In early 2015, blood-testing startup Theranos Inc. was riding high, with hundreds of millions of dollars in venture capital funding and its young Stanford-dropout founder, Elizabeth Holmes, the subject of fawning stories in the business media. Theranos claimed that it could test for dozens of analytes in a single drop of blood, thanks to proprietary breakthroughs in microfluidics technology.
Then it all went south, in large part because of stories in the Wall Street Journal by reporter John Carreyrou, who found that Theranos had in fact made no breakthroughs, and results of a million tests on real patients' samples -- and probably many more -- were completely unreliable. Carreyrou reported that Holmes had deceived investors, physicians, and patients almost from the company's beginnings in 2003.
Last week, Holmes was indicted on federal fraud charges and relinquished the CEO title, but remains as board chair. The firm now sells lab equipment and sample collection devices, but no longer performs tests.
Carreyrou turned his reporting into a book, , which goes far beyond what was reported in his Journal pieces. In stunning detail, he describes the bad management and nonexistent ethics at Theranos -- and also lays bare the arrogance in California's venture capital culture that Holmes shrewdly exploited. The book has hit the national bestseller list, and for good reason.
乌鸦传媒 spoke with Carreyrou at length between stops on his book tour. Some of the choicer bits appear below, edited for length and clarity. You can listen to the full unedited interview via the player.
Why It Matters
There always needs to be a voice in the back of every health tech entrepreneur's mind saying the end user is a patient, that a patient's life is at stake. The cavalier attitude toward regulation when it comes to health tech is going to have to be toned down. There's a reason: lives are at stake. It doesn't mean that industries, such as even blood testing, which is essentially a duopoly, can't be disrupted. But it has to be done responsibly and it has to be done ethically. It shouldn't take the form of a giant unauthorized medical experiment like Theranos did in Arizona.
Nearly a million blood test results voided or corrected, and I know from an ex-Theranos employee, the most recent laboratory director, was advocating to Elizabeth that they void or correct every single blood test result they ever returned to a patient. In his estimation, the quality control had been so nonexistent, they couldn't vouch for the accuracy of any test they had put out.
Elizabeth Holmes ignored his recommendation and only voided or corrected about a million. If this last lab director had had his say, 7.5 million blood test results would have been voided or corrected.
The Pitch
It would have been a real medical advance. I've obviously talked to lab experts, some of whom have done research in this space, about being able to do more than just a few tests on tiny samples of blood. And it's challenging and it would have had real applications – it would have been good for newborns, patients with cancer and older patients – but also have applications in the field in rural communities. Or third world countries: if you could have a portable blood testing device, you could use that in basically all of Africa and other parts of the third world. Holmes played that up, the fact that this would have applications that would, in a real sense, to use the Silicon Valley expression, "Make the world a better place."
I think people liked that. And were on board with that. Even some people in the medical professions.
One of several things that sold Partner Fund Management, the San Francisco hedge fund, on a nearly $100-million investment was the board ... I think some people saw the board and thought "These are people with sterling reputations. Surely they wouldn't associate themselves with anything that was remotely questionable."
And then, by the time I started digging into the company, she had cultivated a chummy relationship with the White House, with the Clintons. She had David Boies as the outside counsel, who sat on every board meeting. That was another thing Partner Management Fund looked at and thought, "Nothing can be off at a company where arguably America's most famous lawyer is guarding the shop."
Pivots and More Pivots
At first it was this ridiculous wristband that was going to have microneedles and was going to simultaneously diagnose you and cure you. Which she and her startup founder quickly pivoted away from because they realized it was science fiction.
So then they worked on the microfluidic cartridge and reader system for several years. And that was, ironically, the most ambitious thing that Theranos ever worked on. Unfortunately, they couldn't get anywhere with it because that stuff is really hard. Some people who worked with the company back then said maybe if they had stuck with it for five or ten more years, they might have started getting some results. But for whatever reason, I guess because she was promising that the technology was already real to investors, she lost patience and pivoted away. She abandoned that.
