Bad Blood: Secrets and Lies in a Silicon Valley Startup by John Carreyrou.
This book gave me a break from reading detailed takes on big topics. As you may recall, last week I wrote about Ben Wilson’s book, <em>Metropolis</em>, which weighed in at 450 dense pages as he dissected the history of cities. Bad Blood, which is a modest 340 pages in its paperback version, explores the rise and fall of Elizabeth Holmes, the wunderkind who founded and fumbled Thernanos, a company that set out to revolutionize medical diagnostics. You may have seen Ms. Holmes’ picture on the cover of any one of 20 or so publications that fawned over her in the mid-2010’s. She was everywhere, pushing the miracle properties of her company’s portable blood-testing devices. Unfortunately, as Bill Gates succinctly put it in his review of the book, “They just didn’t work.”
This non-fiction book does read like a novel. There is so much bizarre stuff going on that it’s hard to believe that these things really happened in a company that was taken so seriously for so long by so many grown-ups who should have known better. It is a cautionary tale. She certainly did fool a lot of the people most of the time.
Elizabeth Holmes was a privileged, “wicked smaht” woman who learned to speak Mandarin in high school and enrolled at Stanford University in 2002. Her goal from an early age was to become fabulously wealthy. She dropped out of school in 2004 and founded Real-Time Cures to “democratize health care.” Elizabeth had an aversion to needles and was committed to finding minimally invasive ways to test blood. She had an idea for a device that could run a battery of blood tests using just a pin-prick of blood. She ran it by one of her professors at Stanford, Phyllis Gardner, who told student Holmes that such a device was impossible to build. The chemistry and physics just didn’t work.
Elizabeth sought other opinions, all of which agreed with Professor Gardner’s conclusion. Undeterred, she succeeded in getting her advisor and dean at the Stanford School of Engineering, Channing Robertson, to back her idea. Robertson was a big deal in academia and he connected Holmes to venture capitalists. Most of the companies she pitched for support turned her down because they saw that there was no there there. She did recognize that current technology on blood analysis was rather crude, but she had no clue about how to fix that. While she was attractive, bright, and persuasive, she had only one year of education at Stanford before she dropped out. Improving medical technology was very challenging, even to people who had solid education and research credentials. She eventually raised $6 million from family and venture investors in 2003 for the newly renamed startup, Theranos.
The device The goal of the company was to develop a toaster-sized medical device that could take blood samples as often as needed and analyze them for whatever information was needed to inform effective treatment. This is a good idea. Such a product would use only a drop or two of blood and would be non-invasive. Since it was portable, it could be given to patients at home and used to routinely monitor treatment. One problem was that there were thousands of types of blood tests and jamming the technology to do those into a toaster would be tough. Actually, it’s impossible.
By 2006, Theranos had a few dozen employees and had raised another $9 million of funding. While the company wasn’t close to developing the device, Elizabeth had hired impressive technical engineers and scientists. They had rented space in Palo Alto, CA, birthplace of great tech companies. Her corporate board was gold-plated, including former Secretary of State George Schultz and Henry Kissinger. That in itself was enough to give her the credibility she needed to raise money.
Early on, there were warning signs. Elizabeth was bright but she was a control freak who was paranoid about having her secret technology stolen. (Bob’s note: There never was any proprietary technology developed that actually worked.) As a result of her fears, the separate research units were not allowed to communicate with each other. It was siloes on steroids. The chemistry folks couldn’t talk to the physics people who couldn’t exchange ideas with the engineers who had to actually create the device. Holmes and her boyfriend/partner Sunny Balwani (a very weird guy) would get reports and decide how much information to release to each unit. Since neither one had any serious experience in biomedicine, that might not have been the best approach to achieving success.
Tough work environment Elizabeth and Sunny really liked to fire people, sometimes for imagined breaches of security but usually employees would be terminated when they figured out that the company was fudging results and brought their concerns to the boss. Theranos finally developed a prototype with a robot arm that could sort of draw blood some of the time. They named the device Edison. They didn’t subject it to the rigorous prototype testing that goes with developing medical devices, which upset some workers, who were fired on the spot and forced to sign absurd non-disclosure agreements.
