June 2, 2016

The richest self-made female in America has her $4.5 billion fortune reevaluated and it's $0.

"[Elizabeth] Holmes’s unusual status, as a young woman who created and controlled a company seemingly valued at about $9 billion, captivated the media: She graced countless magazine covers, including T: The New York Times Style Magazine. Theranos, she said, would revolutionize the lab industry by offering blood tests from a single finger prick at a fraction of the cost of traditional testing...."

From "Elizabeth Holmes, Founder of Theranos, Falls From Highest Perch Off Forbes List."

Here's a New Yorker article from December 2014: "Blood, Simpler/One woman’s drive to upend medical testing." Excerpt:
Holmes told the audience that blood testing can be done more quickly, conveniently, and inexpensively, and that lives can be saved as a consequence. She was wearing her daily uniform—a black suit and a black cotton turtleneck, reminiscent of Steve Jobs—and had pinned her hair into an unruly bun. As she spoke, she paced slowly, her eyes rarely blinking, her hands clasped at her waist. Holmes started Theranos in 2003, when she was nineteen...

The TEDMED crowd listened intently as she spelled out what she sees as the shortcomings of the existing blood-testing business. The tests are too costly, are available at inconvenient times or places, and involve unpleasant syringes. Holmes has an aversion to needles, and her mother and her grandmother fainted at the sight of them and at the sight of blood. Recently, she told me, “I really believe that if we were from a foreign planet and we were sitting here and said, ‘O.K., let’s brainstorm on torture experiments,’ the concept of sticking a needle into someone and sucking blood out slowly, while the person watches, probably qualifies.”

34 comments:

David Begley said...

The WSJ took this company to zero with its stories.

Classic story. Board full of elites with no science background. Private company and no vetting. Former CEO of Wells Fargo says it is legit.

I don't think anyone really knows if the science and business is legit. Big problem.

Laslo Spatula said...

Rounding error, mostly.

Happens to me all the time.

I am Laslo.

Ignorance is Bliss said...

Science is hard.

J. Farmer said...

Also a good reminder of how misleading a figure like "net worth" can be. You can own a painting that someone values at $1 billion and call yourself a billionaire all you day long. Try paying the rent with that.

rhhardin said...

Diversify into Treasuries.

Michael K said...

I never understood how this would work and I have read that they were using standard machines to do their testing. I suspect this is another one of those "Too Good to be True" media hype stories about "pretty young woman conquers world." There are some similar examples in the military like Kara Hultgreen except this woman is alive.

The women who got pushed through Army Ranger training are probably others but maybe they will never have to prove themselves. Most women in the Army who seek combat status don't want combat; they just want promotion.

A real self made female billionaire is Meg Whitman but she is not as good a story. Probably took too long.

coupe said...
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DrMaturin said...

I'm a pathologist and a specialist in laboratory medicine. This woman's lab put out thousands of inaccurate test results putting countless patients in danger, all in the service of defrauding investors. I hope to see her indicted and convicted.

Darrell said...

I wonder if she'd consider my marriage proposal NOW? I'm almost worth as much as her.

MadisonMan said...

Easy come, easy go.

If you have equity in a startup, and can sell, do it. You might miss out on a huge payday later. Odds are, though, that you will not.

David said...

Unicorns. People wanted her to be real. She even fooled Walgreens, which is paying a price.

Static Ping said...

What I read from the story, her net worth is not $0. The original net worth was a guess, which upon further review was a wild guess based on not much of anything. She has not been forthcoming in clarifying the situation, perhaps in a perfectly reasonable effort to protect her business secrets, perhaps to hide something nefarious. In any case, the $0 is essentially Forbes shrugging its metaphorical shoulders and doing a "whatever." It really should be an "N/A."

coupe said...
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David said...

The board she put together should have been a tipoff. Aging bigwigs with no expertise in what the company was doing.

Michael K said...

