July 27, 2025
Bad Blood: Secrets and Lies in a Silicon Valley Startup, by John Carreyrou, is hands-down one of the best business books I’ve ever read. (It’s up there withBusiness Adventures, by John Brooks, andShoe Dog, by Phil Knight.) The book tells the story of the rise and fall of Theranos.
In brief, here’s why it’s such a great book: Carreyrou was the investigative reporter who broke the Theranos story in 2015. Carreyrou interviewed 150 people and withstood enormous pressure from the company’s charismatic CEO and her attorneys–led by one of the best and most feared lawyers in the country. Other key whistle-blowers also withstood great pressure. Many of the facts of the story are unbelievable. And finally, Carreyrou does an outstanding job telling the story.
Theranos was a company founded by Stanford dropout Elizabeth Holmes when she was just 19 years old. She claimed that she had invented a semi-portable device that could do every kind of blood test using only a tiny drop of blood obtained by a pin prick to the end of a finger. Holmes declared that you could get the results in a few hours and at a much lower price than what other labs charged.
Had Theranos’s technology worked, it would have been revolutionary. The only problem: it never came close to working. There are different kinds of blood tests that require different laboratory instruments. If you do one kind of blood test on a tiny sample, there isn’t enough blood left to do the other kinds of blood tests.
But Holmes believed in her vision so much, and she was such a charismatic and brilliant saleswoman, that she raised close to $1 billion dollars from investors. This included $700 million in late 2013. How? See this CNN Business interview (Sept. 20, 2018):https://www.youtube.com/watch?v=BXfw-S62ISE
As Carreyrou explains to Julia Chatterley in the CNN Business interview: Holmes launched the purportedly innovative technology in Walgreens stores in California and Arizona. In addition, when seeking investors, she focused on the family offices of billionaires while avoiding investors with any sophistication related to next-gen diagnostics. When the less sophisticated investors learned that Theranos was giving blood tests in Walgreens stores, they assumed that its technology must be real.
Theranos offered 250 blood tests. Unbeknownst to investors and to Theranos’s business partners–Walgreens and Safeway–240 of these tests were actually done on Siemens machines. Theranos would collect tiny blood samples from finger pricks and then dilute them so that the Siemens machine could analyze them. (This also required modifications to the Siemens machines that Theranos engineers had figured out.)
Only 10 of the 250 blood tests offered by Theranos were done on the company’s machine, the Edison. Moreover, the Edison was shockingly unreliable. Ultimately, a million blood tests done by Edison machines were voided.
Here is the outline for this blog post. (The outline does not include the Prologue and the Epilogue, which I also touch on.)
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- A Purposeful Life
- The Gluebot
- Apple Envy
- Goodbye East Paly
- The Childhood Neighbor
- Sunny
- Dr. J
- The miniLab
- The Wellness Play
- “Who is LTC Shoemaker?”
- Lighting a Fuisz
- Ian Gibbons
- Chiat/Day
- Going Live
- Unicorn
- The Grandson
- Fame
- The Hippocratic Oath
- The Tip
- The Ambush
- Trade Secrets
- La Mattanza
- Damage Control
- The Empress Has No Clothes
PROLOGUE
November 17, 2006. Henry Mosley, Theranos’s chief financial officer. Good news from Tim Kemp: Elizabeth Holmes, the twenty-two year old founder, had shown off the company’s system to executives at Novartis, a European drug giant. She had told Kemp, “It was perfect!”
Carreyrou writes:
This was a pivotal moment for Theranos. The three-year-old startup had progressed from an ambitious idea Holmes had dreamed up in her Stanford dorm room to an actual product a huge multinational corporation was interested in using.
Mosley was a veteran of Silicon Valley. Carreyrou again:
What had drawn Mosley to Theranos was the talent and experience gathered around Elizabeth. She might be young, but she was surrounded by an all-star cast. The chairman of her board was Donald L. Lucas, the venture capitalist who had groomed billionaire software entrepreneur Larry Ellison and helped him take Oracle Corporation public in the mid-1980s.Lucas and Ellison had both put some of their own money into Theranos.
Another board member with a sterling reputation was Channing Robertson, the associate dean of Stanford’s School of Engineering.Robertson was one of the stars of the Stanford faculty… Based on the few interactions Mosley had had with him, it was clear Robertson thought the world of Elizabeth.
Carreyrou says that Theranos also had a strong management team, which impressed Mosley. Furthermore, Mosley understood that the market Theranos was targeting was huge. Pharmaceutical companies spent tens of billions of dollars on clinical trials to test new drugs each year. If Theranos could make itself indispensable to them and capture a fraction of that spending, it could make a killing.
Carreyrou notes that Elizabeth had asked Mosley for some financial projections, which he provided. Elizabeth asked him to revise the projections upward. Mosley was a bit uncomfortable, but he knew it was a part of the game new tech startups played to attract VC money.
Something wasn’t right, though. Although Elizabeth was enthusiastic about the presentation to Novartis, some of her colleagues seemed downcast. With some digging, Mosley found out the problem from Shaunak, a fellow employee.Theranos’s blood-testing system was unreliable. This was the first Mosley heard about the issue.
Well, there was a reason it always seemed to work, Shaunak said. The image on the computer screen showing the blood and settling into he little wells was real. But you never knew whether you were going to get a result or not. So they’d recorded a result from one of the times it worked.It was that recorded result that was displayed at the end of each demo.
Mosley was stunned. He thought the result were extracted in real time from the blood inside the cartridge. That was certainly what the investors he brought by were led to believe. What Shaunak had just described sounded like a sham.It was OK to be optimistic and aspirational when you pitched investors, but there was a line not to cross. And this, in Mosley’s view, crossed.
