Who is the young Stanford grad with long blond hair, a tight body in clinging black dresses, red bow lips, hypnotic blue eyes and a perfect pedigree?
Elizabeth Holmes. Founder of Theranos, a blood testing company that promised to democratise medicine. Perpetuator of the biggest corporate fraud since Enron.
A unusually Privileged background
Elizabeth Holmes was born in 1984 to a wealthy American family.
Her father Christian Rasmus Holmes IV held a number of executive positions at international government agencies. His family history included Charles Louis Fleischmann, a Hungarian who founded a business dynasty that become one of the wealthiest families in America at the turn of the twentieth century.
Another relative Christian R. Holmes was an engineer, inventor, surgeon who established Cincinnati General Hospital and the University of Cincinnati medical school.
Her mother Noel Anne Daoust had worked on Capitol Hill as a Congressional staffer. Noel’s father was a West Point graduate who became a high-ranking Pentagon official in the early 1970s. The Davout’s traced their ancestry back to one of Napoleon’s top field generals.
Elizabeth attended the select private school St. John’s in Houston Texas, described by Forbes as one of ‘America’s Elite Prep Schools’.
Burning personal Ambition
When she was nine or ten, one of her relatives asked her at a family gathering… What do you want to do when you grow up? Without skipping a beat, Elizabeth replied, I want to be a billionaire.’
In 2001 Elizabeth was accepted into Stanford University as a President’s Scholar, a grant designated for academically successful students.
She enrolled in chemical engineering, and during a summer internship tested specimens from nasal swabs and venipuncture blood samples.
Convinced that after just one year of University study she could design more efficient pathology testing equipment, Elizabeth wrote a patent application for an arm patch that would simultaneously diagnose a wide range of medical conditions and treat them.
Elizabeth Holmes was beautiful, ambitious, tech savvy and well connected. What could possibly go wrong?
The following year she dropped out of Stanford and used her tuition fees to start her own company and called it ‘Real Time Cures’.
Elizabeth envisioned an adhesive patch that would draw blood painlessly through the skin using micro needles. The results would be wirelessly send to a Doctor via a microchip in the patch.
Holmes founded the company in Palo Alto, California as Real-Time Cures to “democratize healthcare.”
Able to raise large amounts of private equity with no proof of concept
While traditional medical investors questioned her ability to create this technology, friends, families and non medical investors all pitched in, caught up in Elizabeth’s convincing vision. She assured them the future was accessable, low cost and home based pathology testing.
By the end of 2004 she had raised nearly 6 million. It was all from family and friends, none of whom had experience in medical investments.
Shaunak Roy was a PhD student joined her at Theranos in May 2004 as its first employee. He quickly realised that a small wearable device had no chance of delivering such complex bio technology and eventually Elizabeth was persuaded to move from from the wearable patch, to a small hand held device.
By 2005 the company had a product called Theranos 1.0. The business model was to license it to pharmaceutical companies to help them catch adverse drug reactions during clinical trials.
Without engineering knowledge or experience, Elizabeth couldn’t grasp the difficulties involved in turning an entire pathology lab into a small consumer based device. She also insisted they use very little blood for the tests, due to a personal phobia about blood.
A management style of bullying and lying
Elizabeth’s management style was as unrealistic as her approach to engineering.
She kept product information limited to individual areas, denying staff the ability to share opinions across the organisation. She lived in a permanent state of paranoia that traditional pathology companies were trying to destroy Theranos.
Negative feedback about the company or or it’s research were viewed as personal betrayal. Sacking were frequent, and ranged from lab assistants to senior executives.
Continuously given money, despite repeatedly failing to provide a viable product
After burning through six million of private investors money without producing a successful product, Elizabeth was able to then raise another nine million, no questions asked.
She slept only four hours a night, popped chocolate-coated coffee beans and exhorted others to give up their lives for her company. She collected motivational phrases, lowered her voice and openly compared herself to Bill Gates and Steve Jobs.
Surrounded by people with no experience in the health industry
Some her investors had made huge personal fortunes in the early days of Silicon Valley’s tech boom. They had been able to take their consumer products to market while it was full of bugs, that were slowly fixed over time.
No one in Elizabeth’s circle understood that healthcare is a life saving industry and that major errors cannot be tolerated when products are released to market.
Elizabeth pitched to the military and the pharmaceutical industry, and went on to sign contracts with major suppliers like Walgreens and Safeway, offering consumer style blood testing equipment.
Her investors would not listen to a few voices of reason. Stogy American companies were overwhelmed by FOMO, Fear Of Missing Out on the next ‘great invention’.
