Hype is a dangerous thing. So too greed. And when put together and seen through the optimistic prism that shines ever so brightly in the sun of California’s Silicon Valley, it is an ambitiously dangerous combination that can dupe so many.
And so it did.
Elizabeth Holmes was convicted on four counts of fraud in a court in San Jose, California courtroom on Monday last. The founder of Theranos, who peddled the promise of what her blood-testing machines could do, is now no better than a travelling snake oil salesman of the Wild West, a huckster who pulled the wool over the eyes of investors blinded by the lure of cold, hard cash and handsome returns on their dollars.
She bragged to investors what her blood testing company’s machines could do, boosted how much money the company could earn, and boasted how widely the machines were being used.
It was all bull.
And Holmes now faces a maximum of 20 years in prison per charge, likely to be served concurrently. She will know her fate soon when a sentencing date will be set next week. As a first-time offender, Holmes is unlikely to face the full term. Perhaps her biggest penalty will be a very hefty fine and the requirement that she pay restitution to her former investors.
Few, if any, will receive a penny.
In total, the 37-year-old wunderkind who some believed was to biotech as Elon Musk is to automotive or Jeff Bezos to retail, was found guilty of defrauding investors of nearly $145 million (Dh1.65 billion).
As the verdict was read out, Holmes appeared stoic, sitting much as she had during the course of the trial, bolt upright and nearly motionless. She was acquitted on charges of defrauding patients and one count of conspiracy, and the jury deadlocked on three counts of defrauding investors.
According to published reports, after court was adjourned Holmes went to her family. Her father, Christian Holmes, kissed her on her forehead, and she lightly touched her mother, Noel, and her partner, Billy Evans. The four left the courthouse hand in hand and, taking no questions, walked steadfastly through the crowd and the cold. Holmes remains free on bail.
For Silicon Valley, the trial was an airing of dirty laundry in public that is rare — more so because it underscored that hype and hope that can be so consuming in a financial setting that aspires for fast returns and the next “big thing” or new investment opportunity.
Holmes, 37, was the force behind marketing a modernised blood test, advertising a cheap finger prick that could run any commercially available blood diagnostic on a device about the size of a large PC at lower cost than conventional labs that take up entire rooms.
In the US in particular, where medical advances are so often linked to large pharma or insurers who control to the nth degree how the complex network of medical providers work — and charge — the prospect of the Theranos product was tantalising.
As a freshman at Stanford University, the native of Washington, DC, became taken with the idea of performing blood tests on just a finger prick’s worth of blood instead of drawing it from a vein, which she said was inspired by her fear of needles. She filed for a patent for a wearable drug delivery patch and at 19 dropped out to form a company and recruit engineers and scientists to try to bring her ideas to life.
It was an easy sell
Holmes recruited big names to her board of directors, like former Secretary of State Henry Kissinger and former Secretary of Defence James Mattis. And she drew hundreds of millions of dollars in private investment.
Her movie-star looks and enthralling personality made her the perfect face for this breakthrough technology. Feted at conferences, gracing the covers of glossy business magazines, Holmes was held up as an icon of female leadership and achievement. And in 2014, she became the world’s youngest female self-made billionaire, and her company was valued at over $9 billion.
And yes, it was too good to be true.
Within two years, the Wall Street Journal began asking serious questions about serious flaws. The paper reported the Theranos machines were inaccurate and that the company was secretly resorting to running blood tests on other companies’ machines, the very ones her company was supposed to be disrupting. That’s a bit like Bezos running out to the corner hardware store to ship you a box of nails. Not a good scenario.
Her business model was based on setting up blood-testing centres in retail stores. Imagine, if you will, going to the local hypermarket to pick up a litre of milk and, oh, might as well get the blood checked to see how you’re doing. A simple prick and the blood sample could tell you whether there was a change in your health, you had developed a serious underlying condition, or were as fit as a flea.
As easy as it sounds, the devices were faulty and could never diagnose so many conditions so easily. If only.
The Wall Street Journal reports were the first push on her world of dominoes. And once they began to topple, they fell quickly. The board was reshuffled, high profile directors left, and Theranos came under more scrutiny from regulators and investors. It didn’t stack up, leading to 12 fraud counts initially. One, referring to an individual patient, was dismissed during the trial, the result of an error by prosecutors.
The jury deliberated for seven days. On the third day, jurors asked the judge to listen to audio clips of a 2013 call Holmes had with investors, which was recorded without her knowledge. Holmes told investors that the device could perform any blood test and that the company was on track to earn over a billion dollars, and she implied that the devices were being used on military medevac helicopters.
None of it was true.