Fraud accusations against Elizabeth Holmes, the founder of health IT company Theranos, have sent shockwaves through health IT investing.
Ms. Holmes was charged in 2018 with 10 counts of wire fraud and two counts of conspiracy to commit wire fraud. She is currently on trial for the charges, all of which she has pleaded not guilty.
Below are seven things to know about the trial and its effect on health IT investing:
- Theranos raised $700 million from investors and was valued at $9 billion, Fast Company reported Sept. 8. The company developed a machine called Edison, which claimed to run several diagnostic tests using a much smaller amount of blood than what’s typical.
- In 2015, The Wall Street Journal reported the company was using the machine for only a fraction of its tests and Edison didn’t consistently produce accurate results.
- Several healthcare companies have been accused of defrauding customers and investors about the success of their services. The FBI investigated uBiome, a healthcare marketing company, for misleading pharmaceutical companies on where ads were showing up and how well they performed, CNBC reported.
- Greg Yap, a partner at Menlo Ventures, told Fast Company that Theranos was able to fool investors because they were not serious health investors. He said the scandal reminds investors of the importance of data and peer review in healthcare technology.
“Real innovation doesn’t happen in the dark,” Mr. Yap said. “As the saying goes, ‘In God we trust. All others bring data.'”
- Ruby Gadelrab, founder and CEO of health IT consulting company MDisrupt, told CNBC that healthcare is complex and is “probably the hardest area to invest in.” However, Mr. Gadelrab said investors shouldn’t assume every company is like Theranos. Instead, they should determine if there is evidence to the founder’s scientific claims.
- Keith Figlioli, a general partner at health IT venture fund LRVHealth, told Fast Company that Theranos has become a joke in the industry with investors asking, “Is this the next Theranos?” Despite Theranos’ scandal, investors funneled $25 billion into more than 2,000 health IT start-ups in 2020. Those investments have reached nearly $30 billion in 2021.
- Female founders have claimed that investors have compared their companies to Theranos and securing funding has become more difficult, according to a New York Times report.