Soon, Elizabeth set up an information technology system that kept close tabs on all employees by rigorously monitoring all phone, text, and email communications. Big Sister was indeed watching you at Theranos.
Holmes was obsessed with Steve Jobs and Apple and saw herself as being in the Jobs-Thomas Edison-Bill Gates super genius group. She wore Steve’s black turtlenecks and recruited some of Apple’s top talent for Theranos. Interestingly, the Apple alums were quick to see that she was all smoke and mirrors and left the company relatively soon after being hired. One Apple guy, Avie Trevanian, quickly saw how messed up the company was and brought his concerns to a Theranos board member with whom he had a good relationship. His concerns were dismissed out of hand – “Elizabeth wouldn’t do that.” – at which point Avie resigned.
One technique that Theranos perfected was to do a presentation with the machine, which could draw blood and occasionally get some primitive tests correct. The device would stall when it couldn’t do a test. Elizabeth said not to worry because she would get the results out after the meeting. She did that, using information from established blood testing machines back at Theranos headquarters. Since the company’s new-wave technology just didn’t work, this was the go-to operation to impress potential investors and clients.
At one point, enough members of the corporate board became concerned about Elizabeth’s stewardship and moved to remove her as CEO while keeping her on as the founder and rainmaker. She talked them out of it. She could be persuasive. She promptly fired the two senior-level managers who had gone to members of the board and made the case that she was hurting the company. This was typical of her leadership where the only thing that really counted was blind loyalty, not competence.
Sunny Balwani, Elizabeth’s boyfriend and right-hand man, had lucked out in the 1990s and made a lot of money when he sold his company right before the .com crash. He was a computer programmer who bragged incessantly about how great he was, making claims that were wildly exaggerated. He was a natural fit with Elizabeth. He was the hatchet man who enjoyed intimidating people. He was profane and coarse and knew nothing about biomedicine, again a good fit with Ms. Holmes. He had run afoul of the IRS for some shady business deductions, indicating that he wasn’t the most honest guy on the block.
One of Elizabeth’s Stanford friends, Chelsea Burkett, had been hired away from another Silicon Valley startup to market Theranos. She went to Mexico to demonstrate the machine and sell the government 400 Edison analyzers. She also went to Europe to present to potential clients. One thing was consistent. The machines only worked occasionally, and only on very limited tests. Chelsea, seeing how fraudulent the company was, didn’t last too long. Once she resigned she was shoved out of the building by Sunny, without the chance to say good bye to her colleagues.
Walgreens and Safeway Theranos pitched Walgreens Drugstores and Safeway Foods and negotiated contracts to put analyzers into stores across the country. As always, the demonstrations didn’t go well, with the Edisons consistently either getting it wrong or not able to do the test at all. No matter – the idea of having small, multi-test blood analyzers on-site at pharmacies was too compelling to worry about how well things worked at the demo.
This is one of the main points of the book. People wanted to believe that someone could design and build a low-cost device that would take the hurt out of and reduce the time to process blood tests. Companies would sign contracts, trusting Elizabeth to get it right before roll-out. Their faith was totally misguided.
The CEO of Safeway lost his job because he believed in Elizabeth. He was focused on adding pharmacies to the company and saw Theranos as the way to jump-start that project. Walgreens executives were looking over their shoulders at CVS and didn’t want to be outflanked by letting the competition get the devices. Walgreens biomedical team figured out that the devices had never been evaluated in any type of professionally accepted setting. Elizabeth’s evidence of effectiveness was a letter she got from five scientists, years before, that said that the device was “novel and sound.” Another piece of evidence was a paper Elizabeth submitted to a close-cover-before-striking fly-by-night medical web site that would publish anything you wrote for $500. As it turned out, the one person in the Walgreen’s management who understood how flawed the Theranos product was retired before doing anything. His replacement and her minions fully bought into Theranos’s hokum and removed the main critic of Theranos from their tech team because he was upsetting Elizabeth.
