theranos case study analysis

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What Can We Learn from the Downfall of Theranos?

The health company’s plummet carries valuable lessons for Silicon Valley.

December 17, 2018

Theranos founder Elizabeth Holmes epitomized Steve Jobs, which attracted Silicon Valley investors who didn’t look too closely at the health company’s claims, says John Carreyrou, the Wall Street Journal reporter who investigated Theranos. | Reuters/Brendan McDermid

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One of the most epic failures in corporate governance in the annals of American capitalism.

That’s how John Carreyrou described the high-profile plummet of health technology business Theranos from heralded Silicon Valley unicorn to disgraced cautionary tale, with founder Elizabeth Holmes and President and COO Ramesh “Sunny” Balwani facing multiple current fraud charges. Carreyrou, a Pulitzer Prize-winning Wall Street Journal reporter, chronicled the downfall of Theranos in his book Bad Blood .

Carreyrou recently visited Stanford Graduate School of Business as part of a program organized by the school’s Corporations and Society Initiative . He spoke before an audience in conversation with Michael Callahan , executive director of the Rock Center for Corporate Governance, which cosponsored the event.

The Theranos story was supposed to have a very different ending. In 2003, 19-year-old Elizabeth Holmes dropped out of Stanford University to start the company, which promised something revolutionary: accurate diagnoses of health conditions using a single drop of blood. Holmes’s passion for the venture and Steve Jobs-like image (black turtlenecks and all) gained her the support of luminaries like Oracle founder Larry Ellison and former Secretary of State Henry Kissinger.

But the suspect science behind Theranos and its paranoid, secretive culture of leadership eventually caught up to the business, leading to criminal charges.

Professor Anat Admati , faculty director of the Corporations and Society Initiative, noted in her introduction for the event that “Theranos raises many questions,” and that Carreyrou could help the Stanford community by shedding light on what happened and what the audience can learn from this story.

Here are the main takeaways from Carreyrou’s discussion of the scandal.

Dark Side of the Valley

“The culture of Silicon Valley created the conditions for someone like Holmes to come along, to thrive,” Carreyrou said.

For example, the valley is replete with mantras like “fake it until you make it” and “fail fast.” As Carreyrou noted, “Holmes’ grave error was to channel this culture, especially the fake-it-until-you-make-it part.” Applying such maxims to a medical product with life-and-death implications was a key driver of the Theranos downfall. The technology simply couldn’t deliver as promised.

The gender factor also played a role, as Carreyrou highlighted in his book: “There was a yearning to see a female entrepreneur break out and succeed on the scale that all these men have: Mark Zuckerberg, Larry Page and Sergey Brin, Steve Jobs, and Bill Gates before them.” As a young, conventionally attractive woman, he adds, Holmes was also able to charm many of the older men who eventually backed her.

Quote The culture of Silicon Valley created the conditions for someone like Holmes to come along, to thrive. Attribution John Carreyrou

Carreyrou’s outside perspective helped him break the story. The reporter entered Silicon Valley not as a tech businessperson or even a tech reporter but as a health care reporter pursuing a tip. “The reporters who had interviewed Elizabeth Holmes over the previous two years accepted the way she framed herself as heir to the throne of Steve Jobs,” he said. “I came at it from the medical perspective with my East Coast skepticism.”

No Checks, No Balances

The Theranos board and federal regulators provided insufficient oversight, Carreyrou noted.

When two would-be whistleblowers told the Theranos board that Holmes had exaggerated revenue projections, the board considered replacing her with an experienced executive. “They decided the company needed to be led by an adult,” Carreyrou said. But Holmes talked her way out of the decision and prevented subsequent intervention by multiplying the voting rights of her shares to give her 99% of total voting rights.

The board was a who’s who of big names — including Kissinger and current Secretary of Defense Jim Mattis — that boosted Theranos’s reputation and Holmes’s credibility, but was a “make-believe” board, Carreyrou said, due to Holmes’s voting control. “This board took her at her word,” he added.

Theranos also exploited a regulatory loophole: Laboratory-developed tests like those the business offered didn’t (and still don’t) fall under the exclusive purview of the Food and Drug Administration or other health care-focused agencies. No one was truly policing the business’s processes or offerings. Of course, Theranos was actively deceiving regulators, too. “I’m not sure what law you could pass that would catch someone intent on lying,” Carreyrou said.

