The Strategist

The US vs the youngest female billionaire: Theranos is under investigation

04/19/2016 - 17:06

Theranos biotech company is suspected of defrauding investors. The prosecutor's office is investigating what kind of information the startup provided on its own blood analysis system.

Glenn Fawcett
Glenn Fawcett
US Federal prosecutors have launched an investigation into the biotech startup Theranos, founded by Elizabeth Holmes, the world’s youngest female self-made billionaire. According to sources, the purpose of the investigation is to find out whether the company has misled investors and government officials. 

The investigation is at an early stage now. It is reported that the prosecutors started to collect information about Theranos in January and February by sending informal requests. In particular, several Theranos investors received requests for information about how the company described the patented blood test system. It claims, in particular, that accurate results can be obtained from just a few drops of blood.

The investigation is scheduled to interview employees of the health department of New York, in which Theranos applied for a license to conduct tests in the state. Besides, the prosecutors are intended to have a conversation with representatives of the pharmaceutical retailer Walgreens Boots Alliance. The company has cooperated with Theranos since 2013. The agreement between two enterprises provides operating Theranos processing test results centers in some pharmacies. 

US Securities and Exchange Commission (SEC) also started investigation against Theranos. It is going to find out whether the startup misled investors when asked them for funding, sources told. 

A spokesman for SEC Judith Burns declined to comment. So did Representative of Walgreens Michael Polzin, a spokesman for the US Justice Department Peter Carr, and Abraham Simmons, Assistant US federal prosecutor in San Francisco, where the investigation is conducted. A representative of New York Department Health did not respond to a request for comment, either. Theranos «continues to work closely with regulators and cooperates fully in all investigations," the company itself said.

Theranos was founded in 2003 by former Stanford student Elizabeth Holmes. She suggested an improved method of blood analysis, allowing to carry out dozens of studies with a microscopic amount of biomaterial. Holmes’ idea allured serious investors such as Draper Fisher Jurvetson, ATA Ventures, as well as the founder of Oracle billionaire Larry Ellison. In the last round of investment in 2014, Theranos was valued at $ 9 billion. Theranos’ general director Elizabeth Holmes owns a controlling stake in the company. American Forbes named her the youngest woman billionaire in the world, who made her fortune independently. At the beginning of 2016, the magazine estimated state of 32-year-old Holmes atb$ 3.6 billion (number 435 in the global list of billionaires).

In October 2015, The Wall Street Journal published an investigation, stating that Theranos conducts most of the blood tests using not its own unique technology, but standard laboratory equipment from other manufacturers. The newspaper, citing sources, wrote that Theranos’ results are significantly different from the results of tests carried out on a conventional laboratory equipment. According to WSJ, Holmes and employees discussed the need to hide this information in internal communications. 

Centers for Medicare & Medicaid Services (CMS), regulating the activities of clinical laboratories, revealed violations in Theranos during the inspection. In April, The Wall Street Journal reported that the regulator is considering suspending Holmes from business, related to a blood test, for a period of two years.