The Theranos Story Part II

Please read the following documents provided in
this handout:
? Wall Street Journal article by J. Carreyrou
from Oct 15, 2015
? Vanity Fair article by Nick Bilton (May 2016)
? Theranos timeline by Emilia Varrone from the
National Journal
then answer the following questions:
1. For each of the company?s key value
propositions identified in Part 1, describe
what has been accomplished
2. Several of the company’s claims were not based on scientific evidence and did not undergo rigorous
external review. Why did Theranos get away with this for so long? How does the lack of rigorous
evaluation fit in with the original ?tech allure? of Theranos and its founder?
3. How would you describe the corporate culture at Theranos, i.e. what are the core values of this
company? Compare this to the core values you identified for Elizabeth Holmes in 2013 ? in your
opinion: what happened, and why?
Please read the article: ?Retail Clinics: A Shift From Episodic Acute Care to Partners in Coordinated
Care? by Dalen, J.E., American Journal of Medicine, 2016, 129(2):134-136 (which you have found
yourself and pulled into Zotero, including the pdf); then answer the following questions:
4. Describe what retail clinics are and how they have evolved, who operates these clinics, what services
are offered, and who sees patients at these clinics?
5. What are the key advantages (value propositions) of retail clinics for a patient, compared to a
traditional physician office visit? Compare these to related key value propositions of Theranos.
Please complete Exercise #3 with the associated concept video and reading assignments, then based on
this plus the other information provided here answer the following questions:
6. Into which lab type category does Theranos fall and within this category who are Theranos? key
competitors?
7. Theranos is regulated by both FDA and CMS ? why?
8. Theranos appealed to consumers and investors as anti-establishment disruptive company. Who were
the ?good guys? and the ?bad guys? in this story in 2013? Who are the ?good guys? and ?bad guys?
in this story in 2016? Who in the end ?led the battle? against Theranos, and who ?was not pleased??
Figure 1: Elizabeth Holmes at the Theranos lab in Newark,
CA in 2015. Photo by Carlos Chavarria, New York Times
Tips about how to approach this assignment (and other assignments wherein you have to develop
an argument, evaluate claims or hypotheses, based on additional sources and data):
? As before: think about the questions you try to answer first, then use this to frame your reading. As a
step towards your position essay, start a new word document structured along the lines of the
questions you have to answer, then port information from your answers to part I of this assignment
into the relevant sections of this new document.
? As before: quick read each of the additional sources provided herein with highlighter and cliff notes
in the margins, so that later on you can find which question is addressed where. Don?t get stuck in
the weeds: some sections can be skimmed over, others require a deep dive. Some articles may only
contain one or two key pieces of information, others will have a lot more relevant content. You have
to learn how to go through a lot of information quickly and pull out the pieces that matter.
? Once done with the quick read of a document, go back through the cliff notes, pull out the relevant
information, and write that information in your own words as bullet points into your word doc in the
appropriate sections. Again, no copy and paste, doesn?t have to be perfect prose at this stage as long
as you know what it means.
? As you write, at the end of each bullet add a little reminder for yourself about where this information
came from (e.g. or ). This helps later on since you will need to cite
sources (we will go over the mechanics on how to cite from Zotero in the next class)
? After you have evaluated all your sources, go back and edit your bullets: fix up the writing a bit,
prioritize and condense as needed. Also, decide if you have enough data of sufficient quality to
address each point. Make a note where you feel that further information is needed.
? Don?t worry yet about turning bullet points into paragraph prose. That comes later.
Articles published in the Wall Street Journal Oct 2015:
A Prized Startup’s Struggles — Silicon Valley lab
Theranos is valued at $9 billion but isn’t using its
technology for all the tests it offers
Carreyrou, J. (2015, Oct 15).
On Theranos Inc.’s website, company founder
Elizabeth Holmes holds up a tiny vial to show how
the startup’s “breakthrough advancements have made
it possible to quickly process the full range of
laboratory tests from a few drops of blood.”
The company offers more than 240 tests, ranging
from cholesterol to cancer. It claims its technology
can work with just a finger prick. Investors have
poured more than $400 million into Theranos,
valuing it at $9 billion and her majority stake at
more than half that. The 31-year-old Ms. Holmes’s
bold talk and black turtlenecks draw comparisons to
Apple Inc. cofounder Steve Jobs.
But Theranos has struggled behind the scenes to
turn the excitement over its technology into reality.
At the end of 2014, the lab instrument developed as
the linchpin of its strategy handled just a small
fraction of the tests then sold to consumers,
according to four former employees.
One former senior employee says Theranos was
routinely using the device, named Edison after the
prolific inventor, for only 15 tests in December
2014. Some employees were leery about the
machine’s accuracy, according to the former
employees and emails reviewed by The Wall Street
Journal.
In a complaint to regulators, one Theranos
employee accused the company of failing to report
test results that raised questions about the precision
of the Edison system. Such a failure could be a
violation of federal rules for laboratories, the former
employee said.
Theranos also hasn’t disclosed publicly that it does
the vast majority of its tests with traditional
machines bought from companies like Siemens AG.
The Palo Alto, Calif., company says it abides by
all applicable federal lab regulations and hasn’t
exaggerated its achievements. It disputes that its
device could do just 15 tests, declining to say how
many tests it now handles or to respond to some
questions about its lab procedures, citing “trade
secrets.”
But Theranos’s outside lawyer, David Boies,
acknowledges that the company isn’t yet using the
device for all the tests Theranos offers. The
transition to doing every test with the device is “a
journey,” he says.
Asked about the claim on the company’s website,
Mr. Boies replied that using the device for the “full
range” of blood tests is a goal Theranos will
eventually achieve.
Theranos points out that it has publicly disclosed
doing “certain esoteric and less commonly ordered
tests” with traditional machines on blood drawn with
smaller needles from veins.
During the Journal’s reporting, Theranos deleted a
sentence on its website that said: “Many of our tests
require only a few drops of blood.” It also dropped a
reference to collecting “usually only three tiny
micro-vials” per sample, “instead of the usual six or
more large ones.” Heather King, the company’s
general counsel, says the changes were made for
“marketing accuracy.”
Ms. King and Mr. Boies say Theranos’s lab work
is accurate. Theranos has performed tests on millions
of patients referred by thousands of doctors and has
received highly positive feedback, they say.