Thernanos’s next project was the mini-lab that would process hundreds of tests simultaneously. This would be a game changer, but of course it was impossible to produce. No problem to Elizabeth and Sunny. As long as they could sell it. This time they decided to take a state-of-the-art existing multi-test machine and reengineer it and shrink it. Elizabeth bought a manufacturing site before any prototype was developed; the fact that Theranos had a plant gave credence to her lies about the mini-lab’s existence.
Safeway opened a number of Theranos blood test sites using Edison, the more established machine. At first, they just tested employees before seeking regular customers. Naturally, Edison got most of the tests wrong. Many Safeway employees were told that they had horrible diseases and serious medical conditions because Edison said they did. They didn’t – the tests were way off. The only blood assays that were correct were the ones that Theranos employees had shipped off to their local lab that used state-of-the-art non-Theranos equipment for the tests.
Meanwhile, more and more Theranos employees figured out that there was no one home at the corporate hacienda when it came to developing devices that actually worked. Questioning employees were bounced as soon as they shared their concerns with the bosses, and they were often threatened with lawsuits because they were disloyal.
Next, Theranos pitched the US Department of Defense to get the mini-lab (which didn’t work) off to bases and to our troops stationed in the Middle East. This is another situation where the desire for a miracle machine that could process hundreds of blood tests at once was appealing, especially for combat theaters with no hospitals. The Army had a specialist who vetted medical devices, Lt. Colonel David Shoemaker. He quickly saw thorough Theranos’s slick branding materials and saw that there was no evidence that such a machine existed. Once he had made his observations, Elizabeth blew up. She knew someone who knew General James Mattis (yes that one - Donald Trump’s first secretary of defense), and she appealed to Mattis to put Shoemaker in his place. He did. He went after the Lt. Colonel who was blindsided by the attack but was given a meeting with Mattis to explain his concerns. Mattis agreed that more investigation should be done. The Army would procure several Theranos medical devices and test their accuracy against the traditional blood testing equipment currently utilized. Elizabeth agreed but never cooperated in the venture which was never done. Despite that, she continued to make the point with potential investors and customers that the Army was using her devices. In her mind, the fact that General Mattis wanted to place Theranos devices in service (to see if they worked) was equivalent to the Army’s regularly relying on her machines.
Most employees who cast doubts on the company were fired; some got to resign. At least one, Ian Gibbons, who started with the company at the beginning, killed himself as his overtures to Elizabeth about the fact that the devices were not reliable continued to be ignored. Even though Ian had been an integral part of Theranos, his death was not even announced to employees. Elizabeth wasn’t big on empathy.
Theranos needed a corporate branding makeover so they hired Chiat/Day, perhaps the premier ad agency in the country, the one that did all of the iconic Apple ads. Having been in the advertising business, Bob in the Basement knows that ad people will stretch the truth to get an account or to develop an appealing marketing campaign. Elizabeth Holmes turned out to be more than even the agency could tolerate in terms of spinning/lying to get what she wanted.
The first problem was the redesigned web site which claimed all sorts of validation of Theranos’s boasts about the efficacy of its machines, none of which were substantiated.
Theranos had been trying to develop the mini-lab for over two years to no avail. It still didn’t work, yet it was to be the front piece of the ad campaign. Several more top employees resigned over the fact that the company was playing fast and loose in developing medical devices. It’s one thing for a company to spin/lie about a smart watch’s capabilities; no one gets hurt. It’s quite another thing to grossly misrepresent how well a blood testing machine works. False results could be fatal, and Theranos mostly produced false results.
Despite the lack of a real product, Elizabeth and Theranos rolled on. On September 7, 2013, the Wall Street Journal published an editorial (not in the news section) on Elizabeth Holmes, “the next Steve jobs or Bill Gates,” according to former Secretary of State George Schultz. The puff piece hit just as Theranos was launching its devices at Walgreens stores. The WSJ editors loved the idea that a new company was disrupting the stodgy blood testing establishment. The fallout from the article triggered lots of new investment. A venture capitalist who was on the company’s board said that Theranos devices were on Humvees with our soldiers in Iraq and that Theranos had signed contracts with many companies, neither of which was true. Anyway, the pitch worked and the money flowed in and luminaries flocked to the board, including General Mattis, who had been thoroughly duped.
