Can Elizabeth Holmes Save Her Unicorn?

Theranos wants to convince the world it’s for real.

Theranos' Pressure to Prove Blood Test Technology

Elizabeth Holmes rarely slips out of character. When she responds to questions in an interview or on a conference stage, she leans forward, leg crossed ankle over knee in a half-lotus manspread power pose. She lowers her voice an octave or two, as if she’s plumbing the depths of the human vocal cord. Although she hates it being remarked upon, her clothing, a disciplined all-black ensemble of flat shoes, slacks, turtleneck, and blazer buttoned at the waist, is impossible not to notice. She adopted this uniform, as she calls it, in 2003, when she founded Theranos, a company seeking to revolutionize the medical diagnostics industry by doing tests using only a few drops of blood.

“I wanted the focus to be on my work,” she says slowly and deliberately. “I don’t want to go into a meeting and have people looking at what I’m wearing. I want them listening to what I’m saying. And I want them to be looking at what we do.” She pauses, then adds, “Because when you walk into the room and you’re a 19-year-old girl, people interact with you in a certain way.”

All the same, Holmes says, she wasn’t prepared for how eager people would be to tear her down. “Until what happened in the last four weeks, I didn’t understand what it means to be a woman in this space,” she says, shaking her head. “Every article starting with, ‘A young woman.’ Right? Someone came up to me the other day, and they were like, ‘I have never read an article about Mark Zuckerberg that starts with ‘A young man.’ ”

Featured in Bloomberg Businessweek, Dec. 14, 2015. Subscribe now.
Featured in Bloomberg Businessweek, Dec. 14, 2015. Subscribe now.
Photographer: Benjamin Rasmussen for Bloomberg Businessweek

Holmes, now 31, is sitting in her office. The surfaces are curved and gleaming, and the giant, orblike light fixtures seem to have been taken from the Starship Enterprise as reimagined by Jean Nouvel. The windows offer panoramic views of the flora of Palo Alto, where Holmes has become one of the most obsessed-over entrepreneurs in Silicon Valley. Partly this is a result of her ambition to make getting a blood test as fast and as simple as checking your bank account balance. If Theranos succeeds, Holmes says, anyone, anywhere, could have access to information about their health and risk of disease anytime they want, without a prescription. Theranos does that, she says, with as little as a finger prick’s worth of blood, a much smaller amount than traditional blood tests, and at a fraction of the cost. Theranos charges from $2.67 for a glucose test to $59.95 for a range of sexually transmitted diseases and posts all of its prices online, a level of transparency no traditional lab company matches. Holmes says her company can conduct reliable testing for 50 percent to 80 percent less than Medicare reimbursement rates, which could lead to astonishing cost savings. She estimates that $2.2 billion would be saved each year in Arizona alone, where the company has a presence in 40 Walgreens pharmacies.

The Theranos story has also been amplified by its $9 billion valuation, based on its venture capital funding, as well as by the roster of powerful board members (Henry Kissinger, William Perry) and public supporters (Marc Andreessen, among others) Holmes has gathered around her. But Holmes herself is as much a source of fascination as her company. She has just the right mixture of boldness and precocity that Silicon Valley loves. She was only too willing to let that propel her through the business media’s star chamber, though she refused to let photographers use a wind machine to blow her hair.

On a typical day, Holmes would be overseeing Theranos’s 1,000 or so employees, but on this afternoon in late November she’s under siege. In her office, she’s joined by Theranos’s general counsel and a newly retained public-relations crisis expert who monitors every tic and utterance. An aide silently enters the room and hands Holmes a cup of green liquid, which contains coconut water and kale, along with other organic extractions. Stacks of paperwork, test data, and U.S. Food and Drug Administration applications sit on the table in front of her, all intended to prove that Theranos’s products work as she says they do.