Ms. Holmes, Theranos’s chairman and chief
executive, declined interview requests from the
Journal for more than five months. Last week, the
company said she would be available to comment,
but her schedule didn’t allow it before publication of
this article.
Some doctors appreciate the company’s userfriendliness.
Results sometimes arrive within 15
minutes, says Scott Wood, a primary-care doctor in
Menlo Park, Calif. “That’s exciting and could be
very useful in emergency situations,” he says. When
patients ask about trying Theranos, he replies: “Sure,
go ahead.”
Other doctors said they stopped steering patients
to Theranos because of results they didn’t trust. “I
don’t want my patients going there until more
information and a better protocol are in place,” says
Gary Betz, an internist in Phoenix.
Ms. Holmes launched Theranos in 2003 when she
was 19 and dropped out of Stanford University in
her sophomore year.
Theranos is built around Ms. Holmes’s selfprofessed
phobia of needles. She has said in
numerous public appearances that drawing a tiny
amount of blood at a time from each patient’s finger
and avoiding the large syringes used by traditional
labs will make patients less reluctant to get blood
tests. That will lead to earlier diagnoses and save
lives, according to Ms. Holmes.
Her first idea was a small arm patch to screen
blood for infectious diseases and deliver antibiotics,
according to Phyllis Gardner, a Stanford medicalschool
professor with whom Ms. Holmes consulted
at the time. The patch never made it to market.
“She was a young kid with only rudimentary
engineering training and no medical training,” says
Dr. Gardner, whose husband was a member of a
Theranos advisory board and still owns shares in the
company.
In 2005, Ms. Holmes hired Ian Gibbons, a British
biochemist who had researched systems to handle
and process tiny quantities of fluids. His
collaboration with other Theranos scientists
produced 23 patents, according to records filed with
the U.S. Patent and Trademark Office. Ms. Holmes
is listed as a co-inventor on 19 of the patents.
The patents show how Ms. Holmes’s original idea
morphed into the company’s business model. But
progress was slow. Dr. Gibbons “told me nothing
was working,” says his widow, Rochelle.
In May 2013, Dr. Gibbons committed suicide.
Theranos’s Ms. King says the scientist “was
frequently absent from work in the last years of his
life, due to health and other problems.” Theranos
disputes the claim that its technology was failing.
After Dr. Gibbons’s widow spoke to a Journal
reporter, a lawyer representing Theranos sent her a
letter threatening to sue her if she continued to make
“false statements” about Ms. Holmes and disclose
confidential information. Ms. Gibbons owns
Theranos shares that she inherited from her husband.
Theranos began offering tests to the public in late
2013. It opened 42 blood-drawing “wellness centers”
in the Phoenix area, two in California and one in
Pennsylvania. Most are in Walgreens Boots Alliance
Inc. drugstores.
Ms. Holmes successfully lobbied for an Arizona
law that allows people to get tests without a doctor’s
order. Theranos’s promise of fast results and prices
that are “a fraction” of other labs pits it against Quest
Diagnostics Inc. and Laboratory Corp. of America
Holdings, which dominate the $75 billion-a-year
blood-testing industry in the U.S.
While the biggest venture-capital firms
specializing in health care aren’t listed as Theranos
investors, Oracle Corp. co-founder Larry Ellison and
venture-capital firm Draper Fisher Jurvetson, have
bought stakes in Theranos, according to data from
Dow Jones VentureSource.
Theranos has raised several rounds of financing,
most recently in June 2014. Like most closely held
companies, Theranos has divulged little about its
operations or financial results.
Clinical labs usually buy their testing instruments
from diagnostic equipment makers. Before those
makers can sell to labs, they must undergo vetting
by the Food and Drug Administration.
Because Theranos doesn’t sell its Edison machines
to other labs, it didn’t need the FDA’s approval to
start selling its tests. Still, the company has sought
clearance for more than 120 of its tests in an effort to
be rigorous and transparent.
In July, Theranos announced the first FDA
clearance of one of those tests, which detects herpes.
The FDA and Theranos decline to comment on the
status of the other submissions.
Whether labs buy their testing instruments or
develop them internally, all are required to prove to
the federal Centers for Medicare and Medicaid
Services that they can produce accurate results. The
process is known as proficiency testing and is
administered by accredited organizations that send
samples to labs several times a year.
Labs must test those samples and report back the
results, which aren’t disclosed to the public. If a lab’s
results are close to the average of those in a peer
group, the lab receives a passing grade.
In early 2014, Theranos split some of the
proficiency-testing samples it got into two pieces,
according to internal emails reviewed by the Journal.
One was tested with Edison machines and the other
with instruments from other companies.
The two types of equipment gave different results
when testing for vitamin D, two thyroid hormones
and prostate cancer. The gap suggested to some
employees that the Edison results were off,
according to the internal emails and people familiar
with the findings.
Senior lab employees showed both sets of results
to Sunny Balwani, Theranos’s president and chief
operating officer. In an email, one employee said he
had read “through the regulations more finely” and
asked which results should be reported back to the
test administrators and government.
Mr. Balwani replied the next day, copying in Ms.
Holmes. “I am extremely irritated and frustrated by
folks with no legal background taking legal positions
and interpretations on these matters,” he wrote.
“This must stop.”
He added that the “samples should have never run
on Edisons to begin with.”
Former employees say Mr. Balwani ordered lab
personnel to stop using Edison machines on any of
the proficiency-testing samples and report only the
results from instruments bought from other
companies.
The former employees say they did what they
were told but were concerned that the instructions
violated federal rules, which state that a lab must
handle “proficiency testing samples. . .in the same
manner as it tests patient specimens” and by “using
the laboratory’s routine methods.”
In its everyday business at the time, Theranos
routinely used Edison machines to test patients’
blood samples for vitamin D, the two thyroid
hormones and prostate cancer, the former employees
say.
In March 2014, a Theranos employee using the
alias Colin Ramirez alleged to New York state’s
public-health lab that the company might have
manipulated the proficiency-testing process.
Stephanie Shulman, director of the public-health
lab’s clinical-lab evaluation program, responded that
the practices described by the anonymous employee
would be a “violation of the state and federal
requirements,” according to a copy of her email.