Later, Mosley politely raised the issue with Elizabeth. Mosley said they couldn’t keep fooling investors. Elizabeth’s expression immediately became hostile. She told Mosley he wasn’t a team player and said he should leave immediately. Elizabeth had fired him.
A PURPOSEFUL LIFE
Elizabeth wanted to be an entrepreneur at a young age. Carreyrou:
When she was seven, she set out to design a time machine and filled up a notebook with detailed engineering drawings.
When she was nine or ten, one of her relatives asked her at a family gathering the question every boy and girl is asked sooner or later: “What do you want to do when you grow up?”
Without skipping a beat, Elizabeth replied, “I want to be a billionaire.”
These weren’t the idle words of a child. Elizabeth uttered them with the utmost seriousness and determination, according to a family member who witnessed the scene.
Carreyrou explains that Elizabeth’s parents encouraged her ambition based on a distinguished family history. She descended from Charles Louis Fleischmann on her father’s side. Fleischmann was a Hungarian immigrant who created the Fleischmann Yeast Company, which was remarkably successful. The Fleischmanns were one of the wealthiest families in America at the beginning of the twentieth century.
Bettie Fleischmann, Charles’s daughter, married her father’s Danish physician, Dr. Christian Holmes. He was Elizabeth’s great-great-grandfather.
Aided by the political and business connections of his wife’s wealthy family, Dr. Holmes established Cincinnati General Hospital and the University of Cincinnati’s medical school. So the case could be made–and it would in fact be made to the venture capitalists clustered on Sand Hill Road near the Stanford University campus–that Elizabeth didn’t just inherit entrepreneurial genes, but medical ones too.
Elizabeth’s mother, Noel, also had notable family background. Noel’s father was a West Point graduate who became a high-ranking Pentagon official who oversaw the shift from draft-based military to an all-volunteer force in the early 1970s. The Daoust line could be traced back to one of Napoleon’s top field generals.
Chris Holmes also made sure to teach his daughter about the failings of his father and grandfather. They had cycled through marriages and struggled with alcoholism while they squandered the family fortune. Elizabeth later explained that she learned about greatness, but also about what happens if you don’t have a high purpose–your character and qualify of life suffered.
When Elizabeth was a kid, she liked to play monopoly with her cousins and brother. She was intensely competitive. She got furious when she lost and at least a few times ran right through a screen on the front door of the condo owned by her aunt and uncle.
Elizabeth became a straight-A student in high school by working hard and sacrificing sleep. Stanford was the natural choice for someone interested in computers and science who wanted to be an entrepreneur. She was accepted to Stanford as a President’s Scholar in the spring of 2002.
Carreyrou explains how Elizabeth got interested in biotechnology:
Her father had drilled into her the notion that she should live a purposeful life. During his career in public service, Chris Holmes had overseen humanitarian efforts like the 1980 Mariel boatlift, in which more than one hundred thousand Cubans and Haitians migrated to the United States. There were pictures around the house of him provided disaster relief in war-torn countries. The message Elizabeth took away from them is that if she wanted to truly leave her mark on the world, she would need to accomplish something that furthered the greater good, not just become rich. Biotechnology offered the prospect of achieving both. She chose to study chemical engineering, a field that provided a natural gateway to the industry.
Elizabeth took Introduction to Chemical Engineering from star faculty member Channing Robertson. She also convinced him to let her work in his lab. She had a boyfriend for a time, but broke up telling him that she was starting a company and wouldn’t have any time to date.
After her freshman year, Elizabeth had a summer internship at the Genome Institute of Singapore. Earlier that year (2003), severe acute respiratory syndrome (SARS) had hit Asia. Elizabeth’s job was testing patient specimens gathered using low-tech methods like syringes. She thought there was a better way. Carreyrou:
When she got back home to Houston, she sat down at her computer for five straight days, sleeping one or two hours a night and eating from trays of food her mother brought her. Drawing from new technologies she had learned about during her internship and in Robertson’s classes, she wrote a patent application for an arm patch that would simultaneously diagnose medical conditions and treat them.
Robertson was impressed, saying:
“She had somehow been able to take and synthesis these pieces of science and engineering and technology that I had never thought of.”
Robertson urged Elizabeth to follow her dream. So she did: she launched a startup, tapping family connections to raise money. By the end of 2006, she had raised almost $6 million. Her first employee was Shaunak Roy, who had a Ph.D. in chemical engineering. Elizabeth had worked with Shaunak in Robertson’s lab.
Elizabeth and Shaunak dropped the patch idea and came up with a cartridge-and-reader system:
The patient would prick her finger to draw a small sample of blood and place it in a cartridge that looked like a thick credit card. The cartridge would slot into a bigger machine called a reader. Pumps inside the reader would push the blood through tiny channels in the cartridge and into little wells coated with proteins known as antibodies. On its way to the wells, a filter would separate the blood’s solid elements, its red and white blood cells, from the plasma and let only the plasma through. When the plasma came into contact with the antibodies, a chemical reaction would produce a signal that would be “read” by the reader and translated into a result.
Elizabeth envisioned placing the cartridges and readers in patient’s homes so that they could test their blood regularly. A cellular antenna on the reader would send the test results to the computer of a patient’s doctor by way of a central server.This would allow the doctor to make adjustments to the patient’s medication quickly, rather than waiting for the patient to go get his blood tested at a blood-draw center or during his next office visit.
