Theranos Inc., a consumer healthcare technology startup once valued at $10 billion and which claimed it would revolutionize the blood testing industry, got in serious trouble. Once a rising star in Silicon Valley, Theranos CEO Elizabeth Holmes, and former company president Ramesh Balwani were charged by the SEC for massive fraud. Theranos and Holmes have agreed to settle subject to a court approval. On June 15, 2018, Holmes and Balwani were charged with wire fraud according to a release by the U.S. Attorney's Office, North District of California. Holmes stepped down as the CEO of the company the same day.
Here's a timeline of the company's rise and downfall.
2003: 19-year-old Stanford chemical and electrical engineering drop-out Elizabeth Holmes founds Theranos, with the aim of revolutionizing blood testing. Using a “nanotainer” (a small device designed to draw, retain and analyze a droplet of blood from a patient’s fingertip) and its proprietary "Edison" testing technology, Theranos claims it can run a multitude of tests on a patient’s physiology within minutes, at a fraction of the cost of current technology.
2004: Theranos raises $6.9 million in early funding, gaining a $30 million valuation.
2007: The company's valuation hits $197 million after it raises another $43.2 million in early-round funding.
2010: After further rounds of funding, Theranos is now valued at $1 billion.
2013: After a decade working "in the dark," Holmes introduces Theranos to the world via press appearances and by unveiling a website.
2014: With over $400 million in funding, Theranos is valued at nearly $9 billion. Holmes effectively becomes a multi-billionaire thanks to her 50% stake.
December 2014: Despite her company's hefty valuation, Holmes is still tight-lipped on how exactly Theranos’s technology works. It turns out that the technology has never been submitted for peer review in medical journals. A New Yorker profile terms her explanations “comically vague," citing as one example Holmes's statement that “a chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel.”
July 8, 2015: Capital BlueCross, a Pennsylvania insurer with 725,000 customers, chooses Theranos as its preferred lab work provider. Theranos now has a roughly $10 billion valuation.
October 15, 2015: The Wall Street Journal runs a scathing article criticizing Theranos. Based on interviews with ex-employees, the Journal alleges rampant management incompetence and claims that Theranos is grossly exaggerating the capabilities of its proprietary technology. One former senior employee states that only a small fraction of all the tests were conducted on the “Edison machines," with the majority of tests instead being handled on competitors’ equipment, despite Theranos’s claims to the contrary. If true, this would be a violation of FDA rules.
Holmes appears on "Mad Money" and other media outlets to do damage control, saying she was “shocked” by the Journal article and claiming that Theranos supplied over 1,000 pages of documentation to refute the allegations. The Journal says it stands by its reporting.
October 16, 2015: A follow-up Journal article states that Theranos was forced to suspend the use of its unapproved nanotainer for all but one type of blood test.
October 27, 2015: The FDA releases two partially-redacted Form 483 reports from an ongoing investigation into Theranos. The reports are less than favorable, claiming Theranos had “uncleared medical device(s)” and alleging the company had poor records, had mishandled complaints and had failed to conduct audits and produce supplier qualifications. In regard to an unspecified medical device, an investigator notes “the design was not validated under actual or simulated use conditions." Further, Theranos failed to “ensure the device conforms to defined user needs and intended uses.”
October 28, 2015: Fortune reports that Theranos had sought to raise an additional $200 million in Series C-3 funding just days before the initial Journal article.
November 10, 2015: A $350 million deal with Safeway fizzles out after Theranos fails to meet key deadlines for rollouts and Safeway executives question the validity of their test results.
December 27, 2015: The Journal runs another article alleging management ineptitude at Theranos, as well as alleged test rigging to produce better results for its Edison machines.
January 27, 2016: A letter (dated January 25) released by the Centers for Medicare & Medicaid Services (CMS) states that a California-based lab used by Theranos possesses “immediate jeopardy to patient health and safety” and gives the company 10 days to correct the deficiencies or face daily fines and/or loss of CMS approval for Medicare payments.
January 28, 2016: Following the CMS report, Walgreens Boots Alliance Inc. (WBA) decides to temporarily close the Theranos Wellness Center in its Palo Alto store and suspends its use of Theranos's Newark, Calif. lab.
May 1, 2017: Theranos settles a lawsuit with Partner Fund Management, one of its largest investors, after the hedge fund accused the company of securities fraud. Theranos had previously settled proceedings with the Centers for Medicare & Medicaid Services and the Arizona Attorney General.
March 14, 2018: The SEC charges Theranos, its founder and CEO Elizabeth Holmes, and its former President Ramesh “Sunny” Balwani with massive fraud. The complaint alleges that the company raised more than $700 million by deceiving investors for years about the company's performance. Both Theranos and Holmes have agreed to settle the fraud charges pending court approval. Holmes will lose control of the company, return millions of shares, and will be barred from serving as an officer or director of a public company for 10 years.
June 15, 2018: A federal grand jury indicted both Holmes and Balwani on nine counts of wire fraud and two counts of conspiracy to commit wire fraud. The press release from the U.S. Attorney's Office states that both Holmes and Balwani in order to promote Theranos, "engaged in a multi-million dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients."
Holmes stepped down as Theranos CEO, earlier in the day, though she will continue to remain the chair of the company's board.