What the employee described sounded like “a
form of PT cheating,” Ms. Shulman added, using an
abbreviation for proficiency testing. She referred the
Theranos employee to the public-health lab’s
investigations unit.
The New York State Department of Health
confirms that it got a formal complaint in April 2014
“in regard to testing practices at Theranos” and
forwarded it to the Centers for Medicare and
Medicaid Services.
Asked about the complaint, Theranos confirms
that the Edison system produced results for several
tests last year that differed from results obtained
from traditional equipment.
But that comparison was based on “left-over
proficiency testing samples” used “to conduct
additional experiments and verify best practices,”
says Ms. King, Theranos’s general counsel. The
company has never failed proficiency testing, she
adds.
She says Mr. Balwani’s instructions were
consistent with the company’s “alternative
assessment procedures,” which it adopted because it
believes its unique technology has no peer group and
can be thrown off by the preservatives used in
proficiency-testing samples.
Theranos has been “upfront and transparent with
regulators” about the procedures, Ms. King adds.
As of the end of 2014, Theranos did less than 10%
of its tests on Edison machines, including tests for
prostate cancer and pregnancy, one former senior
employee says.
In addition to the 15 tests run on the Edison
system, Theranos did about 60 more on traditional
machines using a special dilution method, the former
senior employee says. The company often collected
such a small amount of blood that it had to increase
those samples’ volume to specifications required by
those traditional machines, former employees say.
A third set of about 130 tests was run on
traditional machines using larger samples drawn
from patients’ arms with a needle.
For tests done with dilution, the process caused the
concentration of substances in the blood being
measured to fall below the machines’ approved
range, three former employees say. Lab experts say
the practice could increase the chance of erroneous
results.
Most labs dilute samples only in narrow
circumstances, such as when trying to find out by
how much a patient has overdosed on a drug, say lab
experts.
“Anytime you dilute a sample, you’re adulterating
the sample and changing it in some fashion, and that
introduces more potential for error,” says Timothy
R. Hamill, vice chairman of the University of
California, San Francisco’s department of laboratory
medicine. Using dilution frequently is “poor
laboratory practice.”
Theranos says dilution is common in labs but
declines to say if it dilutes samples. Theranos’s
“methods for preparing samples for analysis are
trade secrets and cannot be revealed,” Ms. King
says.
Those methods “have been disclosed” to regulators
and don’t “adversely impact the quality of its tests or
the accuracy of its test results,” she adds.
Former employees say diluting blood drawn from
fingers contributed to accuracy problems early last
year with a test to measure potassium. Lab experts
say finger-pricked blood samples can be less pure
than those drawn from a vein because finger-pricked
blood often mixes with fluids from tissue and cells
that can interfere with tests.
Some of the potassium results at Theranos were so
high that patients would have to be dead for the
results to be correct, according to one former
employee.
Ms. King denies any problems with the potassium
test and says Theranos has no indication that
“inaccurate results were returned to patients.”
Theranos challenged interpretations of its test
results by health-care providers and patients whose
medical records were reviewed by the Journal.
After those people spoke to the Journal, Theranos
visited some of them and asked them to sign
prepared statements that said the Journal
mischaracterized their comments. Two did and one
refused.
Carmen Washington, a nurse who worked at a
clinic owned by Walgreens in Phoenix, says she
began to question Theranos’s accuracy after seeing
abnormal results in potassium and thyroid tests.
She says she raised her concerns with the
drugstore operator and Theranos’s lab director,
asking for data to show that the company’s fingerprick
testing procedures produced results as accurate
as blood drawn from a vein.
“They were never able to produce them,” she says.
Ms. King says the company did show detailed
testing-accuracy data to the nurse.
A Walgreens spokesman says the nurse kept
writing lab orders for Theranos tests until she
stopped working at the clinic in February. Walgreens
says its partnership with Theranos has gone
smoothly overall.
About a dozen doctors and nurses complained
about test results by phone or email to the company
from late 2013 to late 2014, a person familiar with
the matter says. The Arizona attorney general’s
office, state health department and Better Business
Bureau say they have received no complaints about
Theranos.
Dr. Betz, the Phoenix doctor, says one of his
female patients went to Theranos in August 2014 for
a routine potassium test to monitor potential side
effects from her blood-pressure medication. He says
Theranos reported that her potassium level was close
to the threshold considered critical.
Another lab reran the test three days later. The
results came back normal.
Ms. King says Dr. Betz’s nurses kept sending
patients to Theranos until early this year.
Real-estate agent Maureen Glunz went to
Theranos a few days before last Thanksgiving after
complaining of ringing in her ear. Her blood was
drawn from a vein in her arm. The results showed
abnormally elevated levels of glucose, calcium, total
protein and three liver enzymes.
Her primary-care doctor, Nicole Sundene, who is a
naturopath, worried that Ms. Glunz might be at risk
of a stroke and asked her to go to an emergency
room. The hospital’s tests two days later showed
nothing abnormal.
Dr. Hamill of UC San Francisco says some of Ms.
Glunz’s results should “have fairly steady values . . .
over relatively long time periods.”
Ms. King says “some degree of variability in lab
results across different laboratories is
commonplace,” adding that Ms. Glunz’s medication
and diet could have caused “fluctuations” in her
results. None of the results were “close to the critical
range,” Ms. King adds.
It is misleading to draw conclusions from “a
handful of patient anecdotes,” she says.
Ms. Glunz says she likes Theranos’s low prices
and would go there again if she could be sure its
tests are accurate. “But trial and error on people,
that’s not OK,” she says.
Credit: By John Carreyrou
(c) 2015 Dow Jones & Company, Inc. Reproduced
with permission of copyright owner. Further
reproduction or distribution is prohibited without
permission.
THE SECRET CULPRIT IN THE THERANOS MESS
The tech press may be as responsible as Elizabeth Holmes.
VANITY FAIR ARTICLE BY NICK BILTON MAY 2, 2016
Over the past few years, when media outlets
reached out to Theranos about whether its
wunderkind founder, Elizabeth Holmes, would have
time to sit for an interview, her P.R. team generally
responded with two questions: What time and
where? Holmes was a star. She bounced between TV
networks like a politician giving a stump speech.
