Theranos Healthcare Start-Up. A Case Study

Seminar Paper, 2019

10 Pages, Grade: 4.0


Table of Contents









“What do you dream will happen by 2025? “That less people will have to say goodbye too soon to people that they love.” (Heaven, D., 2019)”

Theranos, a healthcare start-up, that promised to revolutionize blood testing, diagnoses, and the treatment of diseases, that was founded by Elizabeth Holmes, a Stanford dropout, in 2003, when she was just 19 years old.

Elizabeth Holmes was named one of the richest women and youngest self-made female billionaire in the United States by Forbes. She had a 50 % stake on Theranos, worth $4.5 billion, which was valued $9 billion at that point (McKenna, F., 2018). She was compared to the geniuses of Western culture like Archimedes and Beethoven (Shorey, E., 2019).

After fifteen years of operating Theranos, it turned out; “Holmes was just another start-up scammer who used blustery talk and an unclear vision of her product to sell investors on a relatively flimsy concept” (Shorey, E., 2019).



The idea for Theranos comes from her fear of needles. She pledged that the method would liberate people from the tyranny of venous blood draws (Ledford, H., 2019).


The company’s blood-testing machine Edison was able, based on Holmes’ statement, to gather vast amounts of data through a minimal amount of blood. (Shorey, E., 2019). Further, Theranos state that the machine was able to perform hundreds of tests (Heaven, D., 2019).

Theranos has been awarded five patents. Two patents described a system that enables the collection of a smaller volume of blood than allowed by current methods of testing. Another patent uses sonication technology to extract and disrupt various particles in a blood sample (Cao, S., 2019).

Most tests never worked. The functionality of Edison was currently impossible. The real machine also pretended things worked when they did not. Holmes sold people on this before it had made one. Many employees knew that Edison could not be built (Heaven, D., 2019).

Every American citizen was a potential customer as each of them will have a health issue at some point in its life and require a test. So, Theranos focused on the mass market. Customers would have used Edison because of the low price point, the quick testing procedure, and the none-requirement of a doctor, only a drop of blood.

Theranos required hardware and software to draw the blood as well as to analyze it.

Further, it required patents which were mentioned above and staff members in the Walgreens facilities and the laboratories. Theranos had a headquarter, offices and laboratories, in Silicon Valley.


Elizabeth Holmes, who was the CEO from the very beginning, and Ramesh ‘Sunny’ Balwani, who was the COO with no background in medicine, were the core of the team and oversaw most of the operations. Balwani was not only her right hand, but also her boyfriend (Shorey, E., 2019).

In mid-2017, Theranos announced its chief financial officer (CFO), Philippe Poux, to oversee the economic infrastructure. At a time when the company had no budgeting process, no accurate cash-flow forecasting, and no auditable financial statements. Assets like technology, equipment, and furniture had not been tracked. Holmes had excellent records of who investors were, how much they had invested and when, and at what valuations (McKenna, F., 2018).


Theranos raised up to $700 million from international magnates, business figures, and government officials between late 2013 and 2015.

The first two investors were Tim Draper, the father of a childhood friend, and Victor Plamieri, one of her father’s long-time friends. She raised $6 million by the end of 2004 (Ramsey, L., 2019).

To raise $30 million as a pre-IPO transaction, “Holmes pitched investors with a presentation that claimed Theranos already had six deals with five companies and would have $120 to $300 million in revenue in the following year and a half” (McKenna, F., 2018). The business model was focused on clinical and preclinical trials for pharmaceutical companies and not consumers at that time (McKenna, F., 2018).

The Walton Family, the heirs to the Walmart founder, invested most of the money, $150 million. $125 million were invested by Rupert Murdoch, an executive chairman of News Corp., the Cox family, owner of media properties, and the Secretary of Education, Betsy DeVos and her family, each of them invested $100 million. Further investors were Partner Fund Management, Carlos Slim, Andrea Dracopoulos, the Oppenheimer family, Riley Bechtel, and Robert Kraft (Polina, M., 2018).

