“Bad Blood: Secrets and Lies in a Silicon Valley Startup” by John Carreyrou
Hardcover, 352 pages
Published in 2018 by Knopf
ISBN-10 : 152473165X | ISBN-13 : 978-1524731656
Date Finished: Nov 5, 2018
How strongly I recommend it: 8/10
Find it at BookShop.org or Amazon
Elizabeth Holmes was a media darling… a wonderful story about a Stanford dropout who dressed like Steve Jobs and went on to become the first female billionaire. What isn’t to like? Well, it was all based on lies. The business world and the media outlets that cover it had fallen so deeply in love with this tale of startup tomfoolery that they failed to do their jobs in a lot of ways. Enter John Carreyrou, the Wall Street Journal reporter who pursued the inconvenient truth about Theranos and the fact that its machines didn’t work, and worse, that Holmes was lying to everyone about it. Carreyrou’s reporting chops really shine through in this shocking narrative. This book is a bestseller, and rightfully so. Give it a read.
My Notes:
One of those executives was Henry Mosley, Therano’s chief financial officer. Mosley had joined Theranos eight months earlier, in March 2006. A rumpled dresser with piercing green eyes … Theranos was far from his first rodeo.
Shaunak would prick his finger and milk a few drops of blood from it. Then he would transfer the blood to a white plastic cartridge the size of a credit card. The cartridge would slot into a rectangular box the size of a toaster. The box was called a reader. It extracted a data signal from the cartridge and beam it wirelessly to a server that analyzed the data and beamed back a result. That was the gist of it.
“We’ve been filling investors. We can’t keep doing that.” [Mosley]
Elizabeth’s expression suddenly changed. Her cheerful demeanor of just moments ago vanished and gave way to a mask of hostility. It was like a switch had been flipped. She leveled a cold stare at her chief financial officers.
“Henry, you’re not a team player,” she said in an icy tone. “I think you should leave right now.”
There was no mistaking what had just happened. Elizabeth wasn’t merely asking him to get out of her office. She was telling him to leave the company—immediately. Mosley had just been fired.
Without skipping a beat, Elizabeth replied, “I want to be a billionaire.” [Holmes at 7 years old]
As college drew closer, Elizabeth se her sights on Stanford. It was the obvious choice for an accomplished student interested in science and computers who dreamed of becoming an entrepreneur. The little agricultural college founded by railroad tycoon Leland Stanford at the end of the nineteenth century had become inextricably linked with Silicon Valley.
Elizabeth incorporated the company as Real-Time Cures, which an unfortunate typo turned into “Real-Time Curses” on earlier employees’ paychecks. She later changed the name to Theranos, a combination of the worlds “therapy” and “diagnosis.”
In a twenty-six page document she used to recruit investors, she described an adhesive patch that would draw blood painlessly through the skin using micro needles. The TheraPatch, as the document called it, would contain a microchip sensing system that would analyze the blood and make “a process control decision” about how much of a drug to deliver. It would also communicate its readings wirelessly to a patient’s doctor.
As the money flowed in, it became apparent to Shaunak that a little patch that could do all the things Elizabeth wanted it to do bordered on science fiction. It might be theoretically possible. But the devil was in the details. In an attempt to make the patch concept more feasible, they pared it down to just the diagnostic part, but even that was incredibly challenging.
Her obsession with miniaturization extended to the cartridge. She wanted it to fit in the palm of a hand, further complicating Ed’s task. He and his team spent months reengineering it, but they never reached a point where they could reliably reproduce the same test results from the same blood samples.
The quantity of blood they were allowed to work with was so small that it had to be diluted with a saline solution to create more volume. That mad what would otherwise have been relatively routine chemistry work a lot more challenging.
She slept four hours a night and popped chocolate-coated coffee beans throughout the day to inject herself with caffeine. He [Ed Ku] tried to tell her to get more sleep and to live a healthier lifestyle, but she brushed him off.
As obstinate as Elizabeth was, Ed knew there was one person who had her ear: a mysterious man named Sunny.
You placed the blood sample in one of the tubes and pushed the cartridge into the reader through a little door that swung upward. The reader’s robotic arm then went to work, replicating the human chemist’s steps.