She sat across from tech bloggers, reporters, and TV
cameras who slurped up her delectable story?that
she had come up with Theranos, her blood-testing
company, as a Stanford freshman who was fearful of
needles?and they largely regurgitated it, sometimes
beat for beat. Yet in April of 2015, when John
Carreyrou, an investigative reporter with The Wall
Street Journal, reached out for an interview with
Holmes, he said he got a very different response.
After two months of being stonewalled by the
Theranos P.R. team, Carreyrou told me an entourage
of lawyers arrived at the Journal?s Midtown
Manhattan offices at one P.M. on June 23. The pack
confidently sauntered past editors and reporters in
the fifth-floor newsroom and was led by David
Boies, the superstar lawyer who has taken on Bill
Gates, the U.S. government, and represented Al
Gore in the 2000 Florida recount case. Four other
attorneys and a Theranos representative
accompanied him. Before anything was said, the
lawyers placed two audio recorders at either end of
the long oval wood table, and recalcitrantly sat
across from Carreyrou, his editor, and a Journal
lawyer. Then they hit record.
Almost immediately, one person present told me,
Boies and his team threatened legal action against
the paper, accusing it of being in possession of
?proprietary information? and ?trade secrets.? The
Theranos legal team then did their best to discredit
dozens of independent sources whom Carreyrou had
interviewed. The legal team roared, they showed
teeth, they tried to intimidate. After a very tense five
hours, the person told me that Boies and his platoon
exited the newsroom, leaving behind the very
serious specter of a lawsuit. (A spokesperson for
both Boies and Theranos declined to comment. But
one person close to the company said that Boies had
been dispatched because Theranos executives had
learned that the Journal possessed sensitive internal
documents.)
For four months after that meeting, Carreyrou
continued to try to secure an interview with Holmes,
and for four months he was continuously threatened.
Finally, in October, the Journal published its nowfamous
article suggesting that the Theranos narrative
was all wrong?that the company?s technology was
faulty, that it relied on other companies? machinery
to run many of its tests, and that some of those tests
yielded inaccurate results. In fact, as Carreyrou
reported, the company was hawking a tale that was
too good to be true.
In the months since, the plot has only thickened
for Theranos. The Centers for Medicare and
Medicaid Services found serious deficiencies in the
company?s Newark, California, lab. Theranos is
under federal investigation by the S.E.C. and U.S.
Attorney?s Office. Regulators have proposed
banning Holmes from her company for two years.
There are a lot of directions in which to point
fingers. There is Holmes, of course, who seemed to
have repeatedly misrepresented her company. There
are also the people who funded her, those who
praised her, and the largely older, all-white, and
entirely male board of directors, few of whom have
any real experience in the medical field, that
supposedly oversaw her.
But if you peel back all of the layers of this tale, at
the center you will find one of the more insidious
culprits: the Silicon Valley tech press. They
embraced Holmes and her start-up with a surprising
paucity of questions about the technology she had
supposedly developed. They praised her as ?the next
Steve Jobs,? over and over (the black turtleneck
didn?t hurt), until it was no longer a question, but
seemingly a fact. At TechCrunch Disrupt, blogger
Jon Shieber had his blood drawn onstage as he
interviewed her. There were no tough questions
about whether Theranos?s technology actually
worked; just praise. When it seemed that the tech
press had vetted Holmes, she subsequently went
mainstream. She got her New Yorker profile, and
her face appeared on the cover of T: The New York
Times Style Magazine, among others. (Holmes
appeared on Vanity Fair?s New Establishment list
and spoke at its 2015 New Establishment Summit.)
But it was a passage in that New Yorker profile,
written by Ken Auletta, that led Carreyrou to start
questioning the validity of the company. In the
piece, Auletta acerbically noted that the technology
behind Theranos was ?treated as a state secret, and
Holmes?s description of the process was comically
vague.? She told him, for instance, that one process
occurred when ?a chemistry is performed so that a
chemical reaction occurs and generates a signal from
the chemical interaction with the sample, which is
translated into a result, which is then reviewed by
certified laboratory personnel.?
Carreyrou, a two-time Pulitzer winner, read that
passage and (as you probably just did) essentially
scratched his head. Soon after, he got a tip from a
source who noted, he told me, that ?the coverage
that the company was getting belied some serious
issues? with what was really going on inside
Theranos.
So why did Holmes and Theranos get such a
break? Was she an anomaly who somehow pulled
one over on the tech press in Silicon Valley? Not
even close.
The system here has been molded to effectively
prevent reporters from asking tough questions. It?s a
game of access, and if you don?t play it carefully,
you may pay sorely. Outlets that write negatively
about gadgets often don?t get pre-release versions of
the next gadget. Writers who ask probing questions
may not get to interview the C.E.O. next time he or
she is doing the rounds. If you comply with these
rules, you?re rewarded with page views and praise in
the tech blogosphere. And then there?s the fact that
many of these tech outlets rely so heavily on tech
conferences. ?If you look at most tech publications,
they have major conferences as their revenue,? Jason
Calacanis, the blogger and founder of Weblogs, told
me. ?If you hit too hard, you lose keynotes, ticket
buyers, and support in the tech space.?
In fairness to tech media, there?s also the very real
hope that they are illuminating a company that really
is going to change the world. Holmes was, after all,
everything they were looking for: smart, ambitious,
Jobsian, and, unlike most companies in Silicon
Valley, Theranos wasn?t some pizza-delivery app. It
was truly endeavoring to make ?the world a better
place.?
What the tech press didn?t seem to realize,
however, was that by not asking those questions,
they became culpable, too, and proved to be an
integral factor in creating the currently deflating tech
bubble. ?It?s O.K. if you?ve got a smartphone app or
a social network, and you go live with it before it?s
ready; people aren?t going to die,? Carreyrou told
me. ?But with medicine, it?s different.? And yet, the
Silicon Valley tech press covered Theranos like it
was such an app. It didn?t matter if someone could
receive incorrect medical information; what really
mattered was whether it was a good story.
Ironically, Theranos?s alleged improprieties
suggest that the venture-capitalist system really
worked this time. With the exception of a couple of
local Valley firms (namely ATA Ventures and
Draper Fisher Jurvetson, with whom Holmes had a
family connection), none of the big V.C. outlets
invested in Theranos. When the company raised an
additional $200 million in early 2014?which gave
Theranos a $9 billion valuation and made Holmes
?the world?s youngest self-made billionaire,? worth
about $4.5 billion (on paper, a point that few stories
ever noted)?that money largely came from private
equity.
