March 29, 2019 / 2:45 PM / 8 months ago

Breakingviews - Review: Theranos story is both crazy and ordinary

DALLAS (Reuters Breakingviews) - Elizabeth Holmes doesn’t blink. At least that’s one of the claims made in the HBO documentary “The Inventor: Out for Blood in Silicon Valley,” released this month. The young founder of blood-testing upstart Theranos, who is set to appear in court later next month to defend criminal charges of fraud, just five years ago sat at the helm of a healthcare technology company worth some $9 billion in the private market. Alex Gibney’s film documents her swift rise and fall. It’s a tale of extremes, yet it underscores Silicon Valley’s proclivity for tolerating – and funding – overambitious, self-aggrandizing dreamers.

Elizabeth Holmes, CEO of Theranos, attends a panel discussion during the Clinton Global Initiative's annual meeting in New York, U.S., September 29, 2015. REUTERS/Brendan McDermid

Holmes founded the company in 2003 but burst onto the scene in 2014, gracing the cover of magazines including Fortune as a rare female addition to the mostly-male cadre of tech entrepreneurs. Writer Roger Parloff, interviewed in the movie, did an extended profile detailing her plan to reshape the blood-testing business. By then she had already started to roll out her so-called Edison machines, which she said could test blood on demand using only a single prick and a small vial, dubbed a “nanotainer,” as opposed to visiting a phlebotomist who would draw tubes full of blood with a needle.

It was a highly relatable vision, and Holmes extolled the benefits of “doing good.” Her less invasive way to take blood would encourage people to do it with more frequency and catch health problems earlier. She lined up a Theranos board studded with elderly ex-statesmen including former Secretaries of State Henry Kissinger and George Shultz, not to mention more than $750 million in private capital. The problem was that even after all that time and money, Holmes couldn’t make the technology work.

Gibney’s documentary spends as much time attempting to explain Holmes as Theranos. It describes her adopting the traits of famous entrepreneurs, notably Apple’s Steve Jobs. Like Bill Gates, she dropped out of college – Stanford University – to start her company. She chose to wear black polo-necks more or less a uniform, like Jobs. The idea she said, was to free up energy. She didn’t date publicly, though she was in a relationship with Ramesh “Sunny” Balwani, who became her deputy at the company.

Yet the Edison machine wasn’t working for nearly all the tests Theranos offered. Results the company provided patients were inaccurate, according to people interviewed for the film. And whistleblowers, including Shultz’s grandson Tyler, claim the company went to great lengths to hide its shortcomings. Silicon Valley famously believes in failure, and plenty of entrepreneurs and startups have to persist for years or pivot, as they like to say, in new directions before succeeding (or giving up). The difference with Theranos arguably was of degree: Using inaccurate technology on live patients crossed some sort of a line, and at a certain point the cover-up became more than just a case of fake-it-until-you-make-it.

A year ago Holmes paid $500,000 to the Securities and Exchange Commission to settle civil charges of fraud. On April 22, she is scheduled to appear in court to defend against criminal charges brought by the Department of Justice, which has alleged she and Balwani engaged in frauds that carry a maximum sentence of 20 years in prison. In the meantime, she’s gotten engaged to the heir to a hotel business, according to news reports.

The film grapples with Holmes’ culpability. Behavioral economist Dan Ariely suggests on camera that people are more likely to believe their own embellishments – so much so they pass a lie detector test – if they think they are helping a needy cause. Holmes states, in many public appearances highlighted on film, that Theranos is not only reshaping the healthcare system but saving lives.

That part of the mission might have succeeded if Holmes had chased her other disruptive ideas. In 2015, Arizona started to allow patients to get blood tests without doctors’ orders under a new law influenced by Holmes. Theranos then offered patients the ability to order blood tests a la carte. Studies over more than a decade have extolled the benefits of patients becoming more involved in their own healthcare decisions. It’s a germ of an idea that could have prospered, if nurtured.

It’s fun to dabble, as the HBO film does, in questions about the significance of Holmes’ genius and gender in the story. The film finds her guilty of at least one thing that’s seen as a virtue across most of Silicon Valley: believing her own passion and willpower could overcome the challenges of science. It’s the spirit that can drive someone to put internet access on a handheld device, for example, or reinvent the car business.

As Ariely notes, if people didn’t have this kind of self-belief, the world would never have gotten penicillin. As for the money, it’s the nature of venture capital that a few investments win big while the rest lose pretty much everything. If the U.S. government can prove Holmes went too far and broke the law, she will suffer for that. But that’s only a short step beyond being one of the many feted entrepreneurs who failed before they could succeed.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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