"This woman's lab put out thousands of inaccurate test results putting countless patients in danger, all in the service of defrauding investors."

That's interesting. I hadn't heard that. Why would someone do this in real life ?

The movie "The Fugitive" had such a plot and I thought it was too unrealistic. I guess I was wrong.

The Godfather said...

I'm not sure that the $0 net worth for Holmes represents Forbes "doing a 'whatever.'" Forbes says: "FORBES spoke to a dozen venture capitalists, analysts and industry experts and concluded that a more realistic value for Theranos is $800 million, rather than $9 billion. That gives the company credit for its intellectual property and the $724 million that it has raised, according to VC Experts, a venture capital research firm. It also represents a generous multiple of the company’s sales, which FORBES learned about from a person familiar with Theranos’ finances." But the investors have first claim on that value, so Holmes' interest in Theranos is worthless.

PB said...

The tests being too costly is NOT a result of the technology. It's a result of the bureaucracy. There's a recent article of a family practice doctor who went cash-only and was able to negotiate significant discounts on medical tests. The example he gave was a standard cholesterol test that the lab used to charge the insurance company $90, but the doctor got them down to $3 in cash.

retail lawyer said...

The WSJ seemed unable to run a story about this company without running a photo of Elizabeth. I enjoyed the photos, she looks like Chelsea, only very pretty.

HoodlumDoodlum said...

Start up company with bright prospects collapses; women & minorities hardest hit.

coupe said...
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DrMaturin said...

For those interested in why this is more than a story of high-tech balloon gone bust here's a good place to go.

http://www.wsj.com/articles/theranos-voids-two-years-of-edison-blood-test-results-1463616976

Virgil Hilts said...

How can someone not have mentioned Enron yet? Theranos was pumped because Holmes is a beautiful and striking person and everyone wanted her to be the female Steve Jobs. A board full of superstars (see Enron) does not mean anything any more.
I never understood why it was so hard to vet Theranos technology and claims. Take 50 people - have them undergo 20 of Theranos tests. Within minutes have blood drawn and sent to 2-3 independent full service blue chip labs to run the same tests. Compare the 1,000 results obtained from theranos against the 1,000 results from each of the Labs. Is Theranos consistently within the range of the labs? If yes, then heh maybe that there technology works. If no -- and that sounds like its the real answer? -- then how could supposedly intelligent VCs not have laid out the $50,000 or so to do such a test (which would have taken about a week to do!) before investing the last traunche of the $700,000,000 they put into this company. Inexplicable!

coupe said...
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Owen said...

Some good comments here on the markers for what NOT to invest in. This lady appears to have been spoiled from an early age and has managed to burn up the family fortune, and its network of friends, in the classic pattern. What is the feminine form of Icarus?

This comment (below) is very disturbing, because I can see how that would be true. If you are prepared to defraud investors, why would you be slow to overcook the promises of your technology and rewrite the results it produces, thereby misleading doctors and patients (and regulators?) who relied on it? "I'm a pathologist and a specialist in laboratory medicine. This woman's lab put out thousands of inaccurate test results putting countless patients in danger, all in the service of defrauding investors. I hope to see her indicted and convicted."

DrMaturin said...

@Virgil Hilts

What you are describing is a routine process for all laboratories. It's called proficiency testing. The fact that Theranos could put out inaccurate results for so long tells me that they somehow got around this process which suggests fraud, likely on a huge scale.

Paul Snively said...

It'd be nice if privately-held startup investing weren't a confidence game by definition, and if 3rd chimpanzees about 50,000 years away from the Savannah weren't easily swayed into confidence by attractiveness. But they are and we are. So it goes.

rehajm said...

Never attribute to malice that which...

The Forbes list is only the best guess of a panel of journalists with varying degrees of financial sophistication. There are many errors and omissions...

If ultimately it's discovered as a belief in faulty tech she should be commended for her efforts...

Her voice is disturbingly deep, a la Buffalo Bill.

