Research Of The Rise And Fall Of Theranos Corporation

Theranos was one of the most popular health technology corporations in California, United States. The company raised approximately $800 million from investors for investment in the blood-testing market. It later came under controversy in late 2015 due to falsely claiming that they have devised ways of carrying out blood tests using a little amount of blood. The scandal led to the downfall of Elizabeth Holmes, the original founder of Theranos. The company also received sanctions and legal challenges due to their faulty technology and has been under threat of going bankrupt in recent times. Frequent fraud charges directed to their former CEO and President forced the company to cease operations in August 2018.

History, Products, and Services of the Theranos

Theranos company was founded by Elizabeth Holmes in 2003. The idea behind the firm came as a result of the need to develop a technology that could assist medics in checking variables in blood by adjusting the dosage of drug delivery. As such, Holmes came up with a lab-on-a-chip technology which was designed to make blood testing more affordable and convenient for users. The technology made use of Edison testing technology and nanotainer to develop one of the most effective consumer healthcare technology. To actualize her dream, Holmes decided to convince private investors and venture capitalists to invest in her idea and develop a company. In 2004, Theranos raised over $7 million startup capital which resulted in $30 million valuation gain. This amount was further boosted through other sources until it reached a valuation of $1 billion 2010. This increase in valuation forced the company to move to Palo Alto, California. By 2013, the firm had gained much news coverage such as being starred in Wall Street Journal among other international news agencies. Holmes unveiled the Theranos website in late 2013 when the company had attained nearly $430 million funds and $9 billion valuations. Theranos started entering into partnerships to boost their products and services and implement the new technology. They partnered with Walgreens in the effort to providing in-store blood tests and later aligned with Cleveland Clinic to test their new technology. The company further received great boosts in 2015 when the Food and Drug Administration approved their fingerstick blood testing tool to be used in testing herpes simplex virus. In late 2015, Theranos was chosen by Capital BlueCross as their main lab work provider to serve their customers who were more than 700, 000. Theranos received high valuation despite the fact that the technology had not been reviewed in medical journals.

Theranos company was engaged in the production of various products and delivered services in the medical industry. Among their greatest products are the Edison analysis machine and nanotainer blood collection vessel. Edison was designed to run several numbers of tests on only 160 microliters of blood while nanotainer holds few drops of the blood to be tested. These products were however not reviewed by peers and became controversial. The company also had a product named minilab which was a capillary blood testing unit. Minilab contained handling robot that uses a disposable cartridge containing reagents for blood testing. Minilab could test a large number of medical conditions and diseases by performing over 160 different tests. Furthermore, Theranos developed blood analyzer which was capable of running hundreds of tests concurrently. These devices eliminated the use of multiple vials when carrying out diagnostic tests of blood. Similarly, Theranos had been offering various medical lab services to the public. The company was engaged in in-store blood services in California where they partnered with Walgreens to provide affordable blood services. The company developed 40 stores in Phoenix which were much efficient and quicker for the public. Theranos offered blood test services to Pfizer and GlaxoSmithKline on their drug trial patients. Other lab services were offered to Capital BlueCross and AmeriHealth Caritas. These include a blood cholesterol test, blood gas test, cancer blood tests, and blood culture. Likewise, the firm provided outdoor medical services in areas that had little access to clinical lab services. These services were offered using the portable minilab that was capable of testing Zika and lipid panels tests (Eleftherios). These products and service, however, became controversial because of presenting wrong results, had high variability range, and were nonequivalent.

Theranos Scandals

Theranos troubles started in October 2015 when the validity of their technology was questioned by John Carreyrou, an investigative reporter in the Wall Street Journal. The reporter wrote a very scathing article that criticized the company due to the hyperbole of the capabilities of their new technology. Based on interviews conducted by the reporter, it became clear that Theranos had done little tests on their products and had violated several rules set by FDA. The article was followed by another damaging report that stated that nanotainer failed in many blood tests which forced the company to suspend its use. As a result, FDA started several investigations into operations done by Theranos. They released several reports that claimed that the firm operated uncleared medical devices, lacked audit reports and lacked accurate records. An additional blood test device inspection was conducted which confirmed that Theranos’ devices were not reviewed, lacked proper approvals, and were not validated.