From Confidence to Confidence Games

“Elizabeth Holmes is not Bernie Madoff,” Carreyrou said. “I’m pretty certain she didn’t drop out of Stanford premeditating a long con.” He pointed out how much entrepreneurs have to believe in their product, even if no one else does, especially to recruit investors.

“But there’s a line between that and hyping so much you cross over into outright lies,” Carreyrou said — such as when Holmes misrepresented the sources of finger-stick tests, most of which were done on Siemens machines rather than her company’s. Those tests — and Walgreens’ adoption of Theranos technology in its stores — led to $750 million in new funding.

“The gap between what she claimed and what she had really achieved became a massive fraud,” Carreyrou said.

Culture at the Core

“The culture at Theranos was toxic,” Carreyrou said.

Would-be whistleblowers were threatened with lawsuits. Criticism of leadership or practices was unwelcome. Those who pushed “were usually either fired or marginalized to the extent that they had to leave — they had an expression, which was to ‘disappear’ someone,” Carreyrou said. “The paranoia went into overdrive.”

He added, “If the culture had been more wholesome, then maybe Theranos would have actually made some headway toward achieving Holmes’s vision.”

A Dangerous Formula

At the time of this writing, Holmes and Balwani were facing fraud charges, including making false representations to investors, doctors, and patients. “I think the public health component of the criminal charges is going to resonate,” Carreyrou said. “It wasn’t just billionaires who were misled and bamboozled.”

Perhaps the biggest takeaway from the Theranos story is the expansion of Silicon Valley from its traditional roots to a much broader range of offerings. “It’s getting into new industries, getting into self-driving cars, getting into medicine,” Carreyrou said. “When you enter industries where lives are in the balance, you can’t really just iterate and debug as you’re going. You have to get your product working first.”

Combine that reality with the “myth of the brilliant Silicon Valley start-up founder who sees around corners and can never be wrong,” as Carreyrou described it, and you have a very dangerous set of circumstances — the kind that yield a business story that starts with sky-high valuations and ends in criminal charges.

For media inquiries, visit the Newsroom .

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• Volume 24, Issue Suppl 2
• 23 Bloodlust: a case study of theranos and the embodiment of a brand’s values in a chief executive
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• Michael Denham
• Columbia University Vagelos College of Physicians & Surgeons

Objective Once a Silicon Valley startup valued at over $9 billion, Theranos aimed to provide low-cost, rapid blood testing performed with small samples of blood directly to consumers, ultimately hoping to jumpstart a new wave of preventive medicine. However, the blood diagnostics firm is now defunct, having been accused by the U.S. Securities and Exchange Commission of conducting an ‘elaborate, years-long fraud.’ Theranos’s fall was largely the result of the efforts of whistleblowers and John Carreyrou, a journalist at The Wall Street Journal and author of Bad Blood , which examines the company’s elaborate scam. However, its rise is less well understood; the logistics of its deception seem much clearer in hindsight, but much of the messaging and grand visions touted by Theranos’s CEO, despite being iterations of phenomena common in Silicon Valley, have remain unexamined in sociological research. Because sociology of expectations literature has thus far lacked extensive analysis of the promotional activities of individual firms, this research aims to contribute to this field by examining the role of the celebrity executive in promoting and embodying the brand of a firm. The primary focus of this research is to deconstruct the messages and mechanisms by which Holmes embodied the values central to Theranos and its mission.

Methods This goal is carried out in the form of a case study analyzing 221 articles discussing Holmes and Theranos, ten public speeches and interviews given by Holmes, and 304 tweets posted by Holmes’s Twitter account. Drawing from literature on cults of personality, promissory capitalism, and the sociology of Silicon Valley, I uncover how former CEO Elizabeth Holmes used her role to represent the anticipatory nature of Theranos and its ethos.

Results I examine four main themes as they appear in Holmes’s external marketing: consumer sovereignty and rights language, consumer empowerment, timeliness and prevention, and persona of social transformation.

