Professionalism/Tyler Shultz, Elizabeth Holmes, and Theranos

Background

Elizabeth Holmes and the Beginning of Theranos

Elizabeth Holmes (born February 3, 1984) is the founder and CEO of Theranos. Holmes was pursuing a degree in electrical and chemical engineering at Stanford University, but she dropped out during her sophomore year to found Theranos in 2003 at the age of 19. Even from an early age, those who knew Holmes say she was confident and ambitious.

The goal of the Theranos technology was to perform hundreds of blood tests from only a few drops of blood. This would allow blood tests to be performed more quickly, less expensively, and it would eliminate the need for painful venous draws. Doctors could order multiple blood tests on the same small blood sample, receive results quicker, and diagnose their patients faster. Theranos promised to bring affordable, personalized healthcare to millions of Americans. Although this idea sounded great, people who undestood the science behind it, like Stanford professor Phyllis Gardner, warned Holmes that performing this many blood tests on that amount of blood was simply not feasible.

Investors in Silicon Valley were infatuated by Holmes and Theranos. Not only was the idea revolutionary, but Holmes' charismatic personality intrigued investors, and she was often described as the next Steve Jobs. Over the course of its history, Theranos rasied $1.3 billion. By 2014, it was valued at over $9 billion. At the age of 30, Holmes became the youngest self-made female billionaire in America. She was featured on the cover of Forbes and Fortune magazine and did a series of television interviews.

After allegations of unethical practices were made public by the Wall Street Journal, the company's reputation began to unravel. Theranos tried to cover up its wrongdoing, but the damage had already been done. In 2018, the company dissolved, and Holmes faced criminal charges for multiple counts of fraud.

Sunny Balwani and Company Culture

Sunny Balwani and Elizabeth Holmes met in a summer Mandarin program in China in 2002 and began their romantic relationship shortly after. They kept their relationship a secret even after Balwani was hired as the company’s president and COO. Balwani is often blamed as the driving force behind the secrecy and fear that existed at Theranos. When employees began raising concerns about the accuracy of tests, Balwani was the one who would quickly shut them down. He would threaten their positions at the company and attack their character, in order to discourage them from raising any further concerns. He ensured that the scientists and engineers never interacted or shared information. Those who managed to get a job interview at Theranos had no idea what position they were applying for. Applicants only found out about the job description when they were hired. Any employee who spoke out against the company was met with legal threats immediately. Former employees who attempted to write job descriptions on their LinkedIn pages received letters from lawyers. This level of secrecy extended outside the company as well. Nobody knew the underlying mechanisms behind the technology. In an interview with the New Yorker, Holmes was asked to describe how the technology worked. Her response: "a chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel."

Aside from the high level of secrecy, the board of directors assembled for Theranos was unlike other companies in the health care industry. Holmes hired dozens of older men who had minimal experience in health care but boasted impressive resumes. The board included Henry Kissinger, former secretary of state, William J. Perry, former defense secretary, and George Shultz, former Georgia senator and chairman of the Armed Services Committee. Even Balwani had no experience in medicine, having only worked at large software companies such as Lotus and Microsoft.

Holmes and Balwani's Relationship

As previously mentioned, Holmes and Balwani did not tell the public about their relationship. However, they lived together and drove to and from work together, so many employees report that it was obvious the two were romantically involved. Text messages between Holmes and Balwani show the power that Balwani had over Holmes. After receiving a compliment from Balwani, Holmes states, “you know what these things coming from you mean to me. What you say to me equals my confidence.” Balwani was an older, experienced individual in the tech industry, so it is not surprising that the young, aspiring entrepreneur looked up to him. Additional evidence suggests that Balwani gave Holmes specific instructions about what to eat and how to act. So not only did Balwani have profound impact at Theranos, but the extent that Holmes trusted and listened to him may have impacted her decisions as CEO and founder of the company.

Walgreens Partnership

Theranos began its partnership with Walgreens in 2013. Their idea was to bring the Theranos technology to customers through on-site clinics. They opened nearly 40 centers in Phoenix and sold more than 1.5 million blood tests that yielded 7.8 million test results for nearly 176,000 customers. Despite having very little information about the technology, leadership at Walgreens believed in Holmes and were excited about their partnership.