By late 2005, eighteen months after he’d come on board, Shaunak was beginning to feel like they were making progress. The company had a prototype, dubbed the Theranos 1.0, and had grown to two dozen employees. It also had a business model it hoped would quickly generate revenues: it planned to license its blood-testing technology to pharmaceutical companies to help them catch adverse drug reactions during clinical trials.
THE GLUEBOT
Edmund Ku was a talented engineer with a reputation for fixing tough problems. When Ku interviewed with Elizabeth Holmes in early 2006, he felt inspired by her vision.
Elizabeth cited the fact that an estimated one hundred thousand Americans died each year from adverse drug reactions. Theranos would eliminate all those deaths, she said. It would quite literally save lives.
Ed’s job would be to turn the Theranos 1.0 prototype into a product that could be commercialized. It soon became clear to Ed that this would be the most difficult engineering challenge he had faced. The main challenge was that Elizabeth required that they use only a drop of blood pricked from the end of a finger.
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 bediluted with a saline solution to create more volume. That made what would otherwise have been relatively routine chemistry work a lot more challenging.
Adding another level of complexity, blood and saline weren’t the only fluids that had to flow through the cartridge. The reactions that occurred when the blood reached the little wells required chemicals known as reagents. Those were stored in separate chambers.
All these fluids needed to flow through the cartridge in a meticulously choreographed sequence, so the cartridge contained little valves that opened and shut at precise intervals. Ed and his engineers tinkered with the design and the timing of the valves and the speed at which the various fluids were pumped through the cartridge.
Another problem was preventing all those fluids from leaking and contaminating one another.
Meanwhile, having burned through its first $6 million, Theranos raised another $9 million. A separate group of biochemists worked on the chemistry work. But Elizabeth kept the two groups from communicating with one another. She preferred to be the only one who could see the whole system. This was far from ideal. Ed couldn’t tell if problems they were trying to solve were caused by microfluidics, which was their focus, or chemistry, which the other group was responsible for.
One evening, Elizabeth told Ed that progress wasn’t fast enough. She wanted the engineering department to run twenty-four hours a day. Ed disagreed.
Ed noticed a quote cut out from an article sitting on Elizabeth’s desk. It was from Channing Robertson:
“You start to realize you are looking in the eyes of another Bill Gates, or Steve Jobs.”
Carreyrou:
That was a high bar to set for herself, Ed thought. Then again, if there was anyone who could clear it, it might just be this young woman. Ed had never encountered anyone as driven and relentless. She slept four hours a night and popped chocolate-coated coffee beans throughout the day to inject herself with caffeine. He tried to tell her to get more sleep and to live a healthier lifestyle, but she brushed him off.
Around that time, Elizabeth was meeting regularly with the venture capitalist Don Lucas and also (less regularly) with Larry Ellison. Lucas and Ellison had both invested in the recent Series B round that raised $9 million. Carreyrou comments:
Ellison might be one of the richest people in the world, with a net worth of some $25 billion, but he wasn’t necessarily the ideal role model. In Oracle’s early years, he had famously exaggerated his database software’s capabilities and shipped versions of it crawling with bugs. That’s not something you could do with a medical device.
Since Ed had refused to make his engineering group work 24/7, Elizabeth had cooled towards him. Soon she had hired a rival engineering group. Ed’s group was put in competition with this new group.
Elizabeth had persuaded Pfizer to try the Theranos system in a pilot project in Tennessee. The Theranos 1.0 devices would be put in people’s homes and they would test their blood every day. Results would be sent wirelessly to the Theranos’s office in California, where they would be analyzed and then sent to Pfizer. The bugs would have to be fixed before then. Ed accompanied Elizabeth to Tennessee to start training doctors and patients on how to use the system.
When they got to Tennessee, the cartridges and the readers they’d brought weren’t functioning properly, so Ed had to spend the night disassembling and reassembling them on his bed in his hotel room. He managed to get them working well enough by morning that they were able to draw blood samples from two patients and a half dozen doctors and nurses at a local oncology clinic.
Thepatients looked very sick. Ed learned that they were dying of cancer. They were taking drugs designed to slow the growth of their tumors, which might buy them a few more months to live.
Elizabeth declared the trip a success, but Ed thought it was too soon to use Theranos 1.0 in a patient study–especially on terminal cancer patients.
***
In August 2007, Elizabeth had everyone in the company gather. Standing next to Elizabeth was Michael Esquivel, a lawyer. Equivel announced that the company was suing three former employees–Michael O’Connell, Chris Todd, and John Howard–for stealing intellectual property. Current employees were not to have any contact with these individuals. And all documents and emails had to be preserved. Moreover, the FBI had been called for assistance.
O’Connell held a postdoctorate in nanotechnology from Stanford. He thought he had solved the microfluidic problems of the Theranos system. O’Connell convinced Todd to form a company with him–Avidnostics. O’Connell also spoke with Howard, who helped but decided not to join the company.
Elizabeth had always been very concerned about proprietary information getting out. She required employees–as well as any who entered the Theranos office or did business with it–to sign nondisclosure agreements.
Meanwhile, the engineering teams vied to be first to solve the problems with Theranos 1.0. Tony Nugent, an Irishman, was the head of the team competing with Ed’s team.
Tony decided that part of the Theranos value proposition should be to automate all the steps that bench chemists followed when they tested blood in a laboratory. In order to automate, Tony needed a robot. But he didn’t want to waste time building one from scratch, so he ordered a three-thousand-dollar glue-dispensing robot from a company in New Jersey called Fisnar. It became the heart of the new Theranos system.
Soon Tony and team had built a smaller version of the robot that fit inside an aluminum box slightly smaller than a desktop computer tower. Eventually they got the robot to follow the same steps a human chemist would.