(In laboratory speak, the word “assay” is synonymous with “blood test.”)
Ed would have to sign a new nondisclosure and non disparagement agreement if he wanted to get his severance.
To anyone who spent time with Elizabeth, it was clear that she worshipped Jobs and Apple. She liked to call Theranos’s blood-testing system “the iPod of health care” and predicted that, like Apple’s ubiquitous products, it would someday be in every household in the country.
She pointed to a nine-inch-long metal paperweight on her desk. Etched on it was the phrase, “What would you do if you knew you could not fail?” She’d positioned it so the words were facing her and clearly found it inspiring.
Bissel and Lortz had the company’s computer network set up in such a way that information was split into silos, hampering communication between employees and departments. You couldn’t even exchange instant messages with a coworker. The chat ports were blocked. It was all in the name of protecting proprietary information and trade secrets, but the end result was hours of lost productivity.
Justin and Mike also got the distinct impression that Bissel and Lortz were spying on them and reporting their findings back to Elizabeth.
The company’s old office was on the East Palo Alto side of the four-lane highway, next to a machine shop and across the street from a footing contractor. It wasn’t the type of neighborhood wealthy venture capitalists like to be seen in. The new address, by contrast, was right next to the Stanford campus and around the corner from Hewlett-Packard’s plush headquarters. It was pricey real estate that signaled Theranos was graduating to the big leagues.
A rudimentary software interface sat atop the cat door at an angle. Inside, the robotic arm made loud, grinding sounds. Sometimes, it would crash against the cartridge and the pipette tips would snap off. The overall impression was that of an eight-grade science project.
Based on the intel he was getting from Susan and from other employees in Palo Alto, Todd became convinced that Theranos’s board was being misled about the company’s finances and the state of its technology. He took his concerns to Michael Esquivel, the general counsel with whom he had established good rapport.
After some discussion, the four men reached a consensus: they would remove Elizabeth as CEO. She had proven herself too young and inexperienced for the job.
But then something extraordinary happened.
Over the course of the next two hours, Elizabeth convinced them to change their minds.
Aaron felt someone needed to tell Elizabeth to pump the brakes and to stop pushing to commercialize a product that they were still trying to get to work. But for her to listen, the message had to come from one of the three senior managers—Tim, Gary, or Tony—and none of them were willing to tell her.
Yet Sunny didn’t see himself as lucky. In his mind, he was a gifted businessman and the Commerce One windfall was a validation of his talent.
It isn’t clear exactly when Elizabeth and Sunny became romantically involved, but it appears to have been not long after she dropped out of Stanford.
The way Sunny dressed was also meant to telegraph affluence, through not necessarily taste. He wore white designer shirts with puffy sleeves, acid-washed jeans, and blue Gucci loafers. His shirts’ top three buttons were always undone, causing his chest hair to spill out and revealing a thin gold chain around his neck.
Sunny’s expertise was software and that was where he was supposed to add value at Theranos. In one of the first company meetings he attended, he bragged that he’d written a million lines of code. Some employees thought that was preposterous. Sunny had worked at Microsoft, where teams of software engineers had written the Windows operating system at the rate of one thousand lines of code per year of development. Even if you assumed Sunny was twenty times faster than the Windows developers, it would still have taken him fifty years to do what he claimed.
Sunny was boastful and patronizing toward employees, but he was also strangely elusive at times.
There was also the murky question of what she told the board about their relationship. When Elizabeth informed Tony that Sunny was joining the company, Tony asked her point-blank whether they were still a couple. She responded that the relationship was over. Going forward, it was strictly business, she said. But that would prove not to be true.
Sunny’s connections there were shady and that he was paying bribes to obtain blood samples from infected patients. [Thailand]
Those were supposed to be for research purposes only and to have no bearing on the way patients were treated. But encouraging someone to rely on a Theranos blood test to make an important medical decision was something else altogether. Chelsea found it reckless and irresponsible.
Chelsea also worried about Elizabeth. In her relentless drive to be a successful startup founder, she had built a bubble around herself that was cutting her off from reality. And the only person she was letting inside was a terrible influence. How could her friend not see that?