You couldn?t find Michael Moritz, John Doerr, or
Peter Thiel on the Theranos board. And while Marc
Andreessen has repeatedly come to Holmes?s
defense?blocking Twitter followers who have
questioned her and even implying that she could be
the next Steve Jobs?his firm, Andreessen
Horowitz, did not invest in Theranos. (And even
those V.C.s who did are now trying to distance
themselves. Theranos is no longer listed among
Draper Fisher Jurvetson?s ?featured investments,?
even though its logo was there this time last year.)
When I?ve asked V.C.s why they didn?t pour
millions of dollars into a company that appeared to
be changing the world, I was told that it wasn?t for
lack of trying on Holmes?s part. She met with most
top venture firms. But when the V.C.s asked how the
technology worked, I was told, Holmes replied that
it was too secret to share, even to investors. When
they asked if it had been peer-reviewed, she insisted
once again it was too secret to share?even to other
scientists.
Maybe the tech press should have chosen to do the
same thing. If Holmes wouldn?t explain how the
technology that they were writing about actually
worked, the blogosphere shouldn?t have written
about it in the first place.
Since Carreyrou?s initial story was published,
Holmes has stopped doing her endless media and
speaking tours, and is instead trying to save her
company and, presumably, her job. She has even
abandoned social media. Her last tweet is a relic
from December, back when the director of stage
content at TEDMED tweeted a link to a story about
Theranos, and subsequently defended the company
and its founder by noting that the ?media is so quick
to idolize and then tear down brilliant changemakers,
esp women.? Holmes replied with a single,
terse word: ?humbled.?
Rise of Theranos Spurred by Revolutionary Idea from
Founder Elizabeth Holmes
April 19, 2016 | Emilia Varrone
Sources: “Theranos Raises $28.5 M for Device Tracking Effects of Drugs on Patients,” Venture Beat, December 7, 2006; Beth Winegarner, ” Corrected: Patent Theft Trial Over McDermott Docs Settles”, Law 360, March 17, 2014; John Carreyrou, “At Theranos, Many Strategies and Snags” Wall Street Journal, December 27, 2015; John Carreyrou, “Hot
Startup Theranos Has Struggled with its Blood-Test Technology” Wall Street Journal, October 16, 2015; Roger Parloff, “Theranos Adds Startlingly Well-Qualified Medical Board”, Fortune, April 7, 2016; Ron Leuty, “Theranos: The Biggest Biotech You’ve Never Heard Of”, San Francisco Business Times, August 30, 2013; John Carreyrou, “FDA Inspectors Call
Theranos Blood Vial ‘Uncleared Medical Device'”, Wall Street Journal, October 27, 2015; Arielle Duhaime-Ross, “US Government says Theranos Lab Poses ‘Immediate Jeopardy to Patient Safety'”, The Verge, January 27, 2015; John Carreyrou and Christopher Weaver, “Regulators Propose Banning Theranos Founder Elizabeth Holmes for at Least Two Years,”
Wall Street Journal, April 13, 3016; Reed Abelson and Andrew Pollack, “Theranos Under Federal Criminal Investigation Adding to its Woes”, New York Times, April 18, 2016; Michael Siconolfi et al., “Walgreens Pulls Back from Theranos”, Wall Street Journal, January 28, 2016.
Elizabeth Holmes Leaves Stanford
The idea: Holmes wanted to create a hand-held device which took a minute amount of blood and
tested for a range of diseases and health markers. She dropped out of Stanford to start Theranos.
Elizabeth Holmes Announces Creation of Testing Device
Holmes announced on the public-radio show BioTechNation that she created the hand-held device.
Theranos Raises 70 M in Venture Capital
Holmes Raises 70 M with investments from Larry Ellison, CEO of Oracle, and other venture capital
firms. By 2010, Theranos was valued at more than $1 billion.
Theranos Files Suit Against Former Employees
Theranos files suit against former employees for misappropriating trade secrets. Theranos asked to
dismiss the case in January 2009.
Theranos Files Suit for Patent Theft
Theranos filed suit against Fuisz Pharma LLC for stealing patent files from McDermott Will & Emery
LLP. The parties settled midtrial in 2014.
Theranos Enters the Public Space
Theranos begins offering tests to the public, along with a break out article in the Wall Street Journal,
which hails Theranos as a major innovator in the health care space. The article quotes former
Secretary of State George Shultz, a Theranos board member, that ?Holmes could be the next Steve
Jobs or Bill gates.? Walgreens and Safeway Inc. agreed to offer Theranos tests in store.
2003
2004-2010
2007
2011
Timeline of Key Events at Theranos
2013
2005
THERANOS TIMELINE
Theranos Eventually Exposed for Violating Federal
Laboratory Rules and Performing Tests With Poor Accuracy
April 19, 2016 | Emilia Varrone
Sources: “Theranos Raises $28.5 M for Device Tracking Effects of Drugs on Patients,” Venture Beat, December 7, 2006; Beth Winegarner, ” Corrected: Patent Theft Trial Over McDermott Docs Settles”, Law 360, March 17, 2014; John Carreyrou, “At Theranos, Many Strategies and Snags” Wall
Street Journal, December 27, 2015; John Carreyrou, “Hot Startup Theranos Has Struggled with its Blood-Test Technology” Wall Street Journal, October 16, 2015; Roger Parloff, “Theranos Adds Startlingly Well-Qualified Medical Board”, Fortune, April 7, 2016; Ron Leuty, “Theranos: The Biggest
Biotech You’ve Never Heard Of”, San Francisco Business Times, August 30, 2013; John Carreyrou, “FDA Inspectors Call Theranos Blood Vial ‘Uncleared Medical Device'”, Wall Street Journal, October 27, 2015; Arielle Duhaime-Ross, “US Government says Theranos Lab Poses ‘Immediate Jeopardy
to Patient Safety'”, The Verge, January 27, 2015; John Carreyrou and Christopher Weaver, “Regulators Propose Banning Theranos Founder Elizabeth Holmes for at Least Two Years,” Wall Street Journal, April 13, 3016; Reed Abelson and Andrew Pollack, “Theranos Under Federal Criminal
Investigation Adding to its Woes”, New York Times, April 18, 2016; Michael Siconolfi et al., “Walgreens Pulls Back from Theranos”, Wall Street Journal, January 28, 2016.
