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Elizabeth Holmes trial: The 5 biggest takeaways from 'Valley of Hype'

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On Monday, the eve of ex-Theranos CEO Elizabeth Holmes' criminal fraud trial, Yahoo Finance released a feature-length documentary delving into Silicon Valley's influence on the entrepreneur and her failed blood-testing startup.

The documentary, "Valley of Hype: The culture that built Elizabeth Holmes," explores the unique role that Silicon Valley’s startup culture played in the rise and undoing of Holmes, who faces 20 years in prison for each count of wire fraud, if she's convicted. That culture often tolerates puffery and a perfect pitch over proven results, as Holmes' lawyers are expected to argue and as many experts contend in the film.

Here are five central takeaways from "Valley of Hype."

Elizabeth Holmes’ vision was not science fiction

Holmes had a vision — to perform hundreds of common blood tests from a "finger stick" draw of blood.

In October 2015, the Wall Street Journal’s John Carreyrou revealed Theranos had pitched more dazzling feats than it could deliver, prompting critics to suggest Holmes was peddling science fiction.

While Theranos may have fallen short of performing hundreds of common blood tests using as little as a few drops of blood, or finger stick blood for that matter, other companies in the field have already moved the ball forward, achieving much of what Theranos set out to do.

Watch Yahoo Finance's new Elizabeth Holmes documentary here

One company, Genalyte, has produced a Food and Drug Administration (FDA)-approved analyzer called "Maverick" that received Emergency Use Authorization to perform tests to detect COVID-19, and is on its way to running more than 100 common tests from a tiny drop of blood. The analyzer can already perform 28 tests using a finger stick draw.

Cary Gunn speaks to Yahoo Finance in
Cary Gunn speaks to Yahoo Finance in "Valley of Hype."

“The biggest concern I've had with the media was immediately after Theranos started falling apart was there was a rumble of people saying, ‘Well, this was such a bad idea. This could never happen.’ Actually, really, I think Elizabeth's vision was phenomenal, right? I share the same vision, so I really resonate with that. I think it is a good idea and it needs to happen,’” Genalyte founder Cary Gunn told Yahoo Finance in an interview for the film.

“It is a politically charged topic to operate off of a finger stick,” Gunn added.

For multiple tests, Genalyte uses about 4% of one drop of blood, though Gunn cautioned that some common tests require larger quantities and can't be performed using blood drawn from a finger stick.

Blood diagnostics company Truvian Sciences, which boasts a female co-founder, is also moving the industry ahead. Jeff Hawkins, its CEO, told Yahoo Finance that while one drop of blood used for hundreds of tests or analyses is still out of reach, Truvian has a machine that can do a broad range of tests from a desktop analyzer that uses several drops.

"Truvian has one of those machines, it can do about 85% of routine testing,” Hawkins said, estimating that as many as 50 tests were possible.

Holmes' board and primary investors were a red flag

Theranos' early board and investors looked impressive to many people. Holmes raised approximately $900 million for the company that launched in 2003 and folded in 2018. Of those investments, prosecutors allege approximately $155 million in bank wire transactions between 2010 and 2015 were fraudulent. 

Former U.S. Secretary of State Henry Kissinger attends a conversation at the 2019 New Economy Forum in Beijing, China November 21, 2019. REUTERS/Jason Lee
Former U.S. Secretary of State Henry Kissinger attends a conversation at the 2019 New Economy Forum in Beijing, China November 21, 2019. Kissinger sat on Holmes' board. REUTERS/Jason Lee

The company's board boasted luminaries like Henry Kissinger, as well as another former Secretary of State, a former director for the Centers for Disease Control and Prevention, and two former Defense Secretaries. But critics pointed out that it did not include enough members with expertise in Theranos' actual business.

The only original board member with expertise in biotechnology was Channing Robertson, a chemical engineering professor and former dean of Stanford University’s chemical engineering department.

“The way that startup boards are, usually they're made up of venture investors and they're made up of other people with domain expertise,” Margaret O’Mara, University of Washington history professor, told Yahoo Finance. “Something's off from a very early stage.” O’Mara said the group was a red flag to other potential venture investors, particularly in the biotech space.

“It's a biotech company that doesn't have the personnel or the procedures in place that a biotech company would need to have, even at the very beginning stage to develop a product,” she said.

Other health care companies also get it wrong

Holmes isn’t alone in pushing a soft-baked health care pitch. 

In its early days, Silicon Valley biotech company 23andMe was ordered by the FDA to “immediately discontinue” marketing its widely publicized test kits, after making unsubstantiated claims that it could identify risk levels for 254 diseases and conditions. A consumer class action lawsuit followed, and the company settled with complaining customers. 