Theranos further faced allegations that they were using traditional blood testing devices instead of their Edison machine. This was as a result of the assertion that Edison cannot provide accurate results and was faulty. This damning report led to the suspension of Theranos contract with Walgreens while other partners such as Cleveland Clinic started investigating and verifying the devices offered by Theranos. In early 2017, the government opened criminal investigations to Theranos for openly misleading the public, government, and investors regarding their defective technology. A lawsuit was filed by Partner Fund Management against Theranos by accusing them of engaging in financial fraud of over $750 million. Other lawsuits followed against Theranos after it was found that they deceived investors by using a shell company to buy their equipment and carry out false demonstrations. The allegation made by the Wall Street Journal opened other series of allegations that damaged the reputation of the company. Theranos’ troubles continued in 2016 where they encountered cases of failed lab inspections. A report by the Arizona Department of Health Sciences showed that Theranos had not met many of the regulations made in Scottsdale lab meeting. In a pejorative letter, Centers for Medicare and Medicaid Services (CMS) accused Theranos of not complying with healthcare standards which put the lives of the public in great danger. Following the letter, CMS started sanction Theranos by banning its CEO and president from carrying out lab operations for two years. Their CLIA certificate was also revoked by CMS which forced them to close their blood-testing facility in California. In early 2017, the company held a series of meetings with the government of Arizona in the efforts to reach a settlement. This was caused by violations of various Acts and engaging in false blood testing. Eventually, the company was fined more than $4. 5 million for their erroneous services.

Theranos’ misfortunes worsened when their former executives faced several charges. In early 2018, SEC brought fraud charges against Ramesh and Holmes for deceiving investors to raise the firm’s capital. The two were accused of using a portable blood analyzer to deceive investors for personal gains. Holmes agreed to the charges and was fined $500, 000 and forced to surrender close to 20 million Theranos’ shares. The two executives were indicted in June 2018 where they faced multiple counts of fraud charges despite being aware of their faulty and non-functioning products. The charges led to the stepping down of Holmes to deal with charges directed to her by the US Attorney’s Office. In that period, the company lost huge sums of money and their shares reduced significantly. The allegations forced the company to cease operations in August 2018 and started a series of legal battles that may damage the reputation of key players in the firm.

How Theranos Troubles Could Have Been Avoided

Theranos problems could have been avoided if the company employed various strategies in the healthcare industry. Firstly, Theranos should have engaged the scientific community in their development of the new medical technology. Despite Holmes having great connections, she failed to engage other scientists to approve her products and service. It is without a doubt that scientists’ approval could have minimized Theranos controversies and strengthen their brand in the pharmaceutical industry. For example, Theranos could have hired a number of medical experts and qualified scientists to steer up activities in the company. Instead, the firm only revolved around Holmes who was the founder, CEO, and chairperson. By employing scientists, Theranos could have scrutinized their technologies and amend areas that could have caused safety and quality issues. Thorough testing could have been done to avoid the dire consequences of presenting defective technology in the healthcare industry. Theranos failed to understand the dynamic nature of the industry due to lack of experienced board.

