Bad Blood: Secrets and Lies in a Silicon Valley Startup

Clinical Laboratory Improvement Amendments (CLIA) certificates are issued to labs that meet the standards of the Centers for Medicare and Medicaid Services (CMS), the federal agency responsible for managing Medicare and inspecting medical labs. Theranos lost its CLIA certificate in 2015 after CMS inspections found serious flaws in its laboratory practices. 

The Centers for Medicare and Medicaid Services (CMS) is a federal agency charged with managing Medicare and coordinating Medicaid programs with state governments. Its purview includes inspection of clinical laboratories for compliance with quality standards. In 2015, after investigating Theranos labs, CMS cancelled the company’s CLIA certificate, effectively halting the company’s operations. 

A toaster-sized blood analyzer intended for home use, the Edison—originally named Theranos 1.0—was designed to receive a drop of blood from a cartridge placed into a slot in the machine, push the blood through tiny tubes coated with antibodies, and record signals from the tubes. A later iteration used an internal robotic device to manage the blood tests. The resulting signals would be sent to a doctor’s computer, where they would be studied, the doctor altering the patient’s medicines as needed. The machine would greatly speed up blood draws, improve patient care, and make pharmaceutical drug testing much faster. Unfortunately, the machine was balky, but Theranos CEO Elizabeth Holmes rushed development and sales demonstrations, and the company was forced to jury-rig the machines and cover up their flaws, using Edisons for some tests and making the bulk of assays on conventional equipment. 

The Food and Drug Administration is charged with overseeing certain types of medical testing equipment. In 2015, whistleblowers contacted the agency, and its inspectors made thorough checks of Theranos labs, ruling that their nanotainers were unlawful.

In startups, funding by investors is organized into rounds. The first round collects enough money to start developing a business; if things go well, the business ramps up production, which usually requires another round of funding. First rounds are called “Series A,” second rounds constitute “Series B,” and so forth. At each round, company founders exchange stock in their firm for cash, so that more rounds mean less ownership for the entrepreneurs. Theranos underwent at least three funding rounds, plus loans and other financial assistance. 

The miniLab was the next generation of Theranos blood analyzers after the original Edison. To the old device’s photomultiplier tube would be added three analytical machines. The first was a spectrophotometer, which would beam “rays of colored light through a blood sample and measur[e] how much of the light the sample absorbs” (96) to determine amounts of various molecules in the sample. The second was a cytometer, “a way of counting blood cells […] to diagnose anemia and blood cancers, among other disorders" (96). The third was an isothermal amplifier, which multiplies tiny DNA samples until they’re large enough to be identified. The miniLabs never quite worked correctly, but Elizabeth Holmes continued to tout them as the great new product from Theranos. 

A nanotainer was a proprietary part of Theranos technology, a miniaturized tube meant to contain a few droplets of blood for analysis in a blood-reading machine. In practice, nanotainers were tricky to use, their contents sensitive to temperature and liable to clot up during shipping and become useless. Had the blood readers worked properly in local clinics, shipping wouldn’t have been necessary. In 2015, the FDA found that nanotainers weren’t acceptable for use, effectively banning them. 

Silicon Valley is the informal name for a series of towns that lie at the center of the tech revolution, along the southwestern shore of San Francisco Bay between San Jose and San Francisco. In the middle is Palo Alto, home of Stanford University, ground zero for Silicon Valley, and Elizabeth Holmes’ alma mater. Over the decades, the Valley has nurtured many famous startups, from Hewlett-Packard to Apple to Facebook and many others. It’s the place to be for bright people with new technical ideas and the grit and determination to make something of those ideas. It’s also highly competitive, has a unique culture and its own business attitudes, and is a world center for venture capitalists looking for the next big technological advancement to invest in. 

Named for “therapy” and “diagnosis,” Theranos was a company that made blood readers designed to analyze in moments the status of a patient’s blood, speeding and simplifying decisions on patient care made by physicians and drug researchers. Adverse reactions to medicines could be detected and the dosage altered. At least, that’s what CEO Elizabeth Holmes claimed the company could do. However, none of her novel blood-test machines worked properly, instead giving out wildly inaccurate readings, and her staff had to resort to using conventional machines to complete the assays. At one time valued at $9 billion and boasting contracts with Walgreens and Safeway to install blood-testing centers in their stores, by late 2018, Theranos had settled tens of millions of dollars in investor and patient lawsuits, laid off its workers, and ceased operations.