In June 2010, the social network’s private valuation rose to $23 million. Six months later, it jumped to $50 billion. Every startup founder in the Valley wanted to be the next Mark Zuckerberg and every VC wanted a seat on the next rocket ship to riches. The emergence of Twitter, which was valued at more than $1 billion in late 2009, added to the excitement.
Bringing the startup’s machines inside Walgreens stores could open up a big new revenue stream for the retailer and be the game changer it had been looking for, he believed.
Theranos had told Walgreens it had a commercially ready laboratory and had provided it with a list of 192 different blood tests it said its proprietary devices could handle. .. Moreover, half of the tests on the list couldn’t be performed as chemiluminescent immunoassays, the testing technique the Edison system relied on. They required different testing methods beyond the Edison’s scope.
As they got up from their chairs, Hunter asked again to see the lab. Elizabeth tapped Dr. J on the shoulder and motioned for him to follow her outside the conference room. He returned moments later and told Hunter it wasn’t going to happen.
The cloak-and-dagger theatrics struck Hunter as silly.
Hunter was beginning to grow suspicious. With her black turtleneck, her deep voice, and the green kale shakes she sipped on all day, Elizabeth was going to great lengths to emulate Steve jobs, but she didn’t seem to have a solid understanding of what distinguished different types of blood tests.
Dr. J didn’t seem to share his skepticism, though. He appeared taken with Elizabeth’s aura and to revel in the Silicon Valley scene. He reminded Hunter of a groupie who’d flown across the country to attend a concert played by his favorite band.
“We can’t not pursue this,” he said. “We can’t risk a scenario where CVS has a deal with them in six months and it ends up being real.”
Walgreens rivalry with CVS, which was based in Rhode Island and one-third bigger in terms of revenues, colored virtually everything the drugstore chain did. Pg It was a myopic view of the world that was hard to understand for an outside like Hunter who wasn’t a Walgreens company man. Theranos had cleverly played on this insecurity. As a result, Walgreens suffered from a severe case of FoMO—the fear of missing out.
They were all reading the book too and could pinpoint which chapter she was on based on which period of Job’s career she was impersonating. Elizabeth even gave the miniLab a Jobs-inspired code name: the 4S. It was a reference to the iPhone 4s which Apple had coincidentally unveiled the day before Jobs passed away.
Part of the problem was that Elizabeth and Sunny seemed unable, or unwilling, to distinguish between a prototype and a finished product. The miniLab Greg was helping build was a prototype, nothing more. It needed to be tested thoroughly and fine-tuned, which would require time.
Sunny was a tyrant. He fired people so often that it gave rise to a little routine in the warehouse downstairs. John Fanzio, the affable supply-chain manager, worked down there, and it had become the trusted place where employees came to vent or gossip. Every few days, Edgar Paz, the head of Theranos’s security team, would come down with a mischievous look on his face, a badge hidden in his hand. At the sight of him, John and the logistics team would gather in excitement, knowing what was coming. As Paz drew closer, he would slowly spin the badge from its necklace and reveal the face on the front, eliciting gasps of surprise. It was Sunny’s latest victim.
Why the need for venipuncture—the medical term for needle draws—if the Theranosfinger-stick technology was fully developed and ready to be rolled out to consumers, he wondered.
What really set off Bradley’s alarm bells, though, was when some otherwise healthy employees started coming to him with concerns about abnormal test results. As a precaution, he sent them to get retested at a Quest or LabCorp location. Each time, the new set of tests came back normal, suggesting the Theranos results were off.
Working from the aggressive assumption that each of them would attract an average of fifty patients per day, he had forecast $250 million in extra revenue per year. Not only had the revenue failed to materialize, Safeway had spent $100 million more than that just to build the centers.
While they sat idle, the wellness centers occupied valuable real estate inside the stores that could. Have been put to other , profitable uses.
As for Burd, it was clear he hadn’t been ready to retire. Just three months after leaving the supermarket chain, he founded a consulting firm to advise companies on how to reduce their health-car costs.