First, it grabbed one of the two pipette tips and used it to aspirate the blood and mix it with diluents contained in the cartridge’s other tubes. Then it grabbed the other pipette tip and aspirated the diluted blood with it. This second tip was coated with antibodies, which attached themselves to the molecule of interest, creating a microscopic sandwich.
Therobot’s last step was to aspirate reagents from yet another tube in the cartridge. When the reagents came into contact with the microscopic sandwiches, a chemical reaction occurred that emitted a light signal. An instrument inside the reader called a photomultiplier tube then translated the light signal into an electric current.
The molecule’s concentration in the blood–what the test sought to measure–could be inferred from the power of the electrical current, which was proportional to the intensity of the light.
This blood-testing technique was known as chemiluminescent immunoassay. (In laboratory speak, the word “assay” is synonymous with “blood test.”) The technique was not new: it had been pioneered in the early 1980s by a professor at Cardiff University. But Tony had automated it inside a machine that, though bigger than the toaster-size Theranos 1.0, was still small enough to make Elizabeth’s vision of placing it in patients’ homes possible. And it only required about 50 microliters of blood. That was more than 10 microliters Elizabeth initially insisted upon, but it still amounted to just a drop.
Once they had a functioning prototype–it worked much better than the system Ed was working on–Elizabeth suggested they call it the Edison (since everything else had failed). Elizabeth decided to use the Edison instead of the microfluidic system. Carreyrou points out the irony of this decision, given that the company had just filed a lawsuit to protect the intellectual property associated with the microfluidic system. Soon thereafter, Ed and his team were let go.
Carreyrou continues:
Shaunak followed Ed out the door two weeks later, albeit on friendlier terms. The Edison was at its core a converted glue robot and that was a pretty big step down from the lofty vision Elizebeth had originally sold him on. He was also unsettled by the constant staff turnover and the lawsuit hysteria.
Although Elizabeth was excited about the Edison, it was a long way from a finished product.
APPLE ENVY
Elizabeth worshipped Steve Jobs and Apple. In the summer of 2007, she started recruiting employees of Apple. Ana Arriola, a product designer who worked on the iPhone, was one such recruit.
…Elizabeth told Ana she envisioned building a disease map of each person through Theranos’s blood tests. The company would then be able to reverse engineer illnesses like cancer with mathematical models that would crunch the blood data and predict the evolution of tumors.
Ana and (later) her wife Corrine were impressed enough that Ana decided to leave behind fifteen thousand Apple shares. She was hired as Theranos’s chief design officer. Elizabeth wanted a software touchscreen like the iPhone’s for the Edison. And she wanted a sleek outer case.
Since fans like Channing Robertson and Don Lucas were starting to compare Elizabeth to Steve Jobs, Ana thought she should look the part. Soon Elizabeth was wearing a black turtleneck and black slacks most of the time.
Elizebeth’s idealism seemed like a good thing. But there continued to be other aspects of working at Theranos that seemed stifling (to say the least). Different groups were prevented from sharing information and working together. Moreover, employees knew they were being spied on–including what they did on their computer and what they did on Facebook.
Also, one of Elizabeth’s assistants kept track of how many hours each employee worked. Elizabeth had dinner catered–it arrived at 8 or 8:30 each night–in order to encourage people to put in more hours.
Finally, people were constantly getting fired from Theranos.
One person Elizabeth recruited to Theranos was Avie Tevanian. Avie was one of Steve Job’s closest friends. Avie had worked with Jobs and NeXT, and then went with Jobs to Apple in 1997. Avie was the head of software engineering. After an arduous decade, Avie retired. Elizabeth convinced Avie to join the Theranos board. Avie invested $1.5 million into the company in the 2006 offering.
The first couple of board meetings Avie attended had been relatively uneventful, but, by the third one, he’d begun to notice a pattern. Elizabeth would present increasingly rosy projections based on the deals she said Theranos was negotiating with pharmaceutical companies, but the revenues wouldn’t materialize. It didn’t help that Henry Mosley, the chief financial officer, had been fired soon after Avie became a director. At the last board meeting he’d attended, Avie had asked more pointed questions about the pharmaceutical deals and been told they were held up in legal review. When he’d asked to see the contracts, Elizabeth had said she didn’t have any copies readily available.
There were also repeated delays with the product’s rollout and the explanation for what needed to be fixed kept changing. Avie didn’t pretend to understand the science of blood-testing; his expertise was software. But if the Theranos system was in the final stages of fine-tuning as he’d been told, how could a completely different technical issue be the new holdup every quarter? That didn’t sound to him like a product that was on the cusp of commercialization.
Avie started asking more questions at the board meetings. Soon thereafter, Don Lucas contacted Avie and informed him that Elizabeth was upset with his behavior and wanted him to leave the board. Avie was surprised because he was just doing his duty as a board member. Avie decided to look at all the material he’d been given over the previous year, including investment material.
As he read them over, he realized that everything about the company had changed in the space of a year, including Elizabeth’s entire executive team. Don needed to see these, he thought.
Ana Arriola was also growing concerned. One morning, Ana brought up a question to Elizabeth. Given that the technology wasn’t working, why not pause the Tennessee study in order to fix the bugs first? They could always restart the study later once the product was functional. Elizabeth replied that Pfizer and every other big pharma company wanted her blood-testing system and Theranos was going to be a great company. Then Elizabeth suggested to Ana that she might be happier elsewhere.
Ana knew it wasn’t right to use an unreliable blood-test system in the Tennessee study. Later that same day, she resigned.
