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‘Bad Blood’ Review: How One Company Scammed Silicon Valley. And How It Got Caught.

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By Roger Lowenstein

• May 21, 2018

BAD BLOOD Secrets and Lies in a Silicon Valley Startup By John Carreyrou 352 pp. Alfred A. Knopf. $27.95.

In 2015, Vice President Joe Biden visited the Newark, Calif., laboratory of a hot new start-up making medical devices: Theranos. Biden saw rows of impressive-looking equipment — the company’s supposedly game-changing device for testing blood — and offered glowing praise for “the laboratory of the future.”

The lab was a fake. The devices Biden saw weren’t close to being workable; they had been staged for the visit.

Biden was not the only one conned. In Theranos’s brief, Icarus-like existence as a Silicon Valley darling, marquee investors including Robert Kraft, Betsy DeVos and Carlos Slim shelled out $900 million. The company was the subject of adoring media profiles; it attracted a who’s who of retired politicos to its board, among them George Shultz and Henry Kissinger. It wowed an associate dean at Stanford; it persuaded Safeway and Walgreens to spend millions of dollars to set up clinics to showcase Theranos’s vaunted revolutionary technology.

And its founder, Elizabeth Holmes, was feted as a biomedical version of Steve Jobs or Bill Gates, a wunderkind college dropout who would make blood testing as convenient as the iPhone.

This is the story the prizewinning Wall Street Journal reporter John Carreyrou tells virtually to perfection in “Bad Blood: Secrets and Lies in a Silicon Valley Startup,” which really amounts to two books. The first is a chilling, third-person narrative of how Holmes came up with a fantastic idea that made her, for a while, the most successful woman entrepreneur in Silicon Valley. She cast a hypnotic spell on even seasoned investors, honing an irresistible pitch about a little girl who was afraid of needles and who now wanted to improve the world by providing faster, better blood tests.

Her beguiling concept was that by a simple pinprick — drawing only a drop or two of blood — Theranos could dispense with the hypodermic needle, which she likened to a gruesome medieval torture, and perform a full range of blood tests in walk-in clinics and, ultimately, people’s homes. The premise was scientifically dubious, and Theranos’s technology was either not ready, unworkable or able to perform only a fraction of the tests promised. Many of the people who showed up at clinics actually had their blood drawn from old-fashioned needles. And most of the tests were graded not by Theranos’s proprietary technology, but by routine commercially available equipment.

Despite warnings from employees that Theranos wasn’t ready to go live on human subjects — its devices were likened to an eighth-grade science project — Holmes was unwilling to disappoint investors or her commercial partners. The result was a fiasco. Samples were stored at incorrect temperatures. Patients got faulty results and were rushed to emergency rooms. People who called Theranos to complain were ignored; employees who questioned its technology, its quality control or its ethics were fired. Ultimately, nearly a million tests conducted in California and Arizona had to be voided or corrected.

The author’s description of Holmes as a manic leader who turned coolly hostile when challenged is ripe material for a psychologist; Carreyrou wisely lets the evidence speak for itself. As presented here, Holmes harbored delusions of grandeur but couldn’t cope with the messy realities of bioengineering. Swathed in her own reality distortion field, she dressed in black turtlenecks to emulate her idol Jobs and preached that the Theranos device was “the most important thing humanity has ever built.” Employees were discouraged from questioning this cultish orthodoxy by her “ruthlessness” and her “culture of fear.” Secrecy was obsessive. Labs and doors were equipped with fingerprint scanners.

The heart of the problem, Carreyrou writes, was that “Holmes and her company overpromised and then cut corners when they couldn’t deliver.” To hide those shortcuts, they lied. Theranos invented revenue estimates “from whole cloth.” It boasted of mysterious contracts with pharmaceutical companies that never seemed to be available for viewing. It spread the story that the United States Army was using its devices on the battlefield and in Afghanistan — a fabrication.

Even for a private company like Theranos, disclosure is the bedrock of American capitalism — the “disinfectant” that allows investors to gauge a company’s prospects. Based on Carreyrou’s dogged reporting, not even Enron lied so freely.

Carreyrou’s presentation has a few minor flaws. He introduces scores of characters and, after a while, it becomes hard to keep track of them. In describing these many players he sometimes relies on stereotypes. Of an employee “built like an N.F.L. lineman” the author writes, “his physique belied a sharp intellect.” Actually, it didn’t; big people can also have sharp intellects.

Such blemishes in no way detract from the power of “Bad Blood.” In the second part of the book the author compellingly relates how he got involved, following a tip from a suspicious reader. His recounting of his efforts to track down sources — many of whom were being intimidated by Theranos’s bullying lawyer, David Boies — reads like a West Coast version of “All the President’s Men.” The author is admirably frank about his craft. He feels a “familiar rush” when he hears that patient false negatives could be life threatening — i.e., that he’s onto a big story.

