Lessons Paid by Blood
by Keziah Z Kam | published Dec. 29th, 2021
Silicon Valley is the birthplace of many revolutionary advancements and technologies in multiple fields.
Theranos was a biomedical company that claimed to be able to run hundreds of distinct medical tests with only a prick of a blood. The problem? These tests were completely unreliable.
The rise and fall of Theranos and its CEO, Elizabeth Holmes, raises questions about the future and ethicality of biotechnology in Silicon Valley. Questions, such as: will this case affect the way investors view biotechnology companies? What new pressures will biotechnology startups face in response to this?
The Fraud and Ethicality
The main problem with Theranos laid within the company's technology. Its machines were simply not able to produce accurate results. The tests they dispensed would go on to misdiagnose or diagnose illnesses that patients may or may not have had. For instance, one patient received results that would indicate a significant drop in pregnancy hormones, which would suggest the patient was going to have a miscarriage — a critical piece of information that would determine what steps an expecting mother would take. In other words, the blood tests jeopardized the health of those that put their trust in the company.
Shannon LaJuett, a laboratory manager in the department of biomedical engineering at RIT, discussed the standards of the laboratories in which she has worked.
"Safety for the users would be the first one that comes to my mind ... In the food microbiology lab, I'm always thinking about end customers being safe at all times," LaJuett said.
Holmes knowingly approved of reports that she knew had discrepancies. This posed a major risk in determining whether or not an individual was healthy or required medical attention.
When speaking to investors, she also exaggerated the results that her company's machines could produce. It is important to note that the practice of overselling your idea is not uncommon. Unfortunately, Holmes was making claims that completely misled investors. These claims were later dismantled and ultimately brought forth a scandal that would lead to her standing in court.
"I'm always thinking about the end customers being safe at all times"
ExPrimary is a company that builds bioanalytical tools to meet the demands of personalized healthcare. Sean Higgins, the president and CEO of ExPrimary, worked as a biotechnology and bioanalytical services director and scientist before founding the company. Higgins gave further insight as to why Theranos’ technology never came to fruition.
"On YouTube, you can see there are scientists tearing apart her presentations, and it pretty much comes down to that she has no experience," Higgins said.
With her entire board of directors having little-to-no medical training, they did not understand the severity of her decisions nor what was exactly going wrong. Her Chief Operating Officer, Sunny Balwani, also had no experience with medical training or biology.
For fifteen years, her fraudulent activities were hidden under the guise of her having a "trade secret". Access to the labs at Theranos were denied to everyone, even employees. The company culture was one driven by a fear of exposing too much information.
With all of these factors combined, Holmes was able to cover her actions and persuade people to listen to her.
For startups, investors are key to maintaining funds for a company to grow and continue its business. At its peak, Theranos raised seven hundred million dollars off of venture capitalists, along with other surprising sources.
Heather Somerville, a technology reporter for the Wall Street Journal, provided more details about Holmes' investors.
"A bulk of [her] investments came from wealthy families, individuals with no experience in investing or medical technology. These are not the average investors that you normally see," Somerville said.
It is speculated that this was done intentionally. In an article that Somerville wrote, Holmes stated that she believed that these types of investors would be more interested in keeping Theranos private, which was what she wanted. With the reason being that public companies often face much more scrutiny. According to Business Insider, she also surrounded herself with powerful individuals, such as former secretaries of states, and relied on family connections to make her seem untouchable.
That is not to say that these investors are completely off the hook for their actions. There are various ways to examine a company's expertise, ranging from looking for credible data to taking a closer look at the company’s senior positions.
Although both Higgins' current company and Holmes' former one both aim to provide personal healthcare and produce miniature-sized technology, he emphasized one key difference: experience.
"I'm not a nineteen-year-old dropout. I have thirty years of experience. Trust the experts. I don't see a problem for investors if they are informed," Higgins said.
Even after Theranos' fraud became known to the public, there have been no drastic changes in investor patterns within the medical technology industry. With COVID-19 and other diseases quickly changing modern society, investors are more than happy to continue placing their money in Theranos-esque startups.
Somerville has also observed this trend.
"There has been a growing interest to fund healthcare startups of all sorts. There are, in fact, enthusiastic investments that are going uninterrupted," she said.
With that being said, there seems to be no real hindrance for potential healthcare startups in the aftermath of Theranos. With proper credentials and evidence, they continue to be welcomed and sought-out investments.
A bulk of her investments came from wealthy families, individuals with no experience in investing or medical technology. These are not the average investors you normally see."
This is not to say that there was no backlash for the medical technology industry when the Theranos case initially came out. The backlash was, however, short-lived.
Somerville recalls when the case first came out.
"Some companies that were in the diagnostic sector had to make the case that they were not the next Theranos. They had to be more transparent, provide peer-review studies and more data," Somerville said.
According to Slate — a magazine consisting of technology, news and culture — many executives are now making sure that they have a ready-made and working product before selling it. This includes spending the initial few years developing patents, technology and getting FDA approval before even announcing anything to the public, while Holmes and Theranos sold their idea before it could even be properly implemented.
Theranos, even with its large media attention, will not stop future innovation in its field. If anything, Theranos is now a company that others are trying to live down — even if it was one that people used to look up to.