"Your regulatory structure is not going to fly," he said, interrupting her. [Lieutenant Colonel David Shoemaker]
As he looked around the table, he noted that she had brought no regulatory affairs experts to the meeting. He suspected the company didn't even employ one. If he was right about that, it was an incredibly naive way of operating. Health care was the most highly regulated industry in the country and for good reason: the lives of patients were at stake.
The Pentagon tested mustard gas on American soldiers during World War II and Agent Orange on prisoners in the 1960s. But the days of unsupervised, freewheeling medical experimentation by the military were long gone.
When he read the email string, Shoemaker blanched. Mattis was one of the most powerful and fearsome people in the military. The blunt-spoken general had once famously told Marines stationed in Iraq, “Be polite, be professional, but have a plan to kill everybody you meet.” This was not a guy you wanted to get on the wrong side of if you were a lower-ranking army officer.
Rather than give in to what she saw as blackmail, Elizabeth had decided to steamroll her old neighbor by hiring one of the country’s best and most feared attorneys to go after him.
David Boie’s legen preceded him. He had risen to national prominence in the 1990s when the Justice Department hired him to handle its antitrust suit against Microsoft.
Boies’s use of private investigators wasn’t just an intimidation tactic, it was the product of a singular paranoia that shaped Elizabeth and Sunny’s view of the world. That paranoia centered on the belief that the lab industry’s two dominant players, Quest Diagnostics and Laboratory Corporation of America, would stop at nothing to undermine Theranos and its technology.
As a biochemist, Ian’s specialty was immunoassays, which was the main reason Theranos had focused its early efforts on that class of test. [Ian Gibbons]
He told his wife that Robertson had betrayed his confidence and that Elizabeth had fired him.
To their surprise, Sunny called the next day. Unbeknownst to Ian, in the intervening hours several of his colleagues had lobbied Elizabeth to reconsider. Sunny offered Ian his job back, albeit without the same responsibilities.
Ian nodded. “It’s a folie à deux,” he said.
Tony didn’t know any French, so he left to go look up the expression in the dictionary. The definition he found struck him as apt: “The presence of the same or similar delusional ideas in two persons closely associated with one another.
He’d started drinking heavily in the evenings. He told Rochelle that he didn’t think he could ever resume a normal schedule at Theranos. The thought of going back to the office made him sick, he said. [Ian Gibbons]
He had taken enough acetaminophen, the active ingredient in painkillers like Tylenol, to kill a horse.
Rochelle was overwhelmed with grief but she found the strength to call Elizabeth’s office and left a message with her assistant informing her about Ian’s passing. Elizabeth didn’t call back. Instead, later that day, Rochelle received an email from a Theranos lawyer requesting that she immediately return Ian’s company laptop and cell phone and any other confidential information he might have retained.
Elizabeth had chosen Chiat\Day because it was the agency that represented Apple for many years, creating its iconic 1984 Macintosh ad and later its “Think Different” campaign in the late 1990s.
Chiat\Day was charging Theranos an annual retainer of $6 million a year.
The biggest problem of all was the dysfunctional corporate culture in which it was being developed. Elizabeth and Sunny regarded anyone who raised a concern or an objection as a cynic and a naysayer. Employees who persisted in doing so were usually marginalized or fired, while sycophants were promoted. Sunny had elevated a group of ingratiating Indians to key positions.
Sunny, in fact, had the master-servant mentality common among an older generation of Indian businessmen. Employees were his minions. He expected them to be at his disposal at all hours of the day or night and on weekends. He checked the security logs every morning to see when they badged in and out. Every eventing, around seven thirty, he made a fly-by of the engineering department to make sure people were still at their desks working.
Arnav Khannah, a young mechanical engineer who worked on the miniLab, figured out a surefire way to get Sunny off his back: answer his emails with a reply longer than five hundred words. That usually bought him several weeks of peace because Sunny simply didn’t have the patience to read long emails.
While Elizabeth was fast to catch on to engineering concepts, Sunny was often out of his depth during engineering discussion. To hide it, he had a habit of repeating technical terms he heard other using. … “end effector,” heard “endofactor” [not a thing]
A few days before the launch, he went to see her and asked her to delay. Elizabeth wasn’t her usual confident self. Her voice was tremulous and she was visibly shaking as she tried to reassure him that everything would be OK. If necessary, they could fall back on regular venous draws, she told him. That briefly made Alan feel better, but his anxiety returned as soon as he left her office.
