Elizabeth Holmes and the Rise and Fall of Theranos Inc.
| Case Code: LDEN169 Case Length: 9 Pages Period: 2005-2020 Pub Date: 2021 Teaching Note: Available |
Price: Rs.300 Organization : Theranos Inc. Industry : Healthcare and Services Countries : United States Themes: Entrepreneurship, Business Ethics, Leadership & Values, Ethics in Marketing |
Abstract Case Intro 1 Case Intro 2 Excerpts
Abstract
The case reveals the dark truths about Theranos Inc. (Theranos), a US-based healthcare startup that offered blood testing for medical investigations using a pinprick of blood from the finger. The company was started in 2003 by Elizabeth Anne Holmes (Holmes), a 19-year-old chemical and electrical engineering dropout from Stanford University, US. The case walks the student through Theranos’s growth based on alleged falsified claims and test results. Holmes invented a device for blood testing in 2005 and named it “Theranos 1.0”. The device was, however, challenged by scientists and staff of her own company. In 2007, Holmes remodeled Theranos 1.0 and created another device and named it “Edison”. The Edison too had its flaws and scientists at Theranos didn’t accept it as it was in the experimental stage and wasn’t ready to conduct real blood tests. Holmes, however, ignored the discordant notes and went ahead with the Edison. The device used a “nanotainer” (a small device designed to draw, retain, and analyze a droplet of blood from a patient’s fingertip). Theranos claimed that the Edison could run multiple tests on a patient’s physiology within minutes and at a lower cost than the technology available then in blood testing. She shared the reports of the blood tests done on the Edison and earned the praise of many investors. In 2007, Theranos reached a valuation of US$ 197 million. In 2009, Ramesh Balwani (Balwani), Holmes’ close aide, joined the company. Theranos entered into partnerships with Walgreens in 2009 and Safeway in 2010. In 2011, Holmes created a new device, which she named “miniLabs”. The device, she asserted, could perform up to 200 blood tests using just a finger prick of blood. Theranos used its miniLabs at different Walgreens and Safeway stores, despite continuing objections from scientists at Theranos. In 2014, Theranos was valued at US$ 9 billion and Holmes’s net worth also rose to US$ 5 billion. She was widely feted as a woman leader and the world's youngest female self-made billionaire. The case then describes the unethical practices at Theranos between 2013 and 2014. It describes how Holmes had allegedly lied about the authenticity of the blood test reports to her investors and business partners and how the tests had been conducted using conventional techniques and not miniLabs. The case also describes the allegations that the finger prick blood samples were diluted to make them larger samples so that they could be tested using conventional testing devices. In 2014, three whistleblowers at the company came out to reveal all the alleged lies, unethical practices, and false test results at Theranos, which posed tremendous threats to patients and customers at large. In 2015, most of the truth about the company was revealed by The Wall Street Journal investigative reporter John Carreyrou. In 2016, Theranos’s partnerships with both Walgreens and Safeway came to an end. Numerous lawsuits were filed against Theranos by its partners, patients, and investors. The company eventually became defunct in September 2018, and as of 2019, Holmes and Balwani had both been indicted by a federal grand jury of the US on nine counts of fraud in raising funds for the company, and for putting its customers at risk.
Issues
The case is structured to achieve the following teaching objectives:
- The dark side of entrepreneurship and the need for entrepreneurs to adhere to ethical considerations.
- The issue of entrepreneurs engaging in questionable ethical behaviors, including telling legitimacy lies – intentional misrepresentations of facts.
- The role of business ethics in the long-term sustenance of an entrepreneurial firm.
- The importance of corporate governance in the functioning of an entrepreneurial firm.
Contents
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Introduction
Holmes and Her Experiments
The Dark Truths about Theranos
The Downfall of Theranos
The Verdict and The Way Ahead
Keywords
Entrepreneurship; Dark Side of Entrepreneurship; New venture legitimacy; Legitimacy lies; Corporate Governance; Leadership; Startups; CSR; Morality; Whistleblowers; Stakeholders; Business Ethics; Managing business Ethics, Complexity of Ethical Issues, Ethical Leadership;
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