Theranos: The Unicorn that Wasn’t

Business Ethics - Group 1 Case Analysis

21P068 ARANYA GHOSH

21P070 ARPITA MATHUR
21P077 SAKSHAM MANWATI
21P080 GURMEET SINGH
21P097 NIKITA DUTTA
21P118 VIHANG SHARMA
 Major Characters Involved
Journalist and author
of October 2015 WSJ
President and Chief article in in which he Aggressive litigator;
Operating Officer of claimed tried to shut up
Theranos (2009-2016); that the majority of whistle-blower Tyler
long-time Theranos’s blood tests Shultz and prevent
romantic partner of aren’t done on its John Carreyrou from
Elizabeth Holmes Edison machines publishing WSJ article
Ramesh Balwani John Carreyrou David Boies

Elizabeth Holmes Tyler Shultz Avie Tevanian

Founder of Theranos; Whistleblower; Friend of Steve Jobs
CEO of Theranos from employee of Theranos and top-level Apple
2003-2018 (2013-2014); grandson employee (1997-
of George Shultz 2006); member of
Theranos’s
Board of Directors
(2006-2007); asked to
resign after “asking
too many questions”.
 2005-2006 2012-2013 Late 2015
Early 2012: Theranos builds blood lab to July 2, 2015: Theranos receives its first FDA
handle samples from Safeway employee clinic approval for a test (for the HSV-1 herpes virus)
February 11, 2005: Theranos receives first $5.8
& Functioning (but unreliable) prototype of July 23, 2015: Vice President Joe Biden visits
million in Series A funding
miniLab is completed Theranos lab
Early 2006: Work begins on refining Theranos 1.0
Fall 2012: Theranos hires Chiat\Day to manage October 2015: Elizabeth Holmes featured on
into a prototype
its publicity cover of Inc. magazine, with the headline “The
February 21, 2006: Theranos receives $9.9
September, 2013: Theranos debuts on Next Steve Jobs”
million in Series B funding
national stage with Wall Street Journal feature October 21, 2015: Elizabeth Holmes presents at
July-August 2006: Work begins on Theranos’
story“Elizabeth Holmes: The Breakthrough of Wall Street Journal D.Live Conference
Edison
Instant Diagnosis” & Lucas Venture Group October 15, 2015: First Carreyrou story is
November 2006: Theranos does first pharma
leads a $15 investment in Theranos, valuing it published in the Wall Street Journal
company demo (Novartis) with Theranos 1.0
at $6 billion November 10, 2015: Safeway ends its
November 7, 2006: Theranos receives $28.5
November 13, 2013: Walgreens publicly partnership with Theranos, after building 800
million in Series C funding
announces partnership with Theranos, along wellness centers in its stores at a cost of $350
with the opening of its first wellness centers million
in Phoenix, Arizona area

February 4, 2014: Partner Fund invests $96

July 8, 2010: Theranos receives $45 million in
million in Theranos, valuing it at $9 billion June 12, 2016: Walgreens ends its contract with
Series D funding, valuing Theranos at $1 billion
June 12, 2014: Elizabeth Holmes featured on the Theranos
August 2010: Theranos strikes deal with
cover of Fortune July 7, 2016: CMS suspends Theranos’ CLIA lab
Walgreens to place devices in its stores, with a
July 2014: Elizabeth Holmes listed number nine license
pilot scheduled to begin by mid-2011
on Fortune “40 Under 40” August 1, 2016: Elizabeth Holmes appears at
Early 2011: Work begins on Theranos’ miniLab
December 15, 2014: Elizabeth Holmes featured in American Association for Clinical Chemistry
2011: Theranos forms partnership with Safeway,
long profile in New Yorker conference
with Theranos agreeing to offer blood testing in
May 2015: Elizabeth Holmes appointed a November 8, 2016: Walgreens sues Theranos for
newly-renovated wellness centers in Safeway
Presidential Ambassadorship for Global full value of its investment in the startup, $140
stores nationwide
Entrepreneurship by President Barack Obama million

2010-2011 2014-Early 15 2016

 Conduct
• Through Theranos 1.0, The Edison and The miniLab and the lack of pharma
investors, it was apparent that the ideology being projected by Theranos was
overly-ambitious and had absolutely no reliability even for tests they could perform