The brilliant young Stanford dropout being the breakthrough invention was anointed “the next Steve Jobs or Bill Gates” by no less than former secretary of state George Shultz, the man many credited with winning the Cold War, in a quote at the end of the article.
A distinguished fellow at the Hoover Institution, the think tank housed on the Stanford campus, Shultz remained a revered and influential figure in Republican circles despite his advancing age (he was ninety-two). That made him a friend of Journal’s famously conservative editorial page, to which he occasionally contributed op-eds.
Elizabeth had picked a safe place for her coming-out party. The Weekend Interview, which rotated among the members of Gigot’s staff, wasn’t meant to be hard-hitting investigative journalism. Rather, it was what its name implied: an interview whose tone was usually friendly and nonconfrontational.
Despite their moniker, these tech unicorns were no myth: by Lee’s count, there were thirty-nine of them—a number that would soon soar past one hundred. [about prolific startups]
The poster child for the unicorns was Uber, the ride-hailing smart-phone app cofounded by the hard-charging engineer Travis Kalanick. A few weeks before Elizabeth’s Journal interview, Uber had raised $361 million at a valuation of $3.5 billion.
But it had remained beyond reach for a few basic reasons. The main one was that different classes of blood tests required vastly different methods. Once you'd used your micro blood sample to perform an immunoassay, there usually wasn’t enough blood left for the completely different set of lab techniques a general chemistry or hematology assay required.
Beide Therano’s supposed scientific accomplishments, what helped win James and Grossman over was its board of directors. In addition to Shultz and Mattis, it now included former secretary of state Henry Kissinger, former secretary of defense William Perry, former Senate Arms Services Committee chairman Sam Nunn, and former navy admiral Gary Roughead.
A spreadsheet with financial projections Sunny sent the hedge fund executives supporter this notion. It forecast gross profits of $165 million on revenues of $261 million in 2014 and gross profits of $1.08 billion on revenues of $1.68 billion in 2015. Little did they know that Sunny had fabricated these numbers from whole cloth.
Tyler had first met Elizabeth in late 2011 when he’d dropped by his grandfather George’s house near the Stanford campus. He was a junior then, majoring in mechanical engineering. Elizabeth’s vision of instant and painless tests run on drops of blood collected from fingertips had struck an immediate chord with him.
His first day at work had been filled with drama. A woman named Anjali who headed the immunoassay team had quit, and a group of employees had gathered in the parking lot to say goodbye to her.
The first thing that dampened Tyler’s enthusiasm for working at Theranos was seeing the inside of an Edison. During his internship the previous summer, he hadn’t been allowed near one, so his anticipation was high when a Chinese scientist named Ran Hu showed him one of the machines with its black-and-white case removed. …. But this seemed like something a middle-schooler could build in his garage.
Tyler and some other members of the group joked that Steve Jobs would have rolled over in his grave if he had seen one of them.
Erika and Tyler might be young and inexperienced, but they both knew that cherry-picking data wasn’t good science.
By his count, the percentages in the reports were lower than they should be. In other words, Theranos was exaggerating the precision of its blood tests.
In response to a description he gave her of Theranos’s practices, she wrote back that they amounted to “a form of PT cheating” and were “in violation of the state and federal requirements.”
They sat down together in the dining room of George’s big house, and Tyler tried to explain to the former secretary of state the concepts of precision, sensitivity, quality control, and proficiency testing and to show him why he thought Theranos’s approach to each was lacking.
“That’s not what I mean. I just got off the phone with your grandfather. He said Elizabeth called him and told him that if you insisted on carrying out your vendetta against her, you will lose.”
Tyler was still unnerved by Elizabeth’s threat but calmly explained to George what had happened. He showed him his email to Elizabeth and Sunny’s blistering reply.
As they parted, George told Tyler, “They’re trying to convince me that you’re stupid. They can’t convince me that you’re stupid. They can, however, convince me that you’re wrong and in this case I do believe that you’re wrong.”