Conclusions After exploring these four themes and offering a brief normative critique of the firm’s values, I conclude by suggesting that, despite Theranos’s former ‘unicorn’ status, the framing of its vision and marketing tactics employed by Holmes as the company’s CEO were far less unique. Because such framing may have a significant impact on the way in which a culture of overdiagnosis is fostered, this marketing deserves to be critically examined by all relevant stakeholders in the diagnostics biotechnology industry.

https://doi.org/10.1136/bmjebm-2019-POD.129

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U.S. v. Elizabeth Holmes, et al.

On June, 14, 2018, a grand jury returned an indictment charging Elizabeth Holmes and Ramesh “Sunny” Balwani with crimes in connection with their respective involvement with two multi-million-dollar schemes to promote Theranos, a private health care and life sciences company based in Palo alto, California.  The indictment was superseded on July 14, 2020, and again on July 28, 2020.   

As alleged in the operative indictment, Holmes and Balwani used advertisements and solicitations to encourage and induce doctors and patients to use Theranos’s blood testing laboratory services, even though, according to the government, the defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests.  It is further alleged that the tests performed on Theranos technology were likely to contain inaccurate and unreliable results.

The indictment alleges that Holmes and Balwani defrauded doctors and patients (1) by making false claims concerning Theranos’s ability to provide accurate, fast, reliable, and cheap blood tests and test results, and (2) by omitting information concerning the limits of and problems with Theranos’s technologies.  The defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests, including the tests for calcium, chloride, potassium, bicarbonate, HIV, Hba1C, hCG, and sodium. The defendants nevertheless used interstate electronic wires to purchase advertisements intended to induce individuals to purchase Theranos blood tests at Walgreens stores in California and Arizona.  Through these advertisements, the defendants explicitly represented to individuals that Theranos’s blood tests were cheaper than blood tests from conventional laboratories to induce individuals to purchase Theranos’s blood tests.

According to the indictment, the defendants also allegedly made numerous misrepresentations to potential investors about Theranos’s financial condition and its future prospects.  For example, the defendants represented to investors that Theranos conducted its patients’ tests using Theranos-manufactured analyzers; when, in truth, Holmes and Balwani knew that Theranos purchased and used for patient testing third party, commercially available analyzers.  The defendants also represented to investors that Theranos would generate over $100 million in revenues and break even in 2014 and that Theranos expected to generate approximately $1 billion in revenues in 2015; when, in truth, the defendants knew Theranos would generate only negligible or modest revenues in 2014 and 2015.

The indictment alleges that the defendants used a combination of direct communications, marketing materials, statements to the media, financial statements, models, and other information to defraud potential investors.  Specifically, the defendants claimed that Theranos developed a revolutionary and proprietary analyzer that the defendants referred to by various names, including as the TSPU, Edison, or minilab. The defendants claimed the analyzer was able to perform a full range of clinical tests using small blood samples drawn from a finger stick.   The defendants also represented that the analyzer could produce results that were more accurate and reliable than those yielded by conventional methods – all at a faster speed than previously possible.  The indictment further alleges that Holmes and Balwani knew that many of their representations about the analyzer were false.  For example, it is alleged that Holmes and Balwani knew that the analyzer had accuracy and reliability problems, performed a limited number of tests, was slower than some competing devices, and, in some respects, could not compete with existing, more conventional machines.

The indictment charges each defendant with two counts of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349, and nine counts of wire fraud, in violation of 18 U.S.C. § 1343.

U.S. v. Ramesh "Sunny" Balwani

Ramesh “Sunny” Balwani was sentenced on Wednesday, December 7, 2022 to 155 months (12 years, 11 months) in federal prison for fraud that risked patient health by misrepresenting the accuracy of Theranos blood analysis technology and that defrauded Theranos investors of millions of dollars.

Balwani was tried separately from Holmes, and in her trial Holmes was not convicted of all counts. On January 3, 2022, a different federal jury convicted Holmes of one count of conspiracy to commit fraud on investors and three counts of committing fraud on individual investors, which involved wire transfers totaling more than $140 million. The jury acquitted Holmes of the patient-related fraud conspiracy count and the three counts of fraud against individual patients. The jury could not reach a unanimous verdict with respect to three individual investor fraud counts against Holmes. An additional count of wire fraud relating to a Theranos patient had been dismissed during trial. On November 18, 2022, U.S. District Judge Davila sentenced Holmes to 135 months (11 years, 3 months) in federal prison. She was ordered to surrender to begin serving her sentence on April 27, 2023.

