Elizabeth Holmes on the cover of Forbes in 2014. Photo / Forbes
When Theranos founder Elizabeth Holmes came walking through the office, employees would mutter “E is coming” under their breath.
“We didn’t want to say her name out loud,” says Cheryl Gafner, a former receptionist at the biotechnology company. “It was like Beetlejuice, if you said it three times then s*** would happen.”
Perhaps workers were on to something. Today, Holmes, whom Gafner once joked was “hatched out of a pod” due to her cold demeanour, could face up to 20 years in prison for allegedly lying to investors, doctors and patients about the limits of Theranos’ technology.
“There’s nothing quite like Elizabeth Holmes’ case because there’s nothing quite like Silicon Valley,” says Danny Cevallos, a criminal defence attorney on MSNBC and NBC News.
Once billed as the female Steve Jobs for founding a $9 billion start-up that promised to revolutionise the lab test industry, the 37-year-old’s story has become a cautionary tale among entrepreneurs.
Holmes and former Theranos President Ramesh “Sunny” Balwani stand accused by the US government of lying about Theranos’ ability to produce accurate test results from tiny amounts of blood, a deceit that cost investors and put patients in harm’s way.
Last week, Holmes, who is pregnant, and her lawyers appeared in federal court in California for a pretrial hearing, ahead of her criminal trial in August. Balwani will be tried separately next year.
As part of their defence, Holmes’s team attacked the credibility of Stephen Master, a professor at Weill Cornell Medical College, who will argue against the accuracy of Theranos tests. Amy Saharia, a lawyer for Holmes, claimed that Master’s opinions are “based on emails and customer complaints” and are “not a scientifically valid way to reach conclusions”.
To appeal to the jury, Holmes’s lawyers also revealed they will argue that the idiosyncrasies of Silicon Valley - hyperbole, prediction and confidence - mean investors knew what they were getting into.
Visionaries and their missions have long been idolised in the 50 square miles that encompass the unofficially defined valley.
“The brilliant jerks have been venerated and rewarded throughout the valley’s history,” says Margaret O’Mara, a historian at the University of Washington.
Jobs is one iconic example of a founder who had a certain amount of swagger, although had a beautiful product to back it up. Bill Gates, renowned for his unapologetic competitiveness before his philanthropic years, is another.
“Exaggeration is a function of trying to convince investors and customers of the necessity of a product that they don’t know they need,” she says. “So when these models are held up to the Elizabeth Holmes of the world, who need to convince people to invest money in their company and buy your product, it lends itself to a bit of hype.”
Dan Ives, an analyst at Wedbush, compares it to Hollywood, where pizzazz creates almost mythical entrepreneurs and start-ups. “In the past decade we’ve seen several people built up even bigger than their ideas,” he says.
But, as patients and doctors who say they received inaccurate test results, and investors who lost their cash when Theranos folded in 2018, puffery can only take a company so far.
A precocious child brought up by wealthy parents - her father a vice president at Enron - in Washington, Holmes often told family members that she wanted to be a billionaire when she grew up. Not a president? They would ask. “Because then the president will want to marry me,” would come her response.
Her parents were supportive, buying her tool kits instead of Barbie dolls, but those who knew her do not recall her being an academic star, claiming her parents “backdoored” her into Stanford University where she studied mechanical engineering.
It was at Stanford that her idea for Theranos blossomed. With her talent for persuasion, Holmes convinced her professor, Channing Robertson, to let her conduct research with his PhD students. She was named a Stanford President’s Scholar and was given a grant which she used to travel to Singapore to research SARS.
Upon her return she decided to drop out to start her own company. She spent her nights drawing up and filing patents for a new blood-testing system and her days rebuffing warnings from academics in the medical field that her idea may not be feasible.
Theranos founder Elizabeth Holmes doesn’t want jury to hear about her wealth https://t.co/MFWl4usYjC
— The Daily Beast (@thedailybeast) May 7, 2021
Impressed with his student, Professor Robertson came on to the board. Holmes also enlisted the help of Balwani, her confidante and would-be lover, to help start the company.
Balwani had made his money helping create a software company called CommerceBid and had no experience in biology or medical devices.
Holmes quickly crafted a brand that would be considered the Apple of blood tests, securing more than US$700m in investment. It was only when Holmes began to market her product, an “Edison” device that acted like a mini blood-testing lab, that questions began to be raised about Theranos’ promises.
Stephanie Seitz recalls the “feeling” that something wasn’t right with Theranos after her medical centre, Southwest College of Naturopathic Medicine and Health Sciences (SCNM), said it wanted to strike up a partnership with the technology company.
Seitz, who has a background in lab testing, says “It didn’t make sense that you could just do all this blood work from a finger prick”.
When pushed, Theranos was not as forthcoming as other lab test companies about how it got its results, another “red flag”.
Ex-Theranos President Ramesh “Sunny” Balwani must reveal his portfolio and net worth to the SEC as part of the fraud suit against him https://t.co/9fBqcIxARH
— Bloomberg (@business) November 7, 2019
Theranos offered SCNM and similar centres in Arizona and California coupons to try to get more people buying their lab tests, while Holmes appeared on the cover of Time and appeared on stage to discuss her company with the likes of former US president Bill Clinton.
Doctors loved the coupons as it meant patients could shave costs, but some, including Seitz, began noticing that some of the results seemed wrong. “Some thyroid labs were out of the ordinary,” she says.
They began telling patients to get tests from different companies because they didn’t think they could trust them. They would return as normal, Seitz says. “I could have changed their medication and possibly caused a side effect because of it”.
One big name, the US retail giant Walgreens, was left facing shareholder and consumer lawsuits after it placed Edison machines in some of its stores.
Meanwhile, Holmes had told investors that Theranos would generate over US$100m in revenues, breaking even in 2014 and generating approximately US$1b in revenues in 2015. In truth, the defendants knew Theranos would generate small amounts in either year, US prosecutors claim.
It would come to be worth nothing within three years’ time.
Holmes is expected to claim she was coerced into the company by Balwani, whom she claims should have known better. The pair broke up in 2016, when Holmes “retired” the ex-Microsoft employee from the company as journalists began sniffing around.
Lawyers have argued to remove any reference to her wealth, as money could be seen as a motive for fraud.
Far from the pulled-together executive, Holmes wore the same pair of shoes every day covered in scuffs and her hair “always looked terrible”, Gafner says.
“She always looked so exhausted I thought ‘look at this poor girl working so hard with all that brain power’.
“But the more I talked to the scientists who were working there, the more I realised she was exhausted from holding in all those secrets.”
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