Episode 3: Elizabeth Holmes (Theranos Blood Test Scammer)

In 2015, Forbes magazine named Elizabeth Holmes the youngest self-made female billionaire in America. She was the enigmatic founder and majority owner of consumer healthcare technology company Theranos; a company valued at near $10 billion and backed by distinguished figures such as Henry Kissinger. So, how did it come to be that Elizabeth and her company would be worth essentially nothing only 1 year later and facing criminal charges? Find out today on the Controversial Figures Podcast.

Connect with us on Twitter: https://twitter.com/FiguresPodcast

Episode Sources:

• Business Insider https://www.businessinsider.com/theranos-founder-ceo-elizabeth-holmes-life-story-bio-2018-4
• HBO Documentary The Inventor: Out for Blood in Silicon Valley  https://play.hbogo.com/feature/urn:hbo:feature:GXGWJ8wyZ-K2uAwEAAAAK?camp=Search&play=true
• USA Today https://www.usatoday.com/story/news/nation/2018/07/05/theranos-elizabeth-holmes-lawsuits-patients-harm-arizona/742008002/
• Wikipedia Elizabeth Holmes  https://en.wikipedia.org/wiki/Elizabeth_Holmes
• Wikipedia Theranos https://en.wikipedia.org/wiki/Theranos
• Music: The 6 is Silent by Skyjelly

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Transcript

00:00

In 2015, Forbes magazine named Elizabeth Holmes the youngest self-made female billionaire in America. She was the enigmatic founder and majority owner of consumer healthcare technology company Theranos; a company valued at near $10 billion and backed by distinguished figures such as Henry Kissinger. So, how did it come to be that Elizabeth and her company would be worth essentially nothing only 1 year later and facing criminal charges? Find out today on the Controversial Figures Podcast.

00:34

Music Interlude

01:02

Welcome to Controversial Figures; a podcast about intriguing figures in the media. My name is Tammy Hawkins. If you enjoy this podcast, please leave a 5 star rating and comment on Apple Podcasts or wherever you listen to podcasts - and don't forget to subscribe to the show. Visit Controversial Figures on Patreon and donate anything that  you can. I will give you a shout out on a future show, and send along occasional swag to regular donors. If you donate at higher tier levels, you will obtain access to additional content on a regular basis. And with that, let's discuss our Controversial Figure for today.

01:48

There is no mistaking that young Elizabeth Holmes was brilliant and determined. If Elizabeth was going to do something, she was going to do 110%.

01:58

In high school, Elizabeth says she was interested in computers and programming; so she started a little side business business selling C++ compilers. Elizabeth's parents arranged Mandarin Chinese home tutoring; later, Holmes began attending Stanford University's summer Mandarin program. Elizabeth said in interviews growing up, books were her friends.

02:22

Elizabeth went on to attend Stanford after high school, as well. There she studied chemical engineering. She also worked as a student researcher and laboratory assistant in the School of Engineering.

02:34

After the end of her freshman year, Elizabeth worked in a laboratory in the Genome Institute of Singapore and tested for SARS (or severe acute respiratory syndrome). She did this through the collection of blood samples with a variety of syringes. Elizabeth reflected on the fear of needles she observed during the sample gathering process, and thought there must be a better way. So, she decided to invent one.

03:03

In 2003, Elizabeth Holmes filed her first patent application for a wearable drug-delivery patch. The concept? A patient wears a daily patch, the patch takes regular diagnostic samples through the skin, and administers medicine according to the needs identified also through the skin. Elizabeth socialized her idea with some of the experienced scientific staff at Stanford University as she was formulating her patent. One experienced professor consulted was Phyllis Gardner. After Elizabeth explained her concept, Gardner responded, "I don't think your idea is going to work", explaining it was scientifically impossible to apply microfluidics and nanotechnology the way in which Holmes was claiming. 

03:47

Ever persistent, Elizabeth was successful in getting backing for her idea from her advisor and dean at the School of Engineering, Channing Robertson. In face, Robertson was so impressed by Elizabeth, he would retire from his tenured position at Stanford University and become the first board member of Elizabeth's company. He would go on to  introduce Elizabeth to venture capitalists, and to a biochemistry expert named Ian Gibbons who became her first company employee and Chief Scientist. Elizabeth founded her company, which at this time was called Real-Time Cures, in 2003 at 19 years old.

04:30

By early 2004, Elizabeth dropped out of Stanford's School of Engineering. She instead used her time and tuition money as seed funding for her consumer healthcare technology company. It was also around this time that Elizabeth began wearing her daily uniform of a black turtleneck and black slacks - a clear reflection of her entrepreneurial inspiration, Steve Jobs. 