After several years of Holmes telling the largely unchallenged story of how Theranos intends to change the world, a blast of cold air came on Oct. 15, when the Wall Street Journal published the result of a five-month investigation by John Carreyrou. The piece reported that as of the end of 2014, Theranos wasn’t using its own products and technology to analyze most of the tests it was conducting for consumers. Former employees, the article further reported, claimed Theranos was cheating on routine proficiency tests, which help federal regulators determine if a particular lab is producing accurate results. The implication was that Theranos’s technology was largely a charade. A series of similarly critical articles followed. Bloomberg News reported that some Theranos partners that had signed deals with the company, including AmeriHealth Caritas and Intermountain Healthcare, hadn’t actually started using the technology yet. The bright-eyed woman the media had clambered over themselves to mythologize was now being picked apart.

Elizabeth Holmes
Elizabeth Holmes
Photographer: Benjamin Rasmussen for Bloomberg Businessweek

On its website, Theranos denied the accusations, then went about trying to find people who could come to its defense. “Here’s what happens every time I have a huge winner,” says Tim Draper, founding partner of venture capital firm DFJ and a Holmes loyalist whose $1 million investment made Theranos’s incubation possible. “The first thing that happens is that the competition sort of pooh-poohs it. Then the next thing that happens is they go, ‘Uh-oh, this is threatening our business.’ … She’s opened the kimono, and it’s scaring the pants off the competition.”

To the entrenched members of the lab testing industry, Theranos’s plans sound like an existential threat, and perhaps an absurd proposition. Critics and skeptics have been coming forward, suggesting that what the company says it’s doing is impossible—or, just as bad, that what it’s doing right now isn’t that different from its old-school competitors. The story may have resonated beyond the medical world because the stakes feel huge, much bigger than the success of one company. The tech industry is in the midst of another boom or bubble, depending on whom you ask. If Theranos, one of the hottest businesses around, isn’t quite what it says it is and venture capitalists are potentially out hundreds of millions of dollars, it stands to reason that other companies are overvalued, too.

The solution, Holmes says, is less talk and more action that proves the company can back up all its claims. “What we need to do now is focus on the technology and focus on the science and the data and put that out there,” she says. “Because that speaks for itself.”

 
 
Theranos’s “nanotainer” is the most obviously different component of its technology. It’s a tiny vial about the size of a firefly that collects a few drops of blood from the prick of a fingertip. Theranos has said that from those minuscule samples it can test for hundreds of diseases and conditions. The company also makes an extra-small needle that goes into a person’s arm in a more conventional fashion, although it draws a smaller amount of blood than traditional needles. Finally, it makes the Theranos sample processing unit, or TSPU, a black machine about the size of a printer that acts as a multipurpose blood analyzer. Samples obtained by either method are dropped into a cartridge that goes into a slot in the TSPU like a VHS tape into a player. The cartridge contains software programmed to run the desired test—for pregnancy hormones, blood sugar, potassium levels, whatever the patient wants—using the company’s own chemical processes. Or at least that’s the idea.

The potential for this to change health care is significant. Holmes cites the example of premature babies in hospital neonatal intensive care units, who have to have blood drawn for routine tests every day. Because the babies are so small, she says, sometimes fitting into the palm of one hand, taking multiple vials of blood from them means they need constant transfusions. Running the tests using only a few droplets would save some of the most vulnerable people on earth from a great deal of trauma.

Theranos’s low prices could possibly transform the way medical care is approached altogether, according to at least one doctor who’s looked at the company closely. Dr. Waldo Concepcion, the chief of clinical transplantation surgery at Stanford University Medical Center, spends most of his time performing kidney transplants on children, a procedure he believes is often preventable. If many of the patients he sees had learned they were at risk of renal failure earlier, they could have changed their diet and lifestyle and avoided ending up on his operating table as teenagers. Theranos’s promise of low-cost testing, he says, would open doors to low-income patients.

“We can’t focus with the dollars we have in health care just on diseases,” he says. Concepcion, who’s just signed on as medical consultant for Theranos, had thrown a tweed jacket on over his scrubs and raced from the hospital to Theranos’s offices to make his point. “We have to focus on preventive health. We spend all of the money at the top of the pyramid, when we need to focus it down here,” he says, drawing a triangle in the air in front of him.

Of all the advisers Bloomberg Businessweek interviewed, Concepcion was the most candid in saying the tests’ accuracy isn’t yet guaranteed. Based on the data he’s seen, though, he says he’s “encouraged” that the technology is feasible. The first step is, “Does it work?” he says. “And if it does not work, can we tweak it until it does work?”