In the end, Carreyrou got the Boies treatment — angry (but ultimately hollow) threats of a lawsuit. Holmes also pleaded with Rupert Murdoch — the power behind The Wall Street Journal and, as it happened, her biggest investor — to kill the story. It’s a good moment in American journalism when Murdoch says he’ll leave it to the editors.

After Carreyrou’s front-page exposé was published in 2015, Theranos’s business prospects collapsed, directors resigned and the S.E.C. sued Holmes for fraud (she settled). The company also settled private suits. Federal regulators, already on the trail, found numerous violations, including sloppy lab procedures and unreliable equipment. Theranos, they determined, put patient health in “immediate jeopardy.” Several of the labs have been shuttered. Carreyrou has reported that Theranos is under criminal investigation and probably headed for liquidation.

The question of how it got so far — more than 800 employees and a paper valuation of $9 billion — will fascinate business school classes for years. The first line of defense should have been the board, and its failure was shocking. Some of the directors displayed a fawning devotion to Holmes — in effect becoming cheerleaders rather than overseers. Shultz helped his grandson land a job; when the kid reported back that the place was rotten, Grandpa didn’t believe him. There is a larger moral here: The people in the trenches know best. The V.I.P. directors were nectar for investor bees, but they had no relevant expertise.

Even outsiders could have spotted red flags, but averted their eyes as if they wanted to believe. Fishy excuses — Holmes blamed a production delay on an earthquake in Japan — were blithely accepted. When a Walgreens team visited Theranos it pointedly asked for — and was denied — permission to see the lab. A company consultant pleaded that the chain not go ahead with in-store clinics. “Someday this is going to be a black eye,” he predicted. But Walgreens was plagued by a “fear of missing out.” Like many executives, they were looking over their shoulder and not at the evidence.

Surely, no one suspected a lie that big. The fundamental premise “was to help people, and not to harm them,” Walgreens recounted, in a legal brief that sounded stunned. Yet another explanation is the gilt-edged and magical status that society confers on Silicon Valley, as a place where fantasies come true.

Roger Lowenstein, formerly a reporter for The Wall Street Journal, is the author, most recently, of “America’s Bank: The Epic Struggle to Create the Federal Reserve.”

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Bad Blood by Lorna Sage – review

I n this 10th-anniversary edition of Lorna Sage's Whitbread prize-winning memoir of growing up in north Wales, her daughter, Sharon Tolaini-Sage, quotes a letter her late mother wrote to her publisher about an "autobiographical book" she was planning: "It doesn't yet have a title, alas, but . . . I'm still convinced it could be interesting." It's an understatement: Bad Blood exerts a deep and enduring fascination, its ruthlessly precise dissection of family politics pungently evoking specifics – head lice, underwear, children's games – as well as chord-striking universal themes – disappointment, infidelity, isolation. Her grandfather, a philandering vicar, looms over the book, the taint in Sage's veins, but the other characters are equally vivid, not least her fat, furious grandmother. Sage becomes pregnant at 16 yet overcomes this to forge a new beginning: her own kind of family and an academic career. Her teacher's report, she notes with pleasure, "warned that my shyness concealed a corrupt character", which "went down well in English departments". Proof that, beyond the shackles of family, there's a whole world out there.

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Bad Blood, book review: The rise and fall of Theranos

Bad Blood: Secrets and Lies in a Silicon Valley Startup • By John Carreyrou • Picador • 339 pages • ISBN: 978-1509868063 • £20

First they think you're crazy, then they fight you...and then they prosecute you for fraud because you were lying when you said you could change the world.

To be young, gifted, and blonde rarely hurt anyone trying to make their way through the world, and Elizabeth Holmes was no exception. By now, the basics of her story are fairly well-known: she dropped out of Stanford at 19 with a plan to revolutionise medical blood testing. The idea behind Theranos was transformative. Instead of drawing blood from people's veins, develop methods for testing on the much smaller volume produced by a finger prick. Less fear, less pain, and less medical knowledge needed. People would be able to do their own blood tests in their homes and have the results uploaded to their doctor for interpretation.

The fatal flaw in this plan was that medical testing isn't like software, where it's routine to handwave over the bits that don't work yet -- and anyway you're not liable because, see, it's right there in the clickwrap licence that whatever happens it's not your fault. Instead, with people's lives at stake, you've got regulators and scientists, who are used to inspecting devices closely and expect peer review. These folks lack a sense of humour about fakery.

