Six years ago, the media announced Elizabeth Holmes as the next Steve Jobs or Bill Gates. Now the former CEO of the closed startup for blood research Theranos is accused on 12 charges of fraud and conspiracy to commit wire fraud. But the company’s collapse and the accusation against its controversial founder did not spark much demand for people in Silicon Valley. At the same time, it is unclear whether Washington has made the necessary changes to ensure that a company like Theranos does not re-launch defective tests.
The ultimate goal of Theranos, a printer-sized machine that required only a drop of blood and could handle hundreds of blood tests in pharmacies across the country, has always been lofty. But in 2018, federal prosecutors accused Holmes of deliberately misleading investors and conducting defective blood tests on patients to fuel her financial success. Holmes’ lawyers insist that the 37-year-old, who dropped out of Stanford, did believe in her company, but made “mistakes” in his otherwise noble mission to do faster and cheaper blood tests. Her legal team is also expected to claim that while he was CEO, Holmes was abused by his former partner and former chief operating officer of Theranos Ramesh “Sunny Balvani”, whose separate trial is scheduled to begin next year.
“This is a case of fraud, lies and fraud to get money,” Assistant U.S. Attorney Robert Leach said in his opening remarks Wednesday. “It’s a crime on the main street and it’s a crime in Silicon Valley.”
Although there is a lot at stake for Holmes, who faces up to 20 years in prison, Silicon Valley does not seem confused by the process or worried about its outcome. Terranos, although inspired by its culture, was not supported by large venture capital firms in the technology industry. Meanwhile, the regulatory gap that has allowed companies like Theranos to run their tests on patients has not been bridged, and amid the pandemic, the FDA is worried that some unapproved diagnostic tests are being used with “limited certainty” that they work.
Since 2015, funding for private biotech companies in the United States has nearly tripled, from $ 10.6 billion to $ 27.2 billion, according to a private market tracking Pitchbook. And almost two years after the Covid-19 pandemic, investment in medical technology startups has grown even more. The mRNA-based startups BioNTech and Moderna, where former CEO Stefan Bensel was once criticized for his covert and controlling approach, have created successful vaccines against Covid-19 that have only added to the excitement of biotech companies.
“First, hope springs forever,” Lawton Burns, a professor of health management at Wharton, told Recode. “There is so much money in the land of VC and they have to park it somewhere. And some of the traditional places where they parked it – for example in Big Tech – these things were saturated, so they had to look for another place to park it.
According to funding talks, Theranos is not a major topic these days, according to the Wall Street Journal. Although some investors – especially those without experience in healthcare – may pay more attention to the data, there are no indications that Theranos has generally changed the way investors choose funding companies or how these companies approach sharing research. For example, Theranos, for some reason, kept his data and machine secret, citing “trade secrets,” a practice critics say the company uses to cover up fraud and cover up shoddy science. But a study published in European Journal of Clinical Trials from Stanford researchers found that most health companies worth more than $ 1 billion by 2017 did not publish many peer-reviewed studies.
Walgreens has invested more than $ 140 million in Theranos, and in 2013 the companies announced they would enter into a “long-term partnership” to introduce Theranos tests in Walgreens pharmacies. Like individual investors, the company saw Theranos as a promising opportunity and a chance to stand up to its competitors. But by bringing Theranos machines into its stores without ever fully verifying that the technology worked, Walgreens eventually gave the company confidence. Some might say that the companies’ involvement threatens patients who have used Theranos blood tests in their stores. Walgreens declined to comment on whether he had changed his approach.
Some see the Holmes trial as a day of judgment for Silicon Valley culture and its reckless tendencies. (Phrases like “move fast and smash things” and “fake it until you succeed”) summarize this feeling.) However, some Silicon Valley leaders have pushed back against the idea that Theranos represents their values at all. Veteran investor Paul Graham, for example, has criticized the media for describing Theranos “as typical of Silicon Valley.” He said in the tweet that “people like Elizabeth Holmes are actually rarer there than in the rest of the business or political world.”
