Lessons from Marketing Blunders in Healthcare

The “Miracle Cure” Ads by Theranos (2015)

A cautionary tale of ethics and entrepreneurship

The “cult of the genius young founder” has been a problem in Silicon Valley for decades, said John Carreyrou, two-time Pulitzer Prize-winning investigative reporter at The Wall Street Journal, who first broke the story in 2015. “So many stereotypical Silicon Valley men have used the “fake it ‘til you make it” mentality to climb to the top, and Holmes felt entitled to do the same.”

From the excitement of a disruptive biotech startup to the sudden accusations and revelation of a multibillion-dollar fraud, the saga of Theranos dominated headlines for years. It was captivating, yet very disturbing. Being someone who personally developed immunodiagnostic tests for years, I know how challenging the process can be and how vital accuracy needs to be. Lives depend on it.

How can this happen in scientific research and garner approval for commercialization?

Theranos promised to deliver a groundbreaking blood testing technology that could revolutionize health care. It was led by a young Silicon Valley phenom named Elizabeth Holmes. But things began to unravel early in 2015, when Carreyrou got a call from Dr. Adam Clapper, a pathologist and blogger about laboratory frauds who wondered, “have you heard of this ‘wunderkind’ out of Silicon Valley named Elizabeth Holmes and her startup, Theranos?” Carreyrou had, in fact, read a New Yorker profile and had already been skeptical. Holmes was a Stanford dropout with barely a year and a half of medical studies under her belt, who had apparently transformed diagnostics after just two semesters of chemical engineering classes at Stanford.

This seemed too good to be true.

The whole affair turned out to be a fraud, duping the media and the public, and stealing millions from savvy investors. “She was very secretive,” Carreyrou said. “She didn’t want to hear ‘No.’ People were constantly being hired and fired. The lies became bigger. The corners that were cut became bigger.”

Holmes did not start off with malicious intent. She was aggressive and ambitious and hoped to become the “next Steve Jobs.” However, if technology were that easy, someone would have figured it out already. Holmes’ ambition could not tolerate failure. The pressure and unrealistic expectations compromised integrity and created an incredibly toxic work environment.

In 2013, Holmes and her business/romantic partner launched their flawed blood testing technology. They wanted to continue to raise capital and needed to show real-world results of what they had achieved but the test just could not. While prevailing technology required one vial of blood for each diagnostic test conducted, Theranos claimed to be able to perform over 240 tests ranging from routine health assessment to complex genetic analysis, with just a single pinprick of blood. Automated, fast, and inexpensive, Theranos seemed to have re-defined what was possible.

Over its 12-15-year lifespan, Theranos raised almost $1 billion, with over 75% of that funding raised after the technology was in the market. Holmes launched the product prematurely for the express purpose of misleading investors.

But how did this 19-year-old college dropout gain such trust from so many savvy investors? Even though she lacked scientific gravitas, Holmes had passion and an innate sense for business. Her first key connection was Don Lucas, a well-known venture capitalist in Silicon Valley. As the Chairman of the Board of Theranos, he introduced Holmes to his contacts. She got into a pattern was befriending older man to champion her. She connected with ninety-plus-year-old former Secretary of State, George Schultz, who opened more doors to respected connections to join him on the Board of Directors which was now stacked with luminaries from the political and military worlds. Investors were drawn to an impressive Board and opened their wallets. But there was a glaring problem that somehow did not register. None had any knowledge of medicine or diagnostics.

Whistleblowers

Some Theranos employees started raising concerns, often at great personal, professional, and legal risk. Theranos’ first CFO questioned demos for investors which were ostensibly fake. He was fired on the spot for not being a “team player.” Former Theranos employees, Erika Cheung and Tyler Schultz, whose grandfather was George Schultz, began talking to Carreyrou about what was happening at the company. They revealed lies that were told to the board members, an unrelenting culture of secrecy and intimidation, technology that could not pass quality standards, and fake results sent to patients, upon which life-changing medical decisions were being made. The company had been built on a bunch of audacious lies. True to form, the management counter-attacked leakers of information aggressively as Holmes and her lawyers were determined to stop at nothing to prevent the negative headlines.

