It should have been Theranos’s moment to shine.
Last year, as the deadly and highly contagious Ebola virus threatened to spread around the globe, Theranos, a Silicon Valley start-up, was scrambling to find a test that could quickly detect if a person was infected.
This was exactly the sort of thing the company was supposed to do. Its fundamental promise was to revolutionize laboratory testing by offering hundreds of different blood tests that could be done through a simple finger stick for a fraction of the cost of typical lab blood work. More than that, Elizabeth Holmes, who started the company in 2003, had a higher-minded purpose. She also wanted to defeat epidemics.
The company devoted significant resources to the Ebola effort. “We stopped everything for Ebola — for the world,” says Richard Kovacevich, the former chief executive of Wells Fargo, who joined Theranos as a director in 2013.
And then, nothing.
Even as other companies received approval from regulators, Theranos watched from the sidelines. “I have no doubt we would have” gotten the green light for the tests, Mr. Kovacevich said. But the crisis ebbed, and the company says getting approval for that test is no longer a priority.
The Ebola test was not a make-or-break moment for Theranos, but it was suggestive of the larger predicament in which the company finds itself today. A Silicon Valley story with intoxicating appeal, Theranos by some measures has a $9 billion valuation because, in part, of its claims that its proprietary technology has the potential to disrupt the established players in health care. Its protagonist was inspiring. Ms. Holmes, a young Stanford University dropout who speaks Mandarin, applied for her first patent before she was 20 and fearlessly commanded any room she entered. Her board was populated with former diplomats and leaders of the Senate. But an investigation published in The Wall Street Journal in October changed the narrative by raising serious concerns about whether the company’s technology actually works.
Now, after a surprise inspection last summer, the Food and Drug Administration is requiring that Theranos’s equipment and individual tests go through the regulatory process and get approval. This will determine whether its foundational technology is a reality — or, like that Ebola test, an unfulfilled grand promise.
While Theranos says it has conducted millions of tests, largely through a partnership with Walgreens, the drugstore chain, no one from outside Theranos has ever verified the technology. Institutions whose names were often linked with Theranos, like the Cleveland Clinic, insist they have not yet had a chance to use the technology. It has struggled to forge business relationships with other potential partners, like Safeway.
Ms. Holmes said that she needed secrecy to keep others from stealing her ideas, but several former employees say that Ms. Holmes’s steely focus on her mission — an attribute deeply admired by outsiders — made it difficult for her to acknowledge any serious shortcomings in the company’s products. They say she would become angry and sometimes fire people who pointed out problems. She often spoke as though the company’s technology already existed, they said, rather than as if it were still in development.
During a two-and-a-half-hour interview in the company’s headquarters in Palo Alto, Calif., Ms. Holmes, wearing her trademark black turtleneck and slacks and flanked by two recently hired media relations professionals, said the data Theranos had submitted to regulators was proof the technology worked. The challenge now, she said, is to make a range of tests widely available to consumers and to expand Theranos beyond its limited presence in states like Arizona, where it teamed up with Walgreens, and California, where it is based. “We know how to do this very well,” she said. “We can replicate it.”
While Theranos awaits the F.D.A.’s decision, it is sharply limited in how it can use its proprietary technology and must rely to a large extent on commercial testing machines, the same used by rival laboratories. Ms. Holmes will not say exactly how the company is conducting tests at the moment, but she did acknowledge that Theranos must satisfy regulators. In fact it is at the agency’s mercy. The F.D.A has approved only one of the company’s tests — a fairly simple one for herpes — and the company’s future now rests on whether the agency will approve the equipment and 120 other tests.
If she is worried, she doesn’t let on. At a very young age, she persuaded powerful people to invest hundreds of millions of dollars in her mission. She is not accustomed to failure, and from the beginning, had family connections, powerful mentors and true believers all working to ensure that her mission would succeed.
That success is no longer assured, and she can’t wrest back her story line so easily. Dr. Bill Frist, the former Senate majority leader from Tennessee who joined Theranos as a director last year, supports Ms. Holmes and asserts that “the data I have seen speaks.” But he also points out that the Theranos story has taken on the cast of a vicious political campaign and there’s nothing more appealing than watching a front-runner fall from grace. In that role, he said, “you have to take the arrows.”
Raised to Succeed
Elizabeth Holmes was raised in a family where failure was not an option.
The family’s wealth, power and political connections date to the 1890s, when Christian Rasmus Holmes, a Danish immigrant and physician, married Bettie Fleischmann, heiress to the namesake yeast fortune and a Cincinnati socialite with a fondness for Chinese bronzes.
Elizabeth’s father, Christian IV, grew up in California, raised by his mother, a former Powers model, whose second husband was a prominent San Francisco businessman. The family moved in powerful circles. Mr. Holmes took a Hearst daughter to a debutante cotillion in 1967.
