Origin of the Billion dollar idea
Theranos was a medtech startup founded in 2003 by 19-year-old Elizabeth Holmes, a college dropout, who claimed that she had figured out a way to do blood tests using only a single drop of blood. She realised that the traditional blood drawing procedures are excruciating to a lot of people and hence developed an automated device called a ‘nanotainer’ which was also known as the Edison device which would produce accurate and rapid results by just a finger prick amount of blood.
The Rise to the Top
The eccentric idea did not take much time to rise to its peak, making Elizabeth Holmes the world’s youngest female billionaire. The company raised $6.9m in early funding, gaining a $30m valuation. By 2007, Theranos’s valuation hit $197m after it raised another $43.2m in early-round. Just three years later, in 2010, the company was valued at $1billion. Soon, the company partnered with Walgreens which commercialised Theranos’s tests and the company raised more than $700 million from venture capitalists and private investors.
Unravelling the Web of Deception
In October 2015, The claims of the companies started to sound too good to be true when an Ex-employee of the company reached out to a Wall Street Journalist, John Carreyrou , who in his damning report stated that the claims made by the company are “factually and scientifically erroneous.” He provided that only a small portion of the company’s tests were being conducted by the Edison device which was originally developed by the company and majority of the blood was being tested using the competitors machines as the results produced by the nanotainer were found to be inaccurate.
Theranos was able to provide a 1000 page documentation refuting the journalist’s claims, However, The damage control did not prove to be very useful as the article had already caught the eye of The Food and Drug Administration (FDA).
Fallout with Investors and Partners
Seeing the criticism the company was facing, Walgreens suspended plans to expand blood-testing centres in their stores and following the report, Partner Fund Management (PFM), one of the largest investors of Theranos, accused the company of securities fraud.
During the same time, The Centres for Medicare and Medicaid Services (CMS) stepped in and sent a letter to Theranos that their claims have caused a health hazard to the patients.
Settlement with PFM AND CMS
In march 2017, Theranos settled with CMS after agreeing to stay out of the blood-testing business for two years in exchange for civil monetary penalties of only $30,000.
A month later, the company also resolved its disputes with PFM.
The final fall
In March 2018, SEC (The U.S. Securities and Exchange Commision) came into picture and charged Holmes and former Theranos president Ramesh ‘Sunny’ Balwani with fraud through exaggeration and portrayal of false statements about the company’s capabilities, technology and financial performance.
The control over the company was taken away from Elizabeth and she was forced to return millions worth of shares to investors and was prohibited from serving as an officer or director of any public company for the next ten years.
Closure of the Unicorn
Both Holmes and Balwani were charged with 11 criminal offences due to which Holmes stepped down as Theranos’s CEO but remained on the company board. However, the company failed to find a buyer and was forced to shut down its operation permanently following investigation by the FBI.