• Being able to do 12 of the over 250 claimed tests at best, and that too with
the highest accuracy of 65%, it was an understatement that the fraud being
Conduct Character run by Elizabeth Holmes was a sure-shot loss to its investors and a potential
death sentence to its customers. Fabrication of results came as easy to them
as breathing as it was necessary to present a perfect picture to the investors

• Elizabeth Holmes was volatile and lashed out at employees who expressed
logical doubts about the products. Ramesh Balwani later echoed the same
sentiment, creating an environment of oppression
Consequences Care Extended
• There was regular fudging of financial records and forecasts, growing wilder
and wilder with every round of partnerships and investments. Many times
the company books and evaluation was re-worked on the whims of
Elizabeth’s and how “A deal was all but done” without them being actually
anywhere near finalization

• The claims of being more accurate than traditional testing just because
studies show that 93% of the errors in testing are due to human error were
falsified even when the use of expired chemicals, the cross-contamination
and incorrect use of equipment and overheating were creating problems for
Theranos’ products
 Character
• The interaction within and outside the organization was severely limited,
with secrecy being prioritized over “work”. Even the company’s IT
infrastructure was designed to limit interactions to lessen potential leaks

• A hard legal stance against ex-employees, threatening them that “they

(Theranos) was always watching” and a veil of secrecy along with no
Conduct Character tolerance for any dissent or questions was an oppressive conduct, aimed at
keeping the reality about the fraud under wraps

• The contracts inked with Walgreens, Safeway and U.S. Department of

Defence (DoD) were budding disasters from the start, aiming to target
vulnerable customers and soldiers in a life and death situation despite the
tests being still performed on traditional third-party machinery with
Consequences Care Extended Theranos’ own products producing wild results

• Theranos duped government regulators by not showing them the actual labs
and instead showcasing a front and not letting its partner companies
supervise the tests they were conducting on traditional equipment instead
of their products
 Consequences
• Not expressing any concerns and focusing on being silent was developed in
employees after seeing what some whistleblowers had been put through,
constituting a steady stream of ostracized and terminated employees

• “Indentured Servitude”, wherein the employees in the U.S. on H1-B visas were
hired on priority so as to be able to threaten them with potential deportation
Conduct Character ensured that such employees remained silent, overworked and more likely to
report on other employees who might be looking to oust the secrets of the firm

• Moving from Theranos 1.0 to The Edison and then subsequently to minilab due to
a failure to produce results and advances resulted in the engineers being faced
with unrealistic deadlines, competing with other teams hired for the same project
in a very “Apple-esque” manner, with the addition of the “losing team” being fired
Consequences Care Extended
• Failing to deliver on the promise of all the said tests being performed on its own
machines and instead relying on the traditional machines when deadlines were not
met, along with providing inaccurate results which in one case almost caused a
doctor to prescribe a medication that will have caused miscarriage had it not been
for traditional tests, the jig was up for Theranos as it was being shown for what it
was – a scam

• Partners like Walgreens and Safeway, along with investors sued Theranos to get
their money back for breach of contract and making them void. Criminal cases
were filed against Elizabeth Holmes, Ramesh Balwani and others for running the
scam for over a decade
 Care Extended
• When the then CFO Henry Mosley expressed doubts that Elizabeth might be
misinterpreting information, Holmes, in a very public communication internal to
the organization, declared him “not a team player” and terminated his
employment

• On being asked to reconsider the results of the Pfizer study, which resulted in
Conduct Character the pharma giant pulling out of talks with Theranos, by the top designer, Holmes
suggested to her that she should perhaps reconsider her employment at
Theranos

• Ruport Murdoch, who invested $100 million in Theranos, was asked by Holmes
to stop John Carreyrou from carrying out investigations and talking to Tyler
Shultz and other current and ex-employees. Murdoch refused, saying that he
Consequences Care Extended trusts Carreyrou to be fair and look for truth and Holmes should not be
concerned if everything is alright. Carreyrou ultimately published his article “Bad
Blood” in Murdoch’s Wall Street Journal which resulted in the downfall of the
scam empire

• Elizabeth Holmes, in short, was running a dictatorship, wherein her word was
supreme and there was no scope of doubt or uncertaininty. Overworking
employees was promoted, and anyone standing in her way was essentially
“standing against the best thing humanity has developed”.

• Theranos was sued for damages by its partners and patients and was accused by
SEC of perpetrating fraud for many years against investors, patients and partners
THANK YOU