“The minute you have a back-up plan, you’ve admitted you’re not going to succeed.” – Elizabeth Holmes, founder and CEO, Theranos
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This time last year, Theranos founder and CEO Elizabeth Holmes was on top of the world. Her Silicon Valley startup was valued at $9 billion, it had a blockbuster deal with Walgreens, her picture was plastered on magazine covers and she was heralded as the second coming of Steve Jobs. Then the proverbial s--- hit the fan.
On October 16, 2015, Pulitzer Prize-winning investigative reporter John Carreyrou wrote a page one expose for the Wall Street Journal calling into question the company’s claims that its breakthrough technology could run the full gamut of diagnostic tests from a few drops of blood – in record time and far less expensively than traditional labs.
You probably know what happened next, but ICYMI: the company’s technology was shown to be fatally flawed, its claims were refuted, its flagship California lab was shuttered, its relationship with Walgreens was terminated, its reputation was in shambles and Holmes was banned from the lab testing business for at least two years.
What a difference a year makes.
Above all, Holmes proved to be a feckless leader whose culture of secrecy and opacity doomed the company’s 12-year effort. In an open letter recently posted on the company’s website (you have to marvel at the irony), Holmes announced that Theranos will exit the lab testing business, lay off 40% of its staff and focus on developing a miniLab platform.
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Considering the ban, this would appear to be the only way that Holmes could remain at the helm of her closely held company. And while she announced that “a new executive team” would lead this new direction, the 32-year-old Holmes still appears to be chairman and CEO, according to the website, and in denial about her role in the debacle.
Instead of holding herself accountable for what happened, stepping down as CEO and giving her company a fighting chance to survive, the entrepreneur who infamously told a group of Stanford business school students that, “The minute you have a back-up plan, you’ve admitted you’re not going to succeed,” is instead trying to pivot to plan “b.”
The question is, how will this plan turn out differently than the last one?
The letter says that the company will seek “FDA clearances,” build “commercial partnerships,” and pursue “publications in scientific journals” for its new product line. Considering how effectively Theranos burned all three of those bridges the last time around, I don’t think I’m being the least bit cynical by saying I’ll believe it when I see it.
From the beginning, Holmes considered the FDA to be the gold standard in terms of regulatory approval. But it was that same FDA and other federal regulators who showed up on the company’s doorstep in the aftermath of the Journal piece, audited its facilities, and levied critical sanctions that led to Theranos voiding two-years-worth of blood tests and shuttering its premier lab.
Theranos seems to have a particular problem keeping its relationships together. The Walgreens deal was supposed to be nationwide but never really got past Arizona before the pharmacy chain called it quits. Previously, Safeway sought to end an agreement with Theranos on concerns over missed deadlines and inaccurate test results, even after spending $350 million to build wellness clinics in nearly half its 800 supermarkets.
Theranos also announced several partnerships with big-name healthcare providers, including Cleveland Clinic and Dignity Health, but those relationships never materialized.
And nothing has hurt Theranos more than failing to vet its technology through scientific publication. On the contrary, the company attempted to avoid the rigorous peer-review process entirely, opting instead to use aggressive PR tactics to generate media hype. And when the story started to unravel, Holmes repeatedly promised to publish in peer-reviewed journals, but never followed through.
If I were a federal regulator with the FDA, a potential corporate partner, or a member of the biomedical scientific community, I wouldn’t just be highly skeptical of anything Holmes says or writes, I would simply say “Show me.” Meanwhile, Holmes tells her “stakeholders” that “we are fortunate” to have “the runway,” meaning funding, “to realize our vision.” If I were a stakeholder, I would take that with a big old grain of salt, as well.
Theranos failed to reply to an email request for more details on its “new executive team” prior to publication. If that changes, we will update.