When Avie showed the material he’d gathered to Don, Don suggested to Avie that he resign. Avie was surprised that Don didn’t seem interested in the material. But Avie realized that he’d retired from Apple for good reason (to spend more time with his family). He didn’t need extra aggravation. So he told Don he would resign.
Don then brought up one more thing to Avie. Shaunak Roy was leaving and was selling his shares to Elizabeth. She needed the board to waive the company’s rights to repurchase Shaunak’s stock. Avie didn’t think that was a good idea. Don then said he wanted Avie to waive his own right as a board member to purchase the stock.
Avie was starting to get upset. He told Don to have Theranos’s general, Michael Esquivel, to send him the information. After reading it, Avie thought it was clear that he could buy some of Shaunak’s stock. Avie decided to do so and informed Esquivel. That prompted an argument.
At 11:17 p.m. on Christmas Eve, Esquivel sent Avie an email accusing him of acting in “bad faith” and warned him that Theranos was giving serious consideration to suing him for breach of his fiduciary duties as a board member and for public disparagement of the company.
Avie was astonished. Not only had he done no such things, in all his years in Silicon Valley he had never come close to being threatened with a lawsuit. All over the Valley, he was known as a nice guy. A teddy bear. He didn’t have any enemies. What was going on here?
Avie spoke with a friend who was a lawyer, who asked Avie if, given what he now knew, he really wanted to buy more shares in the company. No, thought Avie. But he did write a parting letter to Don summarizing his concerns. The letter concluded:
“I do hope you will fully inform the rest of the Board as to what happened here. They deserve to know that by not going along 100% ‘with the program’ they risk retribution from the Company/Elizabeth.”
GOODBYE EAST PALY
In early 2008, Theranos moved to a new location on Hillview Avenue in Palo Alto. It was a drastic improvement over their previous location in East Palo Alto. That area–east of Highway 101 (Bayshore Freeway)–was much poorer and had once been the country’s murder capital.
Matt Bissel, head of IT, was in charge of the move. At 4 o’clock in the afternoon the day before the movers were scheduled to come, Matt was pulled into a conference room. Elizabeth was on the line from Switzerland. She told Matt she’d just learned that Theranos would be charged an extra month’s rent if they waited until tomorrow. She told Matt to call the moving company immediately to see if they could do it. No way. But Elizabeth kept pushing. Someone pointed out that the blood samples wouldn’t be kept at the right temperature if they were moved immediately. Elizabeth said they could put them in refrigerated trucks.
Finally, Matt got Elizabeth to slow down after pointing out that they would still have to do an inspection with state officials to prove that they had properly disposed of any hazardous materials. That meant no new tenant could move in until then.
Matt greatly admired Elizabeth as one of the smartest people he’d ever met, and as an energizing leader. But he was starting to grow worried about some aspects of the company.
One aspect of Matt’s job had become increasingly distasteful to him. Elizabeth demanded absolute loyalty from her employees and if she sensed that she no longer had it from someone, she could turn on them in a flash. In Matt’s two and a half years at Theranos, he had seen her fire some thirty people, not counting the twenty or so employees who lost their jobs at the same time as Ed Ku when the microfluidic platform was abandoned.
Every time Elizabeth fired someone, Matt had to assist with terminating the employee…In some instances, she asked him to build a dossier on the person that she could use for leverage.
Matt was bothered in particular about how John Howard was treated.
When Matt reviewed all the evidence assembled for the Michael O’Connell lawsuit, he didn’t see anything proving that Howard had done anything wrong. He’d had contact with O’Connell but he’d declined to join his company. Yet Elizabeth insisted on connecting the dots in a certain way and suing him too, even though Howard been one of the first people to help her when she dropped out of Stanford, letting her use the basement of his house in Saratoga for experiments in the company’s early days.
Matt decided it was a good time to launch his own IT company. When he informed Elizabeth, she couldn’t believe it. She offered him a raise and a promotion, but he turned her down. Then she grew very cold. She offered one of Matt’s colleagues, Ed Ruiz, Matt’s position if he would look through Matt’s files and emails. Ed was good friends with Matt and refused. (There was nothing to find anyway.) A few months after Matt left, Ed decided to work for Matt’s new company.
Meanwhile, Aaron Moore and Mike Bauerly wanted to test two ofthe Edison prototypes built by Tony Nugent and Dave Nelson. This was informal “human factors” research to see how people reacted.
Aaron took photos with his digital camera to document what they were doing. The Eve Behar cases weren’t ready yet, so the devices had a primitive look. Their temporary cases were made from gray aluminum plates bolted together. The front plate tilted upward like a cat door to let the cartridge in. 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 eighth-grade science project.
Aaron and Mike visited their friends’ offices to do the tests.
As the day progressed, it became apparent that one pinprick often wasn’t enough to get the job done. Transferring the blood to the cartridge wasn’t the easiest of procedures. The person had to swab his finger with alcohol, prick it with the lancet, apply the transfer pen to the blood that bubbled up from the finger to aspirate it, and then press on the transfer pen’s plunger to expel the blood into the cartridge. Few people got it right on their first try. Aaron and Mike kept having to ask their test subjects to prick themselves multiple times. It got messy. There was blood everywhere.
This confirmed Aaron was worried about: A fifty-five-year-old patient in his or her home was going to have trouble. Aaron passed on his concerns to Tony and Elizabeth, but they didn’t think it was important. Aaron was getting disillusioned.
A bit later, Todd Surdey was hired to run sales and marketing. One of Todd’s two subordinates was on the East Coast: Susan DiGiaimo. Susan had accompanied Elizabeth on quite a few sales pitches to drug makers. Susan had been uncomfortable about Elizabeth’s very lofty promises.
