How $ 4.5 billion turned into nothing: the story of the fall of the biotech company Theranos

Elizabeth Holmes at one of the events (photo: Glen Davis, Forbes)

Last year, Elizabeth Anne Holmes, who founded Theranos , a biotech start-up startup, was valued at about $ 4.5 billion. Theranos was considered one of the most successful startups ever. Now Forbes has revalued the capital of the youngest woman - the billionaire in the world. After revaluation Holmes is no longer a billionaire. The fact is that Forbes has reduced the initial assessment of its condition to ... zero.

Let's try to figure out what is happening with Theranos and why the once very promising company now has so many problems, and the prospects are also something near zero. After all, just a few months ago, the history of the company was considered a story of dizzying success. Now all this is more like a dizzying fall. Why?

The beginning was interesting. The future millionaire woman, Elizabeth Holmes, decided to quit her studies at the most prestigious Stanford, and founded Theranos. Holmes planned to create a technology that allows people to donate blood almost painlessly. She called it the medical revolution. Former student at Stanford, she said, really developed a technology that allowed dozens of tests to be carried out, having only a drop of the patient’s blood.
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Thanks to renowned partner Professor Stanford Channing Robertson, Holmes achieved fame and received several million dollars of investments. The board of directors of the company included such famous personalities as former US Secretary of State Henry Kissinger and George Schultz. The first ten years of existence about the company was little known, but its business grew gradually, the number of customers increased steadily. But three years ago, in 2013, Holmes told about her company and the newest technologies of blood collection and analysis. Many media outlets began to replicate this information. Somewhat later, well-known publications began calling Holmes one of the most successful women in the world, "Steve Jobs in a Skirt." Interviews with her published literally everything. The growing popularity of the company has helped attract investors.

Initially, the company attracted "only" several million dollars a year. After some time, the cash flow became much more stable and wide: Theranos began to receive hundreds of millions of US dollars as investments. Experts, seeing how much money flows into the company, estimated its capitalization at $ 9 billion. And this is despite the fact that the financial performance of the company and the technologies used by its specialists remained secret. The company did not tell (and does not tell) how many clients it had, did not show statistics on the tests carried out, did not tell about the methods used for “microselection of blood”).


Photo: newyorker

However, everything was fine. For many years the company operated, keeping its secrets and attracting new and new investors and customers.

But all good things come to an end, and problems begin. Theranos problems started a little less than a year ago. Then several publications at once, including The Wall Street Journal , conducted an investigation into the activities of the “biotechnical startup”. After interviewing several experts and former employees of the company, the journalists concluded that Teranos conducts its tests on ordinary medical equipment taken from hospitals. One of the former employees of the startup reported that the company's own equipment, Edison, was used to conduct only 15 tests in December 2014. The accuracy of the system was extremely far from ideal, and management decided to use third-party hardware, including popular solutions from Siemens AG.

It did not help. A few months later, regulators reported on the identification of violations that could threaten the life and health of people. And after some time, the company decided to withdraw all the data analysis for a period of several years. The company went to this unprecedented measure to whitewash its reputation. The updated data was then sent to the patient’s physicians and the patients themselves. These are not hundreds and not thousands, but tens of thousands of tests.

Plus, it became known that digging takes blood from patients from a vein and not from a finger, and in an amount exceeding "a few drops of blood." Why it did not become known earlier? It's not clear yet.

But it is clear that the same closed and secret company can no longer remain. In order to prove something to the world, she will have to share information.

Without waiting for the publication of at least some data from Theranos, Forbes representatives decided to conduct a detailed assessment of the startup. After talking with a large number of financial experts, venture investors and a number of other specialists, journalists of the publication decided to make the company's assessment as realistic as possible. After a detailed revaluation, it turned out that the cost of the company is zero. Something worth only the initial investment (approximately $ 724 million). At the same time, investors of the company have preferred shares, which means that they will receive the payments first, Holmes - a usual package of 50% shares. If the Forbes estimate is correct, then this means that even a 50% package is worth nothing, that is, the state of the “youngest billionaire woman in the world” is rapidly approaching zero. Perhaps the company will be able to attract additional investment, but this can not be too sure.


The Nanosayner, developed by Theranos, holds only a few drops of a patient’s blood (Photo: Martin E. Klimek, wsj)

Experts identify three main reasons for reducing the value of the company:

1. Too many secrets. Everything, except the initial valuation of the company at $ 9 million, is a secret. It is not clear, for example, how accurately the company performs the sampling of blood. It is also unclear how the tests themselves are performed. The company itself claims that it managed to find an alternative to traditional blood tests. The patient takes only a drop of blood, which is enough to hold dozens of tests. Unfortunately, this information has not yet been documented.

2. Theranos does not provide data on its work to regulators . Holmes promised to publish data for the period of six months. This should have been done in April, but after a loud statement, the company did not do anything. Instead of 120 promised research papers on the study of blood selection and tests for its verification, the company sent the FDA (Food and Drug Administration) just one document - the results of one study.

3. The target audience of the company may simply disappear. Now Theranos has a fairly flexible financial policy, so the cost of the test is not too high. But if the company plans to compete with Laboratory Corp. Of America and Quest Diagnostics, it will have to increase profitability by increasing the cost of the sample, plus increasing the customer base (which is very difficult in the current environment for obvious reasons). The higher cost of blood sampling may scare off patients. In addition, if it becomes known that more than one drop of blood is required, but more, potential clients may not at all become real.

Another huge problem is that in the past month, Theranos recognized as incorrect all the results of the analyzes done in the last two years. In fact, we are talking about tens of thousands of tests. This means that on the basis of such incorrect blood tests, doctors could have made thousands and thousands of incorrect diagnoses. One of the doctors who used the results of tests from Theranos, said earlier that his patient was sent to the "emergency room" after receiving the results of blood tests. And the corrected result sent by the company now showed quite normal blood parameters.

However, it cannot reassure clients of the company. On May 26, a class action lawsuit was filed, alleging that Theranos was unable to provide an adequate level of reliability and quality of analysis. Advertising of the company is called deception in the lawsuit, and the actions of a startup - “contrary to the law, fraudulent and not in line with the usual business practices”.

Stanford professor Channing Robertson (Channing Robertson), now working as a technical advisor to Theranos, is trying to convince the public of the company's reliability, the public has little faith in it. The fate of Theranos is not completely clear, and although Holmes is still listed in the Forbes rating with a capital of $ 3.5 billion (despite zeroing its fortunes with the same Forbes), the startup has very vague prospects. The company's activities are being checked by the authorities, the credit of customers and investors is almost exhausted, and with it the light at the end of the tunnel is also gradually going out.


Photo: Martin E. Klimek, wsj