Theranos

Theranos was a health technology company founded in 2003 by Elizabeth Holmes that claimed to revolutionize blood testing with devices that could perform many tests from a few drops of blood.^{14578910111314} The company raised more than $700 million from investors and reached a valuation of over $9 billion before investigative reporting in 2015 revealed problems with its technology.^{1458910111314} Theranos ceased operations in September 2018, and its founder and former president were convicted of fraud and sentenced to prison.^{123456789101112131415161718}

Timeline

Money raised

Theranos raised more than $700 million from investors.^14510111314 In June 2004, Theranos raised $500,000 in seed funding from Threshold, bringing its valuation to about $30 million.⁹ In February 2005, Theranos raised $5.8 million in a Series A round from Rupert Murdoch.⁹ In February 2006, Theranos raised $9.1 million in a Series B round from ATA Ventures.⁹ In November 2006, Theranos raised $28.5 million in a Series C round from ATA Ventures and three other investors.⁹ In 2007, Theranos was valued at $197 million after additional early-round funding.⁹ In July 2010, Theranos raised $45 million in a Series Unknown round, bringing its valuation to $1 billion.⁹ In September 2013, Theranos raised $50 million in a funding round from Walgreens.⁹¹¹ In February 2014, Theranos raised $198.9 million in private equity, bringing its valuation to nearly $9 billion.⁹ In March 2015, Theranos raised $348.5 million in private equity from B.J. Cassin and seven other investors.⁹ In December 2017, Theranos received $100 million in debt financing led by Fortress Investment Group.⁹

Investors named in the sources: Threshold⁹, Rupert Murdoch¹⁵⁹, ATA Ventures⁹, Walgreens⁹¹¹, B.J. Cassin⁹¹¹, Fortress Investment Group⁹, Betsy DeVos¹⁵, Carlos Slim¹, Walton family¹, Partner Fund Management⁵¹¹, The Blue Venture Fund¹¹, Jupiter Partners¹¹, Raymond Bingham¹¹, Continental Properties¹¹, Palmieri Family Trust¹¹, Puget Sound Venture Club¹¹, Esoom Enterprise¹¹.

What happened

Theranos was founded in 2003 by Elizabeth Holmes, who dropped out of Stanford University at age 19.^{14578910111314} The company aimed to revolutionize blood testing by developing technology that could perform many tests from a few drops of blood obtained via a finger-prick.^{14578910111314} Theranos claimed its technology would be less invasive and more affordable than traditional blood testing.^{14578910111314} In its early years, Theranos raised money from investors and kept a low profile while developing its technology.⁵⁹ By 2010, Theranos had raised about $45 million through the sale of equity, options, warrants, and other security rights.⁵

In 2013, Theranos launched its website and began announcing its products to the public.⁵ Theranos made a deal with Walgreens to offer its testing services at Walgreens locations throughout the country.⁵ The services were offered through Theranos Wellness Centers inside Walgreens stores.⁵ Theranos claimed its tests would be less invasive and more affordable than other lab testing, eliminating the need for large needles and multiple vials of blood.⁵ By 2014, Theranos had raised more than $400 million in equity sales and was valued at $9 billion.⁵

Holmes had a 50 percent stake in the company, making her a multibillionaire.⁵ In 2015, an article in the Journal of the American Medical Association called into question Theranos's secretive production tactics and criticized the company's failure to have its research analyzed by peer-reviewed medical journals.⁵ In July 2015, the FDA approved Theranos's lab test for the herpes simplex 1 virus.⁵⁹ In October 2015, The Wall Street Journal published an exposé in which former employees stated the company's claims were deceitful and that management was incompetent and exaggerating its technological claims.¹³⁴⁵⁸⁹ Holmes denied the allegations on live television.⁵

The Wall Street Journal published a follow-up piece noting that Theranos was forced to stop using an unapproved medical device for its blood tests.⁵ The FDA released a report finding that Theranos was using an uncleared medical device that was not validated by any scientific studies.⁵ Theranos's budding deal with Safeway Supermarkets fell through.⁵ The Wall Street Journal published another story accusing Theranos of manipulating its tests to produce better results.⁵ In early 2016, the CMS released a report finding that Theranos's lab in Newark, California, did not comply with appropriate standards and was a hazard to patient health and safety.⁵

Walgreens announced it would stop using Theranos's tests in its stores.³⁵ The Department of Health and Human Services effectively banned Theranos in 2016 from doing any blood testing work.³ Theranos settled with the CMS in 2017, agreeing to exit the blood-testing business for two years and pay a fine.⁵ In 2017, Theranos settled a lawsuit with one of its largest investors, Partner Fund Management, which had accused the company of securities fraud.⁵ In March 2018, the SEC charged Holmes and Balwani with engaging in fraudulent activity and making exaggerated or false claims about the company's technology, business, and finances.³⁵¹⁵

Holmes settled with the SEC, agreeing to pay $500,000 in fines and penalties.³ In June 2018, a grand jury indicted Holmes and Balwani on criminal fraud charges.¹³⁵¹⁸ The indictment alleged that Holmes and Balwani defrauded doctors and patients by making false claims about Theranos's ability to provide accurate, fast, reliable, and cheap blood tests.¹⁸ The indictment also alleged that the defendants made numerous misrepresentations to potential investors about Theranos's financial condition and future prospects.¹⁸ Theranos laid off most of its staff in early 2018.³