Todd asked Susan about Elizabeth’s revenue projections. Susan replied that they were vastly overinflated.
Moreover, no significant revenues would materialize unless Theranos proved to each partner that its blood system worked. To that effect, each deal provided for an initial tryout, a so-called validation phase…
The 2007 study in Tennessee was the validation phase of the Pfizer contract. Its objective was to prove that Theranos could help Pfizer gauge cancer patients’ response to drugs by measuring the blood concentration of three proteins the body produces in excess when tumors grow. If Theranos failed to establish any correlation between the patients’ protein levels and the drugs, Pfizer could end their partnership and any revenue forecast Elizabeth had extrapolated from the deal would turn out to be fiction.
Susan also shared with Todd that she had never seen any validation data. And when she went on demonstrations with Elizabeth, the devices often malfunctioned. A case in point was the one they’d just conducted at Novartis. After the first Novartis demo in late 2006 during which Tim Kemp had beamed a fabricated result from California to Switzerland, Elizabeth had continued to court the drug maker and had arranged a second visit to its headquarters in January 2008.
The night before that second meeting, Susan and Elizabeth had pricked their fingers for two hours in a hotel in Zurich to try to establish some consistency in the test results they were getting, to no avail.When they showed up at Novartis’s Basel offices the next morning, it got worse: all three Edison readers produced error messages in front of a room full of Swiss executives. Susan was mortified, but Elizabeth kept her composure and blamed a minor technical glitch.
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.
Todd brought his concerns to Michael Esquivel, the company’s general counsel. Michael had been harboring his own suspicions. In March 2008, Todd and Michael approached Tom Brodeen, a Theranos board member. Since he was relatively new, he said they should raise their concerns with Don Lucas, the board’s chairman. So they did.
This time, Don Lucas had to take the matter seriously.
Lucas convened an emergency meeting of the board in his office on Sand Hill Road. Elizabeth was asked to wait outside the door while the other directors–Lucas, Brodeen, Channing Robertson, and Peter Thomas, the founder of an early stage venture capital firm called ATAventures–conferred inside.
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. Tom Brodeen would step in to lead the company for a temporary period until a more permanent replacement could be found. They called in Elizabeth to confront her with what they had learned and inform her of their decision.
But then something extraordinary happened.
Over the course of the next two hours, Elizabeth convinced them to change their minds. She told them she recognized there were issues with her management and promised to change. She would be more transparent and responsive going forward. It wouldn’t happen again.
A few weeks later, Elizabeth fired Todd and Michael. Soon thereafter, Justin Maxwell, a friend of Aaron and Mike’s, decided to resign. His resignation email included this:
…believe in the people who disagree with you… Lying is a disgusting habit, and it flows through the conversations here like its our own currency. The cultural disease here is what we should be curing… I mean no ill will towards you, since you believe in what I was doing and hoped I would succeed at Theranos.
A few months later, Aaron Moore and Mike Bauerly resigned.
THE CHILDHOOD NEIGHBOR
Richard Fuisz was a medical inventor and entrepreneur. He was following what Elizabeth was doing at Theranos. The Fuisz and Holmes families had been friends for two decades.
Elizabeth’s mother, Noel, and Richard’s wife, Lorraine, had developed a close friendship. But the husbands weren’t as close. This may have been because Chris Holmes was on a government salary, while Richard Fuisz was a successful businessman who liked to flaunt it.
Money was indeed a sore point in the Holmes household. Chris’s grandfather, Christian Holmes II, had depleted his share of the Fleischmann fortune by living a lavish and hedonistic lifestyle on an island in Hawaii, and Chris’s father, Christian III, had frittered away what was left during an unsuccessful career in the oil business.
Carreyrou later explains:
Richard Fuisz was a vain and prideful man. The thought that the daughter of longtime friends and former neighbors would launch a company in his area of expertise and that they wouldn’t ask for his help or even consult him deeply offended him.
Carreyrou again:
Fuisz had a history of taking slights personally and bearing grudges. The lengths he was willing to go to get even with people he perceived to have crossed him is best illustrated by his long and protracted feud with Vernon Loucks, the CEO of hospital supplies maker Baxter International.
Fuisz traveled frequently to the Middle East in the 1970s and early 1980s because it was the biggest market for his medical film business, Medcom. On one of these trips, he ran into Loucks. Over dinner, Loucks offered to buy Medcom for $53 million. Fuisz agreed.
Fuisz was supposed to be head of the new Baxter subsidiary for three years, but Loucks dismissed him after the acquisition closed. Fuisz sued Baxter for wrongful termination, asserting that Loucks fired him for refusing to pay a $2.2 million bribe to a Saudi firm to remove Baxter from an Arab blacklist of companies doing business with Israel. Carreyrou:
The two sides reached a settlement in 1986, under which Baxter agreed to pay Fuisz $800,000. That wasn’t the end of it, however. When Fuisz flew to Baxter’s Deerfield, Illinois, headquarters to sign the settlement, Loucks refused to shake his hand, angering Fuisz and putting him back on the warpath.
In 1989, Baxter was taken off the Arab boycott list, giving Fuisz an opening to seek his revenge. He was leading a double life as an undercover CIA agent by then, having volunteered his services to the agency a few years earlier after coming across one of its ads in the classified pages of the Washington Post.
Fuisz’s work for the CIA involved setting up dummy corporations throughout the Middle East that employed agency assets, giving them a non-embassy cover to operate outside the scrutiny of local intelligence services. One of the companies supplied oil-rig operators to the national oil company of Syria, where he was particularly well-connected.