Mr. Holmes had a distinguished career in public service, holding a number of senior government positions in Washington. He took on important roles in international trade and disaster relief, and his daughter recalls a home filled with photos of her father in conflict- and disaster-ridden areas around the world.
Her mother had connections, too. Noel Anne Daoust worked as a congressional aide to Representative Charlie Wilson, among others, although she took a dozen years off to raise her two children.
In the early 1990s, Mr. Holmes moved the family to Texas where he worked for energy companies, including Tenneco and Enron. (Mr. Holmes has since returned to public service and now works at the United States Agency for International Development.)
Ms. Holmes attended the private St. John’s School in Houston, where her former headmaster John Allman recalled her “tireless optimism and a particularly warm smile.” She also insisted on learning Mandarin.
While Ms. Holmes always assumed she would follow her parents into public service, she became attracted to the idea of becoming an entrepreneur. “I became really interested in the concept of building a company that could be a vehicle for making a difference because you can control your outcome,” she said in the interview this month.
Ms. Holmes says that from an early age, she was obsessed with going to Stanford, “a symbol of Silicon Valley and invention.”
As a freshman at Stanford, she camped outside the office of Channing Robertson, her chemical engineering professor, to ask to join his laboratory, something typically open only to seniors and graduate students. She more than held her own in the lab, recalled Mr. Robertson, and the following summer she got a position at the Genome Institute of Singapore.
When she returned to Stanford in the fall of 2003, then 19, she laid a thick patent application in front of Mr. Robertson.
“I truly was astonished,” Mr. Robertson said. She had come up with an idea for a drug-delivery system that would be able to detect drug levels in the blood and wirelessly transmit those results.
“It had never even occurred to me,” Mr. Robertson said, adding that he considers being Ms. Holmes’s mentor akin to teaching Beethoven to play piano or teaching science to Einstein.
Ms. Holmes convinced her parents that her tuition money was better spent on starting a company. They also put in some of their retirement money, she says.
And, like that, Theranos began.
Seeking Venture Capital
Her tuition money and her parents’ retirement funds were a beginning, but not enough to get Theranos off the ground, at least in the way Ms. Holmes was imagining.
She energetically turned her attention to venture capital firms — dozens of which took a look, and in early fund rounds the company was turned down by some of Sand Hill Road’s biggest names, according to former Theranos employees, none of whom would speak for attribution, fearing retaliation from Theranos. They said venture capitalists were put off when Ms. Holmes wouldn’t demonstrate Theranos’s technology. Ms. Holmes insisted that she was the one being choosy. She was looking for patient investors. “You walk in the room, and the question is, ‘What is your exit strategy?’” recalled Ms. Holmes of some of those visits to potential backers. “You want to talk about your entrance strategy.”
Those investors did not understand the scale of her ambition, she said. They saw as far as a new blood sugar or cholesterol test, but, she said, “we want to build a whole new lab.”
But when it came to fund-raising, Ms. Holmes had an ace up her sleeve: family connections.
Timothy Draper, the well-known venture capitalist, had been a neighbor when the Holmeses lived in California. The children played together. “I gave her her first million bucks to get the business going,” Mr. Draper says. “She totally blows me away with her vision.”
Another anchor investor was Don Lucas. Mr. Lucas is a godfatherlike figure in Silicon Valley who built his reputation by investing in a little start-up called Oracle. To get to Mr. Lucas, Ms. Holmes relied on an introduction from a former top banking executive who went to school with her father at Wesleyan.
Mr. Lucas, who wasn’t available for an interview, served as chairman of the Theranos board for a time and brought in Lawrence Ellison, the founder and chief executive of Oracle, as another investor.
In short order, Theranos raised more than $400 million, giving it, at one point, a valuation of $9 billion.
That is a remarkable valuation for a start-up, but it might be justifiable if Theranos executes on Ms. Holmes’s vision: to harness engineering technology to make laboratory testing radically cheaper and easier than tests from established behemoths like Quest Diagnostics and the Laboratory Corporation of America.
Beyond cost, Ms. Holmes wants to allow people to bypass doctors and established labs to order and receive their own affordable diagnostic tests, accessible at the pharmacy down the street. (This spring, Theranos lobbied for and won a change in Arizona state law allowing consumers to order lab tests without a doctor’s prescription.) Additionally, the Theranos technology relies on pricking a finger, rather than using a needle, to draw blood. In effect, Theranos sees itself as akin to the personal computer, which displaced mainframes.
Many of the company’s early efforts were far from successful, according to five former employees. Early on, Ms. Holmes courted pharmaceutical manufacturers, where the Theranos technology would allow companies to conduct clinical trials at lower costs. She had no trouble making deals with pharmaceutical companies. “She had every pharmaceutical company eating out of her hand,” one former employee said. But, ultimately, those deals went nowhere, as the technology worked inconsistently, they say.