He’s working with the company to set up a real-world academic study, comparing finger-prick tests against traditional venous draws in hospitals, to prove “once and for all” that the technology fulfills its promises. If it isn’t perfect, he says, the solution isn’t to pile on Theranos. It just means the company needs to work harder. He adds: “There are millions of people out there who need this to work.”

 
 
Theranos first entered the public consciousness in 2013, when it announced a partnership with Walgreens. Before that, Holmes and her company had been working away for 10 years, hiring scientists and building prototypes, almost entirely in secret. Competitive paranoia reigns in most technology industries, and as a private company, there was no reason for Theranos to advertise what it was doing or how it was doing it. Once the company settled on a plan to sell testing directly to consumers, it had to put itself out there and become a brand that patients would recognize. The company lobbied the Arizona State Legislature to make it legal for individuals to order lab tests without a prescription. Theranos started introducing its “wellness centers” inside Phoenix-area Walgreens stores, where patients can get tests done, with or without a doctor’s order.

The idea, Holmes says, is for the experience of having a blood test to be “wonderful,” rather than like visiting a medieval torture chamber. The centers feature high-definition video screens that play undulating concentric patterns that can also be seen on display around Theranos headquarters. “In mathematics there’s a term called the golden ratio,” Holmes says, explaining that it can be found in seashells and tree trunks or da Vinci’s Vitruvian Man. “That ratio is the foundation of our logo, which is the circle, which is the simplest form of what’s called the flower of life.”

Eventually, the company and its backers hope to bring the Theranos concept to the rest of the country. “When you’re getting your blood test, it needs to be cool,” she says. “We’re in the retail business. People need to be able to go in and have an experience and be like, ‘That was awesome.’ ”

But Theranos isn’t running a restaurant or providing taxi rides. It’s providing a medical service, and a good customer experience alone isn’t going to make the company viable. It has to work with the FDA, which is trying to increase its oversight of the medical testing industry. Even by the federal government’s bureaucratic standards, regulation in the business has been complex and inconsistent.

Most blood work in the U.S. is run on analyzer machines made by companies such as Siemens, Roche Diagnostics, and Olympus. The labs that buy these machines don’t need the FDA’s OK to use them, but the manufacturers need it to sell them. Siemens and the others are required to submit data to the agency showing that the tests running on the machines are safe and accurate.

Theranos has had certification from the Centers for Medicare and Medicaid Services to operate its labs since 2011. Because it wasn’t selling its devices or any other equipment to third parties, the company technically didn’t need FDA approval for its tests. Holmes says she wanted to seek it anyway, because she considers the FDA’s to be the “gold standard” of regulatory approvals. Theranos submitted its first test, for herpes, to the FDA in 2013, and it was cleared this past July.

In the meantime, the FDA has determined that the nanotainer is a Class II medical device, meaning it must be cleared if Theranos wants to use it with any test other than the herpes test, according to the agency. The company says it’s submitted data that show test results on blood collected from fingertips into the nanotainer are the same as those obtained with larger samples taken through a vein. While the company waits for the FDA to clear the nanotainer, it has stopped doing finger-prick draws for all its customers, except for those getting only the herpes test, because the FDA had approved the use of the nanotainer for that specific use.

The FDA doesn’t consider the analyzer, or TSPU, to be an element that needs to be approved on its own. But if Theranos submits a test to the agency for clearance, the TSPU, as a component of the test, will be reviewed in the process. “Theranos has cleared one test, HSV1 [aka herpes], for use with the TSPU,” FDA spokesman Eric Pahon confirms. “If other tests subject to premarket review were intended to be used with the TSPU, additional clearance or approval would be required.”

The FDA has recently said it wants to regulate so-called laboratory-developed tests, but that isn’t a policy yet. Theranos says it’s voluntarily submitting 120 applications for individual tests that run on its analyzer.

All of this puts Theranos in an awkward situation. The company has to show that it’s using its own technology somehow—the whole promise of Theranos’s multibillion-dollar valuation is that its technology is exponentially cheaper and easier to use than that of existing players, and not just for one herpes test. On the other hand, if Holmes wants to hold her company to the FDA’s higher standards, as she claims, that means waiting for federal clearance on all of its tests before using them. While Theranos works its way through this transition period, it is unclear whether the company is running any tests on its own machines at all.

