Theranos founder Elizabeth Holmes and her lawyer leave the courthouse in San Jose, California, on 3 January.Credit: David Odisho/Getty
Elizabeth Holmes, the infamous biotech chief executive who promised to revolutionize blood testing, has been found guilty of fraud. The Theranos founder intentionally deceived investors, a US federal jury concluded yesterday after a nearly four-month trial. Holmes likely faces up to 20 years in jail and a hefty fine. She has not yet been sentenced.The case will likely shape the way biotech entrepreneurs approach investors, say researchers who spoke to Nature — and makes abundantly clear the importance of validating early research through peer-review processes.’It’s a great teaching moment,’ says Eleftherios Diamandis, who publicly called out Theranos for exaggerating claims in 2015 and is head of clinical biochemistry at Mount Sinai Hospital in Toronto. ‘It’s an example of how a supposedly huge company with a US$9-billion valuation went down the drain because of a series of mistakes.’‘A fundamental flaw’Holmes founded Theranos in 2003 at age 19, shortly before dropping out of Stanford University. Her goal was to build a company that would make blood tests directly available to consumers. She wanted to eliminate the large needles and tubes of blood required to operate standard diagnostic devices. To that end, she claimed to have developed a machine that could run over 200 tests on just a few drops of blood taken from a finger prick.Captivating and ambitious, Holmes brought more media attention to laboratory diagnostics than ever before. She also brought in high-profile advisers and investors. Former US secretaries of state Henry Kissinger and George Shultz, and former US secretaries of defense James Mattis and William Perry, all joined Theranos’s board of directors. Investors included media mogul Rupert Murdoch and the family of former US education secretary Betsy DeVos. Blood money: the biotech debacle of Theranos on screen The company, based in Palo Alto, California, raised about $945 million and grew to more than 800 employees. It also inked deals with a couple of big retailers. Walgreens in 2013 began putting Theranos ‘wellness centers’ in 40 of its stores in Arizona. The goal was to enable consumers to go to a local drug store at their convenience and order a panel of blood tests from a few drops of blood.Investors and the public believed that Theranos was analysing the blood samples it received with its novel machines. But in reality, the company could run only a few tests on its platform. The rest went through traditional blood-testing equipment developed by other companies. In order to meet the specs of those instruments, the finger-prick samples had to be diluted to increase their volume, and the results proved unreliable. ‘There was a fundamental flaw in the idea of getting everything from a drop of blood because there just aren’t enough molecules there’ for detection, says Paul Yager, a diagnostics developer and researcher at the University of Washington in Seattle.In 2015, Holmes’s ruse began to crack. After Diamandis called out Theranos, Wall Street Journal reporter John Carreyrou exposed the shortcomings of Theranos’s machines in a splashy series of news stories. The US Centers for Medicare and Medicaid Services investigated and banned Holmes from operating a medical lab for two years. Walgreens sued. And the US Securities and Exchange Commission charged Holmes and former Theranos president Sunny Balwani with massive fraud and barred Holmes from serving as a director or officer of a public company for a decade.Yesterday, a federal court in San Jose, California, found Holmes guilty of 4 of the 11 charges brought against her by prosecutors: three for wire fraud against investors and one for conspiracy to commit wire fraud against investors. Of the remaining seven charges, the jury in the case acquitted Holmes on four charges related to defrauding patients and could not reach a decision on three additional charges related to defrauding investors.A hearing next week will address how to handle the three unresolved charges, says Steven Clark, a lawyer in private practice in San Jose and former district attorney in the region. Balwani will be tried separately in a federal court proceeding scheduled to begin in February.Cautionary taleThe Theranos scandal has provided salacious fodder for books, movies and podcasts. But perhaps more important, the story has become a cautionary tale for blood diagnostics companies and scientists with entrepreneurial interests. In particular, it reminds executives at start-up firms to share their data early on, and participate in some kind of peer-review process, according to scientists in the diagnostics space interviewed by Nature, who have been observing the Theranos fallout. ‘We are definitely going to see more pressure to produce technologies the right way,” says James Nichols, a professor of pathology, microbiology, and immunology at Vanderbilt Medical Center in Nashville, Tennessee. Part of Holmes’s downfall was that she ‘held Theranos’s technology as proprietary, didn’t publish it and didn’t want to share it with the community’, he says.Had Holmes participated in peer review, the problems with the technology could have been spotted before she defrauded investors, experts say. That might have forced Holmes to pivot or shutter her company, but it might also have saved her from committing a crime. It’s the self-correction of science that has ‘saved our butts’ time and time again, Yager says.For Holmes — the person whose scientific vision drove the company — having a more solid background in the scientific method might have helped too, researchers suggest. The work required to get a degree in most sciences tends to instill in students the importance of vetting and publishing experiments, Yager says. ‘You learn that you have to line up your ducks and have credible data,’ he says.The precedent set by the jury’s verdict in the Holmes case might ultimately compel biotech entrepreneurs to be more cautious — and honest — in their approach to investors. The four charges for which Holmes was found guilty center on the way she exaggerated the company’s involvement with potential partners. For example, Holmes added the logos of pharmaceutical giants Pfizer and Schering-Plough to lab reports that she used in her presentations to investors and Walgreens executives. The manoeuvre made it look like the pharmaceutical companies had validated Theranos’s system when they had not.These lessons learned will likely inform a generation of researchers, scientists say. ‘This is probably the biggest story in laboratory medicine, and it ended in disaster,’ Diamandis says. ‘The question is: what can we learn about it so that it doesn’t happen again?’
https://www.nature.com/articles/d41586-022-00006-9
