In a recent note I discussed the fraud charges that have been brought against Elizabeth Holmes, founder of Theranos (see: Elizabeth Holmes, Founder of Theranos, Charged by SEC with Massive Fraud). In the final paragraph of this note, I questioned how the executives of Pharmacy A (possibly Walgreens) could have been duped by Holmes and her associates into believing that the Theranos analyzer was market-ready. On this basis, they invested in the company. Walgreens reportedly settled a suit against Theranos for under $30M (see: Theranos, Walgreens reportedly reach a deal to settle suit for under $30 million). Here is the excerpt from my note:
I understand that a number of fraudulent claims were made to Pharmacy A executives by Holmes and she is now being brought to justice for her behavior. However, one does need to ask why the executives of this referenced pharmacy company did not take steps to verify claims about her company's analyzer that could have been easily and quickly verified in a lab setting. She either was one of the world's greatest snake-oil "salesperson" or the pharmacy executives were hopelessly naive or both.
A recent article in the New York Times about Theranos (see: Elizabeth Holmes, Theranos C.E.O. and Silicon Valley Star, Accused of Fraud) made the following comment about these phoney, staged demo's by Theranos:
Ms. Holmes and the company even went so far as to demonstrate their product on potential investors, the S.E.C. said, drawing their blood through a finger stick and placing it in one of Theranos’s nanotainers. But while investors thought their blood was being tested with the company’s technology, Theranos “often actually tested their blood on third-party analyzers, because Theranos could not conduct all of the tests it offered prospective investors on its proprietary analyzers,” according to the complaint.
I find it difficult to believe that the Pharmacy A executives were advised by a competent lab professional at the time that they were evaluating the Theranos device. It is commonplace in the clinical lab industry for IVD manufacturers to bring new devices to market. Such new devices never gain acceptance without extensive hands-on testing by independent labs and often further testing by the lab considering purchase of the equipment. Homes was famous for not allowing her product to be subjected to such scrutiny in order to "protect her intellectual property." It was announced in 2015 that Theranos would allow Cleveland Clinical lab personnel to test its devices as a possible way to allay the questions in the lab community about the Theranos claims (see: Cleveland Clinic Develops Business Partnership with Theranos) but this never came to pass. In retrospect we now understand that there was really no mature technology to evaluate and the Cleveland Clinic was thus never allowed to play this role.
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