In addition to the 155 month prison term, U.S. District Judge Davila sentenced Balwani to three years of supervision following release from prison. A hearing to determine the amount of restitution to be paid by Balwani is to be scheduled in the future. Balwani was ordered to surrender on March 15, 2023, to begin serving his prison sentence.

U.S. v. Elizabeth Holmes

Elizabeth A. Holmes was sentenced on Friday, November 18, 2022 to 135 months (11 years, 3 months) in federal prison for defrauding investors in Theranos, Inc. of hundreds of millions of dollars.

In addition to the 135 month prison term, U.S. District Judge Davila sentenced Holmes to three years of supervision following release from prison. The parties were instructed to meet and agree on a future date for a hearing to determine the restitution amount to be paid by Holmes. No fine was assessed. Holmes was ordered to surrender on April 27, 2023, to begin serving her prison sentence.

Next Court Dates

Due to the level of interest in this case, please see the following webpage for important news and information about access to proceedings and case information:

United States v. Elizabeth A. Holmes, et al. 18-CR-00258-EJD

Notice: Dates are subject to change on short notice. Please check Judge’s calendar before attending.

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Notice for Potential Victims

The United States Attorney’s Office for the Northern District of California and investigating agencies are seeking information from those who may be victims of the Defendants’ crimes. 

If you believe you are a patient victim, please fill out this questionnaire . Please read and follow the instructions on the form and submit it no later than September 6th, 2022. Email your submission to [email protected] with US v Holmes & Balwani in the Subject Line. We are unable to accept late submissions. 

All responses are voluntary, but complete submissions will be useful in identifying respondents as potential victims and supplying the Court with the information necessary for sentencing. It is requested that respondents submit their statements via email as indicated on those questionnaires. Based on the information submitted, respondents may be contacted by law enforcement agencies and asked to provide additional information.

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• Holmes and Balwani Indictment

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• 04 January 2022

Elizabeth Holmes verdict: researchers share lessons for science

• Emily Waltz

You can also search for this author in PubMed   Google Scholar

Elizabeth Holmes, the infamous biotech chief executive who promised to revolutionize blood testing, has been found guilty of fraud. The Theranos founder intentionally deceived investors, a US federal jury concluded yesterday after a nearly four-month trial. Holmes probably faces up to 20 years in prison and a hefty fine. She has not yet been sentenced.

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Nature 601 , 173-174 (2022)

doi: https://doi.org/10.1038/d41586-022-00006-9

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• Viewpoints February 2022

Five lessons to learn from the Theranos affair

Author: ICAEW Insights

Published: 18 Feb 2022

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Elizabeth Holmes founded Theranos in 2003 with a laudable aim – to revolutionise the blood-testing industry by designing a machine that could conduct a wide range of tests from just a single drop of blood. Over the following 15 years, Theranos raised more than $700m in funding to pursue this goal, recruiting a high-profile board that included former Secretaries of State and Defence and US military grandees, reaching a valuation of more than $10bn in 2013 and 2014. Holmes was lauded as ‘the female Steve Jobs’, appearing in countless high-profile interviews and on the cover of Forbes magazine. 

Behind the headlines, however, another story was playing out. The stark reality was that the machine Theranos designed simply could not do what was claimed. The company kept this failure hidden from investors, the board and potential customers, buying existing blood-testing machines from other suppliers to use in secret while they desperately tried to resolve the issues with their own technology. 

Eventually, the facts caught up with Theranos, and a Wall Street Journal exposé in 2015 triggered the public unravelling of the company – and Holmes’ reputation. 

In January 2022 Holmes was found guilty of four counts of wire fraud and awaits sentencing. Regardless of the sentence Elizabeth Holmes receives for her role in Theranos, it will forever be a case study in what can happen when hubris and ambition outrun reality. However, reality always catches up in the end. 