04:56

This wasn't the only change of behavior those that knew her observed. Some would claim Elizabeth took to speaking in a much lower voice octave when speaking publicly versus the higher voice others had heard her use in private. And Elizabeth was known to make intimidating eye contact; sometimes not blinking for many minutes at a time. Which frankly seems pretty creepy. But personality quirks aside, Elizabeth's approaches were working.

05:27

By December 2004, Holmes had raised $6 million from investors at a company valuation of $30 million - in less than 1 year.

05:39

Elizabeth tells of how she was inspired to start her company through an emotional story about family. She tells of how she spent her summers and holidays with her uncle as a child. As the story goes, her uncle was diagnosed with cancer - skin cancer, which quickly became brain cancer, and then bone cancer; leading to a swift mortal departure. This experience of loss was profound on young Elizabeth.

06:07

She says this inspired her mission; stating "The right to protect the health and well-being of every person, of those we love, is a basic human right." Elizabeth would tell this story time and again, to anyone that would listen, attempting to hit her audience in the feels (and their investors in the pockets). She truly had a gift for exuding what felt like authentic passion for her company mission.

06:36

Elizabeth Holmes said she founded Real-Time Cures in Palo Alto, California, to "democratize healthcare". To give a lower cost, even playing ground for accessible, preventative healthcare. Elizabeth would soon change the name of her company from Real Time Cures to Theranos - a combination of the words Therapy and Diagnosis. A subtle name shift away from the reactive "cure" lexicon and instead towards the connotation of proactive, personalized health management.

07:09

Elizabeth said her company could run comprehensive blood diagnostic testing using a simple finger prick of blood inside of what she called a 'nanotainer'.  Theranos' technology was unique in that its tests required only 1/100 to 1/1,000 of the amount of blood that would ordinarily be needed, and cost far less than existing tests. A patient would receive a list of possible tests and associated costs upfront from an ala carte menu and order with no doctor visit required; the tests would be administered by nurses. Elizabeth said the blood tests could be performed very rapidly using Theranos' small automated devices, called the Edison, in locations convenient to the customers. Elizabeth foretold of a time in the future where every human would have the ability to regularly perform diagnostic blood tests to proactively manage their health using scientific data, and paint a picture of their life over time. 

08:09

What Elizabeth neglected to share was the tests Theranos' machines were performing were actually providing wildly inaccurate results. This was due to the small blood sample being overdiluted in an attempt to bulk up the sample enough to perform the test. Hmm… Remember that comment from an experienced professor about microfluidics and nanotechnology not being capable to do things of this nature…

08:35

When companies interested in the Theranos' product would ask to test the machine, Elizabeth would ensure the test was highly supervised and conducted by only her employees, stating strict confidentiality and intellectual property concerns. Employee whistleblowers claim when tests were performed as proof for other companies, they were either pre-scripted into the Edison machine with results pre-programmed for a controlled output; or the blood sample was put in the machine and the audience scuttled off while the blood was processing. In actuality the blood sample was then ran through traditional, commercial blood testing machines and the accurate results from those machines were presented as if they came from the Edison. 

09:19

Elizabeth was trying the age old startup mantra of fake it till you make it - but just how long could she pull the fake, and how many lives would she risk in her pursuit of success?

09:28

Doctors and other medical diagnostic companies raised serious doubts about the feasibility of what Theranos claimed to be able to do; how could something so innovative doing things no other experienced blood testing company could do and also be cheaper in cost? Experienced medial professionals also warned that blood diagnostic tests are not enough for an accurate symptom diagnosis and treatment. When internal employees would raise concerns or questions, they were advised that 'maybe you aren't the right fit for a Silicon Valley company' - a clear indication that they should stop asking questions or leave. Knowledge within the company was compartmentalized with restricted and heavily monitored badge access and communications. Computers were monitored with keystroke software. All employees were required to sign strict nondisclosure agreements, and were regularly threatened with legal action if they showed disloyalty to Theranos or Elizabeth. 

10:27

Theranos' first employees, Ian Gibbons, fell on this bad side of Elizabeth. After raising concerns to senior management about the continued failings of the Edison machine, Ian was fired in 2010, after 5 years of service at Theranos. A number of Ian's colleagues protested the firing, and he was quickly rehired;  but with severely reduced responsibilities. He was demoted to being a technical consultant to the chemistry group he had formerly headed.