Another significant they could have done is to publish their innovation in the peer-reviewed scientific literature. In many instances, successful medical firms have been funding scientists to publish their products and services in peer-reviewed scientific journals. Being reviewed by peers means that the scientific community verified and acknowledged the technology as being standard and appropriate. However, Theranos failed to undergo this crucial procedure that could have prevented their fall in the industry. The firm completely failed to publish their activities and hence lacked enough evidence that confirms that their technology works and is effective. Likewise, Theranos should have anticipated independent scientists who questioned their technology instead of criticizing them. For example, the company criticized a study done by the Icahn School of Medicine at Mount Sinai which questioned the validity of Theranos’ blood tests. In this situation, Theranos could have collaborated with the scientists by providing evidence to counter their study. This could have minimized their misfortunes and damage to their brand. Similarly, Theranos could have avoided trouble by engaging in board diversity. One of the primary contributing factors to their fall is the lack of diversity in their board of directors. The company’s board of directors were occupied by former executives and US politicians including cabinet officials and senators. Notably, this board of directors lacked diversity regarding expertise, gender, race, and age. Majority of key players were more than 60 years old and all were whites. Diversity could have minimized many problems faced by the company. By employing diverse groups, Theranos could have critically deliberated on key issues, conducted more lab experiments, and make the right decisions. Besides, diverse groups could have improved the company’s expertise in biotechnology and medical field. Instead, the firm had homogeneous groups that had little information on new technologies or information within the healthcare industry. As such, diversity could have minimized their substantial losses and strengthen their diversity within and outside the company. Nevertheless, troubles could have been avoided if they involved doctors instead of offering their tests directly to consumers. The company had the idea they can independently administer several blood tests to patients using their technology without seeking doctors’ advice. Theranos had the culture of skipping the fundamental traditional blood-test process and only dubbing the public with little procedures and instant results. This was the beginning of their downfall in the healthcare industry. Theranos should have hired qualified doctors to minimize potential scrutiny of the firm since lack of medical personnel in the firm raised more eyebrows. Theranos from the onset was unclear on various blood tests due to lack of professional medical officer. They blindly conducted blood tests which endangered the safety of patients and contributed to their inevitable ban from the lab-testing industry. Therefore, employing qualified doctors could have minimized the troubles they found themselves in.

The Future of Theranos and Elizabeth Holmes

Elizabeth Holmes will undeniably face several counts of criminal charges by SEC. Fraud charges labeled against Holmes are likely to go into full trial based on evidence and a lawsuit filed against her. To make her case favorable, Holmes should strongly defend herself by proving that Her company did not deceive investors regarding their prospects. Firstly, she must claim that their statements regarding Theranos’ future were made in good faith. She should testify against the assertion that they intended to defraud investors and the public using their failed technology. As such, the Justice Department may not find enough evidence of fraud and may make the case difficult to prosecute. This is however risky based on the company’s statements under public scrutiny. Secondly, Holmes should accept the fact that their statements were misleading but argue that the investors did not fully rely on them to invest in Theranos. Statements are mere allegations about the company especially the time when they received much hype from media. This defense is likely to affect prosecutors’ efforts of proving the case beyond reasonable doubt. It also will minimize the potential prison term facing them if prosecutors pot a strong case against her. Besides, Holmes should leave Theranos entirely to deal with criminal charges against her. This will likely help her put a strong defense that will lessen her charges and reduce jail term which is likely to be between 10-20 years if proved guilty.

Theranos, on the other hand, can put up several strategies to restore their brand in the healthcare industry. They should firstly appeal CLIA sanctions which greatly affected their operations and forced them to cease operations. The company should develop new diagnostic technologies to help them obtain clearance from FDA. By getting approval from FDA regarding their key products, they are likely to regain their lost glory and confidence of the public and investors. The company can also use the newly formed Compliance and Quality Committee to find ways of complying with CMS regulations. This move is likely to improve their weakened brand in the market. Besides, they can choose to withdraw from the business of blood tests and focus on developing healthcare devices. The final step is to cooperate with legal bodies in pursuing a favorable judgment for the cases against them. Being an obstacle is likely to worsen their troubles and block their way back to glory.

Conclusively, Theranos case is one of the high-profile cases that provide life lessons regarding the delicateness of the healthcare industry. Theranos was once a highly valued and popular company that had high potential in the pharmaceutical industry. They had more than $9 billion valuation due to their assertion of developing effective technology for blood-testing. The company, however, failed to actualize their dreams and ended up in many troubles regarding the validity of their technology. Several scathing articles by the Wall Street Journal led to their ultimate downfall. The company’s CEO and president faced fraud charges by SEC and the company lost huge assets and resources due to charges labeled against them. Theranos finally ceased operations in August 2018. Although the company could have prevented their misfortunes, they can however recover and get a favorable judgment based on various defenses they can undertake.