Behind Theranos' rise and dramatic fall: The powerful backers in money, tech and politics

Marco della Cava | USA TODAY

Show Caption Hide Caption How did blood-testing company Theranos blow up? In 2014, they said she was the next Steve Jobs with her business secrets and innovation, but Elizabeth Holmes’ hot start-up Theranos didn’t last very long.

SAN FRANCISCO — How did disgraced biotech start-up Theranos become a $9 billion darling? The old-fashioned way: Through star power, dazzling promises, deep pockets and devout believers.

But the Palo Alto, Calif., company, whose founder Elizabeth Holmes was stripped of her leadership role Wednesday by the Securities and Exchange Commission, wound up with a story line worthy of Icarus.

Theranos rose quickly from being a college dropout's idea to revolutionize the blood analysis industry to a hot tech bet that accrued $700 million in funding and many famous names for its board.

Anchoring it all was Holmes, now 34, whose smarts, fierce determination and Steve Jobs-inspired look (a black turtleneck was her staple) were critical to recruiting believers for a secretive company that ultimately could not deliver the technology required to do complex blood work based on drops of blood rather than vials.

Here's a look at some of the cast members in Theranos' dramatic tale:

Elizabeth Holmes

Holmes dropped out of Stanford University at 19 in 2003, determined to create a company that would help anyone who, like herself, was afraid of needles and dreaded taking blood tests. She worked on the technology with a small group of collaborators for the next decade before debuting Theranos in 2014 to an admiring media and eager investors.

But no more than a year later, the company's foundation began to crack. A Wall Street Journal investigation, citing former employees' misgivings about the accuracy of the key equipment that was testing the blood, peeled back the curtains on what the SEC concluded was a "massive fraud" that ultimately deceived customers, investors and board members.

Regulators began finding issues with the company's manufacturing plants, and customers at Theranos' Arizona testing centers sued. Last year, Theranos agreed to pay Arizona consumers $4.65 million under a fraud settlement.

Ramesh "Sunny" Balwani

Balwani, 52, served as Theranos president until departing the company in 2016 after the SEC and the U.S. attorney in San Francisco announced investigations into whether Theranos misled investors and regulators about its technology and operations.

A boyfriend of Holmes', Balwani did not appear to have any deep background in phlebotomy or blood sciences. According to the SEC's suit against him, he had guaranteed a line of credit for the company when it was on the ropes in 2009 and joined the company, becoming its president and COO, that year.

Although Holmes settled her complaint with the SEC Wednesday, agreeing to penalties without admitting guilt, Balwani did not settle with SEC, which will continue investigating him.

Balwani attorney Jeff Coopersmith said his client was innocent, pointing out that Balwani had never profited from his involvement with Theranos.

"Sunny Balwani accurately represented Theranos to investors to the best of his ability," Coopersmith said in a statement. "He believed in the potential and mission of the company and its technology."

The investors

Theranos raised money on the strength of Holmes' ability to pitch her vision, whose reality often didn't match up. But there were plenty of takers. Theranos' fundraising resulted in a valuation of $9 billion — half of which belonged to Holmes, making her one of the youngest billionaires on the planet, at least on paper.

Among those who bought into the disruptive dream, according to a 2016 Wall Street Journal report, were media titan Rupert Murdoch and family-owned Cox Enterprises, each betting $100 million; Walgreens parted with around $140 million through its partnership deal that aimed to build Theranos centers in all its stores; and Safeway provided $30 million aiming for a similar in-store deal.

Some of the bold-faced Silicon Valley names who also heeded Holmes' call were Oracle founder Larry Ellison, Riley Bechtel, chairman of closely held construction giant Bechtel Group, and the investment firm of Draper, Fisher & Jurvetson, the report said.

What’s more, when things started to get hot for Theranos, she had a steadfast defender in Marc Andreessen, a storied tech figure who made a mint creating the early browser Netscape. He parlayed that score into his current status as golden, and often outspoken, Silicon Valley investor in companies such as Facebook. His firm didn't invest in Theranos, but he backed her publicly.

The board members

Seldom has such a high-profile list of board members signed on to such an unproved company. Yet Holmes managed to assemble a group of advisers with notably prodigious connections in politics, which many observers took to be aimed at helping the biotech company push its case against entrenched pharma lobbyists.

Theranos' board heft was anchored to a 2011 meeting Holmes had with former secretary of State George Shultz, who recruited his fellow former secretary, Henry Kissinger. Other notables around the table were former U.S. senators Sam Nunn and Bill Frist, former secretary of Defense William Perry and current Defense Secretary James Mattis.

Mattis came up in the SEC's investigation. It found that while Mattis was leading the U.S. Central Command, he lobbied for Holmes' tech to be used in the military, though regulators flagged issues before the notion took wing. Mattis resigned from Theranos' board when he become Defense secretary in 2016.

These high-profile backers all had ties to Palo Alto, Calif. -based Stanford, where Holmes had studied. Shultz, a resident of Palo Alto, was a fellow at the university's Hoover Institution, as were several of the other politically-connected board members.

Kissinger once hinted at a simple explanation of why all these cagey political veterans eagerly agreed to advise Holmes.

"Elizabeth's iron determination and great intellectual ability turned me from a mild skeptic to an enthusiast," Kissinger told USA TODAY in 2014 for a profile of Holmes. "We aren't exactly a group of people who give away our time lightly."

The whistle-blower

Tyler Shulz likely thought he had stepped into a dream job when he joined Theranos in 2013, thanks in part to his grandfather, former secretary of State George Shultz, being on the board.

But eight months later, he was convinced something was rotten at the company and attempted to get Holmes to address his concerns about doctoring research and test results.

Instead of an audience with the founder, Shultz received a scathing reply from company president Balwani, who noted that he bothered to respond only because of the employee's famous relative, according to Shultz's recounting of the incident to The Wall Street Journal.

Shultz quit, and despite warnings from Holmes — she allegedly called the elder Shultz to warn him about his grandson's threats to expose the company — decided to contact New York state’s public-health lab and alleged Theranos had manipulated its test results. This was the first known regulatory complaint about Theranos, whose issues would soon grow exponentially.

The skeptic

John Carreyrou was already a two-time Pulitzer Prize winner for The Wall Street Journal, for explanatory reporting corporate scandals and investigative reporting on Medicare, when in 2015 he turned his attention to Theranos.

Carreyrou's stories, which were consistently met with denials from Holmes and Theranos, were integral in changing the tenor of Theranos coverage from laudatory to critical.

Carreyrou won awards for his work, but his biggest reward may well be helping enshrine Theranos in a pop culture pantheon in a way that only Hollywood can do. The reporter is writing a book-length take on the Theranos saga to be called Bad Blood, and the movie version is slated to star Jennifer Lawrence as Holmes.

Fittingly, the movie will be directed by Adam McKay, the former Will Ferrell collaborator turned social commentator. His film The Big Short — which won McKay an Oscar for best adapted screenplay in 2016 — took a scathing look at the 2008 financial meltdown based on the Michael Lewis book of the same name.

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