Reference no: EM132241313

A highly decorated board of directors may have been helpful to wunderkind Theranos founder Elizabeth Holmes when she was first trying to legitimize her blood-testing company and raise new funding. Respected names like former U.S. secretaries of state George Shultz and Henry Kissinger lent credibility to the start-up, helping bring in new investors, even if they had no scientific background themselves. But a lack of medical knowledge, it seems, also left some members of the board unequipped, or perhaps merely incurious, as allegations piled up that the company had been misleading the public and investors about its technology. In 2015, The Wall Street Journal began publishing a series of investigative reports that suggested Theranos was not actually using its own proprietary blood-testing device, as investors believed, but rather standard industry equipment to analyze samples. But Shultz and former U.S. Navy admiral Gary Roughead, who were board members at the time, say they never questioned Holmes about the reports.

In depositions that were recently unsealed after an effort by the Journal, Shultz and Roughead testified that they believed Theranos was able to do its testing on Holmes’s own Edison device, despite allegations that those tests were inaccurate. Shultz said that he “didn’t probe into” whether Theranos’s proprietary technology actually worked. “Since I didn’t know, I didn’t have anything to look into,” he said. “I also could observe that sometimes it took longer than other times for the machine to do whatever it did,” he added, referring to Edison demonstrations. “And that was because the things you asked it to do were more complicated than others, but it seemed to do them.” Roughead’s testimony was similar: “I don’t have the information that would tell me that it’s true or not true,” he said in March, referring to reports that Theranos was using standard blood-testing technology instead of its own device. Roughead testified that he didn’t question Holmes, nor anyone else at the company. Both men left the board following an October 2015 story about Theranos but remained on another Theranos “board of counselors” until late last year. (In a statement given to the Journal, Theranos described the depositions as “represent[ing] a misleading version of the record.”)

According to the court documents, the company board “hadn’t commissioned any independent investigation of allegations the company produced inaccurate test results and misled investors, or Ms. Holmes’s culpability for them” as of March 20. The documents, unsealed by a Delaware judge last week, also show that Holmes holds 98.3% of company voting shares. All board decisions have to be made in her presence.

Shultz and Roughead weren’t alone. For years, incredible claims made by Holmes were hyped by a credulous tech press as Theranos’s private valuation ballooned to $9 billion. Billing her technology as a revolution in blood testing that would allow complicated tests to be done with a single finger-prick, Holmes raised about $900 million between 2004 and 2015 from mainly non-traditional, non-Silicon Valley investors. Holmes herself was reportedly on the hook for $25 million in company stock she had bought upfront, though her stake in the company is now practically worthless.

The once-flush company appears to be losing money quickly. The Journal reports that Theranos spent $240 million in 2016, and had $180 million in cash at the end of last year. Company estimates show that Theranos, which has pivoted to develop a new miniaturized blood-testing platform, will have between $51.7 million and $79.6 million at the end of 2017, though that figure doesn’t account for what will likely become millions of dollars in settlement costs. Partner Fund Management, L.P., which sued Theranos for allegedly defrauding the hedge fund, and heard testimony from Shultz and Roughead, settled with Theranos on May 1 for an undisclosed amount.

Theranos has emphatically disputed characterizations of the company as headed toward an inevitable demise. In a statement to the Journal, the company said it “has taken significant strides to address past shortcomings by improving its corporate governance,” and noted it is cooperating with the S.E.C. and the Justice Department on ongoing investigations. “Theranos will work on resolving its remaining legal and regulatory issues and, in parallel, focus on delivering on its founding vision for its remarkable, proprietary technologies,” the company said. In a recent statement announcing the decision to cut its workforce by 40 percent earlier this year, Theranos defended the layoffs as necessary to “marshal its resources most efficiently and effectively” as it works to commercialize its miniLab testing platform.

In a full detailed paragraph explain the primary focus that specifies the secrecy and hubris surrounding the rise and fall of Theranos. Answer the question: Was Ms. Holmes a villain or a visionary?