The fraud conviction of Theranos founder Elizabeth Holmes, the infamous biotech chief executive who promised to revolutionise blood testing, holds important lessons for biotechnology and medical device companies seeking to commercialise new products, writes Nature.
Holmes was found guilty of fraud after intentionally deceiving investors, a US federal jury concluded on 3 January 2022 after a nearly four-month trial. Holmes probably faces up to 20 years in prison and a hefty fine. She has not yet been sentenced.
The case will no doubt shape how biotechnology entrepreneurs approach investors, say researchers who spoke to the journal Nature, and it makes abundantly clear the importance of validating early research through peer review.
The Theranos scandal 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 to participate in some kind of peer-review process, say diagnostics researchers 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 clinical chemist at Vanderbilt University Medical Center in Nashville, Tennessee. Part of Holmesʼs downfall was that she “held Theranosʼs technology as proprietary, didnʼt publish it and didnʼt want to share it with the community,” he adds.
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 change direction or shut down her company, but it might also have kept her from committing a crime. Itʼs the self-correction of science that has “saved our butts” time and time again, Yager says.
For Holmes, 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 instil 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.”
The precedent set by the juryʼs verdict in the Holmes case might ultimately compel biotech entrepreneurs to be more cautious — and honest — in their approach to investors. The four charges on which Holmes was found guilty centre on how she exaggerated the companyʼs involvement with potential partners. For example, she 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 as if the pharmaceutical companies had validated Theranos’s system, when they had not.
These lessons are likely to 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 doesnʼt happen again?”
“Itʼs a great teaching moment,” says Eleftherios Diamandis, head of clinical biochemistry at Mount Sinai Hospital in Toronto, Canada, who in 2015 publicly called out Theranos for exaggerating claims. “Itʼs an example of how a supposedly huge company with a US$9bn valuation went down the drain because of a series of mistakes.”
‘A fundamental flawʼ
Holmes founded Theranos in 2003 at the age of 19, shortly before dropping out of Stanford University in California. Her goal was to build a company that would make blood tests available directly 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 more than 200 tests on just a few drops of blood taken from a finger prick.
Captivating and ambitious, Holmes attracted 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 Defence James Mattis and William Perry, all joined Theranosʼs board of directors. Investors included media mogul Rupert Murdoch and the family of former US education secretary Betsy DeVos.
The company, based in Palo Alto, California, raised about $945m and grew to more than 800 employees. It also inked deals with a couple of big retailers. In 2013, pharmacy chain Walgreens began putting Theranos “wellness centres” in its stores in Arizona, eventually setting up 40 sites. The aim was to enable consumers to go to a local pharmacist at their convenience and order a panel of blood tests from a few drops of blood.
Investors and the public believed that Theranos was using its novel machines to analyse the blood samples it received. But in reality, the company could run only a few tests on its platform. The rest went through conventional blood-testing equipment developed by other companies. To meet the specifications 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 arenʼt enough molecules there for detection,” says Paul Yager, a diagnostics developer and researcher at the University of Washington in Seattle.
In 2015, Holmesʼs ruse began to fall apart. After Diamandis called out Theranos, The Wall Street Journal reporter John Carreyrou exposed the shortcomings of Theranosʼs 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 Theranos. 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.
On 3 January 2022, a federal court in San Jose, California, found Holmes guilty on four of the 11 charges brought against her by prosecutors: three for wire fraud — a scheme intended to obtain money under false pretences using a method of remote communication such as e-mail — against investors, and one for conspiracy to commit wire fraud against investors. The jury acquitted Holmes on four charges related to defrauding patients and could not reach a decision on three further charges related to defrauding investors.
A hearing this week will address how to handle the three unresolved charges, says Steven Clark, a lawyer in private practice in San Jose and a former district attorney in the region. Balwani will be tried separately in federal court proceedings scheduled to begin in February.
This week, Retraction Watch highlighted the ethical issues surrounding the scientific paper in which her “breakthrough” blood analyser was supposedly postulated. The paper, in Bioengineering & Translational Medicine, was published in 2017.
“As best we can tell, no one raised questions about the paperʼs findings” Samir Mitragotri, editor of the journal, told Retraction Watch:
So what should happen to the Theranos paper, if anything? Retraction Watch did a reader’s poll, inviting a vote on the issues: About 53% said the article “should have an editor’s note about Theranos”; 34% readers said it should be retracted, and 14% said “nothing” should happen.
Study details
Engineering of a miniaturized, robotic clinical laboratory
Marilyn B. Nourse,Kate Engel,Samartha G. Anekal,Jocelyn A. Bailey,Pradeep Bhatta,Devayani P. Bhave,Shekar Chandrasekaran,Yutao Chen,Steven Chow,Ushati Das,Erez Galil,Xinwei Gong,Steven F. Gessert,Kevin D. Ha,Ran Hu,Laura Hyland,Arvind Jammalamadaka,Karthik Jayasurya,Timothy M. Kemp,Andrew N. Kim,Lucie S. Lee,Yang Lily Liu,Alphonso Nguyen,Jared O'Leary,Chinmay H. Pangarkar,Paul J. Patel,Ken Quon,Pradeep L. Ramachandran,Amy R. Rappaport,Joy Roy,Jerald F. Sapida,Nikolay V. Sergeev,Chandan Shee,Renuka Shenoy,Sharada Sivaraman,Bernardo Sosa-Padilla,Lorraine Tran,Amanda Trent,Thomas C. Waggoner,Dariusz Wodziak,Amy Yuan,Peter Zhao,Daniel L. Young,Channing R. Robertson,Elizabeth A. Holmes …
Published in Bioengineering & Translational Medicine on 24 December 2017
Abstract
The ability to perform laboratory testing near the patient and with smaller blood volumes would benefit patients and physicians alike. We describe our design of a miniaturized clinical laboratory system with three components: a hardware platform (ie, the miniLab) that performs preanalytical and analytical processing steps using miniaturized sample manipulation and detection modules, an assay-configurable cartridge that provides consumable materials and assay reagents, and a server that communicates bidirectionally with the miniLab to manage assay-specific protocols and analyze, store, and report results (i.e., the virtual analyzer).
The miniLab can detect analytes in blood using multiple methods, including molecular diagnostics, immunoassays, clinical chemistry, and hematology. Analytical performance results show that our qualitative Zika virus assay has a limit of detection of 55 genomic copies/ml. For our anti-herpes simplex virus type 2 immunoglobulin G, lipid panel, and lymphocyte subset panel assays, the miniLab has low imprecision, and method comparison results agree well with those from the United States Food and Drug Administration-cleared devices.
With its small footprint and versatility, the miniLab has the potential to provide testing of a range of analytes in decentralised locations.
Nature article – Elizabeth Holmes verdict: researchers share lessons for science (Open access)
Retraction Watch article – What should happen to a paper published by Theranos? (Open access)
See more from MedicalBrief archives:
Founder of blood-test startup convicted of fraud
Founder of ‘breakthrough’ blood-testing technology gives evidence
Medical startup founder on trial for duping US investors out of millions