Dated May 21, 2018;
last modified on Sat, 19 Nov 2022
Bad Blood: Secrets and Lies in a Silicon Valley Startup.
Carreyrou, John.
May 21, 2018.
ISBN: 9781524731663 .
Theranos shocked me. Before joining uni, Holmes was a role model to me - she was
going to make it big despite being so young. Part of me wants to understand that
she wasn’t a villain through and through. Maybe she was an inventor who built
magnificent castles on a foundation of sand.
Holmes was sentenced to 11 years and 3 months after being convicted of fraud for
deceiving investors with untrue claims.
Elizabeth Holmes is sentenced to more than 11 years for fraud.
Erin Griffith.
www.nytimes.com.
news.ycombinator.com.
Nov 18, 2022.
Accessed Nov 19, 2022.
Holmes had an all-star team: Larry Ellison’s mentor as Chair, Associate Dean of Stanford’s School of Engineering, 30 years IBM experience, 25 years pharma and biotech experience, Panasonic’s chip-making subsidiary head…
Fraud or not, this is a sick lineup! How could she mess this up?
Big Pharma spends tens of $B on clinical trials each year. Theranos would enable them to adjust dosage and save 30%. Holmes insisted on revising financial projections upward - assuming all (15+) deals came through - to $1.5b.
Holmes wanted to be a billionaire since childhood. Her parents were from wealth, with medical and military folk. Holmes attended Houston’s most prestigious private school. She spoke her way into Stanford’s Mandarin program, while still in high school. Parents insisted on living a purposeful life.
Worked in lab during school year. Freshman internship at Genome Institute of Singapore: nasal swabs and syringes. There had to be a better way.
Holmes insisted on using just a prick of blood. Problem: unreproducible results. A miniaturized catridge made storing and using the reagents hard.
You can’t Steve Jobs your way through medical devices. But you can’t change the world by being cynical.
Costs. Each cartridge cost +$200 to make and was single use. Holmes even purchased a $2m automated packaging line.
Control of Information. The biochemists and the engineers reported up to Holmes and weren’t encouraged to communicate with each other. Holmes was frustrated by the engineering team’s slow progress.
For some terminated employees, Holmes requested a dossier on them for leverage. Mosley (finance guy) had stored porn on his work laptop. Holmes (retroactively) used that as the cause for his termination and lack of stock options.
Matt (IT) wanted to leave to start IT consulting firm. Holmes asking him to use ununionized (mob controlled) movers for a last minute move from East Paly was one of the final straws. Holmes tried asking Matt’s peer to build dossier in exchange for Matt’s position, but they declined.
Money was a sore point in the Holmes household. Holmes’s grandparents had
squandered away their share of the Fleischmann fortune. Richard Fuisz, a family
friend, was a flashy successful businessman.
Fuisz was offended that Elizabeth never consulted him. Fuisz made his money
patenting medical inventions that he anticipated other companies would someday
want.
Elizabeth met Sunny in Stanford’s Mandarin program. She was 18, he was 19 years older and married. Elizabeth had struggled and gotten bullied and Sunny helped her out.
Sunny was arrogant and demeaning to employees. Sunny was a sucker for #hours clocked in. 8 hours a day showed a lack of dedication. But Elizabeth had utmost confidence in him.
That Sunny (COO) and Elizabeth (CEO) were dating wasn’t disclosed to the board.
FB’s private valuation had doubled to $50b in 6 months. ‘Angry Birds’ showed an app could be a business. Low interest rates made hedge funds consider private startups.
Walgreens
Dr. J - Walgreens Innovation. Theranos tests could boost revenues. Walgreens agrees to prepurchase $50m of cartridges and loan Theranos $25m.
Walgreens: we can’t risk a scenario where CVS has a deal with them in 6 months and it ends up being real.
The miniLab, 4S for short, stemmed from the need for a device that could perform more than just one class of tests. Theranos value prop was now minituarization, as opposed to invention. Current blood analyzers used too much blood and did too few tests.
Kent, de-facto Chief Architect of the miniLab, had raised $215k on Kickstarter for his bike lights side project. Elizabeth and Sunny wanted the patent to be transferred to Theranos. The compromise was a leave of absence.
Safeway was doing poorly. Burd teased with a ‘wellness play’. He expected the clinics’ to recoup the $350m renovation costs. Testing and rewarding employees would reduce Safeway’s health care costs.