11:01

Richard Fuisz was a former friend and next-door neighbor of the Holmes family. The two families had a falling out. As Fuisz sought his revenge, he noticed similarities between Ian Gibbons' patents at his previous company Biotrack and recent Theranos patents that were coinvented by Ian Gibbons and allegedly Elizabeth Holmes. Suspecting illegal reuse and improper use of past work, Fuisz added Gibbons' name to his list of witnesses to be deposed.

11:38

When Ian Gibbons learned he would be subpoenaed to testify, he became severely depressed. He was afraid his job depended on his testimony. Gibbons believed if he told the truth, he would lose his job ,and feared despite his 30 years of impressive career accomplishments, he would have limited future job prospects due to his age.

On the evening of May 16, 2013, Gibbons took an overdose of acetaminophen combined with a large amount of alcohol.  He died a week later. Ian went from being the Chief Scientist at Theranos w/a phd in biochemistry to committing suicide the night before he was required to testify.  His wife claims when she called Holmes' to report Ian's death, she never received a callback from Elizabeth. What his wife did receive was an email from Theranos, from their lawyer demanding she immediately return Ian's' company laptop and any confidential information.

12:38

Amazingly, through all of this drama, Elizabeth and her company Theranos continued to be seen as rising stars. In September 2013, Theranos announced a partnership with Walgreens to launch in-store blood sample collection centers in more than 40 locations. 

12:55

By the end of 2014, Elizabeth's name appeared on 18 U.S. patents and 66 foreign patents. The credibility of Theranos was  further bolstered by Holmes's personal connections and ability to recruit the support of influential people including Henry Kissinger, Hillary Clinton, Rupert Murdoch, Joe Biden, George Shultz, James Mattis, and Betsy DeVos. 

13:18

In 2015, 

• The Cleveland Clinic announced a partnership with Theranos to test its technology.
• Theranos became the lab-work provider for Pennsylvania insurers AmeriHealth Caritas and Capital BlueCross.
• And the Food and Drug Administration (or the FDA) approved the use of Theranos fingerstick blood testing device for the herpes simplex virus outside of a clinical laboratory setting. This would be the only FDA approval Theranos would ever obtained.

13:47

By the end of 2015, Theranos had raised more than $400 million in venture capital. Forbes had named Holmes the youngest and wealthiest self-made female billionaire in America, on the basis of a $9 billion valuation of her company and she owned over 50% of it.

14:04

But cracks were starting to appear along the way. In 2012, Safeway had invested $350 million into retrofitting 800 of their locations with clinics that would offer in-store blood tests. However, Safeway cancelled that deal in 2015 after deadlines were regularly missed and questionable results were observed from the trial clinic at Safeway's Corporate offices which were using Edison devices.

14:32

The decline of Theranos deepened quickly in late 2015, as doubts about the company's technology claims and whether Holmes had misled investors started to percolate. 

14:44

John Carreyrou of The Wall Street Journal conducted a months-long investigation of Theranos after he received a tip from a medical expert who thought the blood testing device seemed suspicious. Carreyrou spoke to ex-employee whistleblowers, while performing research, and obtaining internal company documents. When Elizabeth learned of the Wall Street Journal investigation, she sent threatening communications through her lawyer in an attempt to stop the publishing of the story. She also made legal and financial threats against the Wall Street Journal and the ex-employee whistleblowers. Regardless, in October 2015, The Wall Street Journal published its story that Theranos was using traditional blood testing machines instead of their Edison devices to run tests, and that the company's Edison machines might provide inaccurate results.

15:33

Tyler Shultz, was a Theranos employee for 8 months from 2013 to 2014, and was a primary source for the Wall Street Journal. He's also the grandson of then Theranos director, and huge Elizabeth supporter, former U.S. Secretary of State George P. Shultz. Tyler had attempted to bring his concerns to Theranos management first, and when that failed, he quit his job and then he spoke to the Wall Street Journal. Using an alias, Tyler also reported Theranos to the New York State Department of Health. Tyler withstood years of legal assaults at a high personal cost for whistleblowing against Theranos - stating he and his parents paid over $500,000 in defense legal fees. He also had a strained relationship with his beloved grandfather during this time. Tyler had nothing to gain personally through his whistleblowing actions; he simply could not stand by and watch human lives being put further at risk by Theranos. Not all heroes wear capes.

16:38

Theranos of course vehemently denied the story, but the damage was done. Walgreens suspended plans to expand blood-testing centers in their stores, and the Cleveland Clinic announced it would work to further verify Theranos technology. 