When they got there, however, it quickly became apparent to Tyler that his grandfather’s allegiance to Theranos had strengthened in the intervening hours.
Georege, on the other hand, was unmoved. Tyler had noticed how much he doted on Elizabeth. His relationship with her seemed closer than their own.
“Everywhere you look with this young lady, there’s a purity of motivation,” Shultz told him. “I mean she really is trying to make the world better, and this is her way of doing it.”
When Parloff’s cover story was published in the June 12, 2014, issue of Fortune, it vaulted Elizabeth to instant stardom. Her Journal interview had gotten some notice and there had also been a piece in Wired, but there was nothing like a magazine cover to grab people’s attention.
Two months later, she graced one of the covers of the magazine’s annual Forbes 400 issue on the richest people in America. More fawning stories followed in USA Today, Inc., Fast Company, and Glamour, along with segments on NPR, Fox Business, CNBC, CNN, and CBS News. With the explosion of media coverage came invitations to numerous conferences and a cascade of accolades.
As much as she courted the attention, Elizabeth’s sudden fame wasn’t entirely her doing. Her emergence tapped into the public’s hunger to see a female entrepreneur break through in a technology world dominated by men.
Still, there was something unusual in the way Elizabeth embraced the limelight. She behaved more like a movie star than an entrepreneur, basking in the public adulation she was receiving.
Elizabeth was also quick to embrace the trappings of fame. The Theranos security team grew to twenty people. Two bodyguards now drove her around in a black Audi A8 sedan. Their code name for her was “Eagle One.” (Sunny was “Eagle Two.”) The Audi had no license plates—another nod to Steve. Jobs, who used to lease a new Mercedes every six months to avoid having plates. Elizabeth had a personal chef who prepared her salads and green vegetable juices made of cucumber, parsley, kale, spinach, lettuce, and celery. And when she had to fly somewhere, it was in a private Gulfstream jet.
… for the first time, she told the story in public of her uncle who had died of cancer—the same story Tyler Shultz had found so inspiring when he’d started working at Theranos.
It was true that Elizabeth’s uncle, Ron Dietz, had died eighteen months earlier from skin cancer that had metastasized and spread to his brain. But what she omitted to disclose was that she had never been close to him.
Several months earlier, he had asked Sunny what proportion of Theranos tests were preformed with finger-stick draws versus regular venous ones. Sunny had refused to give him a straight answer and had abruptly changed the subject.
The decade-old episode had left Phyllis skeptical that Elizabeth, who had no medical or scientific training to speak of and a clear tendency not to listen to people who were older and more experienced, had really gone on to develop groundbreaking blood-testing technology. Her suspicions had deepened when Andrew had chatted with a Siemens sales representative during a flight and learned that Theranos was a major purchaser of Siemens diagnostic equipment.
He said she wasn’t the one running Theranos day-to-day. A man named Sunny Balwani was, Alan didn’t mince his words about Balwani: he was a dishonest bully who managed through intimidation. Then he dropped another bombshell: Holmes and Balwani were romantically involved.
What worried him even more than any personal liability he might face was the potential harm patients were being exposed to. He described the two nightmare scenarios false blood-test results could lead to. A flash positive might cause a patient to have an unnecessary medical procedure. But a false negative was worse: a patient with a serious condition that went undiagnosed could die.
It was all beginning to make sense: Holmes and her company had overpromised and then cut corners when they couldn’t deliver. It was one thing to do that with software or a smartphone app, but doing it with a medical product that people relied on to make important health decisions was unconscionable.
“The way Theranos is operating is like trying to build a bus while you’re driving the bus. Someone is going to get killed.”
Unlike venous blood drawn from the arm, capillary blood was polluted by fluids from tissues and cells that interfered with tests and made measurements less accurate.
The second time, their results had come back abnormally low. After that, Carmen had lost faith in Theranos’s finger-stick tests. These incidents tracked with Alan’s claims. TSH was one of the immunoassays Theranos performed on the Edison that had failed proficiency testing.
At the Journal, we had a cardinal rule called “No surprises.” We never went to press with a story without informing the story subject of every single p piece of information owe had gathered in our reporting and giving them ample time and opportunity to address and rebut everything.
