Theranos Inc. () was an American privately held corporation that was touted as a breakthrough health technology company. Founded in 2003 by then–19-year-old Elizabeth Holmes, Theranos raised more than US$700 million from venture capitalists and private investors, resulting in a $9 billion valuation at its peak in 2013 and 2014. The company falsely claimed that it had devised blood tests that could be performed rapidly and accurately, while requiring very small amounts of blood, all using compact automated devices that the company had developed.
A turning point came in 2015, when medical research professor John Ioannidis, and later, professor of clinical biochemistry Eleftherios Diamandis, along with investigative journalist John Carreyrou of The Wall Street Journal, questioned the validity of Theranos's technology. The company faced a string of legal and commercial challenges from medical authorities, investors, the U.S. Securities and Exchange Commission (SEC), the Centers for Medicare and Medicaid Services (CMS), state attorneys general, former business partners, patients, and others. By June 2016, Forbes estimated that Holmes' personal net worth had dropped from $4.5 billion to "nothing". After several years of struggle, lawsuits, and sanctions from CMS, what remained of the company was dissolved in September 2018.
Theranos, Holmes, and former company president Sunny Balwani were charged with fraud by the SEC in 2018. Holmes and Balwani were also charged with wire fraud and conspiracy, with Holmes being found guilty on four counts in January 2022 and sentenced that November to 11 years and 3 months in prison. Balwani was convicted on all 12 counts brought against him in July 2022, and in December 2022 was sentenced to 12 years and 11 months in prison and 3 years of probation.
History Early years While an undergraduate student at Stanford University, Holmes had an idea to develop a wearable patch that could adjust the dosage of drug delivery and notify doctors of variables in patients' blood. She started developing lab-on-a-chip technology for blood tests, with the idea to start a company that would make blood tests cheaper, more convenient and accessible to consumers. Holmes dropped out of Stanford in 2003 and used the education trust from her parents to found the company that would later be called Theranos, derived from a combination of the words "therapy" and "diagnosis". The original name was "Real-Time Cures", which Holmes changed after deciding that people were skeptical of the word "cure".
By December 2004, Holmes had raised $6 million to fund the firm. By the end of 2010, Theranos had more than $92 million in venture capital. In July 2011, Holmes was introduced to former US secretary of state George Shultz. After a two-hour meeting, he joined the Theranos board of directors. Holmes was recognized for forming "the most illustrious board in U.S. corporate history" over the next three years.
Partnerships In 2012, Safeway invested $350 million into retrofitting 800 locations with clinics that would offer in-store blood tests. After many missed deadlines and questionable results from a trial clinic at Safeway's corporate offices, the deal was terminated in 2015. In 2013, Theranos partnered with Walgreens to offer in-store blood tests at more than 40 locations. Although Theranos blood tests were reportedly used on drug trial patients for GlaxoSmithKline and Pfizer, both companies stated in October 2015 that there were no active projects with Theranos. In June 2016, Walgreens terminated its partnership with Theranos. In November 2016, it filed a suit against Theranos in federal court in Delaware for breach of contract. In June 2017, Theranos reported to investors that the suit, which originally sought $140 million in damages, was settled for less than $30 million.
In March 2015, the Cleveland Clinic announced a partnership with Theranos to test its technology and decrease the cost of lab tests. In July 2015, Theranos became the lab-work provider for Pennsylvania insurers AmeriHealth Caritas and Capital Blue Cross. The same month, the Food and Drug Administration approved the use of the company's fingerstick blood testing device for the herpes simplex virus (HSV-1) outside a clinical laboratory setting. Theranos was named the 2015 Bioscience Company of the Year by the Arizona BioIndustry Association (AzBio).
Exposure and downfall
In February 2015, Stanford professor John Ioannidis wrote in the Journal of the American Medical Association that no peer-reviewed research from Theranos had been published in medical research literature. In May 2015, University of Toronto Professor Eleftherios Diamandis analyzed Theranos technology and concluded that "most of the company's claims are exaggerated". Attempting to boost the company's credibility, Holmes invited then–U.S. Vice President Joe Biden to tour their facility. Biden praised what he saw, but to conceal the lab's true operating conditions, Holmes and Balwani had created a fake lab for the Vice President's tour.