That's when they introduced the Edison, which was a glue-dispensing robot. An engineer, a Theranos consultant, ordered this glue dispensing robot ... and then when it arrived he studied it. And he ordered off-the-shelf components to make a smaller version of it, and then he programmed his smaller version of the glue robot to use a pipette to essentially replicate what a lab scientist would do. It had three degrees of movement in this sleek case.
So that was a big, big step down, in terms of the ambition, you know? From the microfluidic attempt to that was a huge step down. And she made it because they were getting nowhere with the microfluidic efforts.
And then they pivoted to the minilab in 2010, because the Edison could only do immunoassays. She, in early 2010, had gone to Walgreens and Safeway and told them "I have a machine that does all of the classes of tests." Of course, the Edison did not. Six months later, they had started to work on the minilab.
Did she and her company try and work on technology? Absolutely. Did they ever get to the point they could match her claims? No, not remotely. And even had they gotten to the point where the Edison was reliable, it was just an immunoassay machine.
It wasn't a complete house of cards in that they did try to make her vision happen. But they never got close, and at the same time she claimed that they had. When you're lying that much about where you are with the science it does become a fraud.
Venture Capital's Role
I can tell you, never in my life have encountered so much arrogance and hubris until I started hanging out in Silicon Valley. It's not just among the tech founders themselves, it's among the VCs like Draper. They have this attitude that if you're blessed with being an entrepreneur in Silicon Valley, that if you have this bold vision, then you're exempt from all the rules and the laws of society that everyone else has to abide by. That being a bold entrepreneur with a cool vision excuses white collar crime.
I think the Justice Department and the SEC intended [the fraud charges] as a shot across Silicon Valley's bow. They're sending a message here. They're making an example of Theranos. I think it's an example that absolutely deserved to be made, because the underlying behavior was really egregious. But I think they're also mindful of the context, they're mindful that there's been this second enormous tech boom – if you consider that the first one was the Internet boom in the late 90s -- and all of these companies, the so-called unicorns and the ones that haven't quite reached unicorn valuations, have been able to stay private and not go public the way their dot-com predecessors had. As a result, all of this is going on behind closed doors with no transparency.
When Did Deception Begin?
It's a very legitimate question: Was she a fraudster from the beginning? Or did this evolve into a fraud? As far as I can tell, she didn't have any intentions to defraud people when she first dropped out [of Stanford]. This wasn't a Bernie Madoff where, in the 1980s, he suddenly made a decision one day that he wasn't going to invest the money, he was going to use new money that came in to repay old investors, and from that day on it was a Ponzi.
In this case it's a little greyer. She really did want to be a successful tech entrepreneur in Silicon Valley, and it developed into a fraud over time. She encountered setbacks, and refused to draw the correct conclusions. She glossed over problems and overpromised -- to investors, to the public and to the nation's doctors -- and it eventually got to a point 10-12 years in where the gap between what she claimed she had done and what she had actually done was enormous. Tantamount to a massive fraud.
At the height of her fame, she was constantly playing on people's heart strings. Her heartwarming story was that she had created this amazing technology that would make blood testing easier, faster, more accurate. And as a result disease would get diagnosed at an earlier stage, and fewer people would have to say goodbye to loved ones too soon. That was her catch phrase. If you go back and watch her on YouTube or in various public appearances, she used it over and over again.
But at the same time she knew that the company's blood tests were questionable. Her own lab director told her to delay the launch, told her they were having problems, and she brushed him off. She blithely ignored the potential impact on lives, even as she was playing up the notion that Theranos' technology was going to be lifesaving.
To this day she has not shown any contrition, or apologized to patients, or tried basically to make any amends.
And I think also she got a huge amount of the benefit of the doubt, even after my first story came out, just because she was a woman. People didn't want to think that this giant fraud had been perpetrated by a woman.