Holmes refuses to answer the question. When asked if Theranos is actually running any patient samples on its own analyzers today, as opposed to devices made by Siemens or another manufacturer, she will only say, “We can run them on our analyzer, but it depends on the test order.”

The TSPU blood analyzer.
The TSPU blood analyzer.
Photographer: Jim Wilson/The New York Times/Redux

A few days later, when she’s asked again, her response is still noncommittal: “Depending on the order, it can happen on the TSPU, with our chemistries, and it can happen on conventional machines, just using traditional venous draw.” It can. But is it? She points out that other labs don’t publish such information, which is true. But then, other labs don’t usually declare themselves medical revolutionaries.

FDA clearance alone may not be enough to convince physicians that the tests can be used for all patients, according to John Ioannidis, a professor of medicine at Stanford who’s best known for his criticism of the way scientific research is conducted, in particular for a 2005 paper titled “Why Most Published Research Findings Are False.” In February he authored an opinion piece in the Journal of the American Medical Association questioning Theranos’s lack of published data.

When it comes to “tests that may be more complicated, the level of reporting for FDA clearance won’t be enough,” says Ioannidis. While the FDA’s increased focus on diagnostic tests is welcome, the agency has less experience in reviewing tests than drugs, he says, and its applications don’t give as many details as doctors would like to see.

To Ioannidis, only a peer-reviewed journal article that lays out the full methodology and inner workings of the Theranos technology can answer these questions in a satisfactory manner. The company has said it hasn’t done this, so far, out of concerns that its proprietary technology could be copied by competitors. Ioannidis responds by saying, “This is what patents are for. They should make sure they have patent protections. We need to have evidence in the scientific literature to scrutinize what they do.”

Other experts echo his point. “Typically companies will show their product at a professional meeting, talk about it, their scientist will present data. Theranos has chosen not to do that, which in my mind is dubious,” says David Koch, president of the American Association for Clinical Chemistry and a professor at Emory University. “That’s why a number of us scientists in the field are skeptical. Why be so secretive about it? If it works, tell the world and we’ll use it.”

Again, Theranos isn’t the only diagnostic company to provide scant details on its technology. “The process has been suboptimal across the industry, but now I think we’re at the crossroads,” Ioannidis says. “Theranos caught my attention early on because they had such vibrant media stories. Other companies just don’t make such claims. Today it’s Theranos. Tomorrow it may be another company.” He adds: “If you get the wrong test result, you could go down a path that could really destroy your life.”

Holmes says the company’s era of secrecy is over, and it’s inviting outsiders, including reporters, to try the tests for themselves. (For the record, the finger prick feels like a finger prick.) In December, she says, a group of independent medical experts will spend two days in Theranos’s lab to examine the technology, the data, and the regulatory filings, and can then talk publicly about what they found. The Cleveland Clinic is running a study comparing Theranos’s results with traditional blood draws and will publish the findings. Holmes is also putting together a medical advisory board that will bring more scientific and regulatory expertise. She says Theranos is preparing “manuscripts” containing the testing data that’s been submitted to the FDA, which it plans to publish in a medical journal (she won’t say when or which journal). Its main competitors, Quest and LabCorp, have done no such thing, she points out.

According to Holmes, all the recent negative attention has acted as free advertising, and walk-ins at Theranos’s wellness centers in Arizona are up. “I mean, is it incredibly painful to see people say this kind of stuff about us? Of course it is,” she says. “But is it a crisis? No. We’ve built something that’s incredible, and we have now the opportunity to showcase it.”

 
 
In Silicon Valley, bankers like to call startups that surpass $1 billion in valuation “unicorns.” Airbnb, Uber, Pinterest, Snapchat, and Zenefits all fall into the category. It’s quite possible for one of these flush startups to sustain damage and recover. Both Airbnb and Uber have weathered scandals with their unicornhood intact. Theranos could prove all the naysayers wrong.

