Elizabeth Holmes’ big idea was a smart medical device that could perform many sophisticated blood tests from just a finger prick. This would be a small miracle for patients who hate needles.
Elizabeth Holmes’ big idea was a smart medical device that could perform many sophisticated blood tests from just a finger prick. This would be a small miracle for patients who hate needles.
In the Silicon Valley fairy-tale version of her career, Holmes and her company, Theranos, would make billions by making life easier for millions. Walgreens bought into the idea, investing $50 million. The plan was to dispense Theranos blood tests at thousands of Walgreens drugstores, providing customers with a cheap, effective alternative to doctor’s office visits — and those scary needles.
Another cool new technology to change the world, right?
Well, not exactly. Belief in innovation was so ingrained among business leaders and consumers, and Holmes’ salesmanship so persuasive, that investors poured more than $400 million into Theranos … and missed the warning signs. The company made bold claims but kept its technology secret. When Walgreens executives visited, they were not permitted into a lab to examine data. Yet the drugstore chain forged ahead, concerned a competitor would rush in and strike a deal, according to The Wall Street Journal.
Others were equally smitten, comparing Holmes, a Stanford dropout, to Steve Jobs. Forbes estimated Theranos’ value at $9 billion, which made Holmes with her 50 percent stake theoretically worth $4.5 billion. This was despite the absence of scientific studies confirming her device works, and the fact that company sales never topped $100 million.
Here’s how the Theranos system was supposed to work: A few drops of blood drawn from a finger stick would be delivered to a nearby Theranos lab, where the company’s proprietary machine, known as Edison, would analyze the sample and spit out results. Lots of tests (cholesterol, glucose, etc.) were available, at prices significantly below what traditional labs charge. Last year, Theranos told Tech Insider that Edison could perform more than 70 tests from a single tiny sample of blood.
The bottom fell out after the Journal reported that the company overstated the abilities of its machine. Theranos, operating about 40 centers, did most of its blood tests using conventional lab machines, not Edison, the Journal said. Some former employees doubted the accuracy of Theranos’ lab results. A small-scale study of the company’s technology published in a medical journal this year found the machine’s blood test results were less reliable than conventional methods.
Last Sunday, Walgreens killed its deal with Theranos and will close the blood testing company’s clinics in Walgreens drugstores. One of Walgreens’ chief concerns: Theranos recently voided tens of thousands of patient blood tests, according to the Journal, raising serious new questions about the company’s competence.
Federal prosecutors are conducting a criminal investigation of Theranos while the Securities and Exchange Commission is looking at whether Theranos misled investors.
In terms of Silicon Valley credibility, the defining blow to Theranos came from Forbes: The magazine stripped the company of its high-flying valuation.
It’s still theoretically possible Theranos cracked the code on blood tests and will recover.
What’s certain is the company made aggressive boasts that went unchallenged by investors who were so dazzled by a potential innovation they never demanded an answer to the basic question: Does this thing really work?
— Chicago Tribune