Elizabeth refined her pitch, claiming that the mini-lab (which didn’t exist beyond very flawed prototypes) could do multiple blood tests AT ONCE! with just ONE OR TWO DROPS OF BLOOD! (My exclamation points!) She also came out with projected revenue numbers which she made up since the company had not had a chief financial officer in over 7 years. The person in the company who was charged with doing the projections (the comptroller) developed projections that were about 20% of what Elizabeth made up, and those numbers ended up being way too optimistic.
In the meantime, new members came on to the board, including another former secretary of state, William Perry, as well as the former chairman of the Senate Armed Services Committee, Sam Nunn. (Side note: The corporate board was all white guys, none of whom had any understanding of medicine or science. It looks like many of them saw Elizabeth as a daughter figure that they wanted to help, and the promise of a super machine to test blood was appealing.)
On February 4, 2014, Theranos received a major infusion from the prestigious Partner Fund, a blue-chip venture capital firm, which led to a market valuation of $9 billion, not bad for a company that had never produced a working product. Elizabeth had half of that. On paper, she was one of the richest people on the planet.
Concerned employees Tyler Schultz was George Schultz’s grandson. He went to work for Theranos as an engineer. He had heard one of Elizabeth’s talks about how her machines would save the world, and he was impressed. He quickly lost his enthusiasm as he took a look at what the machines had under the hood – not much. There was no sophisticated microfluidics system as was needed to do serious analysis. That was because the blood samples were still shipped off to a back room for real analysis using other companies’ machines. Tyler also figured out that Theranos had done none of the rigorous prototype testing needed to bring a new medical device to the market. That really bothered him. He and several of his colleagues did an experiment on their own. They took blood samples and analyzed half on Theranos’s machines and half on an established Siemens device. Siemens got it right; not so much Theranos.
Tyler was really troubled as he figured out that his company’s products just didn’t work. He took his concerns to his grandfather, George Schultz, a corporate board member. George shot him down and said that Elizabeth was a genius. Tyler (and the people who had done the experiment with him) quit.
Dr. Alan Beam, M. D., became Theranos’s laboratory director in 2014. His predecessor had suddenly resigned, and Beam was happy to be working with such a great company. Being a competent professional, he soon realized that the lab really didn’t do much work, and when they did do research, the company’s machines just didn’t function well. Also, Alan was denied access to previous lab work, which he thought was strange since he was the lab director. He had been involved in talking to some doctors who had complained about inaccuracies in Theranos’s products and he knew they were right. After a few months he decided to resign. For self-protection, he made a separate file of copies of his internal emails that raised concerns about the company. When he resigned, Sunny Balwani confronted him with the fact that Beam had kept a separate file of emails and made him delete them. Alan got a lawyer who eventually advised him to delete the emails, which he did. You couldn't fight the company.
The Beginning of the End In February of 2015, Wall Street Journal medical investigative reporter William Carreyrou was sitting at his desk looking for his next story. He got a phone call from a colleague, Adam, who ran a pathology blog. Adam was wondering what Carreyrou thought of a recent puff piece in <em>The New Yorker</em> about Elizabeth and her company. They both thought that the article contained absolutely no peer-reviewed data to support the company’s claims. Theranos had been in business for 5 years and should have gone through the review process. They also thought it interesting that a Stanford dropout with one year of relevant education could do what distinguished professionals failed to do in creating a small, do-everything blood analyzer. Adam put Carreyrou in touch with several people who had serious concerns about Theranos, including former employees who resigned or were fired.
Alan Beam was an important source. He explained that what the company claimed - doing multiple tests on one or two drops of blood - was impossible, even when the blood was diluted to get more volume. Beam also spoke of the intimidating environment at the company, with Sunny being an absolute tyrant who did Elizabeth’s dirty work. William Carreyrou knew he was onto a big story.