But young, gifted, and blonde makes an impression, and the collection of names that Holmes collected as investors and board members is astonishing, though weirdly eclectic. Her board included Henry Kissinger, former Secretary of State George Shultz, and a smattering of former senators and other political bigwigs. The leaders of both the drugstore chain Walgreen's, and Safeway saw in Theranos the opportunity to reinvent their businesses at a time when new directions were needed. Rupert Murdoch invested $125 million of his own money. The famed lawyer David Boies took payment in shares to represent the company in attacking critics. On YouTube you can see former president Bill Clinton's enchantment.

SEE: Launching and building a startup: A founder's guide (free PDF)

The collapse began in late 2015, when Wall Street Journal reporter John Carreyrou told the world that the devices did not work as advertised. Holmes, who had been giddily enjoying the awards and attention, began facing less friendly interviews. In these , she displayed all the evasiveness and aggressive refusal to answer questions of a recent Supreme Court nominee.

In Bad Blood: Secrets and Lies in a Silicon Valley Startup , Carreyrou tells the entire astounding story, based on the extensive research he did for the 30 articles his newspaper published, beginning with Holmes's personal background and ending with her settling fraud charges with the Securities and Exchange Commission. A two-time Pulitzer Prize winner working for the leading US financial newspaper carries weight that is not easily dismissed, and despite lawsuits, threats and terrified witnesses, Carreyrou has long since been proven right. Holmes has had to pay back millions for voided medical tests and lost investments, and watch her personal net worth crash from $4.5 billion to zero. Now, Holmes and her former COO, Sunny Balwani , are facing criminal indictments for fraud. They are pleading not guilty.

One interesting note on the dynamics of being a woman in business. Carreyrou unearthed a suggestion that Holmes's natural voice is much higher than the unusually deep one sported by her public persona. Some internet commenters appear to find this offensively fake. Yet a young woman with a high voice is genuinely disadvantaged in business, and if Holmes had succeeded we'd call her 'smart'. Margaret Thatcher, who famously took voice lessons to deepen her voice and give it that authoritative ability to cut through the braying House of Commons like a buzzsaw, certainly was.

The lesson here, such as it is, should not be "See? You can't trust women entrepreneurs". Instead, it should be: no matter how charismatic the leader of the business is, and no matter how good their story, you must get appropriate experts to check out their claims. Investors were dazzled by the names on Holmes's board. That was fine in the 1980s when nascent businesses were writing hobbyist software. But today software has real consequences for safety in the physical world, and Silicon Valley investors can't go on "asking forgiveness, not permission". Due diligence has to mean more than following the person-to-person chain of trust.

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The book is also a blistering critique of Silicon Valley… [Carreyrou’s] unmasking of Theranos is a tale of David and Goliath. —  Read the complete FT review

The full inside story of the breathtaking rise and shocking collapse of Theranos, the multibillion-dollar biotech startup, by the prize-winning journalist who first broke the story and pursued it to the end, despite pressure from its charismatic CEO and threats by her lawyers.

In 2014, Theranos founder and CEO Elizabeth Holmes was widely seen as the female Steve Jobs: a brilliant Stanford dropout whose startup “unicorn” promised to revolutionize the medical industry with a machine that would make blood testing significantly faster and easier. Backed by investors such as Larry Ellison and Tim Draper, Theranos sold shares in a fundraising round that valued the company at more than $9 billion, putting Holmes’s worth at an estimated $4.7 billion. There was just one problem: The technology didn’t work.

A riveting story of the biggest corporate fraud since Enron, a tale of ambition and hubris set amid the bold promises of Silicon Valley.

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Book review: bad blood - secrets and lies in a silicon valley startup.

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Take-home message: -Elizabeth Holmes’ company Theranos tried to create a machine that could do hundreds of medical tests on a single drop of blood -John Carreyrou’s book Bad Blood reports on the lies and secrecy that allowed so many people to believe the machine was real

In 1983, a software company named Ovation Technologies gave a demo of its latest product suite at a news conference. It was meant to be the Microsoft Office of its day. Behind the veneer of this demonstration, however, was a non-existent product. The demo, which should have been interactive, was pre-recorded . Eventually, the company went under when it couldn’t deliver the product it had pretended it had had all along.

Nobody died when Ovation failed to materialize in the end. The same cannot be said with complete certainty when it comes to the molecular diagnostic miracle machine that was promised by Silicon Valley startup Theranos.