Tyler and Erika were both very young and had been junior employees at Theranos, but I found them credible as sources because so much of what they told me corroborated what Alan Beam had said. I was also impressed by their sense of ethics. They felt strongly that what they had witnessed was wrong and were willing to take the risk of speaking to me to right that wrong.
Meanwhile, Matthew Traub was continuing to give me the runaround. It seemed I was the only reporter in America to whom Holmes wouldn’t grant an interview.
If not Holmes, someone from the company needed to meet with me to address my questions and it had to happen soon, I yelled, pacing back and forth in front of my stoop in Brooklyn.
“We do not consent to waiving our journalistic privileges,” I snapped back.
Much of the letter was a searing assault on my journalistic integrity. In the course of my reporting, I had “fallen far short of being fair, objective, or impartial” and instead appeared hell-bent on “producing a predetermined (and false) narrative,” Boies wrote.
His main evidence to back up that argument was signed statements Theranos had obtained from two of the other doctors I had spoken to claiming I had mischaracterized what they had told me and hadn’t made clear to them that I might use the information in a published article.
Holmes and Balwani wanted to impress the Vice President with a vision of a cutting-edge, completely automated laboratory. So instead of showing him the actual lab, they created a fake one.
A few days later, on July 28, I opened that morning edition of the Journal and nearly spit out my coffee: as I was leafing through the paper’s first section, I stumbled across an op-ed written by Elizabeth Holmes crowing about Theranos’s herpes-test approval and calling for all lab tests to be reviewed by the FDA. She’d been denying me an interview for months, her lawyers had been stonewalling and threatening my sources, and here she was using my own newspaper’s opinion pages to perpetuate the myth that she was regulators’ best friend.
Because of the firewall between the Journal’s news and editorial sides, Paul Gigot and his staff had no idea I was working on a big investigative piece about the company.
In March, a month after I had started digging into the company, Theranos had closed another round of funding. Unbeknownst to me, the lead investor was Rupert Murdoch, the Austrian-born media mogul who controlled the Journal’s parent company, News Corporation.
Murdoch was known to dabble in Silicon Valley startup investments. He’d been an early investor in Uber, turning a $150,000 bet into some of $50 million.
In a last-ditch effort to prevent publication, Boies sent the Journal a third lengthy letter, reiterating his threat to sue the paper and dismissing my reporting as an elaborate fantasy concocted by a fertile mind:
In a press release it posted on its website, the company called the story “factually and scientifically erroneous and grounded in baseless assertions by inexperienced and disgruntled former employees and industry incumbents.” It also let it be known that Holmes would appear on Jim Cramer’s Mad Money program that evening to rebut the allegations.
Sure enough, within days, the Journal received letters from Heather King demanding that it retract the central elements of my first two articles, calling them “libelous assertions.” A third letter followed demanding that the paper retain all documents in its possession concerning Theranos, “including emails, instant messages, drafts, informal files, handwritten notes, faxes, memoranda, calendar entries, voice mail and any other Records stored in hard copy, or any electronic form (including personal cell phones) or any other medium.”
They revealed that Walgreens had halted a planned nationwide expansion of Theranos wellness centers, that Theranos had dried to sell more shares at a higher valuation days before my first story was published, the its lab was operating without a real director, and that Safeway had walked away from their previously undisclosed partnership over concerns about its testing. With each new story came a new retraction demand from Heather King.
In a windowless was room set up on the second floor of the Page Mill Road building in Palo Alto, Holmes and her communications consultants discussed strategies for how to hit back against my reporting. One approach she favored was to portray me as a misogynist. To generate further sympathy, she suggested she reveal publicly that she had been sexually assaulted as a student at Stanford. Her advisers counseled against going that route, but she didn’t abandon it entirely.
Holmes, too, continued to embrace an exalted image of herself. In her acceptance speech at Glamour magazine’s Woman of the Year Awards at Carnegie Hall, she held herself up as a role model for young women. “Do everything you can to be the best in science and math and engineering,” she urged them.
At his single, he and many of the several hundred employees in attendance chanted: “Fuck you, Carrey-You! Fuck you, Carrey-You!”
