You don’t usually see a company fall as far and fast as Theranos has, even in Silicon Valley, where companies self-destruct all the time. But what’s really worrying about the whole debacle isn’t the money; it’s that unlike a lot of Silicon Valley companies, Theranos was doing something that actually mattered: medical science.
Theranos was founded in 2003 by a charismatic then 19-year-old Stanford dropout named Elizabeth Holmes. She pitched a technology that could test for a wide variety of diseases and conditions using a few drops of blood drawn by a minimally invasive finger prick, rather than by the conventional, more vampiric needle method. Over time, Theranos attracted $400 million in funding (by 2014 its valuation was $9 billion), an ultra-distinguished board of directors (a general, an admiral, two former Senators, two former Secretaries of State), powerful business partners (Safeway, Walgreens) and amazing amounts of media coverage (including, yes, in TIME).
Those were the halcyon days before last October, when the Wall Street Journal ran a story claiming that Theranos was using off-the-shelf technology, not its own much-hyped proprietary method, for most of its tests. Now both the FDA and the Centers for Medicare and Medicaid Services are scrutinizing Theranos, and the SEC is asking whether the company misled investors. Things have gone so wrong that the situation raises bigger questions, like: Is it even a good idea for Silicon Valley startups to do medical research? Isn’t that stuff supposed to be done by, you know, doctors? Is there a systemic problem here?
The answer is: probably. Theranos certainly exposed weaknesses in the Silicon Valley model, starting with the cult of the Brilliant Dropout. Jobs, Gates, Ellison, Dell, Zuckerberg–at this point business schools should just scrap graduations altogether and replace them with mass dropouts at the end of two years. “There are CEOs out there who essentially have the approach of, Look, give me money and shut up,” says Bryan Roberts, a partner at Venrock and a veteran investor in health care startups. “You’re an idiot. I’m the genius here.” Not that this never works–Facebook’s board moved late last month to strengthen Mark Zuckerberg’s control, and you can see why in its financial statements. But that kind of founder worship introduces a level of risk that makes more sense in social media than in medicine.
Another favorite Silicon Valley trope is Stealth Mode, the tactical hunkering pose companies assume to protect their precious intellectual property. Theranos took this practice to an extreme. “Nobody normally runs a biomedical company like that for more than, I don’t know, as a worst-case scenario, three or four years,” says Dr. Norman Paradis, a professor at Dartmouth’s Geisel School of Medicine who has consulted with medical startups. This led to a state of affairs in which Theranos was performing tests on patients without having published peer-reviewed research–a cardinal sin in science–and with minimal federal oversight.
So the Silicon Valley system can accommodate questionable science–but only up to a point. Even what little we did know about the science should have smelled off. “The ability to measure numerous things on a tiny amount of blood is not rare,” Paradis points out. “MIT alone has three or four groups that can do that.” At the same time, doing so using fingertip blood, rather than blood extracted from veins, is difficult. Venous blood is consistent from sample to sample; fingertip blood varies in its composition, making it harder to extract meaningful data from it. Not even the business made sense, or not much. Most blood tests are cheap to perform, and the expensive ones are proprietary. “Why on earth would you start a business in a super-low-margin commodity space,” Roberts asks, “dominated by two main players [LabCorp and Quest Diagnostics] who have a built-in brick-and-mortar distribution system out there?”
Theranos’ story isn’t over. “It’s hard for me to imagine that you could spend a few hundred million dollars and not have discovered some pretty amazing stuff,” Paradis says. It may ultimately prove that you can do bad science in Silicon Valley, but Theranos should have attracted scrutiny long before it did. The systemic problem isn’t really in Silicon Valley at all–the system is a lot older than that.
For more on these ideas, visit time.com/ideas
This appears in the May 16, 2016 issue of TIME.