Whatever your role – whether founder, leader, adviser, investor or non-exec – this fascinating tale of a business gone wrong has lessons for us all. 

1. Don’t ‘fake it till you make it’

In every start-up or scaling business, there is a gap between ambition and current reality. The art of entrepreneurship – and raising investment in particular – is to convince others that you can bridge that gap and realise the ambition. This is the tension that drives the ‘fake it till you make it’ mentality.

At Theranos, the gap between vision and reality became ever larger over time as the company’s technology consistently failed to keep up with the claims being made by Holmes. As the gap became larger, so too did the size of climbdown needed.

The Theranos judgement should act as a brake on this approach, where unsubstantiated claims are made without a solid basis by entrepreneurs. Hopefully, a more rational, evidence-based approach will replace it and the risk of dangerous, hype-driven valuation bubbles will abate.

2. Be honest above all else

Honesty and transparency lie at the heart of many great businesses – Ray Dalio’s Bridgewater Associates being a prime example. An unwillingness to accept the truth, no matter how unpalatable, rarely leads to success. 

At Theranos, Holmes ruthlessly guarded the company’s true capability from most of the staff and went to great lengths to prevent investors, board members, regulators and customers from seeing the reality of their operation. For example, the laboratory where their teams were using third-party equipment to run blood tests were access-restricted to a few staff and not disclosed at all to most visitors – including inspectors. This secretive approach created a toxic culture. 

Withholding crucial information – or gaslighting – disempowers your team. Being honest about where you are and the key challenges you face will help bring your organisation together to overcome them. 

3. Don’t ignore the experts

Theranos’s shortcomings were obvious to the many technical experts the company hired. However, when they spoke truth to power they were frequently deemed disloyal and pushed out of the business. Holmes repeatedly ignored the advice of her expert employees on the shortcomings of their technology, without any basis for believing they were wrong, just a bloody-minded belief that they could make it right. 

Whatever the ambitions of leaders, in technically-based businesses – such as technology or pharma – the insights and advice of technical experts are crucial. This means that non-technical leaders will have to accept that, at times, their ambitions may not be realised. 

4. The board plays a crucial role

Boards can have many competing roles to play. Not only may they be investors and advocates, but they must also challenge the executive and hold them to account. This last function can cause management to see the board as a ‘necessary evil’ to be managed, rather than a valuable source of support and advice.

At Theranos, the board was used to create valuable connections and routes to funding – and nothing more. Non-execs who asked probing questions or challenged statements and assertions made by Holmes were forced out, regardless of their credibility, experience or competence. The remaining board members who played by Holmes’ rules were feted and rewarded with swathes of stock options.

5. Due diligence needs to balance the story with facts

The Theranos case emphasises the importance of robust due diligence. While several potential suitors declined the opportunity to invest because they couldn’t get satisfactory answers to their questions – especially around technical capability and US Food and Drug Administration (FDA) status – many took the story they were told at face value and invested huge sums without any real interrogation of the true status of the business.

When conducting due diligence, it is essential to gather and validate objective data to back up management claims, as well as assess the business’s potential from a more subjective basis. This is especially true where technology or complex scientific issues are involved, for example in the pharmaceutical sector or where third-party certification or regulation or assessment is key.The FDA never approved Theranos’ equipment, a fact that was enough to put off many potential investors and customers, but entirely disregarded by others. 

Matt Spry is a strategy consultant and founder of Emergent , which helps scaling businesses thrive.

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• Harvard Business School →
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• February 2019 (Revised February 2020)
• HBS Case Collection

Theranos: Who Has Blood on Their Hands? (A)

• Format: Print
• | Language: English
• | Pages: 35

About The Authors

Nien-he Hsieh

Christina R. Wing

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• February 2020
• Faculty Research

Theranos: Who Has Blood on Their Hands? (B)

Theranos: who has blood on their hands (a) and (b).

• Theranos: Who Has Blood on Their Hands? (B)  By: Nien-he Hsieh, Christina R. Wing and John Masko
• Theranos: Who Has Blood on Their Hands? (A) and (B)  By: Nien-he Hsieh and Christina R. Wing
• Theranos: Who Has Blood on Their Hands? (A)  By: Nien-hê Hsieh, Christina R. Wing, Emilie Fournier and Anna Resman

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Here were some of the prosecution’s key pieces of evidence.