Holmes pursued the investors through the careful cultivation of her image which was characterized by her standard uniform, a black turtleneck and dress pants that reminded of Steve Jobs, her deep voice, and her intense and un-interrupted eye contact. It gave a sense of authority, respect, belief, and eccentricity (Shorey, E., 2019). At that point, she had nothing to show them. Besides, her pursuing personality, most of the investors were motivated by the ‘fear of missing out’ (Heaven, D., 2019).

Bill Maris, the founder of Google Ventures (GV), passed on the investment in Theranos because questions about the company’s technology were not answered and the blood testing at Walgreens by the life-science investment team raised more questions about the technology. One of GV’s requirements for investment is that the company is open about its technology (D’Onfro, J., 2015). Theranos treated its technology as a trade secret and refused to answer questions about it.


Theranos’12-person board of directors consists of former cabinet secretaries, former senators, and retired military brass. It started adding experienced members when the downfall has started.

The members were assembled for its regulatory and governmental connections and not for its understanding of medicine and technology. Elizabeth Holmes, the CEO, Henry Kissinger, the former Secretary of States, Bill Perry, the former Secretary of Defense, George Schultz, the former Secretary of State, Sam Nunn and Bill Frist, former Senators, Gary Rougehead, former Navy Admiral, James Mattis, former Marine Corps General, Dick Kovacevich, former CEO of Wells Fargo, Riley Bechtel, chairman of the board of the Bechtel Group Inc., and Sunny Balwani, the COO. The board spoke about Holmes as if she were a visionary. They also stated that she shows integrity and competence (Reingold, J., 2015). The older men succumb for Holmes’ charm (Ledford, H., 2019).

In 2014, Bill Foege, a former director of the Centers for Disease Control and Prevention and a winner of the Presidential Medal of Honor, joined the board of directors (McKenna, F., 2018).

In October 2015, David Boies, the company’s lawyer, joined the board until August 2016 when the Wall Street Journal (WSJ) story hit (McKenna, F., 2018).

In July 2016, Dr. Fabrizio Bonanni, served in several senior roles at Amgen Inc. and Baxter International, joined the board of directors to led a compliance and quality committee to oversee compliance with applicable laws and regulations (McKenna, F., 2018).

In December 2016, Warmenhoven, a Bechtel board member and a former Hewlett- Packard executive, and the executive chairman of NetApp joined the board (McKenna, F., 2018).

In 2017, Kissinger and Schultz left the board, and Mattis resigned from the board (Reingold, J., 2015).


In 2013, its peak, Theranos announced a partnership with Walgreens to operate 45 wellness centers and 40 Walgreens stores in Arizona and California. It also received a valuation of $9 billion. (McKenna, F., 2018). Walgreens signed with Theranos before it had any results. “The WSJ revealed that the company could use its machines to perform only a handful of the more than 200 tests on offer, and even then, the results were unreliable” (Ledford, H., 2019).

In July 2015, Theranos got its first FDA approval for a test for herpes that was the only FDA approval it ever received (McKenna, F., 2018).

In 2016, Holmes began bringing in executives that were tasked with converting the company from a development-stage company into a company that was ready to commercialize its products (McKenna, F., 2018).



The two key figures were Tyler Schultz, the grandson of former U.S. Secretary of State, and Erika Cheung, an undergraduate from Berkeley. Both worked in Theranos’ laboratories. The disarray, the alarming results, and the potential harm to unsuspecting people using the tests were appalling to both (Ledford, H., 2019).

Schultz faced having sold its parents’ home to cover legal fee as Holmes sued it (Heaven, D., 2019).

In November 2015, Cheung sent an email to CMMS and requested an inspection of the Theranos laboratory in Newark, California. Schultz and Cheung cooperated with Carreyrou, the WSJ journalist (Ledford, H., 2019).


Excerpt out of 10 pages


Theranos Healthcare Start-Up. A Case Study
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theranos, case, study
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Friederike Berg (Author), 2019, Theranos Healthcare Start-Up. A Case Study, Munich, GRIN Verlag,


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