Theranos would courier samples to Palo Alto for testing. Theranos used a lancet on the index finger AND the good old hypodermic needle to the arm. The results could take 2 weeks as opposed to near-instantaneous. Theranos’s results tended to be way off, unless they had been outsourced. Burd brushed off these concerns.
Elizabeth had successfully pitched to James Mattis, 4-star General, about deploying Theranos in Afghanistan. General Mattis was known to look out for his troops.
Elizabeth’s plan around regulation - the real blood analysis would be beamed to California to be done by professionals; only the CLIA compliance for the Palo Alto lab was needed - no FDA.
Lt. Col. Shoemaker, responsible for the army’s compliance with medical regulations, was openly critical of the Theranos’ workaround. He asked a colleague about it.
Elizabeth sued Richard Fuisz claiming he used Joe & John Fuisz to steal confidential information at McDermott Will & Emery, in order to build the rival patent. Note that John thought his father, Richard, was overbearing.
David Boies was legendary: antitrust against MSFT, Al Gore on contested 2000 election, overturning ban on gay marriage in CA. He also intimidated opponents with private investigators.
There was paranoia that Quest Diagnostics and Laboratory Corporation of America were thirsty for Theranos’s blood. They suspected Richard was in league with Quest and LabCorp.
Ian’s specialty was immunoassays. His contentions: the devices fell short of the lab bench’s accuracy; there was little communication between groups; Elizabeth’s dishonesty about Theranos’ capbilities.
Ian confided in Channing Robertson, who parroted to Elizabeth, who fired Ian.
But his colleagues lobbied him back in. He was in a demoted position though. Paul, previous mentee turned manager, was more compromising with the engineers.
Ian was dismayed that Elizabeth’s name was usually in 1st place on patents despite negligible scientific contribution. Rochelle, his wife, noted that this was potential reason for patents to be invalidated.
Chiat\Day was the agency that Apple had used. Therefore, Theranos would too.
Patrick (Chiat\Day) was enamored by Elizabeth’s mission. The website models featured all demographics. Elizabeth scheduled Wednesday meetings because that’s how Apple did it.
Stan Fiorito (Chiat\Day) was more circumspect. Sunny’s sales targets had measly research. How were they affording $6m/year retainer?
Elizabeth claimed Theranos was saving soldiers’ lives in Afghanistan. She wanted bold claims:
800 tests on a drop of blood
More accurate than traditional lab testing
Tests ready in < 30min
Tests approved by the FDA and endorsed by key medical centers.
Theranos: 93% of lab mistakes are due to human error. Automating the testing process thus makes us more accurate than other labs.
Theranos’s Lab was divided into two. The upstairs one, CLIA-certified, was full of commercial diagnostic equipment. The downstairs one had Theranos’s tech.
2.5 years of the miniLab’s development. But it was still a work in progress. In medical device standards, 3 years is a short time.
Sycophants were promoted. Many employees were on H1-B, so they needed Theranos’s employment.
After LTC Shoemaker, Elizabeth scrapped the remote diagnostics. The samples were to be couriered to Palo Alto. Still, Elizabeth insisted that the 4S be a sleek small (consumer) device.
Elizabeth used Shultz’s connections to get a WSJ Weekend Interview to coincide with the launch. The interview was a friendly setting, with a pro-business & anti-regulation ethos.
Theranos was about to launch. Its devices were being used by the military too. Elizabeth offered Don Lucas a discount investment opportunity - $15m at a $6b valuation; 7 years ago, Theranos was valued at $40m.
Uber had raised $361m at $3.5b. Spotify raised $250m at $4b. Theranos would eclipse them.
The Edison’s innards were mostly a pipette fastened to a robotic arm. But it had a [buggy] touchscreen interface, so…
A test is considered precise if its coefficient of variation (CV) is below 10%. Data runs that failed to meet the threshold were discarded. Of six values, Theranos only reported the median to the patient.
Theranos also argued that proficiency testing results were assessed by comparing them to its peers’ results. But Theranos’s tech was unique and therefore had no peer group.
Richard and Joe Fuisz were tired and battered. They had already spent $2m+ on their defense. What if they lost and were made to cover Theranos’s legal expenses?
Richard agreed to withdraw patent in exchange for Theranos withdrawing its suit. The Fuiszes had lost. But Joe demanded a public apology from Theranos.
