Founder and CEO of Theranos, Elizabeth Holmes, attends the Forbes Under 30 Summit. Photo / Getty
Two years ago, Elizabeth Holmes was America's youngest female billionaire.
Today she sits disgraced, banned from her own industry, under investigation by multiple government authorities, and facing at least eight lawsuits from disgruntled customers.
Oh, and her billions are long gone.
Ms Holmes, 32, is the founder of medical start-up Theranos, which claimed to have invented a miraculous new pinprick blood test that did away with the need for big needles and long wait times.
She was inspired to start the company in response to her fear of needles. Theranos raised millions in start-up funding by promoting its tests as costing a "fraction" of what other labs charge.
Investors poured more than US$400 million (NZ$524 million) into the private company, giving it a valuation of US$9 billion. Ms Holmes' 50 per cent stake put her personal net worth at US$4.5 billion.
Theranos, an amalgam of "therapy" and "diagnosis", evolved from Real-Time Cures, a company she founded in 2005 with business partner Dr Ian Gibbons after dropping out of Stanford University.
The company claimed its flagship product, dubbed Edison, was able to run nearly 250 tests from a tiny drop of blood, everything from cholesterol to even cancer.
There was just one catch: it didn't work.
Things began to fall apart late last year, when a Wall Street Journal investigation revealed how despite the media and investor hype, Theranos was struggling behind the scenes to turn its technology into reality.
The investigation revealed the company rarely used its much-hyped Edison machines, mostly relying on older technology by companies such as Siemens.
Internally, employees were "leery" about the accuracy of the Edison machines. Some doctors said they had stopped using the tests, which, despite their speed, did not appear to be reliable.
"I don't want my patients going there until more information and a better protocol are in place," medical practitioner Gary Betz told the paper.
Holmes' business partner Dr Gibbons took his own life in 2013, telling his wife "nothing was working" in the lab, the Wall Street Journal reported.
Lawyers for Theranos denied the scientist's work or technology failures at the company had anything to do with his suicide.
Ms Holmes and Theranos came out swinging against the media reports, describing them as "factually and scientifically erroneous and grounded in baseless assertions by inexperienced and disgruntled former employees and industry incumbents".
The denials continued, despite US regulators launching a months-long investigation into the company as a result of the revelations.
One of those investigations concluded spectacularly last weekend, with the Centers for Medicare & Medicaid Services banning Ms Holmes from owning or running a medical laboratory for two years.
The CMS also revoked the licence of the company's Newark, California laboratory, suspend its ability to receive government payments for testing services, and impose a fine of US$10,000 a day for every day of noncompliance.
Government inspectors found a number of violations of federal testing standards at the company's site.
In a statement, Holmes said she was disappointed by the decision, but the company accepted "full responsibility for the issues". The company said it will continue to offer services through a second lab in Scottsdale, Arizona.
In April, Theranos disclosed it was under investigation or inspection by multiple government regulators, including the Securities Exchange Commission and the US Attorney's Office for the Northern District of California.
Last month Walgreens, the nation's largest drugstore chain, severed ties with the company, closing all 40 of its Theranos Wellness Centers.
Theranos said last Thursday the sanctions from Medicare will not take affect for 60 days, but the company had suspended testing at its Newark lab.
In revising its net worth estimate for Ms Holmes, Forbes said conversations with venture capitalists, analysts and industry experts put a more realistic value for Theranos at US$800 million.
"That gives the company credit for its intellectual property and the US$724 million that it has raised," Forbes wrote. "It also represents a generous multiple of the company's sales, which Forbes learned about from a person familiar with Theranos' finances.
"At such a low valuation, Holmes' stake is essentially worth nothing. Theranos investors own preferred shares, which means they get paid back before Holmes, who owns common stock.
"If [a liquidation] were to happen, participating preferred investors would get their money back and more before Holmes gets a cent."
Jane Chin, president of the Medical Science Liaison Institute, described the two-year ban by the CMS as a "death sentence".
"Pharma companies will sooner pay hundreds of millions and even billions of penalty dollars (and many do) than be banned from doing business that involves Medicare and Medicaid Services," she wrote on Quora.
"The loss of business from CMS is catastrophic to a life science company and is equivalent to a death sentence for the entire product franchise."
Prof Chin said Ms Holmes was a very high profile individual who had been in the public spotlight and benefited from government reimbursement for a device that "few in the scientific community actually know 'how it does what it does'".
"Her lack of transparency about the Edison technology and reliance on cult of personality may have caused real patient harm by those whose health decisions may have been influenced or directly impacted by the unreliable results of the test," she wrote.
"I'm pretty p***** off. I wanted Holmes to be a success story, not one that will live in infamy."
- with AP