SAN FRANCISCO, CA - SEPTEMBER 05:  23andMe CEO Anne Wojcicki speaks onstage during Day 1 of TechCrunch Disrupt SF 2018 at Moscone Center on September 5, 2018 in San Francisco, California.  (Photo by Steve Jennings/Getty Images for TechCrunch)
SAN FRANCISCO, CA - SEPTEMBER 05: 23andMe CEO Anne Wojcicki speaks onstage during Day 1 of TechCrunch Disrupt SF 2018 at Moscone Center on September 5, 2018 in San Francisco, California. (Photo by Steve Jennings/Getty Images for TechCrunch)

At the time of the lawsuit, the FDA had been warning the company since 2010 that its tests were considered a medical product and therefore subject to the agency's review. NBC and CBS reported that a company spokesperson for 23andMe declined to comment on the matter. 

Diagnostic startup, UBiome, was dropped from CVS, after federal investigations and an FBI raid of its San Francisco headquarters. In 2021, the company’s co-founders Jessica Richman and Zachary Apte, were accused by the Securities and Exchange Commission of defrauding investors, and indicted by the Justice Department for money laundering and securities fraud. 

Even the FDA, and experienced mega-corporations, have been known to get it wrong.

The International Consortium of Investigative Journalists found in 2018 that over the prior decade 80,000 global deaths and nearly 2 million injuries were linked to faulty medical devices.

Some of those devices included vaginal mesh, implanted in approximately 10 million women worldwide before the FDA banned U.S. sales. Complications from the mesh manufactured by Boston Scientific (BSX), Johnson & Johnson (JNJ), Coloplast and C.R. Bard, among others, included organ perforation, protrusion, and death.

Holmes scrapped the Edison before her struggles with the device became public

Former Theranos bioengineer Jocelyn Bailey told Yahoo Finance in "Valley of Hype" that Holmes had already pivoted to a new iteration of the “Edison” analyzer before the Wall Street Journal's 2015 expose.

“When I started [at the company], they had scrapped the Edison device so we were working on the next generation, you know, black box,” said Bailey, who joined Theranos a month before the Wall Street Journal's first Theranos piece. “We knew. It was communicated to me. Our team knew about it. I don't know if everyone knew.”

“We knew that the Edisons weren't being used,” Bailey added. “We knew that finger sticks had been cut real recently from the clinics...It hurts, but we knew it, and we were in the lab trying to make it better.”

The Wall Street Journal's John Carreyrou reported that more than 90% of tests Theranos offered in various Walgreens locations used neither the company’s proprietary analyzer nor the finger stick technique. Instead, they came from traditional, larger-volume blood draws processed by traditional analyzers.

Sunny Balwani was a powerful 'man behind the curtain'

Last year, Holmes filed redacted court filings showing she had reserved the option to introduce expert evidence concerning a "mental disease, defect or other mental condition." Holmes' expert, Dr. Mindy Mechanic, a clinical psychologist and professor, one filing said, would potentially offer testimony covering Holmes' condition during the period of the alleged conspiracy.

REFILE - ADDING COUNTRY Former Theranos President and COO Ramesh
Former Theranos President and COO Ramesh "Sunny" Balwani arrives for a hearing at a federal court in San Jose, California, U.S., July 17, 2019. REUTERS/Stephen Lam

The filings raised speculation that Holmes' mental state during her time as CEO of Theranos could relate to her romantic relationship with former Theranos COO Ramesh "Sunny" Balwani. The two were criticized for keeping their romantic relationship a secret, especially from the Theranos board. 

On Saturday, unsealed court documents confirmed the speculation. They show Holmes is likely to introduce expert testimony as to whether she was a victim of psychological, sexual, and physical abuse in her relationship with Balwani, claims that Balwani has denied. The alleged abuse, Holmes' attorneys contend, bears on her state of mind and therefore her intent to commit fraud.

Holmes suffered “a decade-long campaign of psychological abuse” by Balwani, the documents state. He allegedly controlled what she ate, how she dressed, and how long she slept. Balwani monitored her phone calls, texts, and emails and threw hard, sharp objects at her, the documents allege.

"I think he's really critical. He's the, in some ways, the bad cop to her good cop," University of Washington history professor and author of "The Code," Margaret O'Mara, says in "Valley of Hype.". "And we often, in the case of tech companies, there's many instances of the man behind the curtain, or the partner, the more silent partner. And you saw that at Apple (AAPL) with Steve [Jobs] and Steve [Wozniak], you see this at Microsoft (MSFT) with Paul Allen, writing basic, and Bill Gates." 

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

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