara Ashley O’Brien, The Rise and Fall of Elizabeth Holmes: A Timeline, CNN (September 8, 2021), https://www.cnn.com/2021/09/07/tech/elizabeth-holmes-theranos-timeline/index.html.

[12] Id.

[13] Holmes’ Aff., surpa ¶ 11, 14. 

[14] Id.

[15] Id.

[16] Id.

[17] Sarah Jackson, Here’s Everything You Missed in Week 1 of Elizabeth Holmes’ Theranos fraud trial, Business Insider (Sept. 11, 2021), https://www.businessinsider.com/elizabeth-holmes-theranos-fraud-trial-what-happened-first-week-2021-9.

[18] Id.

[19] Id.

[20] Victor Ordonez, Elizabeth Holmes Criminal Trial Dominated By Allegations of Deception and Intimidation From Those Who Worked for Her, ABC News (Sept. 21, 2021), https://abcnews.go.com/US/elizabeth-holmes-criminal-trial-dominated-allegations-deception-intimidation/story?id=80137796. 

[21] Erin Griffith, Elizabeth Holmes Begins Her Defense In Fraud Trial, The New York Times (Nov. 11, 2021), https://www.nytimes.com/2021/11/19/technology/elizabeth-holmes-trial.html.

[22] William C. Martinez, A Cautionary Tale: Theranos, the LDT Loophole, and Implications on the COVID-19 Pandemic, Health Law Forum (2020), https://scholarship.shu.edu/cgi/viewcontent.cgi?article=1027&context=health-law-outlook.

[23] Id.

[24] Id.

[25] Id.

[26] What Is Biotechnology, Norwegian University of Science and Technology (2021), https://www.ntnu.edu/ibt/about-us/what-is-biotechnology.

[27] Lydia Ramsey Pflanzer, ‘The Outlier Thing Didn’t Work Out’-Biotech CEOs Reflect on Theranos’ Impact on the Industry, Business Insider (Jan. 30, 2017), https://www.businessinsider.com/was-there-a-theranos-effect-in-biotech-2017-1.

[28] Id.

[29] Id.

[30] Darius Tahir, Has Health Tech Investing Changed Since Theranos?, Politico (Aug. 11, 2021), https://www.politico.com/newsletters/future-pulse/2021/08/11/has-health-tech-investing-changed-since-theranos-797079.

[31] Id.

[32] Id.

[33] Id.

[34] Id.

[35] Id.

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