The Theranos Saga
This is Elizabeth Holmes.
And this is Theranos.
Smaller needles, smaller samples, A better experience. This was Theranos’ promise to the world. Theranos was a medical diagnostic instrument manufacturing company, founded by Stanford dropout Elizabeth Holmes. Their pitch to investors was that they could build a device that could successfully calculate 192 different blood test results using a machine that was the size of a copier. That is not even the best part. Theranos promised that it could do it all with a single finger prick and a few drops of blood.
While the promises they made changed from a patch to small machine to a slightly larger machine, it all boiled down to one thing — building the lab of the future. A lab where you needn’t spend hundreds of dollars on different tests and could get results almost instantaneously. Theranos never did build that dream machine, but they faked it, convinced the world that they did. They lied to the press, their investors and even patients who trusted them with their blood samples. Their claim was that they had the know-how to cram big machines like a spectrometer, a Cytometer and an isothermal amplifier among other things into a machine that was smaller than a copier.
What Theranos did was not luck, it was a carefully constructed and skillfully maneuvered con that first built up Hype, then used the hype to boost false-legitimacy. With that in place they hid every failure using secrecy. When secrecy was at stake they enforced it with intimidation. It was no magic trick, it was no sorcery. In midst of it all was money. Loads and loads of money. The current status is that Theranos has been dissolved and the former CEO as well COO are to be tried for fraud in October 2020. They are both looking at 20 years in prison.
A lot of what I am about to tell you is from John Carreyrou’s book Bad Blood and from his 2015 bombshell articles published in the Wall street journal.
First lets talk about the Hype. A running theme with this story is the coolness factor. Everything you hear about this story would sound ‘cool’, because at the heart of the idea was selling this machine to every household in the US. Elizabeth, the founder-CEO worshiped Steve Jobs. So much so that she mimicked Steve Jobs in every way possible. But as we do deeper down this road, you would notice that she was nothing like Jobs.
Holmes started this journey in her room where she drafted a model of a patch that when applied on the skin would measure blood vitals and administer antibiotics in real time. Sounds like science fiction? It probably was and this is exactly what Phyllis Gardner, a professor in Stanford told Holmes when she explained it to her. It was clear as day that such a solution was far from possible. Holmes did not give up, she dropped out and started to pursue this. She was lucky to get initial funding as her well-connected family were able to introduce her to investors like Don Lucas, Tim Draper and Larry Ellison who would bankroll the company. But once there, Holmes started pitching her game-changing idea to the Silicon valley. In no time, she had a board and counsellor list comprising Former US General Jim ‘Mad Dog’ Mattis, Former secretaries of state George Shultz and Henry Kissinger. With names like that on her side, Holmes pushed her brand value forward to get funding from Rupert Murdock, Betsy Devos, the walton family, Mexican businessman Carlos Slim and the Oppenheimers. Ever single one of them bought into the hype. If Holmes could deliver the product that she promised, they all wanted a piece of it.
Part of the reason for the hype was not the just the product, but Holmes herself. An attractive,smart, persuasive woman who could do no wrong in their eyes, Holmes was quite the character. She could put a hypnotic trance on almost anyone she spoke to. The details are quite frankly scary. The number of times she has walked out of tight spots with plainly the power of persuasion is amazing. They are too many to quote, but the book does a great job of it.
Once the world came to know that a young woman in silicon valley was building the machine of the future and was being backed by millions of dollars, the press were next to fall for her. This again, was no coincidence. Holmes hired Chiat/Day, the ad agency who did Apple’s iconic Think different ad campaign. In fact Holmes even tried to hire Lee Clow, the genius behind the famed ‘1984’ apple commercial directed by Ridley Scott. Holmes would have to settle for Patrick O’Neil, who was instrumental in Theranos’ popular ads as well as the hiring of Martin Schoeller who shot most of Elizabeth portraits out on the web. Like I said the media lapped it up. As with most other stories , the focus was on who Elizabeth was and that she was a woman crushing it in a man’s world. Holmes was put on magazine covers, she was interviewed by every top media agency in the United States. With the media by her side, Holmes started building political clout. She was already seen close to Hillary Clinton, throwing her a fundraiser and all. Obama took it up a notch by nominating her as the US ambassador for Entrepreneurship. She was even added as a fellow in the Harvard Medical school.
Wait.
How does all this matter? None of that is illegal. Isn’t this how you are supposed to run a company? Get investments, build hype, throw the media into a frenzy. Yes, maybe. Except Theranos did not have what they were selling the world. Elizabeth’s claim to revolutionize medical testing, her technology, heck even her voice was fake. She was just good at influencing people. Like she used an uncle who died of cancer in her narrative, while in real life they weren’t even close. And did you notice how there is nothing about the company’s core product in any of this? Theranos had convinced the world that they had technology so advanced that it was a secret to be guarded at all costs. They took extreme measures to guard it’s secret technology or lack of it thereof.
