The Trial of Theranos’ Elizabeth Holmes: What it Means for Silicon Valley’s Future

September 19, 2021

Elizabeth Holmes, the founder of Theranos, is currently on trial and facing up to 20 years in prison for fraud. Holmes’ story has been pervasive in the media over the last several years, resulting in a book, a podcast, and an HBO documentary being made about her and the Theranos scandal. Holmes’ rise to fame, success recruiting big-name investors, and the innovative technology she proposed have given her almost celebrity status. Her trial is being followed by millions of people because of the broad implications it will have on start-up culture.

The saga began in 2003 when Elizabeth Holmes dropped out of Stanford University at 19 years old. Although she originally wanted to practice medicine, her fear of needles prompted her to instead create Theranos Inc, a breakthrough medical-testing startup in Silicon Valley. Holmes adhered to a strict sleep and work schedule, wore black turtlenecks in a style reminiscent of Steve Jobs, and seemed to adopt a deeper voice when publicly speaking. Her revolutionary idea was ambitious but simple: create a machine that can run more than 240 laboratory tests using only a single drop of blood.

The machine, named the Edison machine after the famous inventor, was intended to perform laboratory tests known as immunoassays. These laboratory tests look for the presence of antibodies or antigens in the blood and can be used for things like drug or hormone levels, markers for cancer, and viruses. Theranos’ menu of tests lists all of the tests they offered and the prices, which they tout as being “a fraction of other labs” to make “lab testing as accessible as possible.” The’ device was similar to other miniature testing machines, except that this tabletop machine could run more tests using blood from just one finger prick. The proposed technology worked much in the same way that a traditional lab test is performed: a small cartridge takes a sample, runs it through the machine, then sends the data to a centralized system to reveal the result.

Much of Theranos’ reputation came from the list of high-profile names on the board of directors. The board included: former United States Secretaries of State, Henry Kissinger and George Schultz; Jim Mattis, retired Marine Corps general; Richard Kovacevich, former CEO of Wells Fargo; William Perry, former United States Secretary of Defense; and William Foege, former of the Centers for Disease Control and Prevention.

Holmes also quickly garnered attention from investors, and she raised almost $7 million in the first year. By 2014, Theranos was worth $9 billion and Elizabeth Holmes had a net worth of $4.5 billion, making her the youngest self-made female billionaire. Investors of Theranos included media tycoon Rupert Murdoch, venture capitalist Tim Draper, Oracle founder Larry Ellison, and a partnership with Walgreens pharmacies. Other companies, including Cleveland Clinic and Safeway, soon joined the list of partners.

In fact, Theranos’ suggested technology was groundbreaking in the field of medicine. Not only was the test minimally invasive, but it would also reduce health care costs. The test was praised as being well-suited for patients who require frequent blood draws because of the small blood sample size that reduced the need for large needles and multiple vials of blood required for most tests. Plus, Theranos offers test prices well below the price of Medicare reimbursement rates, leading to reduced healthcare costs for patients and providers.

If this all sounds too good to be true, that’s because it was. The technology didn’t work.

If this all sounds too good to be true, that’s because it was. The technology didn’t work. In a shocking exposé in 2015, John Carreyrou uncovered the truth behind the innovative start-up and its enigmatic CEO and founder, Elizabeth Holmes. In fact, the machine couldn’t perform the tests that it claimed, and Elizabeth Holmes knew that. The Edison device could only perform a handful of the hundreds of tests Theranos claimed, and most of the tests were actually performed on machines from outside companies like Siemens.

Several former employees admit concerns that Theranos was violating Federal regulations, and even worse, that the test results were inaccurate. It turns out their concerns were valid. Several people claim they were affected by inaccurate Theranos test results, including a woman who was misdiagnosed with a thyroid condition that prompted her to make doctors’ appointments and begin taking medication she did not need. Another woman was misdiagnosed with HIV, and yet another was incorrectly told she miscarried her baby.

Very quickly, Theranos imploded. In the aftermath of being exposed as unreliable, investors began pulling out, federal regulators began to investigate the company’s practices, and employees began speaking out. Theranos has been involved in multiple lawsuits against the company, and in 2018, Elizabeth Holmes was charged with civil-securities fraud and criminal fraud charges. The civil suit was settled, but Holmes’ criminal trial, in which she is charged with wire fraud and conspiracy to commit wire fraud, finally began August 31 after multiple delays. Holmes is accused of defrauding investors, healthcare providers, and patients.

Elizabeth Holmes’ trial and the demise of Theranos highlight the problems within Silicon Valley’s start-up culture.

Elizabeth Holmes’ trial and the demise of Theranos highlight the problems within Silicon Valley’s start-up culture. The prosecution accuses Holmes of intending to deceive, while the defense claims she had good intentions and really believed her company was as good as she claimed. In order to be successful and attract investors, startup founders have to sell their companies. However, there is a “thin line between hype and fraud.” This “fake it til you make it” culture is particularly prevalent with companies who patent their technology, making it proprietary property that cannot be revealed or reviewed. Holmes will claim she was just trying her hardest to be successful.

There have been talks about how this trial will affect startups and venture capital, particularly in the healthcare arena, starting with “a higher standard of proof of business success.” Future investors would be wise to do their due diligence and investigate the company they want to support. This is especially the case for healthcare startups, which is one of the hardest areas to invest in because of the importance of acquiring concrete data and scientific evidence that has been peer-reviewed and supported. Additionally, future entrepreneurs can learn valuable lessons from Theranos, including the importance of transparency, honestly, and taking responsibility.

Future board members should also take notes from Theranos’ scandal, especially in ensuring that they understand the ins and outs of the operations of their company. Board members also should be aware of and ready to deal with compliance issues within their company before they become a problem. Developing a healthy company culture based on integrity can help board members recognize red flags sooner. Had Theranos’ board of directors been more open and team-driven, they may have been able to prevent such a disastrous result.

Lastly, Holmes’ trial has already had a negative impact on women CEOs, especially in the science and health tech industry. Since Theranos’ demise, there has been a pattern of female founders having trouble receiving funding and getting compared to Holmes. Studies have shown that there is already a large gender gap in gaining funding for startups, and the Theranos scandal will only further widen it. Thus, women CEOs are indirectly affected by Elizabeth Holmes’ actions. Many people will want justice to be served in this case, and a lot of people will be watching the trial.

Maggie Callahan

Maggie attended the University of Georgia before attending nursing school at Georgia State University. She worked as a Registered Nurse in the emergency department and pediatric intensive care unit before coming to law school. She is interested in a career in health law.

Leave a Reply

Your email address will not be published. Required fields are marked *