Holmes certainly has plenty of true believers in her corner. From the moment she got to Stanford, in 2002, she demonstrated a talent for cultivating powerful mentors, beginning with an engineering professor named Channing Robertson. He didn’t need an undergrad, much less a freshman, working in his lab, but Holmes basically squatted outside his office until he let her in. She soon impressed him. “I think there are people who are the Mozarts and the Beethovens and the Newtons, the Lavoisiers and the Einsteins and the da Vincis, who come along rarely in a generational sense,” he says. “These people who become scientists and artists and musicians, I think, possess a very special capability. It was becoming more and more clear to me that she had it. I was in the presence of somebody who was unlike anything that I had seen before.” Other members of the Elizabeth Holmes fan club include David Boies, the acclaimed lawyer; former Senate Majority Leader William Frist; and former Secretary of State George Shultz, all of whom are on Theranos’s board.

As scores of articles have recounted, Holmes dropped out of college in her sophomore year to file her patent and start her company with two former members of Robertson’s lab. Robertson became Theranos’s adviser and helped her raise money.

Draper, the venture capitalist and early Theranos investor, says he’s known Holmes since she was 6 years old and a friend of his daughter. When she decided to start her company, she approached him. He called her parents to make sure they were OK with her plan to drop out of school. Then he gave her $1 million.

The half-inch-tall nanotainer.
The half-inch-tall nanotainer.
Photographer: Martin E. Klimek

Holmes, brainy as she is, lacked formal scientific training. She made up for it with her messianic passion and ability to persuade people to join her cause. “We needed really good chemists. We needed really good biologists. We needed really good enzymologists, really good biochemists,” Robertson says. “I mean, it was sort of like Ocean’s 11. I would call some of my buddies that I’d worked with in previous companies and drag them down out of the hills and say, ‘You know, let’s try one more time.’ ”

Despite the current controversies around Theranos, Robertson stands by his former student. “She’s as astute as she ever was. She’s as charming as she ever was,” he says. “She is one of the sweetest people I know.” He declined to comment on the company’s marketing claims or business model, saying he was never involved on the business side of things. But he vigorously refuted any allegations that Theranos’s tests may be inaccurate.

“On the precision and accuracy issue, that is our holy grail,” he says. “We would have to be certifiable, you know, to go out and put out a product that people’s lives are going to depend on. That’s not who we are.”

While Draper isn’t a board member or official adviser, he says he sees Holmes frequently. He’s puzzled by Theranos’s troubles and wasn’t aware the company isn’t currently using its famed nanotainer for anything but a herpes test. The idea of pausing the relentless push forward to wait for fusty government approvals doesn’t seem to make sense to one of the investors in Twitter and Skype. “So they’re going to have to go through each one of those tests before they can even use the nanotainer?” he says, sounding horrified. “You can run tests; you just say they are not FDA-approved,” Draper continues, referring to the nanotainer. “If that’s not the way it’s happening, I’m definitely going to give Elizabeth a call about this.” He pauses the interview to pull out his phone.

“I would think they can still use the nanotainer and just have some wording,” he says, typing out a text message to Holmes. “I would think you just put a little warning label on the thing and say the FDA has not agreed to the accuracy of these things.”

Another adviser and board member, Richard Kovacevich, a former CEO of Wells Fargo, says some of the bumps Theranos has encountered are specific to private companies, which aren’t usually prepared to deal with such intense public criticism. Responding to a situation like this, “you need speed, you need evidence, it’s a full-court press,” he says. Theranos “doesn’t have the infrastructure to respond, in a way, and so that probably led people to think, ‘Oh God, there must be some truth to this.’ It’s been behind, in my opinion, up until lately, in refuting the allegations and not focusing on test results.”

Holmes vows to keep up the fight. She decided when she was a teenager that she was willing to sacrifice everything for her calling. She has no personal life to speak of. She doesn’t watch movies or read books. She used to run but mostly gave it up. When she started her company, she says, she researched diet and nutrition and monitored her blood chemistry. She determined that a vegan, macrobiotic lifestyle would allow her to “train” her body to work all the time and to function on very little sleep, like an android. “After a while you just get so deep into it,” she says. “In the normal sense, I could take a vacation, but this is where I want to be.”