The company was compartmentalized. The teams were told that they couldn’t collaborate. It was ensured that no person was allowed to know more than they needed to. The teams were split, people were put under pressure to work more than the fixed hours each day and every idea that Holmes proposed had to go through. Anyone who questioned it was fired. All the employees who resigned or terminated were asked to sign a very strict non-disclosure agreement. this mean even talking about the company could land you in legal trouble. But did Holmes do all of this? The answer is no. She hired an enforcer. A guy named Sunny Balwani.
I brought up Sunny, so Lets talk more about Sunny, because a lot of people believe that he misled Holmes and he was a prime suspect in the con. Neither Sunny’s role in the company nor his position as executive vice chairman was clear to anyone. But he was everywhere. Unlike a lot of people hired on to Theranos, Sunny neither had a medical back ground nor knew anything about building their dream machine. He was seen as Holmes’ mentor whom she idolized after meeting him during a trip to Asia when she was in the third year of college. Sunny was a software guy, he was the president of a company called Commercebid.com which was bought out by the ecom industry leader of that time — Commerceone. Commerceone bought Sunny’s company for a whopping 232 million dollars. It was an insanely high amount for company with barely three clients. Sunny alone pocketed 40 million dollars. His timing though was perfect. 5 months after the sale, the dotcom bubble popped and commerce one had to file for bankruptcy. But in the eyes of Holmes, he was the what she wanted to become — successful and wealthy. They got romantically involved and even lived in the same house. But their relationship was hidden from investors.
Sunny was another character. He was haughty, arrogant, loved to throw his weight around. He fired people at will, he had an in-your-face management style. He monitored how long everyone worked. He started hogging people who were “not putting in the hours”. In one case, he had told software engineer, who was also an ex-marine pilot that he had less hours and that he was going to ‘fix’ him. ‘Big Del’ as the engineer was nicknamed, promptly resigned and left the building ignoring all threats. Cops had been called to the building and when they arrived asked what the employee had taken, Sunny said ‘He Stole property in his mind”. So yeah that happened. There are examples where Theranos Engineers intentionally used incorrect terms to see if he would repeat them without knowing what it meant and guess what, he did.
So a lot of your guys are going, ‘OK hold the phone. So what if the company asks you to sign a non-disclosure agreement when you leave. It doesn’t sound that shady’.
And yes, about the non disclosure thingy, what if you were Erika Chueng or Tyler Shultz? Erika and Tyler were part of the lab that collected and tested blood samples. They were quite underwhelmed by what Theranos has built — a machine that had a pipette that was attached to a robotic arm which could move forward and backward. There was no ground breaking tech there. But that was least of their concerns. The results given by their Edison machine were erratic and incoherent. But orders they were given discard results that did not comply and only take results that fell in the expected range. This was preposterous. It was like flipping a coin enough number of times to achieve 10 heads in a row and then concluding that the coin always returned heads. Both Tyler and Erika would later become whistle blowers to expose Theranos.
In the real world, Theranos was basically fooling the world that they were doing tests on their own machines, when in reality they were running tests on conventional machines after diluting the blood. People who walked into their tests centers were greeted by a needle instead of their advertised finger prick. The results were outrageous in many cases. A lot of doctors started discouraging people from going to Theranos blood test centers. It was almost as if Theranos was going to face some legal problems.
This is where David Boies comes in. Yes David the man the myth the.. oh you know the drill. Elizabeth and Sunny for all their bullying were no match for the legal freedom that Americans took for granted. A small leak to a reputable media agency could jeopardise everything that they had. Their solution came in the form of legal heavy weight David Boies. Boies was arguably the most feared man in the US legal scene. Just the involvement of his legal firm Boies Schiller Flexner meant that you were going to have a very tough time. Elizabeth first hired David and then understood that David was going to be the most powerful ally she could have given the circumstances. In a very shrewd move, David was offered shares of Theranos and made a board member. This now meant that touching Theranos legally meant going through David.
David’s legal firm was already notorious for stalking people, using intimidation tactics and pretty much never backing down. Fighting the firm meant you had to burn through hundreds of thousands if not millions of dollars. This was something that a lot of people couldn’t afford. Least of all, ex-Theranos employees who were legally bound to a confidentially agreement. Not even loyal employees were spared. At one stage Theranos was sparring with Elizabeth’s uncle Richard Fuisz over a patent. While Richard’s legal team stood no chance against David Boies, they found a loose thread in the form a Theranos employee and started demanding that he be called in as a deposition. Ian Gibbons a chemist who was the employee who unwittingly got dragged into this mess would commit suicide unable to bear the stress of it all. Sadly, Elizabeth did not even acknowledge his death to fellow Theranos employees.
Despite this, Tyler was firm on exposing them. He tried to reason with top Theranos folk,Elizabeth and his own grandfather George Shultz who is if you remember a board member. When he knew he was being ignored, Tyler resigned from the company.The most surreal part of all this was how his own grandfather was convinced that he was wrong and holmes was right. The story has many twists and turns here, but what you need to know that Elizabeth’s spiteful uncle, you know the one I mentioned earlier, gathered Theranos sceptics including Ian’s widow and Alan Beam, Erika Cheung and Tyle.