Prosecutors in the Elizabeth Holmes trial have presented a company report, an investor letter and internal emails to show that she intentionally deceived doctors, patients and investors.

By Erin Woo

• Published Nov. 22, 2021 Updated Jan. 3, 2022

The government’s case against Elizabeth Holmes , the founder of Theranos, featured several key pieces of evidence that showed she intentionally deceived doctors, patients and investors in the blood testing start-up.

They included:

A fraudulent report

In 2010, Theranos created a 55-page report that prominently displayed the logos of the pharmaceutical companies Pfizer, Schering-Plough and GlaxoSmithKline. Investors such as Lisa Peterson, who manages investments for the wealthy DeVos family, and Walter Mosley, whose clients include the Walton family, testified that the report had helped persuade them to invest in Theranos.

The problem? Pfizer, Schering-Plough and GlaxoSmithKline had not prepared or signed off on the report. While prosecutors did not establish that Ms. Holmes created the report, witnesses like Daniel Edlin, a former Theranos senior product manager, testified that she had signed off on all investor material.

An investor letter and a shareholder call

Theranos spent years discussing with the Department of Defense the possible deployment of its technology in the battlefield, but no partnership materialized.

Yet Ms. Holmes told potential investors in a letter that Theranos had signed contracts with the U.S. military — claims that helped persuade them to invest, the investors testified.

“We really relied on the fact that they had been doing work for pharma companies and the government for years,” Ms. Peterson said.

Jurors got to hear those claims for themselves in a taped shareholder call.

“We built the business around our partnerships with the pharmaceutical companies and our contracts with the military,” Ms. Holmes said in the recording.

Internal emails

Emails between Theranos employees made up the bulk of the prosecution’s exhibits. Some of the emails showed when Theranos hid device failures, removed abnormal results from test reports and fudged demonstrations of its blood testing.

In one case, Mr. Edlin asked a colleague for advice on how to demonstrate Theranos’s technology for potential investors.

Michael Craig, a Theranos software engineer, recommended that Mr. Edlin use the demo app, a special setting on Theranos’s devices that said “running” or “processing” if an error had taken place, rather than display the mistake.

The app would hide failures from the client, Mr. Craig wrote in an email.

“Never a bad thing,” Mr. Edlin replied. “Let’s go with demo, thanks.”

Erin Woo is a reporting fellow on the technology desk. She graduated from Stanford University. More about Erin Woo

•   Everything you need to know about the Theranos scandal

Everything you need to know about the Theranos scandal

Your questions about elizabeth holmes and the theranos scandal answered..

The Theranos scandal has dominated headlines, and both fascinated and appalled readers worldwide, since John Carreyrou’s shattering  report  first broke in 2015. With company   founder Elizabeth Holmes now in prison after losing a bid to remain free while she appeals her convictions and eleven-year sentence, we reveal everything you need to know about the Theranos controversy. Read on for the full story to date and what is set to unravel next.

In 2014, Theranos, a blood-testing startup pitching a supposedly revolutionary technology, was flying high. While existing technology required one vial of blood for each diagnostic test conducted, Theranos claimed to be able to perform hundreds of tests (supposedly over 240) ranging from cholesterol levels to complex genetic analysis, with just a single pinprick of blood. Automated, fast and inexpensive, Theranos seemed to be offering technology that could revolutionize medicine and save lives the world over.

Elizabeth Holmes, founder and CEO of Theranos, had famously dropped out of Stanford to found the company using her tuition money, and was just 30 when Theranos was at its peak. Having raised over $700m in investment from the likes of Larry Ellison and Tim Draper, the company had become the rising star of Silicon Valley and was valued at over $9 billion, while Holmes, with a share of more than half that, was heralded as the female Steve Jobs.

The only problem? The technology didn’t work.

It was John Carreyrou, twice-Pulitzer-prize-winning journalist of The Wall Street Journal who first broke the story in 2015. Having received a tip doubting the performance of the Theranos technology, John’s interest was triggered further by Holmes’s purported ability to invent ground-breaking medical technology after just two semesters of chemical engineering classes at Stanford. . .