However, there were many red flags that Walgreens employees and customers started noticing. All tests had to be sent back to Theranos for analysis instead of the quick, on-site tests that were envisioned by Walgreens. Theranos consistently missed deadlines and kept secrets about many of the aspects of their tests. Despite the extensive marketing of finger stick tests, many customers still reported having to undergo a traditional venous draw for one or more of the tests they had ordered.

This partnership is the reason that thousands of customers were exposed to millions of untrustworthy test results. Brittany Gould was the first customer to be called as a witness against Holmes. After 3 miscarriages, Gould was pregnant and took a Theranos blood test which showed dramatic hormones changes, resulting in a false miscarriage diagnosis. Fortunately, her nurse practitioner, Audra Zachman, who also testified, did not trust the results and advised her to get another test. Because of this, Gould later gave birth to a healthy baby girl.

Whistleblowers

Ian Gibbons

In 2005, Holmes appointed Ian Gibbons as the Chief Scientist of Theranos. Gibbons was a British scientist with a background in diagnostic and therapeutic science. Soon after joining Theranos, Gibbons was diagnosed with cancer. He started to notice that many of the test results for Theranos technology were incorrect. He believed in Holmes' idea, although he did consider it more of an idea than a working product, and spent time trying to prove that the technology could be functional. Gibbons opposed Holmes' marketing strategies, and he told her that he did not think the technology was ready to be used on patient samples. Richard Fuisz was a family friend of Holmes who was in the middle of a lawsuit with Theranos for allegedly commiting patent theft. Since Gibbons was listed as an author on Theranos patents, he was subpoenaed but did not wish to testify. He realized that he was faced with a difficult decision: either testify truthfully about the inaccuracies in the technology, which would damage Holmes' reputation and jeopardize the company, or lie under oath, which is illegal and could put consumers at risk. After bringing his concerns to Holmes and Balwani, he was slowly stripped of his responsibilties at the company. Gibbons' wife, Rochelle Gibbons, claims that he was terrified of losing his job if he went public with the truth. According to Rochelle, Gibbons was a large obstacle to Holmes' plans to move forward with commercial partnerships. On May 16, 2013 Holmes' called Gibbons, and requested to speak with him the next day. Gibbons assumed that he was going to be fired. That night, he attempted suicide and died a week later in the hospital.

Tyler Shultz

Tyler Shultz was working at Theranos in 2014. He was the grandson of a member of the Board of Supervisors, George Shultz. It was through his grandfather that he met Elizabeth Holmes, and was hired as a summer intern at Theranos during his junior year at Stanford, leading him to be brought on as a full-time employee. He worked as a Research Engineer on the assay validation team, responsible for verifying the blood tests run on Theranos' Edison Machine, a machine said to be capable of running 200 tests from a few drops of blood. It was in this validation team that he noticed significant quality control failures, leading him to express his concerns internally, but faced such hostility that he resigned from the company after eight months of employment. According to Tyler, Theranos was fabricating test results. He claimed that employees were encouraged to throw out bad test results and ignore failures. They were instructed to use the Theranos testing technology, Edison, even though it had an accuracy level of approximately 65% (target accuracy is 95%). Tyler was incredulous that Theranos was knowingly sending false results to its customers. Tyler sent Holmes an email detailing his complaints with the company and quit the same day. In the months following, Tyler was threatened by his grandfather and Theranos lawyers. He made claims that he was followed by Theranos private investigators who were trying to prove he was breaking his nondisclosure agreement. Tyler did talk to a reporter, John Carreyrou, a writer for the Wall Street Journal, who had become skeptical of Holmes. With the insider information, Carreyrou wrote his first scathing article on Theranos "Hot Startup Theranos Has Struggled With Its Blood-Test Technology." Tyler's parents have paid over $400,000 in legal fees.

