Elizabeth Holmes & Theranos | 60 Minutes Archive
In a Nutshell
Elizabeth Holmes founded Theranos on fraudulent claims that its Edison device could run hundreds of blood tests from a finger prick, raising nearly $900 million from investors and reaching a $10 billion valuation. Employees revealed that the machines never worked properly, test results were fabricated, and fake demonstrations were staged for investors while patients received unreliable diagnoses. Holmes and president Sunny Balwani were charged with massive fraud after regulators shut down the lab, invalidating nearly one million test results and wiping out the company's value.
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Elizabeth Holmes was 19 years old when she dropped out of Stanford University to create a company that would revolutionize blood testing. She founded the startup Theranos and claimed her technology could take a pin prick of blood from the finger and perform hundreds of laboratory tests. Holmes called it quote the most important thing humanity has ever built. At its peak, Theranos was valued at nearly $10 billion, making Holmes the youngest self-made female billionaire in the world.
The Wall Street Journal uncovered that Holmes was at the center of a massive multi-year fraud. Insiders revealed how the Theranos deception hoodwinked investors and endangered patients.
Theranos built its company on the invention called the Edison, a miniaturized blood analyzer designed to disrupt the $60 billion lab testing industry dominated by LabCorp and Quest Diagnostics. Holmes called her invention the iPod of healthcare and became a celebrity, appearing on magazine covers and receiving praise from politicians and the press.
Theranos was backed by an illustrious board including national security figures like Henry Kissinger and James Mattis. The board was filled with friends of George P. Schultz, the former Secretary of State who helped end the Cold War. Schultz introduced his grandson Tyler to Holmes, who became a believer and joined the company after earning his biology degree from Stanford.
Tyler Schultz began working at Theranos in September 2013. The company announced a partnership with Walgreens that would place an Edison machine in every store. Holmes claimed the Edison performed all tests that big lab machines could handle, from cholesterol to cancer, using a painless finger prick.
Tyler Schultz stated the Edison machines did not work properly. Components would fall off during testing, doors would not close, and machines would get too hot or too cold. Doug Matche, who joined Theranos in 2012 after earning his doctorate in biochemistry, confirmed that employees could not complete any test accurately on the devices being manufactured.
In 2010, Holmes told Walgreens that Theranos had developed a device capable of running any blood test from a few drops pricked from a finger in real time and at less than half the cost of traditional labs. Doug Matche confirmed this was not true and stated that Holmes was lying to Walgreens.
Erica Chung, who joined Theranos fresh out of Berkeley with a degree in molecular and cell biology at age 22, noticed faulty test results being sent to Walgreens patients. When patient samples were retested, contradictory results were often obtained. Chung confirmed that patients were never alerted about the retesting or uncertainty in their diagnoses.
Theranos employees were instructed to stage fake demonstrations for investors visiting company headquarters. Investors would see their blood being collected, then be led out of the room for meetings or lunch. An engineer would then grab the cartridge and take it to the lab where scientists performed the testing by hand rather than using the Edison device.
Theranos raised nearly $900 million from investors who were told the technology was validated by the FDA, pharmaceutical companies, and deployed on the battlefield by the US military in Afghanistan. These claims were fabricated.
Holmes claimed in public appearances that Theranos had collaborated with Johns Hopkins to detect pancreatic cancer 17 years before a tumor forms. Johns Hopkins Medicine confirmed they never collaborated with Theranos. Doug Matche stated that test data compiled for the FDA was falsified due to pressure from above to produce good-looking results.
Day-to-day operations were run by company president Sunny Balwani, a millionaire software engineer with no training in biological sciences. Balwani was Holmes' secret boyfriend and served as her enforcer, firing employees on the spot and berating scientists for failed tests. Matche quit after a year and a half, citing fraud and illegitimate practices.
Tyler Schultz became disillusioned after realizing Holmes was deceiving his family and the public. Holmes idolized Steve Jobs, wearing a black turtleneck and creating a world where she was Steve Jobs for a period. As her wealth and reputation grew, Holmes bragged about bulletproof windows in her office and traveled with a full-time security detail.
Theranos employees were closely watched and required to sign non-disclosure agreements, reinforced by a threatening team of lawyers and private investigators. Tyler Schultz used a fake name when alerting authorities in spring 2014 because he knew Theranos protected their trade secrets aggressively.
In his email to New York State Department of Health regulators using an alias, Schultz outlined questionable lab practices and believed test results were being switched. Regulators responded that this was cheating and not how testing should be done. Schultz sent an email about his concerns to Holmes and received a response from Balwani calling him arrogant, ignorant, patronizing, reckless, and lacking basic understanding of math, science, and statistics.
Tyler Schultz quit in April 2014, followed by Erica Chung. By February 2015, the Wall Street Journal's Pulitzer Prize-winning reporter John Carreyrou received a tipster call casting doubt about the Edison, Theranos, and Holmes. The tipster called Holmes a pathological liar who wanted to be a celebrated tech entrepreneur and would not let anything get in the way of becoming rich and famous.
Carreyrou described the Theranos board's failure to verify scientific claims as one of the most epic failures in corporate governance in American capitalism. His first article appeared in October 2015, revealing Theranos did less than 10% of its tests on Edison machines.
Holmes responded to criticism by saying this is what happens when you work to change things. She repeatedly promised to present proof at a major industry conference that her technology worked, but the proof never came. In 2016, after surprise inspections, federal regulators shut down the company's laboratory, citing immediate jeopardy to patient health and safety. Nearly 1 million Theranos test results were invalidated.
Investors including Education Secretary Betsy DeVos and her family, and media mogul Rupert Murdoch each lost more than $100 million. Walgreens sued Theranos and settled for less than a quarter of their $140 million investment. The Securities and Exchange Commission called it massive fraud when charging Holmes and Balwani in March. Holmes settled the SEC case without admitting guilt and paid a $500,000 fine. Balwani left Theranos two years earlier and is fighting the charges.
At its height, Theranos was worth $10 billion and was more valuable than Uber, Airbnb, and Spotify for several months. The company's current worth is zero.
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