Alan gave William lots of information, including how the company basically lied to state medical inspectors who were shown only a generic lab, not the one Theranos was actually using. That lab was a disaster on good days, with very limited professional protocols. Eventually Beam got nervous - he had signed the ubiquitous non-disclosure form under duress - and stopped talking. However, by now Carreyrou had developed other ex-employees as sources as well as finding a nurse in Arizona who had figured out that the miracle Theranos analyzers in local Walgreens stores were bogus.
Tyler Schultz, another concerned ex-employee, was willing to talk. He also had hard copies of all of his emails that expressed his concern about the company’s products and policies. Sunny didn’t get to confiscate those. Other ex-employees came forward. Many were nervous about violating their non-disclosure agreements but it was finally liberating to be able to speak truth to Theranos’s power. Tyler went back to George Schultz’s house to talk to him about Theranos’s problems (George was still on the board). As it turned out, Tyler was blindsided. There were lots of Theranos lawyers there who somehow had heard, or perhaps just feared, that Tyler was a source for an unflattering <em>WSJ</em> article to come. Tyler faced immense pressure and threats of lawsuits up the kazoo, but he held his ground and left the meeting with his integrity intact.
Carreyrou needed to find patients who suffered harm due to Theranos’s incompetence, so he naturally looked at Yelp in Arizona, where 40 Walgreens had installed their devices. It worked. He found a doctor whose patient had a terrible time after getting her blood analyzed. Maureen Gluck didn't have good insurance or a lot of money, so she went to her local Walgreens drug store for blood work. She, with limited medical resources, was the prototypical patient Theranos had targeted.
Her blood tests were largely inaccurate, causing her to believe that she had all sorts of things wrong with her. She went to a real doctor who redid the tests and found that everything was normal. Maureen was happy to be healthy, but was out the $3,000 it cost her to undo Theranos’s incompetence. Carreyrou found others who also had been harmed by wildly inaccurate blood tests. He also went to two Arizona Walgreens Wellness Centers to get his blood tested. The technician drew it in the normal way with a needle (no pin-prick - a big needle!), and when the results came back days later, they were mostly wrong. The doctor who had referred the writer to several unhappy Walgreens patients also had her blood analyzed at the Walgreens Wellness Center. They found that she had the blood chemistry of someone with Addison’s Disease, a very serious malady. The analysis of course was completely wrong.
The Meeting at the WSJ The <em>Wall Street Journa</em>l does not publish an investigative article until the subjects of the piece have a chance to meet with the author and his editor to discuss things. Carreyrou had tried to get an interview with Elizabeth to give her a chance to rebut the story, but he couldn’t arrange it. He mused that he was the only journalist in the country that she wouldn’t meet with.
In early October of 2015, both sides met at the WSJ’s offices. Theranos had David Boies, famous for the Gore-Bush 2000 Supreme Court case and perhaps the best-known and most expensive lawyer in the country, as their lead counsel. He was accompanied by Heather King, one of Hillary Clinton’s closest advisors, and Daniel Young from Theranos. Carreyrou had his editor plus the Journal’s legal counsel with him. Heather was the bad cop, opening up by demanding that the author reveal his sources and denigrating a spate of former employees that were suspected of being sources for the article - there were dozens. (Bob at the Bookshelf’s observation: When you consistently demean, denigrate, Insult, and threaten your employees whenever they want to move on, you create a lot of potential whistleblowers.)
The discussion went in circles. After the initial bluster, Carreyrou presented the questions he had about how Theranos developed their machines. Young really didn’t answer any; he just insisted that everything was fine and above board. After some back-and-forth, Boies went nuts, demeaning the reporter’s writing ability and integrity, again refusing to answer any specific questions. The meeting lasted four hours with nothing being settled.
After the meeting, more of the company’s former employees were served with lawsuit notices that would go forward unless they retracted anything they had said that was detrimental to Theranos. Of course, Boies and crew were fishing. They didn’t know who the sources were, but getting a notice of a lawsuit was still terrifying. Sunny also traveled to Arizona to threaten the doctors who had helped Carreyrou. Some caved in and signed documents reneging on what they said had happened, but most held firm. Their patients had been endangered by Theranos’s incompetence.