In October 2015, John Carreyrou of The Wall Street Journal reported that Theranos was using traditional blood testing machines instead of the company's Edison devices to run its tests, and that the company's Edison machines might provide inaccurate results. Tyler Shultz, a Theranos employee from 2013 to 2014 and the grandson of then–Theranos director, former U.S. Secretary of State George P. Shultz, was a key source for the WSJ story. Shultz had attempted to take his concerns to company management. When that failed, he had spoken to Carreyrou and also, under an alias, reported the company to the New York State Department of Health for CLIA violations.
Theranos claimed that the allegations were "factually and scientifically erroneous". Walgreens suspended plans to expand blood-testing centers in their stores following the report. At that time, the Cleveland Clinic announced that it would work to verify Theranos technology. Theranos fought back against the Journal investigation, sending lawyers after sources in the story, including Shultz, in an effort to stop them from providing information to the press. Former employees of reputation management firm Status Labs said that Theranos had hired the firm to discreetly erase mentions of the WSJs reporting from its Wikipedia article (the activity being a violation of the website's terms of use).
Following the WSJ story, the history of FDA interactions with Theranos was scrutinized. The FDA had received a formal inquiry to look at Theranos blood test devices by the U.S. Department of Defense in 2012, when the devices were not yet commercially available and therefore did not require FDA approval. FDA inspection reports from 2014 and 2015 stated that its containers for blood collection were "not validated under actual or simulated use conditions" and "were not reviewed and not approved by designated individual(s) prior to issuance".
In 2015, an FDA inspection resulted in multiple observed violations of FDA Title 21 Regulations. It was eventually revealed that the FDA had classified Theranos's device, called a nanotainer, as a Class II medical device, meaning that Theranos would need to use special labels, meet certain performance standards and perform post-market surveillance of the device. Theranos asserted that the nanotainer was a Class I medical device and therefore not subject to any regulatory requirements. After the 2015 inspection, Theranos announced that it would voluntarily suspend its tests apart from the FDA-approved herpes simplex virus (HSV-1) test.
The Arizona Department of Health Services reported issues with the company's Scottsdale lab meeting regulations in September 2015. The reports were revealed in the Arizona Republic in November 2015. In January 2016, the Centers for Medicare and Medicaid Services (CMS) sent a letter to Theranos based on a 2015 inspection of its Newark, California lab, reporting that the facility caused "immediate jeopardy to patient health and safety" due to a test to determine the correct dose of the blood-thinning drug warfarin. Walgreens subsequently announced a suspension of Theranos blood tests from the Newark lab and immediately paused wellness services in Palo Alto. Theranos also agreed to stop tests at the Capital Blue Cross retail store in Enola, Pennsylvania.
In the four months that followed, Theranos faced further action from government agencies. CMS regulators announced plans to enact sanctions that included suspending Holmes and Balwani from owning or operating any certified clinical laboratory for two years and that they would revoke the facility's certification as a clinical laboratory. The company came under criminal investigation by federal prosecutors and the SEC for allegedly misleading investors and government officials about its technology. The U.S. House of Representatives Committee on Energy and Commerce requested information on what Theranos was doing to correct its testing inaccuracies and adherence to federal guidelines. In July 2016, Theranos announced that the CMS had revoked its Clinical Laboratory Improvement Amendments (CLIA) certificate and issued sanctions prohibiting its owners and operators from owning or operating a clinical laboratory for two years, suspension of approval to receive Medicare and Medicaid payments, and a civil monetary penalty. The company discontinued testing at its Newark location while attempting to resolve the issues. Theranos announced plans to appeal the decision by regulators to revoke its license to operate a lab in California and other sanctions.
In May 2016, Theranos announced that it had voided two years of results from its Edison device. The company announced that about 1% of test results had been voided or corrected from its proprietary machines in June 2016. Within two weeks, Walgreens formally terminated its partnership with Theranos and would close all remaining Theranos wellness centers. In August 2016, the company withdrew its request for emergency clearance of a Zika virus blood test after a lack of essential safeguards during the testing process was found by federal inspectors. Theranos announced that it would close its laboratory operations and wellness centers and lay off about 40% of its workforce to work on miniature medical testing machines in October 2016. In January 2017, Theranos announced that it had laid off a further 41% of its workforce, or approximately 155 people, and closed the last remaining blood-testing facility after the lab failed a second major U.S. regulatory inspection. Also that month, the company faced lawsuits from several different entities including Walgreens and Arizona Attorney General Mark Brnovich.