Is the market myopic? The case of medical start-up Theranos

Posted on Nov 22, 2022


The shattering and fraudulent fall of US medical start-up Theranos and its founding director Elisabeth Holmes, 38, who has just been sentenced to 11 years in prison, could easily lend credence to the thesis of “market myopia”, dear to planners and supporters of the strategist state.

What does the thesis say?

That a transaction between a buyer and a seller, carried out at a certain time, at a certain price, for a certain product, is erased from memory as soon as it is concluded and, therefore, proves to be incapable of providing useful information for the future. From this perspective, the market is a purely short-term tool, without vision, experience or learning.

On the other hand, the political authorities, assisted by armies of senior civil servants naturally endowed with superior omniscience and an extraordinary talent for knowing better than anyone else what the future holds, are in a position to allocate without fail and for the happiness of the peoples the resources necessary for the economic life of the future.

A thesis that should have collapsed with the fall of the USSR but that we see regularly reappearing, even in France today, proud holder of a High Commissioner for Planning in the person of François Bayrou and even more proud creator of a brand new and beautiful project ecological planning , whose idea was suddenly launched by Emmanuel Macron in the break between the two rounds of the recent presidential elections.

As General de Gaulle’s former Commissioner of Planning, Pierre Massé, used to say, “Suppressing the Plan in the name of an impulsive liberalism would be to deprive the power of one of its weapons against the dictatorship of the moment. 🇧🇷 He further added, in a work boldly entitled The plan or the anti-chance🇧🇷 “Looking to the future is the first step of action. 🇧🇷 Except for that small detail that looking to the future should be reserved for those who know, that is, for the power of the State.

Then, of course, the story of Elisabeth Holmes, a story of an estimated $800 million secured by high-profile investors for a project that was valued at as much as $10 billion in 2014 but which not only was never commercialized but whose results were disguised to prolong the illusion of success – such a story is unlikely to inspire confidence in the foresight of the markets.

In 2003, you have a 19-year-old, no doubt smart, but lacking in higher education since dropping out of chemistry at Stanford University in her sophomore year. Not necessarily a problem in the hectic world of start-ups and new technologies. After all, Steve Jobs himself left his studies after eighteen months to dedicate himself to what would become Apple. A similarity that Elisabeth Holmes cultivates in every detail, from the black turtleneck she wears permanently to the choice of Palo Alto, California, to set up her business.

His entrepreneurial idea, the result of a holy horror of injections developed in his childhood, consists of painlessly taking a drop of blood from the tip of his finger using a small, easy-to-use device (see cover photo) and proceeding to analyze blood through his “Edison” developed in parallel (and in the greatest secrecy). Theranos therefore claimed to be able to perform dozens of types of blood tests, from simple blood counts to much more complex genetic or cancer evaluations. Public health perspective: being able to perform more economically, faster, with more patients, more blood tests, and thus, “saving lives. 🇧🇷

We must believe that Elisabeth Holmes knew how to be persuasive. It should also be said that, at the time, everything that revolved around the new economy – digital, biotechnologies, medtech, etc. – was received with a certain delight, if not a little discernment. In the movie The truth if I lie, a character describes the situation well: “You say you have the start-up and the banker licks your ass. 🇧🇷

As a result, the young entrepreneur was able to obtain financing, not from bankers, but from investors not necessarily specialized in the medical field, but certainly not born of the last rain. These include the Walton family (heirs of Walmart’s founder) for $150 million, media magnate Rupert Murdoch for $125 million (recovered $4) and Donald Trump’s former education secretary Betsy DeVos, as well as other members of his family totaling 100 million (see table on the side extracted from the street newspaper🇧🇷

So far, nothing out of the ordinary. Investors took the risk, especially since everyone knows that in the startup world, you have to fund at least ten to see one succeed. Did they drive a due diligence », a sufficiently in-depth analysis of the proposed investment? Truth be told, it’s their problem.

