Blood-Testing Unicorn Theranos on the Brink of Collapse Amid Regulatory Crackdown and Fraud Allegations

With a net worth of $9 billion, a Stanford dropout, the “blood-testing goddess,” and founder of Theranos—these are the glittering labels attached to Elizabeth Holmes. However, her company has been mired in controversy over the past six months. Last month, the Centers for Medicare & Medicaid Services (CMS) issued a notice to Holmes, preparing to revoke the license of its California laboratory and barring both founders, Holmes and Balwani, from operating any laboratory for at least two years. On April 13, The Wall Street Journal reported that the startup Theranos faces imminent collapse due to its inability to resolve significant issues with its testing technology.

Why Did Theranos Face Such a Predicament? VCBeat Provides a Comprehensive Review of the Entire Saga Today.



The Most Spectacular Views Are Found on Perilous Peaks:

In 2003, Holmes founded the blood testing company Theranos, aiming to streamline and standardize the blood testing process through handheld devices. The company’s name is a portmanteau of “therapy” and “diagnosis.” Theranos developed a blood testing device called Edison, which it claimed utilized microfluidics technology to perform tests using only a few drops of blood obtained via finger prick. This approach significantly reduced both the volume of blood required and the cost of testing, compared to traditional methods that relied on venipuncture to collect small vials of blood.

In September 2013, Walgreens, a pharmacy chain with annual sales revenue nearing $80 billion, invested in Theranos. Walgreens operates more than 7,000 stores;

In 2013, Theranos began offering tests to the public, primarily at locations within Walgreens pharmacy chains;

In the summer of 2014, the company raised $400 million, reaching a valuation of $9 billion;

 In 2015, it was ranked by The Atlantic Monthly as the “startup changing the world” second only to Tesla;

At the 2015 Clinton Global Initiative, Holmes and Jack Ma were invited to share the stage for a dialogue;

In February 2015, an editorial in the Journal of the American Medical Association noted that media outlets such as The Wall Street Journal, the San Francisco Business Times, Fortune, and Silicon Valley Business Journal raced to cover technologies like Theranos, whereas peer-reviewed biomedical articles made no mention of it.

Currently, Theranos has completed eight rounds of financing, raising a total of $686 million.

“Wall Street Journal Article Stirs Up a Pool of Spring Water”



On October 16, 2015, an article in The Wall Street Journal cited former Theranos employees as stating that, by the end of 2014, the Edison device could perform only 15 out of 190 conventional laboratory tests. Some employees expressed doubts about the accuracy of the machine’s results, with some even asserting that test results could not be obtained due to deviations in the Edison’s measurement precision. The article also revealed that Theranos used blood-testing instruments from traditional competitors, such as Siemens, to conduct its analyses.



That afternoon, Holmes gave a television interview to CNTV. Holmes stated, “This is the world: when you want to do something, people around you will think you are crazy and push back, but then suddenly you change the world.” Addressing the controversy, she explained that the sources cited in The Wall Street Journal were inaccurate. Regarding the use of conventional instruments for testing, she noted that in various interviews in 2015, she had mentioned the company was expanding its testing menu to include traditional assays, which would cost only $2.99. She further stated that the company could perform 130 blood tests, all cleared by the FDA, rather than just 15.

However, the controversy did not subside. On October 28, the FDA issued a report stating that Theranos’s tests had significant deficiencies and ordered Theranos to cease using its Edison devices for testing. Of the more than 200 tests submitted by Theranos, only one had been approved for use with the Edison system.

Theranos responded that the facts in the report were untrue and unfounded, describing them as erroneous assertions made by disgruntled former employees and industry competitors.

Subsequently, a steady stream of articles was published questioning the authenticity of the revenue sources previously disclosed by Theranos. Although Theranos repeatedly emphasized that its laboratory tests had received FDA approval, the FDA’s inspection reports from 2014 to 2015 indicated that the government remained deeply concerned.

In 2016, a report from the Centers for Medicare & Medicaid Services (CMS) revealed significant deficiencies in Theranos’s operational procedures and test results. The report noted that 29% of blood tests conducted using the Edison device yielded results outside the normal reference range. It further highlighted that Theranos employed unqualified personnel to perform tests, stored blood samples at incorrect temperatures, and was suspected of substantially delaying the notification of erroneous test results.

Theranos currently operates two laboratories, one in California and the other in Arizona, with revenues from these facilities constituting the company’s primary source of income. Medicare and Medicaid spend $10 billion annually on these tests.

Upon receiving the letter from the Centers for Medicare & Medicaid Services (CMS), Theranos had 10 days to respond with arguments and counterpoints. The company has already submitted its response, and CMS is currently deciding whether to impose sanctions. Theranos may appeal to an administrative law judge, which could delay the implementation of the sanctions. Once the laboratory’s license is revoked, the bans on Holmes and Balwani will take effect simultaneously.

This lawsuit represents a tough battle for Theranos, as the Centers for Medicare & Medicaid Services (CMS) did not lose a single case in the decade from 2001 to 2010. Regardless of the outcome, Holmes’ experience carries normative implications for financial disclosure and technological practices among startups. Whether medical investors will tighten their purse strings as a result remains to be seen; VCBeat will continue to monitor the situation alongside you.