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Despite intimidation and threats of legal action, former Theranos employees Erika Cheung and Tyler Schultz, whose Grandfather George Schultz was a member of the Theranos board, began sharing their experiences of the company, its technology and practices with John. They revealed lies to board members, a culture of intimidation and secrecy, technology that repeatedly failed quality assurance and crucially, results sent to real patients that were fundamentally incorrect, upon which life-changing medical decisions were being made. It would seem that the company had been built on nothing more than audacious lies.

Thanks in large part to the information from Theranos whistleblowers, John was able to publish his report in The Wall Street Journal , revealing that Theranos was not using its own technology to run the majority of its tests due to the inefficiency of its own technology. FDA investigations ensued and all that was written in John’s report was proven correct.

The reaction from Theranos was astonishing. At first, Holmes vehemently denied the claims made against her and the company. Theranos even threatened to sue John himself who became a perceived enemy to the company, with some Theranos employees even chanting ‘Fuck you Carreyrou’.

Nonetheless, in 2018, Holmes stepped down as CEO and, alongside former company president Ramesh Balwani, was charged with criminal fraud, having allegedly misled investors and deliberately made false claims made about the efficiency of the company’s blood testing technology.

Three months later the company officially shut down following investigation by the FBI, leaving thousands of former employees, many of whom John found to be talented people with integrity, unaware of the company’s fraudulent activity, uncertain about their future. 

In January 2022, Holmes was found guilty on four charges of defrauding investors, and in November she was sentenced to over eleven years in prison. More information around the downfall of Theranos was revealed in the trial, with prosecutors accusing Holmes of destroying evidence in Theranos' final days in business. Testifying in her own defence, Holmes admitted to mistakes in Theranos' operation, but continued to maintain that she never knowingly defrauded patients or investors. Holmes is attempting to appeal her convictions and sentence, but lost her bid to remain out of prison while doing so, and is now behind bars. With so many twists and turns so far, it seems likely that the story isn't over yet.

In his award-winning book,  Bad Blood: Secrets and Lies in a Silicon Valley Startup , John delves deeper into the truth of the Theranos scandal and the experience of his investigation. Meanwhile, the media continues its fascination with the company and its founder, with stories ranging from those challenging the authenticity of Holmes’s famous baritone voice, to podcast  The Dropout  which is dedicated to the rise and fall of the Theranos empire. 

A TV adaptation of the scandal, also called The Dropout , came out in March 2022 internationally across Hulu and Disney+, and starred Amanda Seyfried as Holmes – for which she won a Primetime Emmy Award.

The scandal is also set to come to the big screen. The Inventor: Out for Blood in Silicon Valley ; a documentary produced and directed by the Oscar-winning Alex Gibney was released in 2019 and a feature film is in development . Adam McKay ( The Big Short ) is attached to direct; Jennifer Lawrence confirmed to star as Holmes and Vanessa Taylor ( The Shape of Water ) to write the screenplay.

by John Carreyrou

The story of the Theranos scandal; the soaring rise and shocking fall of the multibillion-dollar Silicon Valley startup once expected to change the world, as told by the prize-winning Wall Street Journal investigative journalist who first broke the story and pursued it to the end.

Looking for more? In this video, we share more books about real-life scandals that shocked the world:

You may also like, insider secrets: the most shocking, inspiring and entertaining real-life stories, behrouz boochani: prize-winning refugee writer - pan macmillan, the best non-fiction books according to louis theroux.

A business journal from the Wharton School of the University of Pennsylvania

Knowledge at Wharton Podcast

Culture clash: a lesson from the theranos case, september 13, 2021 • 9 min listen.

As the trial against Theranos founder Elizabeth Holmes continues in federal court, Wharton’s Lawton R. Burns examines the prickly relationship between technology and health care.

Wharton’s Lawton R. Burns speaks with Wharton Business Daily on SiriusXM about the Theranos case and the conflict between big tech and health care.

There’s much more at stake than a potential 20-year prison term for Theranos founder Elizabeth Holmes, whose federal fraud trial opened last week. Her case has come to symbolize the perpetual conflict between big tech and health care.