At first, everything looks pretty good. Elisabeth Holmes hires top-notch researchers and secures a partnership with the Walgreens Boots Alliance group to install sampling booths in their drugstores (pharmacies). In 2014, peak: the estimated value of the company jumps to 9 or 10 billion US dollars (see graph opposite, ibid.) in the United States.

But quickly, everything falls apart. A bit of laughing skepticism at first, as in the New Yorker where the journalist describes Elisabeth Holmes’ explanations of the operation of her Edison technology as “comically vague”.

And then, in 2015, brutal return to reality. The street newspaper publishes a long and very detailed investigation which shows that Theranos only performs 15 tests out of the 240 announced, that the results of these tests do not cease to surprise some company employees and that, contrary to what it claims, most of them are carried out on machines classic medical analyzes like Siemens, not through its own system. A second article by street newspaper goes even further by reporting internal alerts on organized falsification of results.

From there, everything goes really fast. The FDA and the SEC, that is to say, the US health authority and the US financial markets authority respectively, intervene; Walgreens ends its partnership; the company Theranos, whose value is now zero, was dissolved in 2018 and its leaders were indicted the same year for mass fraud against investors and for putting patients at risk. Last Friday, November 18, Elisabeth Holmes was sentenced to 11 years in prison for the first charge, knowing that the second was not held against her.

This is damning. Investments decided by the beautiful appearance of a good story, the company’s incompetence, lie after lie to hide failure – who says it better? All of this translates into a dramatic lack of seriousness allied to a totally deficient probity, that is, a race for profit at all costs, totally characteristic of the impulsive liberalism and dictatorship of the moment that Pierre Massé spoke about.

And yet, in this case, I see many reasons to be happy with the good functioning of the market. First, you should know that Elisabeth Holmes tried to stop the article from being published. street newspaperbut its owner, Rupert Murdoch, though himself among the farce turkeys, did not prevent its publication.

Second, there is a legal system that allows victims of crime to assert their rights. It’s not certain that investors will get their funds back, but at least the company has decided: Elisabeth Holmes is guilty and must atone.

So, in addition to the fraudulent aspects of this file, it should be clearly understood that the innovation is not written in advance. You have to try a lot, make a lot of mistakes, before you see intuitions pass to the stage of brilliant discovery and then brilliant practice adopted as freely as widely by society. The money invested in these projects for good or ill is voluntarily applied by bold investors who know from the beginning that they can leave a lot of feathers there.

On the other hand, conscious planning money is authoritatively taken from taxpayers through taxes and debt. He dedicates himself to projects decided a priori, without anyone being able to make other experiences, other attempts. The European Union’s decision to ban the sale of thermal cars from 2035 is typical of this strictly ideological dirigisme.

Furthermore, omissions by public authorities, however numerous and abundantly publicized by the Court of Auditors, never give rise to the slightest reproach or compensation to taxpayers. Government spending, like taxes and debt, continues to grow seemingly unabated, come what may; policy makers, ousted one day in such an election, reappear some time later thanks to the petty antics of other policy makers. But as for the monstrous waste recently renamed “at any cost” that punctuates the French Republic, from the fiasco of Notre-Dame-des-Landes to the difficult computerization of the administration and from the EDF to the SNCF , public entities perpetually saved by us, radio silence.

It is certainly not abnormal to reflect on the future. But this debate would benefit from being flexibly conducted by a multiplicity of think tanks in a multiplicity of possible directions, rather than by a single institution that reasons from a single point of view and therefore runs the risk of authoritatively define a formal future that will result in being completely obsolete when the time comes.

So yes, the market does have its temporary myopias, its fads, its capricious divas, its cycles and its black sheep. But, on the one hand, he corrects himself very quickly, precisely because he seeks success and profit, not bankruptcy and failure. On the other hand, he is cautious, in the sense of distrusting the relevance of very long-term commitments. And, above all, it is free and multiple, which continues to be the best way to mobilize available information and explore the countless avenues of the future without preconceived ideas.


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