Fuisz suspected Baxter had gotten itself back in Arab countries’ good graces through chicanery and set out to prove it using his Syrian connections.He sent a female operative he’d recruited to obtain a memorandum kept on file in the offices of the Arab League committee in Damascus that was in charge of enforcing the boycott. It showed that Baxter had provided the committee detailed documentation about its recent sale of an Israeli plant and promised it wouldn’t make new investments in Israel or sell the country new technologies. This put Baxter in violation of a U.S. anti-boycott law, enacted in 1977, that forbade American companies from participating in any foreign boycott or supplying blacklist officials any information that demonstrated cooperation with the boycott.
Fuisz sent a copy of the memo to Baxter’s board of directors and another copy to the Wall Street Journal. The Journal published a front-page story. Fuisz then was able to get copies of letters Baxter’s general counsel had written to a general in the Syrian army. These letters confirmed the memo.
The revelations led the Justice Department to open an investigation. In March 1993, Baxter was forced to plead guilty to a felony charge of violating the anti-boycott law and to pay $6.6 million in civil and criminal fines. The company was suspended from new federal contracts for four months and barred from doing business in Syria and Saudi Arabia for two years. The reputational damage also cost it a $50 million contract with a big hospital group.
Fuisz was upset, however, that Loucks still remained CEO. So he came up with another attack. Loucks was a Yale alumnus and served as trustee of Yale Corporation, the university’s governing body. He also chaired the university’s fund-raising campaign. Commencement ceremonies were coming up that May.
Through his son Joe, who had graduated from Yale the year before, Fuisz got in touch with a student named Ben Gordon, who was the president of Yale Friends of Israel association. Together, they organized a graduation day protest featuring “Loucks Is Bad for Yale” signs and leaflets. The crowning flourish was a turboprop plane Fuisz hired to fly over the campus trailing a banner that read, “Resign Loucks.”
Three months later, Loucks stepped down as Yale trustee.
All of that said, Fuisz’s initial interest in Theranos’s technology came more from opportunism than any desire for revenge. Fuisz had made quite a bit of money by patenting inventions he thought other companies would want at some point. Carreyrou:
One of his most lucrative plays involved repurposing a cotton candy spinner to turn drugs into fast-dissolving capsules. The idea came to him when he took his daughter to a country fair in Pennsylvania in the early 1990s. He later sold the public corporation he formed to house the technology to a Canadian pharmaceutical company for $154 million and personally pocketed $30 million from the deal.
Fuisz listened to an interview Elizabeth did for NPR’s “Biotech Nation,” in May 2005. In that interview, Elizabeth explained how her blood-test system could be used for at-home monitoring of adverse reactions to drugs.
…But as a trained physician, he also spotted a potential weakness he could exploit. If patients were going to test their blood at home with the Theranos device to monitor how they were tolerating the drugs they were taking, there needed to be a built-in mechanism that would alert their doctors when the results came back abnormal.
He saw a chance to patent that missing element, figuring there was money to be made down the road, whether from Theranos or someone else. His thirty-five years of experience patenting medical inventions told him such a patent might eventually command up to $4 million for an exclusive license.
Fuisz filed a fourteen-page patent application with he U.S. Patent and Trademark office on April 24, 2006.It didn’t claim to invent new technology, but to combine existing technologies–wireless data transmission, computer chips, and bar codes–into a physician alert mechanism that could be part of at-home blood-testing devices. The application said clearly that it was targeting the company Theranos.
Meanwhile, for other reasons, the Fuisz and Holmes families grew apart. By the time Elizabeth became aware of Richard Fuisz’s patent, the two families were no longer on speaking terms.
SUNNY
Chelsea Burkett and Elizabeth had been friends at Stanford. Elizabeth recruited Chelsea to Theranos. Chelsea found Elizabeth to be very persuasive:
She had this intense way of looking at you while she spoke that made you believe in her and want to follow her.
About the same time Chelsea joined Theranos, Ramesh “Sunny” Balwani came on board as a senior Theranos executive. All that Chelsea knew was that Sunny was Elizabeth’s boyfriend and that they were living together in a Palo Alto apartment. Sunny immediately asserted himself and seemed omnipresent.
Sunny was a force of nature, and not in a good way. Though only about five foot five and portly, he made up for his diminutive stature with an aggressive, in-your-face management style. His thick eyebrows and almost-shaped eyes, set above a mouth that drooped at the edges and a square chin, projected an air of menace. He was haughty and demeaning towards employees, barking orders and dressing people down.
Chelsea took an immediate dislike to him even though he made an effort to be nicer to her in deference to her friendship with Elizabeth. She didn’t understand what her friend saw in this man, who was nearly two decades older than she was and lacking in the most basic grace and manners. All her instincts told her Sunny was bad news, but Elizabeth seemed to have the utmost confidence in him.
Elizabeth and Sunny had met in Beijing when Elizabeth was in her third year of a Stanford program that taught students Mandarin. Apparently, Elizabeth had been bullied by some of the students and Sunny came to her defense.
Sunny was born and raised in Pakistan. He pursued his undergraduate studies in the U.S. Then he worked for a decade as a software engineer for Lotus and Microsoft. In 1999, Sunny joined CommerceBid.com, which was developing software that would have suppliers bid against one another in an auction. The goal was to achieve economies of scale and lower prices.
In November 1999, a few months after Sunny joined CommerceBid as president and chief technology officer, the company was acquired for $232 million in cash and stock. Carreyrou:
It was a breathtaking price for a company that had just three clients testing its software and barely any revenues. As the company’s second-highest-ranking executive, Sunny pocketed more than $40 million. His timing was perfect. Five months later, the dot-com bubble popped and the stock market came crashing down.Commerce One [the company that acquired CommerceBid] eventually filed for bankruptcy.