Elizabeth deliberately courted older men who were charmed with her beauty, family background and grandiose vision
Her circle of investors and supporters included ex USA president Bill Clinton, Australian media magnet Rupert Murdoch, former secretary of states George Shultz and Henry Kissinger.
Ten years later Forbes recognised her as the world’s youngest self-made female billionaire. By 2014, her name appeared on 18 U.S. patents and 66 foreign patents and Theranos was valued at $9 billion.
There was one problem.
There was absolutely no science behind her claims.
Several factors contributed to the environment in which Elizabeth operated.
Firstly, the tech boom of late 1990’s was fuelled by investors willing to back new companies who registered on the stock market. This was followed by the tech wreck in 2000
By early 2010, a new breed of startups in Silicon Valley began raising staggering amounts of money via private investors, and therefore avoiding the scrutiny that goes with public listings.
Private equity fund raising requires far less accountability than public fundraising.
Secondly, the tech industry shows surprisingly little regard for the scientists and engineers who actually create the products that fuel their enormously profitable companies
Engineers and software developers are the 21 Century dressmakers. An army of invisible slaves build the increasingly elaborate products that get paraded before a fawning media by fated ‘entrepreneurs’.
Silicon Valley is obsessed with the concept of 'success' but is forgetting the importance of having a great product to sell in the first place.
The millennial generation has been raised on promises of easy achievements and the lie that 'nobody ever fails'
Thirdly, the millennial generation is often naïve about how difficult it really is to solve problems and run successful businesses
Nicknamed the ‘snowflake’ generation, they have been mislead by a generation of politically correct educators.
In the real world, coming last in a race means you came last in the race. Good people die young, bad people live into their nineties and money is often made by inheritance, deception and luck. Shakespeare was right, life is cruel and unjust.
A few people with medical industry knowledge tried to warn Elizabeth and her investors that Theranos was not a viable product.
They were ridiculed.
Holmes was named one of Time magazine’s Most Influential People in the World in 2015′ – Wikipedia
The ‘too good to be true’ bubble burst in 2015, when Wall Street Journal investigative reporter John Carreyrou reported that some of the blood testing results by Theranos might be inaccurate.
Finally the bubble burst
Further stories appeared –
- Systemic bullying and sacking of staff, despite their routine complaints about safety regulations being breached.
- Secretive use of traditional pathology equipment to achieve results claimed to be from Theranos machines
- Missed deadlines for commercial partners, who were promised Theranos equipment then left waiting for several years
- Complaints about wildly inaccurate blood test results given to the patients by the company, brushed off or ridiculed
In 2016, the Centers for Medicare and Medicaid Services banned Elizabeth from owning, operating, or directing a blood-testing service for two years.
In 2017, approximately 99 percent of Theranos shareholders reached an agreement with the company to dismiss all current and potential litigation in exchange for shares of preferred stock.
In 2018, following an investigation by the U.S. Attorney’s Office in San Francisco, a federal grand jury indicted Holmes and former Theranos COO and president Ramesh “Sunny” Balwani on nine counts of wire fraud and two counts of conspiracy to commit wire fraud.
In 2018 author John Carreyrou released his book Bad Blood: Secrets and Lies in a Silicon Valley Startup.
A movie based on the book is due to come out in 2020, with Jennifer Lawrence set to play Elizabeth.
Here is an overview of the story and an in depth interview with author John Carreyrou, the Wall Street journalist who broke the story.
I’ve just finished the book. It is the read of the decade. I strongly recommend it to anyone interested in entrepreneurship, technology and health reform.
Bullying destroyed some of her most talented staff
It includes some tragic stories –
- One of her chief scientists Ian Gibbons, a respected man with extensive experience in bio chemistry eventually committed suicide after years of bullying and belittlement by the company
- Many younger staff lived in terror for the last years of the company, hounded by aggressive lawyers and private investigators
- Some families were permanently broken up by the lies and bullying by Elizabeth and her aggressive and equally inept boyfriend Sonny
- Major lawsuits are pending and Elizabeth may well do prison time. I sincerely hope so, for both the principles of justice and a warning to any future scammers
This is a modern morality tale
Like Brotopia, this well-researched book is a modern day morality tale.
Just because you want something, no matter how badly, doesn’t mean you are capable of ever achieving it.
Mimicking other great inventors clothes, food and mannerisms doesn’t make you one.
Beware of femme fatales in feminist clothing
BEWARE OF FEMME FATALES IN FEMINIST CLOTHING
Being a minority (like women in engineering) doesn’t in any way justify criminal behaviour to achieve your goals.
And blindly throwing money at health industry problems never, ever solves them.
© Wikihospitals July 2017