“It’s a culture clash, to be sure,” Wharton health care management professor Lawton R. Burns said in an interview with Wharton Business Daily on SiriusXM . (Listen to the podcast above.)

The startup culture in Silicon Valley and beyond moves at warp speed, he said. When investors are enthusiastic about a promising new venture, the hype builds and the dollars roll in. Theranos reached a valuation of $9 billion on a bogus claim that it developed a revolutionary lab test capable of screening for a range of conditions on a single drop of blood. It was exactly the sort of cost-efficient solution that big tech is known for, so it’s little wonder that investors fell for the pitch from the charismatic Holmes, who fashioned herself after Apple visionary Steve Jobs.

But there’s almost always friction when big tech turns its eye toward health care as “virgin turf to apply all of this new, cool stuff to,” said Burns, who is co-author of the book Big Med: Megaproviders and the High Cost of Health Care in America . “The question is whether or not all this stuff is going to work and transform health care or, conversely, at the extreme, just crash and burn.”

The divide comes from the basic difference between the two industries. Technology is deployed to do things at scale; health care is a business centered on people.

“There are no economies of scale in health care because it’s labor-intensive, whereas tech is coming at this from a capital-intensive stance,” Burns said. “They’re thinking, ‘Man, if we can just deploy all this capital-intensive equipment to a labor-intensive industry, we’ll make it much more productive and efficient and rational. That’s a huge challenge right there, just bridging that gulf.”

Burns pointed to electronic medical records as an example. They were supposed to make the administration of health care easier, but both physicians and their patients dislike them. Some doctors have “rebelled,” he said, forcing hospitals to hire data entry personnel to transcribe the information. And patients frequently complain that their physician is pecking away at a keyboard instead of looking and listening to them. Burns describes such experiences as “dissatisfier” variables in an equation already fraught with long waits for appointments and short interactions with physicians, making patients wonder about the quality of service they are getting.

Meeting in the Middle

If Theranos could have delivered on its promise, the diagnostic test would have achieved mind-boggling economies of scale. A mere pinprick of blood meant patients wouldn’t have to go to a lab, clinic, or hospital to see a phlebotomist or give multiple samples. Walgreens was sucked into the pitch, striking a partnership with Holmes to offer the tests in its stores. High-profile investors included Oracle founder Larry Ellison, members of the Walton family, Rupert Murdoch, and former U.S. Secretary of Education Betsy DeVos.

“Walgreens got hosed by this deal,” said Burns, referring to the company’s $140 million lawsuit against Theranos that was settled for reportedly less than $30 million . “That’s just the downside for one particular pharmacy chain here, but I think that downside rachets through other people, other players in the industry.”

Indeed, the Theranos case is sparking some introspection in Silicon Valley about startup culture. Eric Bahn, co-founder of early-stage VC firm Hustle Fund, told Wired.com he’s worried that Holmes’ downfall will make it more difficult for female founders who already deal with a dearth of investors. “I’m glad the ‘Fake it till you make it’ mantra of Silicon Valley is coming into question,” he said. “For the past decade, it almost felt like a rallying cry for founders and investors alike.”

“There are no economies of scale in health care because it’s labor-intensive, whereas tech is coming at this from a capital-intensive stance.” –Lawton R. Burns

Paul Graham, founder of Y Combinator, tweeted that Holmes shouldn’t be seen as normal. “Journalists like to present Theranos as typical of Silicon Valley, but people like Elizabeth Holmes are actually much rarer there than in the rest of the business world, or in politics.”

Burns said there is a better way to view the intersection of big tech and health care: Technology can supplement and complement the work of a physician, but it cannot replace it.

The falling demand for telemedicine is a testament to that, he said. A decade ago, telemedicine was hailed as a great disruptor for the industry, much like the electronic medical record. That expectation fueled a lot of venture capital investment.

“If people would bother to look at the evidence… virtual visits are on the decline, and they’ve been declining for some time,” Burns said. “We have all this money pushing into health care to fund these startups, and yet on the demand side it seems to be falling. It’s like two ships passing each other in the night.”

Photo by Max Morse for TechCrunch, CC BY 2.0 <https://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons

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