Theranos Could Have Been Stopped
Theranos Could Have Been Stopped - Monday Note
by Jean-Louis Gassée“It’ll work because it’d be cool if it did.” The old Silicon Valley joke pitch has, once again, proved too true, duping investors, the media, and biotech true believers. But sarcasm in retrospect is too easy. How did Elizabeth Holmes, the brazen founder and CEO of failed Theranos, get as far as she did?This week, 60 Minutes brings us The Theranos Deception, the latest episode in the gripping Theranos saga. (A transcript here.) The segment is partly a teaser for the May 21st release of the long-awaited Bad Blood: Secrets and Lies in a Silicon Valley Startup by journalist John Carreyrou, a culmination of the author’s three-year investigation into the company that promised quick, painless, and inexpensive blood tests.As I wrote in a October 18th, 2015, Monday Note titled Theranos Trouble: A First Person Account, I have my own interest (personal, not financial) in the Theranos story:I have a dog in this game. It seems a Hungarian forebear passed down an errant JAK2 gene that trips bone marrow into polycythemia vera (PCV), a fancy name for “too many blood cells” — and potential clots, especially as one’s vessels degrade with age. There’s no cure, yet, but with frequent attention the treatment is simple: Hydroxyurea, an inexpensive 19th century urea derivative, slows bone marrow output.To monitor the disease, I take a CBC (Complete Blood Count) test at Stanford’s Hematology Lab every month.In June, 2015, my platelet and hematocrit levels are fine, no need to worry…but my tinkerer’s curiosity is aroused by the publicity surrounding Theranos’ novel blood test technology and retail arrangements, so I get a second opinion:A few minutes later, I’m in the small Theranos office inside the University Avenue Walgreens store. I give a few drops of blood and am told to create an on-line account and wait for the results…The differences are disquieting. Theranos’ numbers are an alarming 34% and 7% higher, respectively, than Stanford’s.I go back to Walgreens a day later and try again. Theranos thinks my platelet count is 13% lower than the day before, and that my hematocrit level has dropped well into the safe zone. This is a problem. Not only do Theranos’ numbers deviate significantly from Stanford’s, they’re inconsistent over a 24 hour period.Puzzled and irritated by the results, I send an email to Theranos CEO Elizabeth Holmes (I don’t have a personal email address, so I use info@theranos.com). I politely explain the situation and my puzzlement, and include detailed PDF files of the results the tests. I never get an answer, shrug it off, and decide to stick with the trusted Stanford lab.About hundred days later I read John Carreyrou’s Hot Startup Theranos Has Struggled With Its Blood-Test Technology, the first in a series of Wall Street Journal articles that would push the company, already in serious trouble behind the scenes, into a very public legal, financial, and PR nightmare.It was Carreyrou’s article that prompted me to publish my First Person Account, quoted above. I even included the full text of the email that I had addressed to Holmes — perhaps the further public exposure would prompt a response.But, still no reaction…until Holmes was questioned about my unanswered email while onstage at a conference. She breezily responded that I ought to have phoned. (Such a great medium for transmitting PDF files… and responsible behavior for a healthcare executive.)At about the same time, John Carreyrou reached out to me; we exchanged phone calls and emails, and eventually met for breakfast in San Francisco. I was stunned by the depth of Theranos’ financial and legal troubles and by the company’s no-holds-barred (but not very successful) defensive tactics, both internally and externally. In particular, there is an unpleasant episode where whistleblower Tyler Shultz, grandson of former Secretary of State and Theranos Director George Shultz, was hounded by execs and lawyers in an attempt to silence him. (He appears in the May 20th Theranos Deception 60 Minutes segment.)Unable to re-bury the dirt that Carreyrou was uncovering, Theranos sent star lawyer David Boies, their general counsel at the time, to the WSJ on a mission to kill Carreyrou’s forthcoming article entirely. Perhaps Boies should have taken greater heed of Carreyrou’s résumé: The son of noted French journalist Gérard Carreyrou, Carreyrou fils has written a number of stories on Medicare and financial sector wrongdoings, and has shared in two Pulitzer Prizes. (Take a trip through his Wikipedia profile — you won’t be wasting your time.)Also, Boies, Esq. didn’t know that Carreyrou and one of his superiors had gone to the Journal’ s legal department to ask if WSJ-owner Rupert Murdoch’s $125M investment in Theranos would be an issue. The answer: Not a problem, do what you have to do.No wonder, then, that Boies’ “nice career you have here, be a shame if anything happened to it” tough talk fell flat.Since then, things haven’t gone well for Theranos and Holmes. Earlier this year, the SEC charged Holmes with “massive fraud” In addition to receiving a $500,000 penalty, Holmes lost voting control of Theranos, and has been barred from being an officer and director of any public company for ten years. The company also had to settle with various private investors who ended up losing more than $600M. And there are the almost certain further legal actions by patients, shareholders, State and Federal authorities…As you’ll see in Bad Blood’s engrossing 352 pages, there is much, much more in this complicated web of delusion, lies, technical failure, sentimental entanglements, some giving of a whiff of gerontophilia and, of course, the gullibility of greedy individuals.This leads me to a head-scratcher.It took very little time and money for a curious onlooker — not an investor — to detect anomalies in Theranos’ very basic CBC blood test. With hundreds of millions of dollars pouring into the company, did none of the investors take a quick comparative blood test?(Of course, not all potential investors blindly jumped on board. After an in-depth vetting period, Google Ventures passed on the opportunity, despite Theranos’ natural alignment with Google’s long-term interest in the healthcare sector.)An acquaintance offers a possible answer: the needle. How many people like to roll up a sleeve and get a vein punctured in order to compare blood test numbers? It’s not like looking at prototypes or taking apart a software demonstration.That’s a start, but I think a more general answer lies in following the herd. Once Holmes bagged a couple of high-visibility marks, the rest made the easy decision to follow. Getting those first few investors — that was Holmes’ real magic. Sadly, only attorneys are getting rich.— JLG@mondaynote.com