Investors Pump $633 Million into Theranos
A Theranos investing frenzy increases its valuation to about $9 billion.
Wall Street Journal Expos?
Former employees disclose that Theranos was using the revolutionary blood testing device,
?Edison? for only 15 tests in Dec 2014. The employees also brought the accuracy of those tests
into question. They also accused Theranos of failing to report negative results for the Edison
which is a violation of federal rules for laboratories. The vast majority of tests that Theranos ran
were on traditional machines – tests run on traditional machines have to be diluted, which
introduces increased chance of error.
FDA orders Theranos to stop using Edison
FDA declared the nano-vial that Theranos used to collect blood an ?uncleared medical device?
and ordered Theranos to stop using Edison for all but one approved test (herpes).
CMS inspection results in reports of poor accuracy. Holmes Threatened with Injunction
CMS inspected the Newark, California laboratory and found 45 deficiencies. In January 2016, CMS
threatened to pull certification of the lab, as officials found that Theranos failed to adequately
correct 43 out of 45 deficiencies. After what federal health regulators have called an inadequate
response, they proposed banning Holmes and Theranos? president, Sunny Balwani, from the
blood-testing business for at least two years. Theranos is no longer eligible to receive Medicare or
Medicaid payments. Walgreens suspends partnership with Theranos
2014
Oct 2015
Fall 2015-
March 2016
Timeline of Key Events at Theranos (c0nt.)
Oct 2015
THERANOS TIMELINE
Theranos Currently Faces Criminal Investigation
THERANOS TIMELINE
June 13, 2016 | Emilia Varrone
Sources: “Theranos Raises $28.5 M for Device Tracking Effects of Drugs on Patients,” Venture Beat, December 7, 2006; Beth Winegarner, ” Corrected: Patent Theft Trial Over McDermott Docs Settles”, Law 360, March 17, 2014; John Carreyrou, “At Theranos, Many Strategies and Snags” Wall Street Journal, December 27, 2015; John Carreyrou, “Hot
Startup Theranos Has Struggled with its Blood-Test Technology” Wall Street Journal, October 16, 2015; Roger Parloff, “Theranos Adds Startlingly Well-Qualified Medical Board”, Fortune, April 7, 2016; Ron Leuty, “Theranos: The Biggest Biotech You’ve Never Heard Of”, San Francisco Business Times, August 30, 2013; John Carreyrou, “FDA Inspectors Call
Theranos Blood Vial ‘Uncleared Medical Device'”, Wall Street Journal, October 27, 2015; Arielle Duhaime-Ross, “US Government says Theranos Lab Poses ‘Immediate Jeopardy to Patient Safety'”, The Verge, January 27, 2015; John Carreyrou and Christopher Weaver, “Regulators Propose Banning Theranos Founder Elizabeth Holmes for at Least Two Years,”
Wall Street Journal, April 13, 3016; Reed Abelson and Andrew Pollack, “Theranos Under Federal Criminal Investigation Adding to its Woes”, New York Times, April 18, 2016; Michael Siconolfi et al., “Walgreens Pulls Back from Theranos”, Wall Street Journal, January 28, 2016; Michael Siconolfi, Christopher Weaver and John Carreyrou, “Walgreen
Terminates Partnership With Blood-Testing Firm Theranos”, WSJ, June 13, 2016; Reed Abelson and Andrew Pollack, “Walgreens Cuts Ties to Blood-Testing Company Theranos,” NYT, June 12, 2016; John Carreyrou, “Theranos Voids Two Years of Edison Blood-Test Results”, WSJ, May 18, 2016.
Theranos Adds Qualified Medical Board
Theranosformed a medical advisory board of highly-qualified members, including past presidents
and board members of the American Association for Clinical Chemistry, a former director of the
CDC, as well as numerous professors in clinical chemistry and pathology.
Theranos Faces Criminal Investigation by Federal Officials
The Justice Department requested documents from Theranos and have launched an
investigation. The SEC is also investigating the company. Theranos has stated that they will
cooperate fully with all investigations.
Sunny Balwani Leaves Theranos
Theranos president and chief operating officer Sunny Balwani leaves Theranos amid regulatory
problems. Theranos expands its board with three members to increase its scientific and medical
expertise. Balwani has been with Theranos since 2009.
Theranos Voids Two Years of Test Results
Theranos issued tens of thousands of corrected blood-test reports in an attempt to convince CMS
to not impose threatened sanctions.
Walgreens Terminates Theranos Partnership
Walgreens to close all of the Theranos testing facilities in its stores immediately in expectation of
imposed sanctions. Walgreens does not expect to recoup its $50 million investment in Theranos.
April 2016
Timeline of Key Events at Theranos (contd.)
April 2016
May 2016
May 2016
June 2016
Elizabeth Holmes Banned from Medical Lab Ownership
or Operation for Two Years
THERANOS TIMELINE
July 8, 2016 | Emilia Varrone
Sources: Carlos Tejada, ?Theranos Founder, Elizabeth Holmes is Barred from Running Lab for Two Years,? New York Times, July 8, 2016; ?Theranos Recieves Notice of Sanctions from the Centers for Medicare and Medicaid Services,? Theranos, July 7, 2016;
Inside the Hollywood Frenzy Around Jennifer Lawrence?s Theranos Movie?, Vanity Fair, June 24, 2016.
TheranosHollywood Movie Greenlights
The rights to a movie starring Jennifer Lawrence and written and directed by Adam McKay (who
won the Oscar for best adapted screenplay for his work on The Big Short) depicting the rise and
fall of Theranos have been bought by Legendary Pictures for $3 million.
Elizabeth Holmes Banned from Owning or Operating a Medical Lab for at Least Two Years
CMS has imposed sanctions on the Newark, California laboratory, which include revoking the
lab?s CLIA certificate, and in so doing banned Elizabeth Holmes from owning or operating a
medical lab for at least two years. Theranos also is subject to an undisclosed amount of civil
monetary penalties. The sanctions go into effect in 60 days.