Erika Cheung

Erika Cheung obtained a dual degree in linguistics and molecular and cell biology from UC Berkeley. Cheung was a recent graduate that landed a role at Theranos in 2013. She was a lab assistant and noticed major issues within a month of joining the company. During her time at Theranos, she worked closely with Tyler Shultz. Together they discovered Theranos had been removing outliers from its data, and that they had been running blood samples in a secret lab with commercially available machines, not the Edison Machines the company claimed to be using. In 2015, she reported lab testing problems to federal agents and health regulators. Like Shultz, she was a key source for Wall Street Journal reporter John Carreyrou, aiding in the writing of his breakout 2015 article on the company. In 2021, Cheung, who became a high-profile witness for the federal government, testified in the fraud trial of Elizabeth Holmes that Theranos deleted outliers in its blood test data to ensure that its faulty Edison Machines would pass quality control tests. Despite the defense claiming rigorous and complex procedures were in place, Cheung stated that the company's priority was to conduct tests as quickly as possible, and that the Edison machines often failed their quality control checks. Cheung made the case that Holmes intentionally misled investors, doctors and patients about how well Theranos' blood testing technology worked.

Downfall

In 2015, John Carreyrou's Wall Street Journal article revealed that the technology was inaccurate and posed a threat to patient health and safety. Following this, and due to a letter from Erika Cheung, the Centers for Medicare & Medicaid Services (CMS) conducted a surprise inspection of Theranos' lab facilities and found that the blood testing was inaccurate, with twenty-nine percent of quality control checks deviating from the company's own reported accuracy standards. The agency revoked Theranos' Clinical Laboratory Improvement Amendments (CLIA) certificate in July 2016, and banned Holmes from owning, operating, or directing a lab for a minimum of two years due to the systemic failure of her organization to comply with basic CLIA requirements.

Theranos dissolved in September 2018, and Holmes and Balwani were charged with multiple counts of fraud and conspiracy in June of the same year. They both pleaded not guilty, and their trial took place in 2021. Holmes was sentenced to 11 years and 3 months in federal prison, while Balwani was sentenced to 12 years and 11 months.

Timeline

2003: Elizabeth Holmes founds Theranos.

2010: Holmes raises $45 million in funding.

May 2013: Gibbons, Theranos' Chief Scientist, attempts suicide and dies a week later.

September 2013: Theranos partners with Walgreens to put their blood testing equipment in Walgreens stores.

June 2014: Theranos raises $400 million in funding and is valued at $9 billion.

October 2014: Shultz emails Holmes describing his complaints with the company.

February 2015: Theranos receives secrecy critique from the American Medical Association.

July 2015: Theranos receives FDA approval for one test. This remains their only test to be approved.

October 2015: John Carreyrou of the Wall Street Journal publishes first scathing article claiming that Theranos' technology does not work as claimed.

January 2016: Theranos found to have violated clinical standards.

June 2016: Walgreens ends their relationship with Theranos.

July 2016: Holmes suspended from blood testing business for 2 years.

2017: Theranos faces investigations from FBI, SEC. Holmes offers shares to investors in return for promises not to sue.

September 2018: Theranos is dissolved.

November 2022: Holmes is sentenced to 11 years and 3 months in federal prison.

December 2022: Balwani is sentenced to 12 years and 11 months in federal prison.

Professional Ethics

There are many lessons that can learned from the rise and fall of Theranos. Gibbons, Shultz, and Cheung exemplify the importance of putting the good of your profession over your career. Even when management threatened their jobs and future careers, they continued exposing the unethical practices of Theranos, Holmes, and Balwani.

People praised Elizabeth as an extraordinary young, female entrepreneur. Board members, investors, and employees blindly believed in the Theranos technology without any scientific backing or proof. Holmes may have been a persuasive and confident woman, but that does not make her a hero that can do no wrong.

Humans tend to rationalize and justify their actions when they really want something. Also, when people believe they are doing something good, they may begin thinking that their cheating and lying is not actually wrong. In behavioral psychology, the theory of cognitive dissonance explains the discomfort felt when one’s actions contradict their values or beliefs. To remedy this, people may bend reality in order to defend their actions. It is unclear whether Holmes would call herself a liar, or if she genuinely believes her actions are justified because she was trying to help people. Nonetheless, the case of Elizabeth Holmes and Theranos shows the importance of professionalism in terms of abiding by your profession’s code of ethics and speaking out if you witness any unethical practices in your company.