In July of 2015 Theranos finally got FDA approval of one of its herpes tests. This was the first regulatory approval in the company’s history, which was interesting in that it had placed dozens of its machines in Walgreens and Safeway Stores. Carreyrou makes the point that detecting herpes is pretty simple; the more difficult and more numerous blood tests call for quantitative testing - how much of something is present in the blood sample. The herpes test is qualitative: is the virus present or not, really basic stuff. Theranos’s machines were pretty useless on quantitative assessments.
Elizabeth was still pushing her company as the best ever. She gave bogus demonstrations to journalists and potential investors and customers. As always, the machine wouldn’t quite get through the test of the blood of the person-to-be-impressed, and a few days later Elizabeth would send them the results. These of course were never checked out by the person being feted, so they thought Theranos was for real.
President Barack Obama liked Theranos and saw it as a way to provide more patient care at a reasonable price. Vice President Joe Biden toured their facility in Newark, NJ. The company built a fake lab with lots of impressive looking Theranos blood testing machines that didn’t work on the walls. Joe bought it and praised the company for the FDA approval of its device. That of course is not what the FDA did. The agency only approved the device to do one of the hundreds of tests Elizabeth told the world - and the vice president - that her machines could routinely do.
Elizabeth did an op ed in the Wall Street Journal in July of 2015 that doubled down on her lies about her company’s ability to supply serious blood analysis machines. Carreyrou had his article in good shape and wanted to publish it before Elizabeth did more lying to curry favor. His editor said that they were going to wait and spring it on Theranos at the appropriate moment.
Elizabeth’s last attempt to squelch the piece involved her talking to Rupert Murdoch, the owner of the WSJ and one of Theranos’s major investors. She had four meetings with the mogul and made her case that the piece was trash. Murdoch, to his credit, said that the ownership, editorial, and news departments of the paper were totally independent and that he would not interfere on the news side. He showed much more integrity in not killing the story than anyone of Theranos’s principals had ever demonstrated.
Boies, Theranos’s lawyer, identified some more of the doctors and patients in Arizona who had been sources on the story and did his usual thing. He told them to retract what they had told Carreyrou or we are going to carry you into court. No one gave in.
Boies sent a very threatening letter to the Journal which resulted in one last meeting. This time at the meeting, the Theranos defense team carelessly confirmed two of the main points in the story:
These confessions rebutted two of Theranos’s main marketing points, that their machines did all of the tests and that they only needed a miniscule amount of blood to work.
On October 15, 2015, the story hit the front page of the Wall Street Journal. Naturally, Elizabeth went into full overdrive to deny the charges in the piece. Many people, especially the old men on her board, supported her. Others, including some of the magazines that had praised Theranos, were seeing some of their suspicions confirmed. Elizabeth went on CNBC with a friendly host, but she couldn't satisfactorily answer his basic questions about her technology. She was a great marketer but knew very little science.
She also went to the Wall Street Journal’s tech conference, and she again lied about everything while demeaning Carreyrou. She was nothing if not consistent. She went out to be interviewed on many business web sites and painted herself as a victim of sexism. She took shots at John Carreyrou for being misogynistic, which was news to his wife and colleagues and everyone who knew him.
Federal regulatory action Meanwhile, the FDA and other federal and state agencies were starting to figure out that Theranos was an empty shell. The US Center for Medicare and Medicaid Services (CMS), a huge agency with strong oversight power, had received a complaint from Erika Cheung, one of the employees who left the company. After starting her job, she quickly realized that Theranos was putting patients at risk with its shoddy products. After she resigned, she was intimidated by Sunny. Later, David Boies and Heather King kept threatening her with all sorts of legal trouble, but she held her ground.
CMS first inspected the Newark facility in September of 2015 and found that things weren’t right. Sunny asked for two months for him to fix everything which they granted. In November the CMS team spent 4 days at the plant and wrote up their report. John Carreyrou used his sources to get the findings, which were very bad for the company. Normally these reports are public record, but well into 2016 this one hadn't been released. Theranos’s legal team was trying to quash it, and Carreyrou suspected that Heather King was leaning on Hillary Clinton, a presidential candidate and Elizabeth Holmes supporter, to keep the report buried.
