What Was Theranos? The Scam That Pilfered $724 Million

Katie Holmes' Edison machine was hailed as a game-changer for blood testing.

No one likes getting blood tests. It's uncomfortable for most and even frightening to some. Back in 2003, a young American woman bid to change the way blood tests were taken and analyzed forever.

15 years later, the company shut down and was exposed as a multi-million dollar scam. So, what was Theranos, and who was Elizabeth Holmes, and how did she steal hundreds of millions of dollars?

Elizabeth Holmes' Road to Theranos

Elizabeth Holmes was born in Washington D.C, in 1984. She had a pretty wealthy upbringing, her father being the vice president of the infamous Enron, an American electricity company. Enron went bankrupt in December of 2001 after the company hid huge trading losses and deceiving regulators with off-the-book accounting practices.

Holmes attended an independent school in Texas, during which time she started her first company, selling C++ compilers for computers used by Chinese colleges. Pretty impressive for a high school student. This isn't surprising, though, given how intelligent Holmes proved to be from a young age. She even attended a Mandarin summer program at Stanford University while still in school. Her parents also made sure she learned Mandarin outside of school, too, hiring a home tutor.

Holmes went on to attend Stanford as an official student, where she studied chemical engineering. However, she dropped out two years into her course to start a medical technology company. This is where the idea began Theranos began.

What Was Theranos?

Before the name 'Theranos' surfaced, Holmes founded a company called Real-Time Cures in California. This company was backed by the idea that there must be another way to take blood for tests (as Holmes had a phobia of needles). Holmes was only 19-years-old when she founded the company.

Though this idea seems pretty valid, not everyone supported Holmes' vision. For example, when Holmes explained her company goal to one of her professors at Stanford, he told her it was unlikely that she'd be able to achieve such a feat. So what was Holmes actually trying to do?

Essentially, Holmes wanted to drastically reduce the amount of blood that was required to perform standard tests. The goal was to carry out a range of different tests using just one drop of a patient's blood, rather than the vial-size amounts that are traditionally required. To do this, a machine called the Edison was used. Holmes claimed that this machine could run an array of tests for numerous diseases (such as cancers and STDs) using this tiny volume of blood.

Holmes' professor wasn't the only one who doubted her vision, with many other medical professionals dismissing it too. But Holmes kept moving forward and renamed her company to Theranos in 2003. Holmes began talking to investors to raise sufficient capital to support her goals.

By 2004, Holmes had already raised $6.9 million from investor backing. Just three years later, she'd raised another $43.2 million. This increase in investor funding continued until the company was valued at $1 billion in 2010.

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Three years later, Holmes decided to reveal Theranos to the public officially. When Holmes began becoming more and more of a public figure, people noticed that the only thing she ever wore was a black turtleneck, reminiscent of Apple's Steve Jobs. Jobs was actually Holmes' idol, which explains why she took to wearing these turtlenecks so often.

People also noticed that Elizabeth's voice seemed unusually low. Many suspected that she was putting on a more 'manly' voice to gain more respect from the public and investors alike. However, Holmes never admitted to this and always stated that it was her natural voice.

With people now aware of what Theranos was, questions began to arise over how the Edison machine worked. However, Holmes was never very forthcoming about this. At this point, Theranos was worth around $9 billion and had raised over $700 million in capital, so it was only natural that people were expecting transparency. Unfortunately, this is where things started to go wrong for Elizabeth Holmes.

The Downfall Of Theranos

It didn't take long for the holes in Theranos to show. In 2014, it was discovered that the Edison machine, Holmes' pride and joy, was never submitted for medical review. Despite this, Theranos continued to grow and was soon valued at $10 billion. Given that Holmes held a 50% stake in the company, she became a billionaire in an incredibly short amount of time.

Theranos even secured a deal with Captial BlueCross, an American health insurance company. Capital BlueCross selected Theranos as its preferred provider of lab work. This was huge for Theranos, given the size of Capital BlueCross. But this luck was not to last.

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In 2015, John Carreyrou, a journalist with the Wall Street Journal, wrote a scathing article on Theranos. Carreyrou had conducted a lengthy investigation into Theranos prior to the article's release. He eventually received a tip from a medical expert who believed the claims made about the Edison were cause for suspicion.

In his article, Carreyrou stated that the Edison machine produced inaccurate results. And this was just the first of a series of articles Carreyrou wrote to expose Theranos and Holmes. But Holmes denied these claims and publicly expressed shock at such accusations.

However, legal issues started to arise for Holmes. In October of 2015, the FDA released two partially-redacted Form 483 reports, both of which originated from their ongoing investigation into the legitimacy of Theranos. Just a year later, Holmes was officially banned from owning or operating in any sort of blood test service for two years. Next came the criminal charges.

In 2018, Holmes was indicted on nine counts of wire fraud and two counts of conspiracy. However, the trial for these charges won't begin until the end of August 2021, so there's no knowing the verdict. But there's no denying that Elizabeth Holme's reputation has been ruined for the foreseeable future.

Theranos Isn't The First And Won't Be The Last Tech Scam

With the complex processes that go into much of technology these days, there's no doubt that we'll be seeing more and more technological scams popping up in the near future. All we can hope is that they're exposed before they become multi-billion-dollar schemes.

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