As Carreyrou exposed fraud, Elizabeth Holmes drew harsh criticism from the media and the public. Astonishingly, she never showed any signs of remorse or even responsibility. On the day Theranos’ doors closed, Holmes attended the Burning Man festival, wearing fur. Carreyrou said, “this is someone with a great sense of entitlement. She has developed a sense of persecution and still refuses to concede that she did anything really wrong.”

Outcome

Theranos’ outright lies and wildly exaggerated claims to stakeholders led to investigations and their collapse. Management was found to have committed fraud by falsely claiming that their technology could perform a wide range of medical tests accurately using only a small blood sample. In reality, the technology did not work, and Theranos often relied on traditional methods and partners to run tests, producing inaccurate results for patients and misleading information to investors.

In 2018, Holmes stepped down as CEO. In January 2022, alongside her former company president, Ramesh Balwani, Holmes was found guilty on four charges of defrauding investors, and in November was sentenced to over eleven years in prison. Holmes was also accused of destroying evidence in Theranos’ final days in business. The blunder significantly damaged public trust in healthcare startups and innovation.

A TV adaptation of the scandal, called “The Dropout,” came out in March 2022 across Hulu and Disney+, starring Amanda Seyfried as Holmes – for which she won a Primetime Emmy Award.

Key points about Theranos’ wrongdoings:

• Misrepresenting technology — Theranos marketed a device called the “Edison” claiming it could run numerous tests with a single drop of blood, but this technology was largely non-functional.
• Falsified test results — Theranos provided inaccurate results to patients by either manipulating data or using alternative testing methods behind the scenes. It was not using its own technology to run the majority of its tests because it was inefficient and faulty.
• Deceptive practices towards investors — Elizabeth Holmes and her company leadership misled investors about the capabilities of their technology to raise large sums of money.
• Culture of secrecy — Theranos fostered a culture where employees were discouraged from raising concerns about the technology’s flaws.

Consequences of Theranos’ actions:

• Patient harm — Patients and doctors who received the Theranos tests may have made important medical decisions based on inaccurate results.
• Investor losses — Investors lost significant amounts of money when the truth about Theranos’ technology was revealed.
• Legal repercussions — Elizabeth Holmes was convicted of fraud and sentenced to prison.

Lessons:

Theranos case offers four lessons for researchers and the public.

1. People should stop treating Theranos and Elizabeth Holmes as exceptional cases. There are structural issues in the system and misaligned incentives. Individuals and institutions need to change their thinking and habits to prioritize ethics. It is not just a few ‘bad apples’ but rather the sidelining of ethics in education and training that paves the way for violations.
2. Everyday scientists and engineers face ethical choices, whether they are conducting mundane or revolutionary research. In 2023, the annual number of papers retracted by research journals topped 10,000 for the first time. Most analysts believe the figure is only the tip of an iceberg of scientific fraud.
3. Ethical crises are preventable when people recognize that ethics is a foundational, essential, and structural part of research practice. It is critical to engage ethics experts and social scientists early in the development of innovative technologies and to treat their guidance as an integral part of the research process.
4. Investors should do their homework instead of blindly believing the pitch they hear.
5. The FDA assigns medical devices to one of three categories based on risk. Class I devices, such as manual stethoscopes are considered low risk while the riskiest devices, such as implantable pacemakers are assigned Class III. The higher the class, the greater the number of requirements a company has to meet before making the device available to consumers. The FDA concluded in 2015 that the Edison was a Class II device, but Theranos claimed it was Class I and for two years was shipping it without proper clearance from the FDA. In addition Theranos tests fell under the regulatory category of laboratory-developed tests, which refers to a type of in vitro diagnostic test that is designed, manufactured and used within a single laboratory. The FDA has long decided not to enforce pre-market review of this type of test, meaning Theranos was not required to have its tests evaluated by regulators before offering them to patients. It may be time for the FDA to revisit these policies.

“Silicon Valley’s culture made someone like Elizabeth Holmes possible and able to thrive,” Carreyrou said. She was just 30 years old when Theranos was at its peak. Having raised over $700 million in investment from the likes of Larry Ellison and Tim Draper, the company had become the rising star of Silicon Valley and was valued at over $9 billion. Holmes, with a share of more than half that, was heralded as the female Steve Jobs. According to Carreyrou, “I think this was a case of someone with real vision and dreams, getting ahead of herself and getting caught in the cycle of lies.”