Pharmacology

A Brief History about Theranos:

At the age of nineteen, Elizabeth Holmes dropped out of Stanford to start Theranos. The

business model of the start-up was to create blood-testing technology that only required very

small amounts of blood. Holmes first sought out investors who were connected to her family,

and she hired Channing Robertson, a chemical engineering professor from Stanford, as an

advisor and her first board member. By 2004, Holmes had raised $6 million. The first prototype

of the Edison, a blood testing device the size of a desktop printer, debuted in 2007. In 2009,

Holmes recruited Sunny Balwani, who had a background in software engineering and business,

to be the president and chief operating officer of Theranos. A year later, after multiple rounds

of funding, Theranos was valued at one billion dollars. (Theranos SEC filings can be found at this

link: https://sec.report/CIK/0001313697.)

George Shultz, who served as secretary of state for President Ronald Regan, served on the

board from 2011-2015. Holmes was a close family friend of the Shultz family, and George Shultz

helped Holmes attract board members with military and congressional backgrounds. In 2015,

the Theranos board members in addition to Elizabeth Holmes, Sunny Balwani, and George

Shultz were:

1. Bill Perry, former Secretary of Defense,

2. Henry Kissinger, former Secretary of State,

3. Sam Nunn, former U.S. Senator, who served as the chairman of the Senate Armed

Services Committee and the Permanent Subcommittee on Investigations

4. Bill Frist, former U.S. Senator, heart and lung transplant surgeon

5. Adm. Gary Roughead, retired U.S. Navy Admiral,

6. Gen. James Mattis, retired U.S. Marine Corp General,

7. William Foege, former director of the Centers for Disease Control and Prevention

8. Dick Kovacevich, former Wells Fargo CEO and chairman, and

9. Riley Bechtel, former Bechtel Group CEO and Chairman of the board.

10.

Holmes, and Theranos raised more than $700 million from late 2013 to 2015, and the company

was valued at $9 billion, but Holmes had yet to explain in detail how the blood-testing

technology worked. Notably, this level of investment was both more than similar technology

startups and included many atypical investors. A November 2016 article in the Wall Street

Journal identified Rupert Murdoch, then executive chairman of News Corp and 21st Century Fox

Inc. and Riley Bechtel, then chairman of the giant construction firm the Bechtel Group among

the investors. The article noted that it was unusual for such powerful men to make direct

investments in startup companies (Weaver et al). Holmes also received significant media

attention as a female CEO of a unicorn company, a start-up valued at more than a billion

dollars. Also, women in Silicon Valley were hoping for a female unicorn company to succeed,

given the lack of them. In 2017, only two of the 84 unicorn companies in the United States had

female CEOs (Guzman).

In March of 2018, the SEC charged Holmes and the Company’s former president, Sunny

Balwani, with “raising more than $700 million from investors through an elaborate, years-long

fraud in which they exaggerated or made false statements about the company’s technology,

business, and financial performance” (SEC). Holmes paid a fine, gave back stock, and is barred

from being an officer or director of any public company for ten years. Balwani did not settle

with the SEC, and in June of 2018, the US District Attorney for Northern California announced an

indictment of Holmes and Balwani on wire fraud and conspiracy charges. Theranos ceased

operations on August 31, 2018, and the company was dissolved. Elizabeth Holmes and Sunny

Balwani will stand trial on criminal charges that they lied to investors and doctors about the

start-up’s product capabilities in late 2020. The pair allegedly duped investors into funneling

more than $700 million into the start-up.

(adapted from Santa Clarita University, scu.edu)