Theranos (a combination of “therapy” and “diagnosis”) was the brain child of Elizabeth Holmes, who dropped out of university to create a machine that could accurately perform hundreds of clinical tests on a single drop of blood. If your doctor wants to test your potassium levels or check your thyroid hormone titres, they have to request a blood draw and, often, multiple tubes, as specific tests require the preservation of different components of your blood. Holmes, having a fear of needles, decided to simplify the process through technological innovation. What if, instead if this invasive venipuncture, you could give one drop of blood from one of your fingers?

The story of Theranos, as described in punctilious detail by Wall Street Journal reporter John Carreyrou in his book Bad Blood , is a study in deception. Early demonstrations in front of potential investors relied on pre-recorded computer screens, much like 1983’s Ovation, because their proprietary machine wasn’t reliable. When asked to compare their technology to the standard used in clinical labs, Theranos showed an amazing correlation… except that they had used actual standard lab equipment in lieu of their own technology, because the promised miracle still hadn’t materialized. The layers of pretence reached their peak when Vice President Joe Biden visited the company and was shown a fake lab.

Even Holmes’ own voice, often described by Carreyrou as “deep”, appears to have been manufactured to appeal to Silicon Valley’s “boys’ club” mentality.

The harm with this non-existent device, which was meant to be the iPod of diagnostics, comes from the fact that Theranos expanded beyond its security-heavy headquarters and into grocery stores and pharmacies. Safeway created wellness centres in select locations in the United States to house Theranos’ malfunctioning technology. When suspicious healthcare professionals started sending for the same blood work to established companies as well to compare, they quickly realized that Theranos’ results were wildly inaccurate. Carreyrou reports on a pregnant patient whose thyroid hormone level was declared by Theranos to have increased even higher than usual. The patient’s dose of medication was about to be unnecessarily raised… except her doctor had her retested by a trusted lab. Her hormone level was normal. An increase in the patient’s medication could have jeopardized her pregnancy.

Reading Carreyrou’s fascinating book, I was constantly reminded of how easily non-experts in positions of power can be fooled by sleight-of-hand and charisma. Holmes’ confidence and the tight secrecy enforced inside the company by her right-hand man and secret boyfriend, Sunny Balwami, were enough to cast a spell on four-star general James Mattis (who joined the company’s board), President Obama (who appointed Holmes as U.S. ambassador for global entrepreneurship), Rupert Murdock (who became the #1 investor in Theranos), and the mainstream media (who lavished Holmes with praise).

Investors and media personalities are not good judges of scientific validity. In the case of Theranos, it was former employees who realized that the game was rigged and that their bosses were committing fraud. It was scientists and medical professionals like Alan Beam, Tyler Shultz, and Erika Cheung who explained to a curious and unrelenting journalist how Theranos was deviating from good lab practices and building a smokescreen to fool nearly everyone.

The investigative reporting detailed in John Carreyrou’s Bad Blood makes for an occasionally repetitive read, especially in the beginning, as chapter after chapter introduces a new employee who quickly gets sacked. Lather, rinse, repeat. But once the story gains momentum and breadth, it reveals layers of absurdity and degrees of media spin that make us beg for its villains’ comeuppances. Bad Blood serves as a powerful reminder that science does not thrive in secrecy; it is a collaborative process that requires transparency and open criticism. Especially when our health is on the line.

For those who want to delve deeper into “How to artificially boost the accuracy of your test”, click here

There was a very easy way to cheat when reporting on the accuracy of their clinical tests, and Carreyrou describes the process on page 187 of his book.

Theranos’ machine, the Edison (which wasn’t working very well), was supposed to be able to detect syphilis in a drop of blood. The test needed to be validated, meaning results from the Edison had to be compared against results from a reliable, commercial machine.

One of Theranos’ scientists and soon-to-be whistleblower, Tyler Shultz, was assigned to test the validity of this test, and he told Carreyrou that the Edison could only identify 65% of the known positive blood samples as positive. This is a terrible batting average, only slightly better than flipping a coin to determine if you have syphilis or not. However, Theranos reported a figure of 95% instead of 65%. How was this possible?

A separate incident involving vitamin D testing reveals the answer. When another scientist, Erika Cheung, ran known samples on the machine prior to running actual unknown samples (what we would call a “quality control run” or “running controls”), two of her 12 data points were wrong. This should have resulted in the machine being taken offline and inspected. However, a fellow employee decided to mark these two data points as “outliers”—results that are significantly above or below the next nearest data point and may or may not be dismissible. With these “outliers” out of the way, it looked as if the machine performed admirably.

If a particular sample is positive for syphilis but your machine says it’s negative, simply mark this data point as an “outlier” and take it out of your calculations, seems to be the company’s policy. By cherry-picking the data they liked and ignoring the mistakes, the heads of Theranos allowed themselves to portray their technology as much more accurate than it really was.

@CrackedScience

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