On 31 August, disgraced medtech entrepreneur Elizabeth Holmes is set to go to trial on multiple counts of conspiracy and fraud. If convicted, the defendant faces up to 20 years in prison.
Holmes has been charged with nine counts of wire fraud and two counts of conspiracy to commit wire fraud, as has former Theranos president Ramesh ‘Sunny’ Balwani. Balwani will be tried separately next year.
The pair are accused of misleading both patients and investors about the efficacy of the blood tests developed by Holmes’s company, Theranos, as well as lying to investors about the projected revenues of the company. While it was once worth around $9bn, Theranos has now become synonymous with corporate deception.
The trial is finally set to commence in San Jose, California, after a series of delays related to the Covid-19 pandemic and Holmes’s surprise pregnancy. Holmes gave birth to her baby on 10 July.
What is the case against Theranos?
Holmes and her company Theranos claimed to have developed a blood test that could diagnose a wide range of conditions, from coeliac disease to HIV, using just a few drops of blood. These were to be collected through a fingerprick and collected in a device called a nanotainer before analysis in the company’s Edison machines.
The Edison machines were supposed to carry out immunoassays, detecting substances in the blood through the use of an antibody or antigen. Inside the device a robotic arm was supposed to take samples, dilute them, add antibodies and a reagent and reveal the result. The machines did not yield particularly accurate results and were shoddily designed, with pieces of machinery falling off and doors that couldn’t be closed.
The case against Holmes alleges she repeatedly lied to investors, including US pharmacy chain Walgreens, which had Edison machines installed in its stores, about why the devices weren’t working.
An October 2015 article by John Carreyrou of the Wall Street Journal signalled the beginning of the end for Theranos. After interviewing ex-employees Carreyrou alleged that, alongside incompetent management policies, the company had hugely overstated the capabilities of its technology. He also revealed many of the tests Theranos claimed it had performed using the Edison machine were instead performed using traditional blood testing machines purchased from rival companies. A later WSJ article also alleged that Theranos had rigged its tests to produce better results.
The situation continued to escalate, with Theranos facing legal disputes with both the US Centers for Medicare & Medicaid Services (CMS) and Partner Fund Management (PFM), which invested £96.1m in Theranos’s Series C-2 round in 2014. While Theranos was able to settle both of these cases in 2017, the US Securities and Exchange Commission (SEC) then charged Holmes and Balwani with massive fraud in March 2018.
Elizabeth Holmes on trial: will she avoid prison?
The prosecution has a strong case against Holmes, but her legal team has a number of cards to play that could see her escape a prison sentence.
The defence could claim good intentions. They may be able to argue that Holmes was simply caught up in the Silicon Valley “fake it til you make it” culture, truly believed in Theranos’s product and never knowingly misled anyone.
Holmes may also take a plea agreement and cooperate with prosecutors in their case against Balwani. However, any plea deal is likely to include some prison time, meaning it may still be more appealing to Holmes to try and convince at least one juror on the panel of her innocence.
The defence may also call California State University clinical psychologist Mindy Mechanic as an expert witness. Mechanic is an expert on the psychosocial consequences of trauma, particularly in cases of violence against women, and could testify about a “mental disease or defect” suffered by Holmes. Key court filings on the subject remain under seal, but this could act as an argument to jurors that Holmes was unable to form intent to commit fraud because of a traumatic relationship she experienced.
It’s also possible that the defence team may not present any testimony or evidence. This strategy would mean jurors would need to decide for themselves whether prosecutors had proved their case beyond reasonable doubt. The strategy isn’t unusual in criminal court and even a hung jury would ultimately be a win for Holmes.
Elizabeth Holmes: casting a long shadow over femtech
Funding for femtech companies – which are largely female-led – has lagged behind media hype surrounding the space over the past few years. A 2017 study found that during investment pitches women are asked more preventative questions about potential loss and risk – which can be harder to spin in a positive light – while men are asked more promotional question about upside and gains.
The disadvantage faced by female entrepreneurs is historically ingrained and can hardly be attributed exclusively to Holmes’s legacy. But the Theranos case still casts a long shadow over the medtech start-up space, six years after Carreyrou’s exposé.
Female entrepreneurs have told the New York Times that they are constantly compared to Elizabeth Holmes, even when their companies work in very different areas.
Alice Zhang, who founded AI drug discovery company Verge Genomics, has been asked to talk about Theranos at events and been compared to Holmes by prominent industry columnists. DotLab founder Heather Bowerman, whose company has developed a test to help identify endometriosis, says she has been required to explain how DotLab would be different to Theranos in investor meetings. Meanwhile Julia Cheek, founder of Everly Health, had advisors suggest she dye her blonde hair so that the frequent comparisons between her and Holmes might stop.