Ms. Holmes argues that the company’s focus over time simply shifted away from the pharmaceutical industry, but it was able to successfully use its technology. “We can show you the programs we’ve done,” she said in the interview. But when pressed for examples, the company did not provide details. Pfizer said its work with the company was limited and ended years ago. GlaxoSmithKline also said it had not conducted any work with Theranos in the last two years and that none of it had involved its clinical trials.
Another early idea was to create a sleek version of the Theranos blood analysis machine for the home, so that people could prick their fingers and the machine would send the results to physicians and caregivers. The company hired top designers from places like Apple. “The promise of what this could do in terms of personalized medicine was huge,” one former employee said.
But it didn’t work. The machine at the time was simply too big, two former employees said, making it an unlikely consumer product.
More recently, Theranos pitched a device to the military, but those attempts have also stumbled. In 2012, Theranos representatives visited Fort Detrick in Maryland. Theranos wanted its equipment to be used in the field with soldiers, according to one individual with direct knowledge of the meeting. But the Theranos equipment was heavier than the hand-held device the Defense Department was already using for some tests, and the Theranos tests still needed F.D.A. approval. Theranos says it never intended the meeting to be anything other than an informal demonstration of its technology.
Ms. Holmes insists that the company is making steady progress toward developing tests that will allow people to begin to take control of chronic diseases like diabetes. “Eventually, we’ll get there,” she said.
Ms. Holmes also insists that her employees do not hesitate to tell her when something can’t be done, but that she looks for people who share her sense of dedication. “It is very much to me about a mission,” she said, “not a job.”
Taking Back the Story
In recent years, Ms. Holmes says, the company’s sole focus has been to make lab tests widely available by teaming up with drugstores like Walgreens. Theranos prices, posted on the company website, are a fraction of prevailing rates charged by competitors.
The big challenge, according to Mr. Kovacevich, was for Theranos to become a household name.
As a young woman in technology, a female entrepreneur worth billions of dollars, Ms. Holmes was the perfect vehicle for getting the message across. “We didn’t need advertising,” Mr. Kovacevich said. “You’ll get the best publicity you’ve ever had.” And, in fact, Ms. Holmes appeared on any number of glossy magazine covers, including T: The New York Times Style Magazine.
Though she now faces harsh criticism from the outside, she is still surrounded largely by true believers. Her younger brother, Christian Holmes V, is an executive at Theranos, as is her former Stanford professor, Channing Robertson. Her board of advisers, despite their impressive names, have had little say about how the company operates. Ms. Holmes persuaded George P. Shultz, the former secretary of state, whom she met at a conference, to join in 2011. He then contacted people he knew, like Henry Kissinger and Dr. Frist.
“These were all just friends of George,” said Mr. Kovacevich, who was also introduced to Ms. Holmes by Mr. Shultz.
At this point, her investors and the advisers seem willing to be patient. Elizabeth “will make sacrifices to go slow,” Mr. Kovacevich said. “She knows she has to make money. She wants to change the world in health care.”
But that patience may be wearing thin. After more than 10 years, Ms. Holmes is talking about ways she can remain private — getting new investors to buy out the old ones. The company declined to provide financial information, but she was adamant that Theranos does not currently need more money. “We’re not in a position in which we need to raise equity capital,” she said. “We’re in a position where we will continue to grow from operations.”
While Ms. Holmes argues that Theranos invited the F.D.A. review, the company seems to have been caught off guard after the F.D.A. unexpectedly inspected its manufacturing facilities, where it makes its proprietary equipment, in August and September. The agency told Theranos that it had to comply with its rules, rather than those of other regulatory agencies. According to correspondence made available through a Freedom of Information Act request, Theranos complained of “a fundamental policy shift that is uniquely and highly prejudicial to Theranos.”
Now the company must get approval for all of its equipment — including the devices that are used to analyze and perform tests as well as its so-called nanotainers that are used to collect blood from finger pricks. Ms. Holmes insists, however, that the company can still rely on some of its technology, which she won’t specify.
She is now trying to take back control of the Theranos story. She talks about publishing the company’s internal data, and the company has plans to hold a session with outside experts even sooner to try to convince the doubters. The Cleveland Clinic says it has not reached a final agreement to study the technology.
And there is the matter of the black turtlenecks.
She claims her mother dressed her and her brother in black turtlenecks when they were young and now she finds them comfortable. Moreover, she wanted to deflect attention from what she might be wearing. But now she admits she is frustrated about how to handle the media fascination they seem to have created. Perhaps, she joked, “I should bring them with me and give them to people as gifts.”