Carreyrou worked his CMS sources and got a copy of the 121-page report which was devastating. He published it on the WSJ’s web site. Findings included the following:
Besides the machine not working, the lab was a mess. The good news was that Sunny had corrected two of the problems CMS found. The bad news was that he hadn’t done anything about the other 43 areas of failure.
Carreyrou met with Tyler Schultz, a key source for the expose on Theranos. He was working on a project at Stanford and pretty happy except for the fact that Grandad Schultz had ostracized him for being mean to Elizabeth. After the meeting, Theranos’s lawyers came after Tyler once again, proving that Carreyrou and/or Tyler were under surveillance by Theranos. What a great company.
Once the CMS report was made public, the Theranos legal team - Dave and Heather - finally stopped threatening to sue the Journal. Elizabeth was unbowed and went on TV to say how “devastated” she was. Imagine - She had no idea that there was gambling going on in Casablanca.
The WSJ got CMS data that showed that Theranos had voided tens of thousands of tests to try to come into compliance with industry standards. It didn’t work. CMS banned Elizabeth and her company from doing any blood test work, essentially the death penalty. No dummies, Walgreens finally pulled the plug on its Theranos-branded Wellness Centers.
In August of 2016, when the you-know-what had hit the fan big-time, Elizabeth showed up at a Philadelphia health conference to announce her newest product, the mini-lab that never had worked. As usual, she presented a slick PowerPoint presentation with no evaluative back-up data to prove that the thing could test blood with any degree of accuracy.
The audience was not amused; they asked tough questions that she could not answer. Again, she was no scientist. She was a flimflam huckster. At the end of the presentation, someone in the audience yelled out, “You hurt people,” not a great way to exit the stage.
The Food and Drug Administration (FDA) finally came down on the company and the press turned on her. In the unkindest cut of all, the prestigious Partner Fund that had poured tons of venture money into Theranos sued the company for lots of fraudulent stuff. Elizabeth, blaming everybody but herself, fired the Boies law firm. They weren’t getting paid anyway; they worked for Theranos stock which was worthless now. Elizabeth was under a lot of pressure so she dumped Sunny and blamed her long-time boyfriend for everything. It didn’t work.
The Last Gasp After the Journal’s investigation, Theranos and Elizabet Holmes pushed back hard, and for months refused to acknowledge that its machines were effectively a sham. State and federal authorities started investigations into the accuracy of the company’s blood testing work. In 2016 the Centers for Medicare and Medicaid Services, which oversees blood testing labs in the U.S., banned Holmes from operating a lab and revoked Theranos’s blood testing license. In late 2016, Theranos began shutting down its clinical labs and wellness centers and laid off more than 40 percent of its full-time employees.
In January of 2018, Elizabeth made another pitch at a trade show, once again for the mini-lab that was supposed to be able to do many tests simultaneously. She gave a great speech and made good eye contact with the audience. As usual, she had no documentation to prove the thing worked. It didn’t. The crowd’s questions were devastating, proving that she had no idea what she was talking about.
Theranos now was running on fumes, reduced from 800 employees to 130 and having no product to sell. The Securities and Exchange Commission came down hard on the company. Theranos paid a lot of money to a lot of people who had received bogus blood tests. 0ne million people had been defrauded.The company ceased operations in September 2018, months after Holmes stepped down as chief executive
In June of 2018, Holmes and Balwani were indicted by the federal government on two counts of conspiracy to commit wire fraud and nine counts of wire fraud. Those charges sound serious to me and they carry up to a twenty-year sentence. The trial has been put off because of COVID. It is now scheduled for this March but it will probably be postponed again.
Bob’s Take
This book was fascinating. I do remember what a big splash Theranos and Elizabeth Holmes made around 2014. She was everywhere, and the technology did seem to be cutting edge. One takeaway is that no matter how much evidence there is, some people will not look at it. The company's board stood by Elizabeth no matter what. They were enthralled with her.
Having an independent press is essential to having a good country. Without the Wall Street Journal and John Carreyrou’s work, Theranos may have gone on to give inaccurate blood test results to tens of millions of people
