The story of the Theranos fraud allegations and fallout is likely to color decisions around healthcare diagnostics companies’ R&D, operations, marketing, and funding for years to come. Although Theranos shuttered in 2018, the rise and fall of this company, which claimed to have technology capable of performing hundreds of tests on only a few drops of blood, continues to capture attention, make headlines, and cause founders and investors to think twice about their decisions.
The cautionary tale continues as Theranos CEO Elizabeth Holmes and president Ramesh Balwani prepare to stand trial in Aug 2020 on 11 counts, including wire fraud and conspiracy to commit wire fraud. If they’re found guilty, they could be fined millions of dollars and face up to 20 years in prison.
Theranos CEO Elizabeth Holmes
In 2003, at age 19, Holmes dropped out of Stanford and founded Theranos — a name that combines the words “therapy” and “diagnosis.” From its beginnings, the company shared few details about its technology other than it would miniaturize, automate and expedite testing.
Theranos received support and investments from high-profile individuals, including Rupert Murdoch, Larry Ellison, and Betsy DeVos. Additionally, Theranos board members included an impressive roster with names such as former U.S. secretary of state George Schultz, former U.S. secretary of state Henry Kissinger, and retired U.S. Marine Corps General James Mattis, In 2013, Theranos announced a partnership with Walgreens, which would enable people to test their blood on their visits to the pharmacy chain’s stores.
Still, the industry knew little about how Theranos’ technology worked. A 2015 JAMA editorial pointed out that although the company and its captivating founder, the world’s youngest female self-made billionaire in 2014, received ample media attention, there was a distinct lack of information published about its technology or its “Edison” device in peer-reviewed journals. In the recently released HBO documentary The Inventor: Out for Blood in Silicon Valley, producer and director Alex Gibney drew parallels between Holmes’ approach to innovation and Edison’s “fake until you make it approach.”
A 2015 series of Wall Street Journal articles by investigative reporter John Carreyrou raised questions about Theranos blood testing technology. Then, in 2016, things started to change for Theranos. The Centers for Medicare and Medicaid Services issued a letter stating that Theranos had violated clinical standards, and an inspection by federal regulators revealed quality control issues. Regulators imposed sanctions, revoked certifications, and prohibited Theranos from receiving Medicare reimbursements. Walgreens also ended its relationship with the company in 2016.
In 2018, Holmes settled civil fraud charges brought by the U.S. Securities and Exchange Commission with conditions that included barring her from serving as an officer or director of a public company for 10 years. Theranos, once valued at $9 billion and allegedly ready to disrupt the diagnostic testing space, closed.
How Theranos Actually Disrupted the Healthcare Diagnostics Space
Theranos did manage to disrupt the healthcare diagnostics space, although in a way the company didn’t intend. Daniel Levner, co-founder of Sight Diagnostics, told Bloomberg the “Theranos Effect” had three phases. First, it was hard for other healthcare diagnostics startups to compete for funding with Holmes capturing the lion’s share of attention. Then, when the news that the technology wasn’t capable of accurately performing hundreds of tests on a small blood sample as it alleged, investors seemed to shy away from all healthcare diagnostic startups.
Lastly, when the dust began to settle, and it became evident that Theranos was atypical among healthcare diagnostics companies, investors were open to pitches from startups in this space, but those pitches included something new: How their startups are not like Theranos, or, how their company is “like Theranos, except it works”.
The Theranos fallout also:
It Should Go Without Saying
Another takeaway from Theranos’ rise, fall, and continuing legal repercussions is the fundamental business principle that you can’t succeed by making promises you can’t deliver. In the MedTech space, this means no less than a crystal clear picture of precisely what patients and their doctors can expect from your technology.
Founders in other industries may be able to pull off a “fake it until you make it” approach, but it has no place in Medtech.
About the Author
Carevoyance contributor Bernadette Wilson of B Wilson Marketing Communications is an experienced journalist, writer, editor, and B2B marketer, specializing in content for technology companies.