Will said...

I foresee the same thing happening to the Obama Legacy… It will be marked down. A lot. Soon after he leaves.

You can already see it in the way Hillary and Bernie have to tiptoe around his failures. They need to fix this horrendous mess without saying Obama's policies put us here.

If it were not for getting 450 people to vote against their constituents for issues where public opinion was 60-40 against, Obama would have no "accomplishments" at all. Of course, his party has been decimated for these transgressions, and he has left a gaping hole in the Democatic bench in Congress and statehouses across the country. But these people got their fever dream by ignoring the voters who sent them there.

The fact that Obamacare is a disaster whose math doesn't work, and is in the midst of collapse means Obamcare will have to be rescued. Another word for that is it's a steaming pile of dung.

Smoke, Mirrors, Hopium and manners prevented people from acknowledging this has been a failed presidency. Worst economic record, executive orders, divisive identity politics, stunning incompetence. Gun running, politicization of the IRS against citizens, VA corruption, EPA rogue rules, TSA bumbling, and a failed foreign policy all mean Obama will leave us worse off.

Very similar, Theranos and Obama.. People did not vet the reality. They bought the hype. Undeserved valuations and Nobel Prizes followed.

"At first you go bankrupt slowly, then all at once…"

mikee said...

An owner of an environmental testing lab once told me that all it would take to put him out of business is anybody willing to take about a dollar less than he charges per test. All his clients would immediately change to the new lower priced competitor.

The direction of analytical testing prices is downward, just like the prices for RAM or ICs or other commodities where modern industrial methods improve productivity and decrease expenses.

That this story is about someone finding this testing niche for an apparently fraudulent business scheme is a story, but it is not about medical testing, it is about improper business practices.

Joe said...

She dropped out of Stanford. Perhaps completing a STEM degree at Stanford would have been the first course of action.

Roy Lofquist said...

Anybody remember the .com bubble? I don't know of anybody in the computer industry who wasn't scratching their heads and wondering if there wasn't an outbreak of St. Vitus Dance.

Edmund said...

@PB said The example he gave was a standard cholesterol test that the lab used to charge the insurance company $90, but the doctor got them down to $3 in cash.

Well, I've looked at the EOBs that my insurance company sends me for lab work done as part of my annual physical. The lab charges a couple of hundred for a chem panel with cholesterol, the insurance company pays about $10.

The idea that a doctor can get a rate that the insurance company can't is absurd. The big insurance companies know how much it costs to do the tests. They get rates not much above cost.

Alex said...

Would be lovely to see her on skid row begging for alms. Poetic justice!

Zach said...

I never understood why it was so hard to vet Theranos technology and claims. Take 50 people - have them undergo 20 of Theranos tests. Within minutes have blood drawn and sent to 2-3 independent full service blue chip labs to run the same tests.

It's not hard in principle, but in practice they were very cagey about letting people do anything akin to this. Walgreen's was supposed to be able to do testing like this, but Theranos kept putting them off.

There's a blurry line between pie in the sky promises and an outright research and development scam.

I never understood how this would work and I have read that they were using standard machines to do their testing.

They were very highly capitalized, very closemouthed, and kept talking about their secret technology. I think what it came down to is fudging the difference between a new technology that was undergoing teething problems and a new technology that just plain didn't work.

I get why people would be slow to say anything. A billion dollar company starts up operations, talks about its revolutionary technolgy, gets big time investors buying hundred million dollar stakes... it takes a while before you suspect the worst. You don't have access to their technology, so what would you say even if you did?

The only way to guard against things like this is to do what Virgil Hilts says above: design a replication study and absolutely insist that it be carried out before investing any money. Don't accept tests that kind of look like the real thing but aren't really, and ask for a technically qualified person to have access to the lab while the tests are going on, with permission to ask anything they want. At some level, R&D scams are about convincing people to accept unconvincing evidence in place of the real thing.