A young Silicon Valley star who promised to revolutionise blood collection with a new technology that allowed multiple tests to be done from a fingerprick sample has been charged with massive fraud.
Elizabeth Holmes, a Stanford University dropout, adopted a Steve Jobs-like image to persuade a gullible media that her company Theranos could use nanotainer technology to shrink blood testing labs to the size of a small box.
The company’s so-called Edison device would perform rapid tests such as cholesterol and thyroid hormone measures from a single, tiny blood capillary stick sample rather than requiring the drawing of blood from a vein.
Her spiel won over investors in 2014 and drew big name backers including Rupert Murdoch and Henry Kissinger as the company grew to be valued at its peak at $9 billion.
But scientists and regulators remained unconvinced due to her company’s reluctance to reveal its ‘proprietary’ technology and its failure show any independently verified results of its tests.
Despite entering into a blood testing partnership with a major national healthcare chain, Theranos was eventually barred from operating by regulators in 2016 after it became apparent that its secret technology was non-existent. The company appeared to have been using conventional analytical equipment and its results were outside accepted quality benchmarks.
Theranos shut down its labs in 2017 and last week US financial regulators charged the company and its founder Elizabeth Holmes and its former President Ramesh “Sunny” Balwani, with fraudulently raising more than $700 million from investors.
The Securities and Exchange Commission said Theranos, Holmes, and Balwani “made numerous false and misleading statements in investor presentations, product demonstrations, and media articles by which they deceived investors into believing that its key product – a portable blood analyser – could conduct comprehensive blood tests from finger drops of blood, revolutionising the blood testing industry.
“In truth, … Theranos’ proprietary analyser could complete only a small number of tests, and the company conducted the vast majority of patient tests on modified and industry-standard commercial analysers manufactured by others.”
And despite promises of a booming business, Theranos made only $100,000 in revenue from operations in 2014, the SEC noted.
While not admitting to the complaints, Holmes, who said she would resolve the charges, is being stripped of control of the company, fined $500,000 and required to return millions of shares to Theranos, as well as being barred from serving as an officer or director of a public company for 10 years.
“The Theranos story is an important lesson for Silicon Valley,” said Jina Choi of the SEC. “Innovators who seek to revolutionise and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.”