One of the most compelling business stories over the past 18 months or so has been that of the Theranos, the developer of a perhaps revolutionary blood testing system, which allegedly allow testing of blood with such a small amount a person would only need their finger pricked. No longer would there be the need to go to a doctor’s office for vials of blood to be drawn but could have it all done at your local apothecary; with drop of blood collected in something called a nanotainer, the sample could be run through the company’s proprietary testing machines to deliver hyper-accurate results.
At least that was the tale the company told. Combined into this tale of a breakthrough technology was the compelling story of the company’s founder Elizabeth Holmes, a Stanford drop-out who founded the company, worked for 10 years to develop the technology, then announced it to the world, all leading to a valuation of over $9 billion. Holmes is a striking fashion maven, always dressed in black pantsuits Her appearance and confidence led investors to rush to put money into the company in its last funding round in 2014.
However, it may soon come crashing down. Beginning in the summer of 2015, with a Wall Street Journal expose into the company, federal regulators have censured the company for using the nanotainer and studies have found the company’s test results are suspect. A partnership with the drug chain Walgreen’s is in danger of collapsing. In March, 2016, the US government made a preliminary ruling of banning Holmes from the blood-testing industry for a period of two years. Now the SEC is investigating the company for allegedly misleading investors in the funding round of 2014.
There are many lessons for the compliance professional from the Theranos story. One of the most important is that if you have a highly profitable business venture or new product line, it is because there is an attendant high risk. In the case of Theranos, it was new and untested technology which the company brought to market before all the bugs were worked out. With the high profile nature of the new product line and the company CEO herself, there was bound to be a high degree of skepticism and scrutiny. Obviously the company was ready for neither.