25 Oct Diagnostics from the Future or Fraud? Theranos
Innovations in technology sometimes come in great strides. In the environment of young startups often dealing in social media or apps, Theranos stood out. Their innovative idea in the diagnostic lab industry stood out. They looked to revolutionize the industry and many investors road the wave of excitement. As Captiva Lab is committed to providing reliable services our clients can trust, it’s valuable to understand industry trends and learn from promises that seem too-good-to-be-true.
Theranos was a privately held corporation in the United States that claimed to have developed blood tests requiring only a fraction of the blood normally needed. Elizabeth Holmes founded Theranos in 2003, which reached a peak value of $10 billion from late 2013 to early 2014. Journalists began questioning the validity of this technology in late 2015, resulting in a series of commercial and legal challenges. Theranos was near bankruptcy by mid-2016 and ceased operations in August, 2018.
While attending Stanford University in 2003, Elizabeth Holmes had an idea for a wearable patch that could adjust drug dosage and provide information on the wearer’s blood. She claimed these tests used revolutionary technology and required only 1/100 to 1/1,000 of the amount of blood normally needed. Holmes dropped out of Stanford in 2004 and used her education trust to found Theranos, basing the name on a combination of the words “therapy” and “diagnose.”
Theranos was valued at $30 million and raised $6 million from investors by the end of 2004. Fundraising efforts after Series B and Series C funding raised a total of about $45 million by 2006. The company raised an additional $45 million by 2010, at which point it was worth about $1 billion. Theranos began receiving significant coverage from major news publications by 2013, including profiles in the Wall Street Journal and San Francisco Business Times. Total investments reached $400 million, and the company had an estimated value of $9 billion by 2014.
The U.S. Department of Defense issued a formal inquiry to the FDA regarding Theranos’s blood test devices in 2012, although the devices weren’t commercially available yet. The FDA reported in 2014 that the company’s blood collection containers weren’t validated under actual or simulated conditions, nor had they been reviewed or approved by any designated individual. A 2015 inspection also found multiple violations of Title 21 of the United States Code, commonly known as the Federal Food, Drug, and Cosmetic Act. Theranos voluntarily suspended its tests after this inspection, except for its herpes simplex virus (HSV-1) test that the FDA had already approved.
The Wall Street Journal (WSJ) reported in October 2015 that Theranos was performing its blood tests with traditional machines instead of its own devices, known as “Edison machines.” The WSJ report also alleged that Edison machines might be inaccurate, which Theranos officials claimed was factually and scientifically erroneous. Theranos then sent attorneys after the WSJ’s sources to prevent them from providing further information to the press. The company also announced in February 2016 that the Cleveland Clinic would review Theranos’s technology, which began in March of that year. The results of that study were published in the July issue of Journal of Clinical Investigation, which found that 68 percent of Theranos’s measurements showed significant interservice variability among other problems.
The Centers for Medicare and Medicaid Services (CMS) reported in January 2016 that Theranos’s lab in Newark, California failed to comply with its certificate requirements and performance standards regarding the lab’s calculation of the correct dose of the blood-thinning drug warfarin. CMS also announced that it would revoke the lab’s license and suspend Holmes and company president Ramesh Balwani from owning or operating a lab for the next two years. These sanctions were imposed in July 2016.
End of Operations
Theranos announced in October 2016 that it would close its laboratory operations and lay off about 40 percent of its work force. It also laid off the majority of its remaining workers in April 2018 in an attempt to avoid bankruptcy, resulting in a staff of less than 25 employees. Theranos formally ceased operations on August 31, 2018, although CEO David Taylor and a few staff members remained on the payroll for a few more days.
Holmes and Balwani were indicted on multiple counts of fraud and conspiracy charges on June 15, 2018. The charges allege they defrauded patients, doctors and investors, and were aware of their products’ unreliability. The case has been assigned to the United States District Court for the Northern District of California, where each defendant faces a maximum fine of $250,000 and 20 years in prison.
With the final charges wrapping up in the tale of Theranos, it stands as a cautionary tale about over-promising to investors without anywhere to turn. We pride ourselves that we stay on the cutting-edge of technology as well as standing by our results.