Theranos Case Study: Where the Line Was Crossed

By now, you’ve likely heard of the Theranos incident involving Elizabeth Holmes. It goes down as one of the all-time failures in the phlebotomy technology industry. It wasn’t all that long ago that Holmes, the founder of Theranos, appeared on covers of Time Magazine, showcased as one of the most promising business icons of this generation. The tables have turned, however—let’s take a look.

A Brief Overview

Theranos was a health technology corporation considered as the “next big thing” in the realm of blood testing. It was founded in 2003 by Elizabeth Holmes, who was only 19 years old at the time. The selling point of Theranos’ blood collection technology was that it only required 1/100 to 1/1000 of the blood amount that would normally be required for testing. The operating costs of this new testing system was considerably lower than traditional methods. Theranos received a $10 billion valuation by 2013, partially due to Holmes raising more than $700 million in venture capital. Hence, partnerships were formed with Safeway, Walgreens, the Cleveland Clinic, and more.

Elizabeth Holmes

Elizabeth Holmes, the founder of Theranos, was born in Washington D.C. Her family had connections in business and politics, as her father was a vice president at Enron, and her mother was a Congressional committee staffer. In 2004, Holmes dropped out of Stanford and used the unallocated tuition funding to start a consumer healthcare technology company. This company was called “Real-Time Cures” and had the mission of democratizing healthcare. Holmes claimed that her fear of needles was motivation to create a blood test that only requires a small amount of blood from the tip of a finger. Her company was incorporated as “Theranos” in April of 2004.

The Downfall

Everything started to go downhill as of October 2015 when John Carreyrou, a reporter from The Wall Street Journal, publicly challenged the credibility of Theranos’ technology. He was tipped off by ex-Theranos-employee, Tyler Shultz. Carreyrou then reported that instead of using their patented Edison devices to run blood tests, Theranos was merely using traditional blood testing machines. Carreyrou argued that Theranos’ Edison machines may not be reporting accurate blood test results. This led to a surplus of legal and commercial challenges from medical authorities, outraged investors, the SEC, the CMS, state attorneys general, and patients reliant on Theranos’ technology.

Everything continued to unravel from here. Walgreens put its plans to expand blood-testing centers in all stores on pause. The Cleveland Clinic created an investigation, working to verify if Theranos technology actually served its purpose. Formal FDA inspections were conducted, and Theranos’ technology failed many components of the tests. At this point, Theranos announced it would suspend its testing voluntarily.

Crossing the Line

John Carreyrou proclaimed the Theranos incident as “one of the most epic failures in corporate governance in the annals of American capitalism.” Many people believe that the somewhat shady culture of Silicon Valley led to the fraudulent business taking shape. The “win at all cost” and “fake it until you make it” ideologies helped many entrepreneurs become successful in the valley, but Theranos taught us that these same mantras should not be applied to the medical field where human lives are at stake.

The lack of accountability also played a role. The board of Theranos and federal regulators did not oversee operations to an acceptable extent. Furthermore, potential whistleblowers were met with threats of lawsuits. This toxic culture was purely unsustainable. False representation is a serious offense in business, and in the medical industry, it is purely unacceptable. Holmes falsely represented her technology to all kinds of stakeholders including investors, doctors, and patients.

Justice is bringing Holmes and Theranos back down to earth. Currently, Holmes and former chief operating officer and president Ramesh Balwani are facing criminal charges. They have pleaded not guilty, but potentially face 20 years in prison. Let this entire situation be a lesson that Silicon Valley startups led by seemingly invincible leadership are often more fragile than they seem. Carreyrou exclaims, “When you enter industries where lives are in the balance, you can’t really just iterate and debug as you’re going. You have to get your product working first.” If you have any questions about Theranos, blood withdrawal, or phlebotomy training, feel free to contact PhlebotomyU today.

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