June 2016
Timeline of Key Events at Theranos (contd.)
July 2016

The Theranos Story Part I
Figure 1: Left: Theranos? Edison analyzer. Right: Nanotainer blood collection device and Theranos CEO Elizabeth Holmes
For this assignment, please watch the Medscape interview with founder Elizabeth Holmes in 2013
http://www.medscape.com/viewarticle/814233 and read the Wall Street Journal article from 2013, then
answer the following questions:
1. List the top ten features of Theranos? technology that appeal to customers (i.e. the company’s value
propositions)
2. Describe the ?tech allure? of Theranos and its founder, i.e. what makes this ?cool??
3. In your opinion, what personal core values motivated Elizabeth Holmes to get to where she was in
2013? (Her ?value inventory?)
4. Give examples of anti-establishment statements included in these sources that likely appeal to
consumers and investors
Tips about how to approach this assignment (and reading any document to extract information):
? Think about the questions you try to answer first, then use this to frame your reading (or listening to
the video, which also has a transcript that you can read) ? your goal is to find information that is
relevant to the questions. Some sections can be skimmed over quickly, others require a deep dive.
? Try the ?quick read with highlighter and cliff notes in the margin? approach. The cliff notes should
be short and don?t have to be pretty (so not like the annotations you used to do in English class).
These are only meant to help you, so that when you look back over the paper you can find the right
spots. No-one other than you will look at the cliff notes, and you are not graded on this. Keynotes
can be an x or single word to mark an important spot, a key word relevant to a question, big x vs.
little x for strong point or weak point, or a ??? if you are confused about something, etc.
? Once done with the quick read, go back through the article, and as you scan down your cliff notes,
pick up the key points and write down some bullet points on what you considered important. DO
NOT COPY AND PASTE sections from the articles into the document. Write these bullet points in
your own words, they don?t even have to be written in proper English, as long as you understand
what is meant. Don?t worry about ordering and prioritizing yet.
? Once you have your initial list of bullet points you can start to prioritize and reorder. Move your
strongest argument up top, delete points that are tangential, merge points that are duplicative.
Condense where possible. Consider the logical flow ? group things in a way that makes sense, think
about how you will get from one point to the next.
? this eventually will lead into writing your position essay, so treat this as step one of a longer process
Article published in the Wall Street Journal in 2013:
The Weekend Interview with Elizabeth Holmes:
A Drop of Blood; An Instant Diagnosis
Rago, J. (2013, Sep 07).
Palo Alto, Calif. — ‘The reality within our healthcare
system today is that when someone you care
about gets really sick, by the time you find that out
it’s most often too late to do anything about it. It’s
heartbreaking. Because in those moments, there’s
nothing you wouldn’t do to change it, and too often
you’re helpless,” says Elizabeth Holmes. “We’re
finding cancer when you have a tumor, or heart
disease by virtue of the fact that you’re having a
heart attack.”
She wants to change that.
Ms. Holmes, a 29-year-old chemical and electrical
engineer and entrepreneur, dropped out of Stanford
as an undergraduate after founding a life sciences
company called Theranos in 2003. Her inventions,
which she is discussing in detail here for the first
time, could upend the industry of laboratory testing
and might change the way we detect and treat
disease.
Ten years ago, Ms. Holmes was working out of
the basement of a group college house, a world away
from her current headquarters at a rambling
industrial building in a research park just off
campus. The company’s real estate was one of the
few Theranos facts known to Silicon Valley, but one
suggestive of the closely held business’s potential:
The space was once home to Facebook, and before
that Hewlett-Packard.
The secret that hundreds of employees are now
refining involves devices that automate and
miniaturize more than 1,000 laboratory tests, from
routine blood work to advanced genetic analyses.
Theranos’s processes are faster, cheaper and more
accurate than the conventional methods and require
only microscopic blood volumes, not vial after vial
of the stuff. The experience will be revelatory to
anyone familiar with current practices, which often
seem like medicine by Bram Stoker.
A Theranos technician first increases blood flow
to your hand by applying a wrap similar to one of
those skiing pocket warmers, then uses a fingerstick
to draw a few droplets of blood from the capillaries
at the end of your hand. The blood wicks into a tube
in a cartridge that Ms. Holmes calls a “nanotainer,”
which holds microliters of a sample, or about the
amount of a raindrop. The nanotainer is then run
through the analyzers in a Theranos laboratory.
Results are usually sent back to a physician, but a
full blood work-up — metabolic and immune
markers, cell count, etc. — was in my inbox by the
time I walked out the door. (Phew: all clear.)
It’s the kind of modern, painless service that
consumers rarely receive in U.S. health care, though
Ms. Holmes makes the point the other way around:
“We’re here in Silicon Valley inside the consumer
technology world . . . and what we think we’re
building is the first consumer health-care technology
company. Patients are empowered by having better
access to their own health information, and then by
owning their own data.”
And a Theranos clinic may be coming soon to a
pharmacy near you. On Monday the company is
launching a partnership with Walgreens for in-store
sample-collection centers, with the first one in Palo
Alto and expanding throughout California and
beyond. Ms. Holmes’s long-term goal is to provide
Theranos services “within five miles of virtually
every American home.”
Diagnostics is one of those corners of the health
markets that is more irrational the closer you look.
Tests account for between 2% and 2.5% of health
spending, but Ms. Holmes notes that they drive an
estimated seven or eight of every 10 clinical
decisions by physicians, with 6.8 billion lab tests
annually in the U.S.
“The art of phlebotomy originated with
bloodletting in 1400 B.C. and the modern clinical
lab emerged in the 1960s — and it has not
fundamentally evolved since then,” she says. The
billions of tests generally follow the same ritual: In a
hospital or clinic, “you go in, sit down, they put a
tourniquet on your arm, stick you with a needle, take
these tubes and tubes of blood,” as Ms. Holmes
describes it.
The specimens are then transported, via a courier
or hospital pneumatic tube, to a centralized lab,
where they are manually removed from the tubes
with a pipette and mixed with a chemical reagent or
sent through instruments like a centrifuge or mass
spectrometer. After days or weeks of waiting, your
doctor finally gets the results.