Many of these critics cite the funding behind Theranos and its board structure as evidence that the company is deviating from the traditional Silicon Valley model. Venture capital firms usually spend considerable time, research, and experience studying a company before investing in it, and want some evidence of the original concept, such as the results of the research. More specifically, health companies often hire people with significant health experience to work on their boards of directors.
Terranos doesn’t work that way. The company The 12-member board was particularly light for medical and technical experts. The board for some reason includes prominent national security leaders, including former Defense Secretary James Mathis and former Secretary of State Henry Kissinger. Several of the company’s major investors, including former Secretary of Education Betsy Devos, Rupert Murdoch and members of the Walton-owned Walton family, also had little medical experience.
Overall, Theranos was supported mainly by investments from influential people and family friends, rather than many venture capital funds, several of which actually transferred the chance to invest in the company.
“These were rich people, families, people who don’t spend almost every waking hour thinking about business models and health problems and breakthroughs.” Brian Roberts, a partner at venture capital firm Venrock, which focuses on investing in healthcare, told Recode. “In a kind of core community for risky investments at an early stage, I don’t think there is zero impact.”
But even if Theranos was not directed and funded like a Silicon Valley company, Holmes certainly wanted to emulate the “fake until you fail” mentality that is often associated with the technology industry. It is this approach that prosecutors are now claiming that has led to numerous allegations of fraud, and it has received support from some prominent technology leaders before retiring.
Oracle co-founder Larry Ellison, who has invested in the company, encourages Holmes to ignore the slanderers, for example. The Para Alto-based Theranos also actively welcomed the Silicon Valley association, with Holmes sitting for technology conference interviews and even making a black turtleneck for his everyday uniform in what seemed like an obvious effort to emulate Steve Jobs.
“I think she’s still a child of that culture,” said John Washington, a former Wall Street Journal reporter who first uncovered problems with Theranos machines. “She surfs on this myth of the genius founder she can see around the corners.”
Despite Holmes’ agreement with the SEC and its and Balwani’s lawsuits, interest in innovative diagnostic tests and technologies is only growing, thanks in part to the pandemic. Companies are vying to meet the pandemic’s requirements with new tests for Covid-19, some of which have made their way to pharmacy shelves in less than two years since the pandemic began.
Healthcare start-ups are vying to build their own tests for Covid-19 and sell them directly to consumers in the early days of the pandemic. And while the Food and Drug Administration (FDA) has taken some time to authorize tests, especially home kits, the agency told Recode it has now issued more than 400 emergency use permits for Covid-19 tests. As part of investments in healthcare in general, the diagnostic and biopharmaceutical sectors show the largest growth since 2019, according to Silicon Valley Bank, a commercial bank often used by start-ups.
“Before the pandemic, there was just a lot of reluctance to fund diagnostics, because so much of a company’s success depends on whether the payback from payers or insurance companies is successful,” said Heather Bowerman, founder and CEO of DotLab. , which is a blood test work to diagnose endometriosis. “Now there is more appetite only for diagnostic fields in general.”
This is not to say that the FDA is not yet concerned about the lack of oversight for laboratory-developed tests, which are tests for biological samples that are designed and performed in a laboratory. Again, the loophole for laboratory-developed tests that Theranos and other companies have benefited from still exists. Last fall, the agency found that 82 of the 125 requests for laboratory-developed laboratory tests to authorize emergencies had problems with the design or validation process. Most of them were eventually repaired, but some were not authorized.
“We have been concerned since the 1990s, long before Theranos, that there were a significant number of unapproved laboratory-developed tests (LDTs) that were used with limited certainty that the tests worked,” FDA spokeswoman Lauren-Jay McCarthy told Recode. “Our experience with tests developed by laboratories for Covid-19 underscores the need for diagnostic reform.”
But despite the FDA’s call for change, the extent to which the agency has the power to oversee these types of tests remains unclear.
We will not receive a verdict in the Holmes case for a long time, as the trial is expected to last at least 13 weeks. But even if Holmes is found guilty, it is not clear how well we are set up to stop the next defective diagnostic tool from delivering it to patients, especially as the pandemic continues.