In September 2018, Theranos announced it was shutting down and would dissolve.^{123456789101112131415161718} The company said it would look to pay its unsecured creditors with any remaining cash after investors reportedly lost nearly $1 billion.¹ Theranos transferred its intellectual property to its primary creditor, Fortress Investment Group.¹¹ The jury acquitted Holmes of the patient-related fraud conspiracy count and three counts of fraud against individual patients.¹⁸ In July 2022, Balwani was convicted of ten counts of wire fraud and two counts of conspiracy to commit wire fraud.⁵

In November 2022, Holmes was sentenced to 135 months (11 years, 3 months) in federal prison.⁵¹⁸ In December 2022, Balwani was sentenced to 155 months (12 years, 11 months) in federal prison.⁵¹⁸ Holmes was ordered to surrender on April 27, 2023, to begin serving her prison sentence.¹⁸ Balwani was ordered to surrender on March 15, 2023, to begin serving his prison sentence.¹⁸ A class action lawsuit was filed on behalf of consumers who purchased Theranos blood testing services at Walgreens stores in Arizona and California.¹⁶

The class action lawsuit reached settlements with Walgreens, Balwani, and the entity holding the remaining assets of Theranos.¹⁶ Under the settlement, Walgreens agreed to pay $44 million into a settlement fund for class members.¹⁶ The Theranos ABC agreed to allocate approximately $1.33 million to the class.¹⁶ The court granted final approval of the settlements on February 6, 2024.¹⁶ Hagens Berman filed a lawsuit on behalf of investors in Theranos financing rounds, alleging securities law violations.¹⁷

In July 2018, Hagens Berman secured a confidential settlement with Theranos, ending the suit.¹⁷

Legal outcomes

• chargedThe SEC charged Holmes and Balwani with engaging in fraudulent activity and making exaggerated or false claims about the company's technology, business, and finances.³⁵¹⁵
• settledHolmes settled with the SEC, agreeing to pay $500,000 in fines and penalties.³
• chargedA grand jury indicted Holmes and Balwani on criminal fraud charges.¹³⁵¹⁸
• convictedBalwani was convicted of ten counts of wire fraud and two counts of conspiracy to commit wire fraud.⁵
• convictedHolmes was sentenced to 135 months (11 years, 3 months) in federal prison.⁵¹⁸
• convictedBalwani was sentenced to 155 months (12 years, 11 months) in federal prison.⁵¹⁸
• filedA class action lawsuit was filed on behalf of consumers who purchased Theranos blood testing services at Walgreens stores in Arizona and California.¹⁶
• settledThe class action lawsuit reached settlements with Walgreens, Balwani, and the entity holding the remaining assets of Theranos.¹⁶
• filedHagens Berman filed a lawsuit on behalf of investors in Theranos financing rounds, alleging securities law violations.¹⁷
• settledHagens Berman secured a confidential settlement with Theranos, ending the suit.¹⁷

Where the founders are now

Elizabeth Holmes was sentenced to 135 months (11 years, 3 months) in federal prison and ordered to surrender on April 27, 2023.⁵¹⁸ Ramesh 'Sunny' Balwani was sentenced to 155 months (12 years, 11 months) in federal prison and ordered to surrender on March 15, 2023.⁵¹⁸

Sources

1. Infamous blood testing company Theranos is shutting down — look back at some of the top revelations about its demise, CNBC, 2018-09-05
2. Blood-Testing Firm Theranos to Dissolve, wsj.com, Sep 5, 201
3. Blood-testing startup Theranos is said to be shutting down, STAT, 2018-09-05
4. What Happened to Theranos, the Healthcare Tech Company?, failory.com
5. Theranos | Technology | Research Starters | EBSCOhost, EBSCO
6. Theranos Is Shutting Down, nytimes.com, Sep 5, 201
7. Theranos: A Fallen Unicorn, investopedia.com
8. 4 red flags that signaled Theranos' downfall | MIT Sloan, MIT Sloan, Oct 29, 20
9. How Theranos Saw Its Valuation Skyrocket, Then Crash and Burn, Medical Device and Diagnostic Industry, Sep 1, 202
10. Theranos: Reminder of the value of Technical Due Diligence, Vaultinum, 2022-05-18
11. Theranos Valuation, Funding & Investors | Multiples, multiples.vc, Sep 18, 20
12. Theranos Authorizes New Shares That Could Raise ..., wsj.com
13. Theranos: Funding, Team & Investors, Startup Intros, Jul 13, 20
14. Theranos and the Growing Risk of an Unregulated Private ..., repository.law.miami.edu
15. Theranos, CEO Holmes, and Former President Balwani ..., sec.gov, Mar 14, 20
16. Home | Arizona Theranos, Inc., Litigation, theranoslawsuit.com
17. Theranos Investor Fraud | Hagens Berman, hbsslaw.com, 03/04/2020
18. U.S. v. Elizabeth Holmes, et al., justice.gov, 2019-02-26

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