Roger Parloff, Fortune Magazine’s legal correspondent saw the settlement in Litigation Daily. After speaking to Shultz, Perry, Kissinger, Nunn, Mattis and the 2 new directors: Kovacevich (former Wells Fargo CEO) and Frist (former Senate majority leader), came the June 2014 cover story that catapulted Elizabeth to fame: This CEO Is Out for Blood. Elizabeth being $5b+ was first disclosed here.
Alan talked Elizabeth and Sunny out of running HIV tests on diluted finger-stick samples - unreliable potassium and cholesterol results were bad enough.
Alan was tired of convincing physicians that blood test results were sound and accurate. He chose to resign and asked his name be taken off the lab’s CLIA license. Alan got served with an affidavit.
How could Alan go against the most fabled SV unicorn? The litigation would bankrupt him. Alan’s lawyer advised him to erase his emails.
Alan retrieved the proficiency testing email chain through a whistleblower law firm. He forwarded the thread to Carreyrou. The thread showed Sunny admonishing Alan & Mark for running proficiency tests on the Edison and admitting that the device had “failed” the test. Elizabeth was copied on most of the emails.
Carreyrou tracked Carmen Washington, who had complained about Theranos’s blood tests in Walgreens. 3 of her patients had received questionable test results.
Charlotte: I doubt if Theranos’s ‘box’ is real. Henry [Kissinger] doubts too and he’s been saying he wants out.
Tyler got served with an affidavit stating that he’d never spoken to any third parties about Theranos and that he’d give names of [ex]employees who he knew had talked to WSJ.
George: Tyler isn’t a snitch. Finding out who spoke to WSJ is Theranos’s problem.
Tyler declined to name WSJ’s other sources. Theranos declined to include his parents and heirs in the litigation release. Tyler’s parents were afraid of having to sell the house to cover for legal costs.
The Boies Schiller delegation was led by David Boies himself!
Admissions: Ownership of commercial blood analyzers; problematic potassium test was a known issue, and no faulty results had been released to patients.
Siemens ADVIA? Special dilution on ADVIA? Number of tests done by the Edison? Trade secret!
Boies Schiller and witnesses
Tyler was young and unqualified; disgruntled ex-employees are unreliable.
BS summoned Erika to an interview, lest she be litigated against.
La Mattanza: An ancient Silician ritual in which fisherman waded into the
Mediterranean Sea up to their waist with clubs and spears and then stood still
for hours on end until the [bluefin tuna] no longer noticed their presence.
Eventually, when enough [tuna] had gathered around them, someone gave and
imperceptible signal and in a split second the scene went from preternatural
quiet to gory bloodbath as the fishermen struck viciously at their
unsuspecting quarry.
Rupert Murdoch led the most recent $430m funding round with $125m. He followed his gut: he’d invested $150k in Uber for it to become $50m.
The investment packket forecasted (profit revenue) of ($330m, $1b) in 2015 and ($505m, $2b) in 2016. Furthermore, Theranos had lined up Cox Enterprises, The Waltons, New England Patriots owner, Carlos Slim, controller of Fiat Chrysler.
Elizabeth brought up Carreyrou’s story to Murdoch, but Murdoch declined to intervene - saying he trusted the paper’s editors to handle the matter fairly.
[3 weeks before first article] Erika Cheung’s email to Gary Yamamoto (CMS) spurred the surprise inspection on Theranos’s labs in less than 3 days. They found so many problems and missing documentation that they planned to return. When they returned, WSJ’s article was out and there was pressure. CMS released a letter calling Theranos an “immediate jeopardy to patient health and safety”.
Theranos claimed to have fixed many of the deficiencies, and that the problems had no bearing on the soundness of its proprietary tech. Theranos invoked trade secrets to keep the report confidential.
March 14, 2018: SEC charges Theranos, Homes and Balwani with conducting “an elaborate, years-long fraud”. To resolve SEC’s civil charges, Elizabeth was forced to relinquish her voting control, give back a big chunk of stock, pay a $500k penalty and not be an officer/director in a public company for 10 years.
Sunny didn’t join Theranos until late 2009. Elizabeth had already been misleading pharmaceutical companies for years about the readiness of her tech.
Fraud or not, this is a sick lineup! How could she mess this up?