How serious became clear a few days later when the agency released a letter it had sent the company saying they posed “immediate jeopardy to patient health and safety.” The letter gave the company ten days to come up with a credible correction plan and warned that failing to come back into compliance quickly could cause the lat to lose its federal certification.
Suddenly, Heather King’s written retraction demands, which had been arriving like clockwork after each story we published, stopped.
Running 121 pages long, the document was as damning as one could expect. For one thing, it proved that Holmes had lied at the Journal’s tech conference the previous fall: the proprietary devices Theranos had used in the lab were indeed called “Edison,” and the report showed it had used them for only twelve of the 250 tests on its menu. Every other test had been run on commercial analyzers.
More important, the inspection report showed, citing the lab’s own data, that the Edisons produced wildly erratic results.
Watching her, I got the distinct impression that her display of contrition was an act. I still didn’t sense any real remorse or empathy.
If not for his courage and the more than $40,000 his parents had spent on his attorneys, I might never have Benn able to get my first article published, I realized. I felt pangs of guilt for having put him through such an ordeal. [Tyler Shultz]
The previous December, the Shuttles had hosted a party at a penthouse apartment they owned in San Francisco to celebrate George’s ninety-fifth birthday. Holmes had attended, but not Tyler.
I now suspected Theranos had had both of us under continuous surveillance for a year. And, more than likely, Erika Cheung and Alan Beam too.
In other words, it had effectively admitted to the agency that not a single one of the blood tests run on its proprietary devices could be relied upon.
On June 12, 2016, it terminated the companies’ partnership and shut down all the wellness centers located in its stores. [Walgreens]
Over the next hour, Holmes proceeded to unveil the machine that had been but a malfunctioning prototype when Theranos had gone live with its blood tests nearly three years earlier: the miniLab.
In effect, she was pirouetting back to her original vision of portable blood-testing machines operated remotely through Wi-Fi or cellular networks.
The odds that Holmes could pull off this latest Houdini act while under criminal investigation were very long, but watching her confidently walk the audience through her sleek slide show helped crystallize for me how she’d gotten this far: she was an amazing saleswoman.
The decorum broke down only briefly when Holmes turned to leave the stage at the end of the Q&A. “You hurt people,” a voice yelled out from the dispersing crowd.
The possibility that Holmes might pull a rabbit out of her proverbial had at the AACC meeting had kept Theranos’s restless investors from launching a mutiny. After her appearance was panned and the Zika fiasco made headlines, one of them decided it had had enough: Partner Fund, the San Francisco hedge fund that had invested close to $100 million in the company in early 2014, sued Holmes, Balwani, and the company in Delaware’s Court of Chancery, alleging that they had deceived it with “a series of lies, material misstatements, and omissions.”
David Boies and his law firm, Boies, Schiller & Flexner, stopped doing legal work for Theranos after falling out with Holmes over how to handle the federal investigation.
But there was one major catch: the blood Theranos had used in its study was drawn the old-fashionway, with a needle in the arm. Homes’s original premise—fast and accurate test results from just a drop or two pricked from a finger—was nowhere to be found in the paper.
… :on March 14, 2018, the Securities and Exchange Commission charged Theranos, Holmes, and Balwani with conduction “an elaborate, yearlong fraud.”
Hyping your product to get funding while concealing your true progress and hoping that reality will eventually catch up to the hype continues to be tolerated in the tech industry. But it’s crucial to bear in mind that Theranos wasn’t a tech company in the traditional sense. It was first and foremost a heath-care company.
So how was Holmes able to rationalize gambling with people’s lives? One school of thought is that she became captive to Balwani’s nefarious influence. … Holmes knew exactly what she was doing and she was firmly in control.
A sociopath is often described as someone with little or no conscience. I’ll leave it to the psychologists to decide whether Holmes fits the clinical profile, but there’s no question that her moral compass was badly askew.
Acknowledgments:
This book, which flowed from my work exposing the Theranos scandal in the pages of the Wall Street Journal, would not have been possible without the help of the confidential sources who spoke to me at great personal peril throughout 2015 and 2016.
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