case study based on the hbo documentary the inventor theranos bad blood

All papers are to be done in the following format:
Name, Course, Section number, and Paper number on the left hand upper corner
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The assignment requires research outside of the case study. All recourses must be cited.

Grading Rubric:
In general, an A paper is defined as a paper that has (i) a thesis that is plausible, (ii) a good argument or set of arguments for the thesis, and (iii) a consideration of objections to the argument with responses to the objections. The highest grade that a paper can receive for failing to have (iii) is a B, the highest grade that a paper can receive for failing to have (ii) is C, and the highest grade that a paper can receive for failing to have (i) is a D. Success on a paper comes from clear, concise, and comprehensive argumentation in defense of a well thought out thesis.

In 2003, Stanford University student Elizabeth Holmes founded the health care company Theranos. The goal of the company was to revolutionize health care. Beginning with the goal of creating a patch to deliver drugs, the company instead shifted focus to developing a simple and effective method for blood diagnosis. Holmes dropped out of Stanford and began raising millions of dollars in funding. The company claimed that its technology could offer over 240 tests from just a prick of the finger. Test results could be delivered to a patient’s phone in hours, and a single test would cost less than half of the reimbursement rate of Medicare and Medicaid. Blood could be diagnosed easily without the need for many vials of blood drawn from patients’ veins or expensive lab work.
By 2014, the company was valued at $9 billion, of which Holmes held a majority stake. Many investors backed the company based on the promise of the technology. Holmes received glowing profiles in news magazines, was featured on television shows, and presented keynote addresses at tech conferences. But the excitement of investors and the promise of the technology did not translate into success.
Operating largely in a cloak of secrecy, the company could never validate its claims about its blood sampling technology, and many of its lab results went unchecked. In 2015, journalist John Carreyrou investigated the company for an article in The Wall Street Journal. He disclosed problems in the company’s equipment and testing methods. He found that the company did not even use its own technology in tests and often relied on older technology from other companies. Carreyrou also found that the company’s own much-hyped blood sampling technology was not as accurate as Holmes and company had claimed. After publication of Carreyrou’s article, others publicly came forward about the inaccuracy of results they had received from Theranos.
Holmes disagreed with the reporting, saying that Carreyrou had the story wrong. She stated, “This is what happens when you work to change things, and first they think you’re crazy, then they fight you, and then, all of a sudden, you change the world.” Holmes continued to push her company’s claims and her own narrative of personal success. The company continued to show off its technology at conferences.
The Food and Drug Administration and the Centers for Medicare & Medicaid Services opened investigations into Theranos. Under scrutiny, the company faced lawsuits from investors, pharmaceutical partners, and the state of Arizona, where it provided blood testing directly to consumers. In 2018, the Securities and Exchange Commission (SEC) charged Theranos, Holmes, and former president Ramesh Balwani with massive fraud. According to a statement from the SEC, “Theranos, Holmes, and Balwani made numerous false and misleading statements in investor presentations, product demonstrations, and media articles by which they deceived investors into believing that its key product…could conduct comprehensive blood tests from finger drops of blood, revolutionizing the blood-testing industry.”
In March 2018, Holmes reached a settlement with the SEC, without admitting or denying any wrongdoing. She agreed to pay a $500,000 penalty, return her 18.9 million shares, give up voting control of Theranos, and be prohibited from serving as director of a public company for 10 years. Jina Choi, director of the SEC’s San Francisco Regional Office, stated, “The Theranos story is an important lesson for Silicon Valley… Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.”
In June 2018, Holmes and Balwani were indicted on charges of fraud by the United States attorney’s office in San Francisco. Before criminal charges were filed, Holmes stepped down as CEO of Theranos. Holmes and Balwani both pleaded not guilty and await trial as of June 2018. Technology consultant Paul Saffo said in response to the indictment, “There is one cardinal rule in Silicon Valley that most people never realize, and this is never ever breathe your own exhaust.” He continued, “[Holmes] is someone who is so deeply self-deluded by her optimism and faith in herself… And delusion is contagious.”

***************Essay Question**************

A fascinating element of this case is the fact that so few people involved with Theranos asked the basic question of whether or not the technology worked and many employees who knew the technology did not work did not come forward. Many people with the duty to ask questions did not. For example, a board of directors should exercise “due diligence,” which assures that the company’s financial picture is sound and that the company’s actions do not harm others. The Theranos board seemed uninterested in either function. Theranos board member George Shultz testified under oath that, despite escalating allegations, he believed Holmes’s claims about her technology and it did not occur to him to probe into it. Similarly, very few investors asked basic scientific questions and many employees were too afraid of losing their jobs to come forward. These failures could be argued to have resulted in direct harm to patients who were relying on the faulty tests for medical decisions. Considering that Holmes and Balwani are the only ones charged by the SEC and the only ones facing criminal charges, what, if any, moral responsibility should be placed on the board of directors, investors, and employees? In other words, should those that enabled Holmes to continue to lie also be held accountable for their actions? Why or why not? Be sure to include moral argumentation to support your position.

 

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