After they turned whistle-blowers — Alan, Tyler and Erika were all threatened by Theranos, albeit in different ways. Many months after she had left Theranos, Erika was approached man showed up from a car that just happened to have been parked for hours in her office parking lot. He was there to serve a notice to her. Here is the shocking part — The letter was addressed to her current home which even her mother did not know. The only way the lawyers could have found her was by following her.
But listen what happened to Tyler. Holmes actually sent lawyers with papers pinning him down as the aggressor for leaking Theranos secrets to the media. Amazingly, even after George intervened Holmes did not back down and kept pushing to stop Tyler. Finally after Tyler parents backed him, he refused to sign it and chose to clash with Theranos in court if required. The whole episode shook him, but reinforced the thought that he was on the right track.
This is where this grim story take a bright turn. John Carreyrou, this beautiful little man — an investigative journalist from the Wall street journal, started preparing a story on Theranos, In good time, he got the contacts of Alan Beam, Erika and Tyler. He was told clearly that Theranos was faking test results, diluting samples and just plain lying to the media. John requested an interview with Holmes, who was constantly in the news by that time. However when Theranos came to know that the John’s story was probably an expose, they refused to talk to him for weeks. Finally when they did relent, they asked John to come to the office of Boies Schiller, not Theranos not some random space, the actual legal office of Boies Schiller Flexner. John initially agreed but then thought the better of it and asked them to come over to the Wall street journal. John was put in a room full of 7 Boies Schiller folks(including the famous Heather King, who was now with Theranos) and just one Theranos executive. The entire Theranos team came swinging directly for John trying to rubbish what he was getting to. In fact they started recording the discussion. Funnily enough, John responded by pulling out his own recorder.
The discussion soon escalated into a sparring match with even John’s boss Jay Conti getting involved. But the point that Boies was making was simple — there was no story and John was looking for it. Anything and everything that ex-employees knew amounted to ‘Trade secrets’. At one point they even compared it to the formula of coke. To which, Jay snubbed back stating ‘We are not asking you the formula for coke!’ The meeting gave nothing for John to work with, but just as in Tyler’s case it was clear that he was on the right track.his suspicions were right.
After months of research, John was ready with his bombshell article. Since it was a lot of incendiary material the journal had to take time and review it. Holmes found it out as usual and went straight to Rupert Murdoch the controller of the Journal’s parent company and a Theranos investor. She asked for the story to be struck down, but Murdoch refused stating that he had full confidence in his editorial team in-spite of knowing that the article could damage his investment in Theranos.
The bombshell dropped on on 16th October 2015 and sent tidal waves across the Silicon valley. Holmes was not done yet, she came out all guns blazing rubbishing the article in a series of interviews. The media was still unsure of how to respond to the allegations, but soon woke up to the fact that something was not quite right. Credible stories of how Theranos blood tests gave highly inaccurate results started coming up. In another major setback,CMS the Federal authority that certifies and evaluates labs swooped down with a surprise investigation on the facility. Even after their best efforts, Sunny and Holmes couldn’t stop the agency from issuing a damning report stating that there were 45 critical deficiencies in the lab and that failure to correct them would mean an immediate ban. John acquired this report and published this to rattle them even more. The CMS also followed through with the threat and shut down Theranos’ Newark facility.
Holmes knew someone had to take the fall for this failure and it damn well wasn’t going to be her. So she fired Sunny and threw him out. The investors were now reaching for their guns. In a last ditch attempt, Holmes did two things — she threw a fundraiser for Hillary Clinton. * girl power *. Then she attended the AACC, short for the American Association of Clinical chemistry to try and wow the world with her technology. This backfired big time as this wasn’t a group of fanboys, but actual experts who grilled her with questions. Despite her dodging most of them, they maintained their composure and let it slide. But the news outlets showed no mercy, Holmes was criticized left, right and center for squandering her last hope.
This is the when people started pulling out from the hype. From there, things have been a downward spiral for Holmes. She in now under criminal investigation after being banned from owning or operating a company in the USA for the next 10 years. Theranos was finally shut down.
So what is the latest on this? Well unsurprisingly, Holmes did take the fall pretty well. I mean she is not a random black man who was selling coke in an alley right? She fell in love, got engaged and then married to William Evans who is the heir to a massive Californian hospitality chain. She is still up for federal fraud charges which could land her in prison for about 20 years. But hey, love Bitch.
So take away from this story is - listen to the contrarian, listen to that stickler for rules. And if you know you are right, be strong in what you believe in. Even in the face of adversary.
References:
https://www.wsj.com/articles/theranos-has-struggled-with-blood-tests-1444881901
https://www.wsj.com/articles/theranos-and-david-boies-cut-legal-ties-1479514351
https://www.wsj.com/articles/sec-charges-theranos-and-founder-elizabeth-holmes-with-fraud-1521045648