One major problem, Ms. Holmes says, is that
physicians rarely have “the best actionable
information to make the best possible diagnosis at
the time it matters.” She posits a hypothetical patient
whose doctor orders a test and discovers that she has
a dangerously low hemoglobin count, so he puts her
on an anti-anemia drug. He must order another test
to find out what kind of anemia she has, and days
later it turns out to be merely an iron deficiency. The
best final treatment was actually “take some iron
pills or eat more spinach.”
Theranos’s technology eliminates multiple lab
trips because it can “run any combination of tests,
including sets of follow-on tests,” at once, very
quickly, all from a single microsample. Ms. Holmes
estimates that patients and doctors will receive
readouts in “as little as two hours” and can even do
so before an office visit based on their physician’s
recommendation for better, or at least less ad hoc,
consultations.
Only about 62% of tests that doctors order are
ultimately carried out, according to health-policy
researchers at the Lewin Group. One reason tests
aren’t performed: not enough blood. To ensure that
labs don’t reject samples, several studies have
documented that medical institutions sometimes
collect as much as 45 times the amount of blood
from patients that conventional tests actually require.
Luckily, blood is a renewable resource, though the
small Theranos sample size is a particular advance
for the elderly, for whom blood draws can be agony
because of collapsed veins. It’s also good news for
children who fear needles, and for oncology patients,
whose blood is being constantly tested.
Another Theranos advance is its testing’s
accuracy. Ms. Holmes believes the chain of
conventional laboratory custody introduces too
many opportunities for error, “which is basically
wherever humans are involved.” The integrity of lab
specimens can be contaminated if they sit too long
on the bench, or if they’re mistakenly processed by a
tech, or by temperature, and so forth.
A 2002 review in the journal Clinical Chemistry
found error estimates ranging from one out of every
33-50 tests to one of every 8,300, though the rate has
likely since improved. The same sample sent to two
different labs can yield two varying results, and the
same lab testing the same sample twice can yield
different results too.
That’s because the precision of lab instruments,
and their reference ranges, vary from manufacturer
to manufacturer. Labs buy from different vendors
and often don’t calibrate the machines to each other.
Certain tests may be reported with fairly wide
margins of error, such as a plus-or-minus 30% of
allowable error for HDL cholesterol. Ms. Holmes
notes that a measurement that is essentially a 60%
error range isn’t very useful, especially over time,
since disease itself is a progression over time.
Theranos’s technology is automated, standardized,
and attempts to subtract human error from the
process. It can thus achieve much lower variance
ranges for a given test. Ms. Holmes says its tests
have margins of “allowable error” targets less than
10%.
The medical promise of this speed and better
information means catching disease in its earliest
stages before the onset of symptoms. The company’s
analytic tools might also help realize the possibilities
of truly personalized medicine, as scientists gain a
better understanding of the heterogeneity of disease
and how to treat individuals based on their own
bodies, not large averages.
Theranos’s tools may also allow doctors to analyze
data “longitudinally” — to see trends, clusters and
rates of change that they can’t now. Medicine would
ask fewer on-off, do-you-have-this-disease-or-not
questions, and instead “meaningfully and powerfully
answer the question of how to detect and manage
these diseases early on,” says Ms. Holmes.
She first funded Theranos at age 19 by cashing out
an education trust that her parents set up, which
allowed her to hire her first employee and rent lab
space. Later rounds of funding were raised from
venture capital and private equity. Once Theranos
was more established, it started to earn revenue from
contracts conducting pharmaceutical testing in
cancer drug and other clinical trials.
A word about costs and what that investment
bought, which doesn’t follow the usual rules about a
new medical technology. Ms. Holmes says Theranos
can conduct a battery of tests for “tens of dollars,” a
phrase that does not exist in U.S. health care. She
calls it “a watershed opportunity to change the
trajectory of health costs through price
transparency.”
Since 1984, the Medicare Clinical Laboratory Fee
Schedule has set reimbursements for 1,140 unique
lab tests across 57 U.S. jurisdictions. That’s 64,980
different price controls. Meanwhile, the prices that
private insurers negotiate with providers are virtually
trade secrets.
Theranos is committing to a half-off discount on
Medicare fees. “So a test that costs $100 now, we’ll
do $50 or less. The quote-unquote payer community
I don’t think has ever seen someone walk in and say
we want to bill you at less than you’re willing to
reimburse,” she says. If this strategy succeeds in
squeezing down prices — say, lowering testing as a
share of total health costs to 1.5% from 2.3% now —
it could save Medicare $61 billion over 10 years and
Medicaid $96.1 billion, according to what Theranos
calls a conservative estimate.
Ms. Holmes says her larger goal is increasing
access to testing, including among the uninsured,
though she might also have a market-share land grab
in mind. For instance, she says Theranos will
publish all its retail prices on its website. The
company’s X-ray of self-transparency also includes
reporting its margins-of-error variations online and
on test results and order forms, which few if any labs
do now.
This strategy may be inviting a hell of a battle
with the health industry, where the incentives are
rigged against startups and the empire usually finds a
way of striking back. Witness the medical-practice
regulations that make medicine a cartel against
competitors. Pathologists, lab scientists and
technicians won’t be pleased if their jobs go the way
of travel agents.
Ms. Holmes declines to discuss Theranos’s future
plans, though one may speculate. There could be
military applications in the battlefield, especially
given the numerous framed American flags across
the Theranos office and the presence on its corporate
board of retired Gens. Jim Mattis and Gary
Roughead, former Defense Secretary Bill Perry and
former Secretary of State George Shultz.
The other obvious tech reality is that the devices
keep shrinking, and over the last several years
Theranos has been granted several patents for
portable diagnosis system at the point of care. One
of them even invokes — forget the iWatch — a
wearable diagnostic device that would attach to the
body with silicon microneedles “about the size of a
human hair.”
The biggest question is whether Ms. Holmes has
discovered one of those often promised, more often
elusive disruptive innovations designed to cut costs
while improving quality. In a conversation about a
year ago, Secretary Shultz said Ms. Holmes could be
“the next Steve Jobs or Bill Gates.”
When I put it to him again on my recent visit, he
smiles slyly. “This is not the last thing she’s going to
invent or create.”
Credit: By Joseph Rago
(c) 2013 Dow Jones & Company, Inc. Reproduced
with permission of copyright owner. Further
reproduction or distribution is prohibited without
permission