16:53

At its peak, Theranos operated 40 centers inside Walgreens stores in metro Phoenix, Arizona. They sold more than 1.5 million blood tests that yielded 7.8 million test results for nearly 176,000 consumers. With an unknown significant percentage of those tests potentially giving inaccurate health results to those consumers, it is impossible to accurately know the human harm caused.

17:22

And the meteoric decline continued. The Arizona Department of Health Services reported issues with the Theranos' Scottsdale, Arizona lab in meeting regulations in September 2015.

17:35

In January 2016, the Centers for Medicare and Medicaid Services (or CMS) sent a letter to Theranos based on an inspection of its Newark, California lab, stating the facility caused "immediate jeopardy to patient health and safety". 

17:52

In March 2016, CMS regulators announced they were suspending Elizabeth from owning or operating a lab for two years, issuing a $30,000 civil penalty, and would revoke the lab's license. Upon this news, Walgreens and Capital BlueCross announced a suspension of Theranos blood tests from the Newark lab.

18:16

By June 2016, it was estimated that Holmes's personal net worth had dropped from $4.5 billion to essentially nothing. Forbes revised its published estimate of her net worth to zero. And Fortune named Holmes one of the "World's Most Disappointing Leaders". Ouch.

18:40

In November 2016, Walgreens filed suit against Theranos in a federal court for breach of contract. 

18:49

In April 2017, the Arizona Attorney General negotiated a consumer-fraud settlement to refund $4.65 million to consumers who purchased Theranos blood tests.

19:00

In 2018, the Securities and Exchange Commission or SEC charged Theranos and Elizabeth Holmes with deceiving investors by "massive fraud" through false or exaggerated claims about the accuracy of the company's blood-testing technology. One section of the complaint says Holmes falsely claimed in 2014 that the company had annual revenues of $100 million, a thousand times more than the actual figure of $100,000. It seems blood test results weren't the only things that Elizabeth's company was faking.

19:37

Holmes settled the SEC charges by paying a $500,000 fine, returning her remaining 18.9 million shares to the company Theranos, and relinquishing her voting control of Theranos. She is also barred from serving as an officer or director of a public company for ten years.

19:56

In June 2018, a federal grand jury indicted Holmes and former Theranos chief operating officer Ramesh "Sunny" Balwani on nine counts of wire fraud and two counts of conspiracy to commit wire fraud for distributing blood tests with falsified results to consumers. 

20:13

In September 2018, the company Theranos ceased operations.

20:19

A trial is set to begin in October 2020 for Elizabeth Holmes. So, watch this space.

20:28

At its peak, Theranos employed 800 people and was valued at nearly $10 billion. There is no doubt Elizabeth has passion and intelligence. Perhaps what she lacked was a grounding in reality while reaching for the stars.

20:45

The big vision, fake it till you make it startup culture encourages a certain level of risk taking. And, to a degree, we want and we need that. We want visionaries that think bigger, try hard, and fail often, but do so safely in their march towards life changing solutions for our world. The question is, how long can we allow smoke and mirrors, and to what degree of risk is the acceptable balance for the life changing solution? And most importantly, is the life changing solution being claimed even feasible? Today's fish oil salesmen come in a much fancier form, and still trick many.

21:24

As technology rapidly advances beyond the understanding of many influential investors and politically oriented regulation industries, and it dips into spaces with a high risk of mortal damage, we as a society need to develop more agile and adequate safeguards. While financial crimes were certainly being perpetrated, what is more sinister is many human lives were put at risk throughout this 15 year endeavor. How do we encourage people to think big with the right balance for caution at the pace at which technology is evolving? And are these the same questions we asked ourselves during other innovation booms that inevitably had loss of life during discovery and the validation period and should be par for the course? Without that type of tolerance, maybe we wouldn't have electricity. This all lies in our social morality what is acceptable. And I think that losing balance is what we fear most, and most need to protect.

22:23

Thank you for listening to this episode of Controversial Figures. Just a reminder, please like, subscribe, and leave a rating and comment for Controversial Figures in your favorite podcast app. We have a Twitter page now @FiguresPodcast - so please follow us, give us recommendations of Controversial Figures you'd like to hear.

22:42

This podcast is an independent podcast created by Tammy Hawkins. This is funded by those that donate, so please join Patreon and give what you can - once I hit 50 Patreon subscribers, I'll send out swag to all donators! And I'll give shout outs during the show to anyone that's donated. Research references are available in the show notes as are musical references. Thank you so much for listening, thank you so much for your support - be well.