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. When Elizabeth met him a few years later, she had no reason to question that. She was an impressionable eighteen-year-old girl who saw in Sunny what she wanted to become: a successful and wealthy entrepreneur. He became her mentor, the person who would teach her about business in Silicon Valley.
In 2004, the IRS forced Sunny to pay millions in back taxes after he had tried to use a tax shelter. Sunny liked to flaunt his wealth. He drove a black Lamborghini Gallardo and a black Porsche 911. Carreyrou writes:
He wore white designer shirts with puffy sleaves, 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. A pungent scent of cologne emanated from him at all times. Combined with the flashy cars, the overall impression was of someone heading out to a nightclub rather than to the office.
Sunny was supposed to be an expert in software. He even bragged that he’d written a million lines of code. Some employees thought that was an absurd claim. (Microsoft software engineers had written the Windows operating system at a rate of one thousand lines of code per year, notes Carreyrou.)
Carreyrou adds:
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.
Carreyrou continues:
When Elizabeth pitched pharmaceutical executives now, she told them that Theranos would forecast how patients would react to the drugs they were taking. Patients’ test results would be input into a proprietary computer program the company had developed. As more results got fed into the program, its ability to predict how markers in the blood were likely to change during treatment would become better and better, she said.
It sounded cutting-edge, but there was a catch: the blood-test results had to be reliable for the computer program’s predictions to have any value… Theranos was supposed to help Centocor [in Antwerp, Belgium] to assess how patients were responding to an asthma drug by measuring a biomarker in their blood called allergen-specific immunoglobulin E, or IgE, but the Theranos devices seemed very buggy to Chelsea. There were frequent mechanical failures. The cartridges either wouldn’t slot into the readers properly or something inside the readers would malfunction. Even when the devices didn’t break down, it could be a challenge coaxing any kind of output from them.
Sunny always blamed the wireless connection. That was true sometimes, but there were other things that could interfere. Nearly all blood tests require some dilution, but too much dilution made it harder for Theranos to get accurate results.
The amount of dilution the Theranos system required was greater than usual because of the small size of the blood samples Elizabeth insisted on.
Furthermore, to function properly, the Edisons required the ambient temperature to be exactly 34 degrees Celsius. Two 11-volt heaters built into the reader tried to maintain that temperature during a blood test. But in colder settings, including some hospitals in Europe, the temperature couldn’t be maintained.
Meanwhile, Pfizer had ended its collaboration with Theranos because it was not impressed by the results of the Tennessee validation study.
The study had failed to show any clear link between drops in the patients’ protein levels and the administration of the antitumor drugs. And the report had copped to some of the same snafus Chelsea was now witnessing in Belgium, such as mechanical failures and wireless transmission errors.
When Chelsea returned from her three-week trip to Europe, she found that Elizabeth and Sunny were now focused on Mexico, where a swine flu epidemic had been raging. Seth Michelson, Theranos’ chief scientific officer, had suggested an idea to Elizabeth.
Seth had told Elizabeth about a math model called SEIR (Susceptible, Exposed, Infected, and Resolved) that he thought could be adapted to predict where the swine flu virus would spread next. For it to work, Theranos would need to test recently infected patients and input their blood-test results into the model. That meant getting the Edison readers and cartridges to Mexico.Elizabeth envisioned putting them in the beds of pickup trucks and driving them to the Mexican villages on the front lines of the outbreak.
Because Chelsea was fluent in Spanish, she and Sunny were sent. Elizabeth used her family connections in order to get authorization to use the experimental medical device in Mexico.
Once again, things did not go smoothly. Frequently, the readers flashed error messages, or the result that came back from Palo Alto was negative for the virus when it should have been positive. Some of the readers didn’t work at all. And Sunny continued to blame the wireless transmission.
Chelsea grew frustrated and miserable. She questioned what she was even doing there. Gary Frenzel and some of the other Theranos scientists had told her that the best way to diagnose H1N1, as the swine flu virus was called, was with a nasal swab and that testing for it in blood was a questionable utility. She’d raised this point with Elizabeth before leaving, but Elizabeth had brushed it off.”Don’t listen to them,” she’d said of the scientists. “They’re always complaining.”
At the time, Theranos was struggling financially:
The $15 million Theranos had raised in its first two funding rounds was long gone and the company had already burned through the $32 million Henry Mosley had been instrumental in bringing in during its Series C round in late 2006. The company was being kept afloat by a loan Sunny had personally guaranteed.
Meanwhile, Sunny was also traveling to Thailand to set up another swine flu testing outpost. The epidemic had spread to Asia, and the country was one of the region’s hardest hit with tens of thousands of cases and more than two hundred deaths. But unlike in Mexico, it wasn’t clear that Theranos’s activities in Thailand were sanctioned by local authorities. Rumors were circulating among employees that Sunny’s connections there were shady and that he was paying bribes to obtain blood samples from infected patients. When a colleague of Chelsea’s in the client solutions group named Stefan Hristu quit immediately upon returning from a trip to Thailand with Sunny in January 2010, many took it to mean the rumors were true.
On the whole, Sunny had created a culture of fear with his bullying behavior. The high rate of firings continued, and Sunny had taken charge of it. Remaining employees started to say, “Sunny disappeared him” whenever Sunny fired someone.
The scientists, especially, were afraid of Sunny.One of the only ones who stood up to him was Seth Michelson. A few days before Christmas, Seth had gone out and purchased polo shirts for his group.Their color matched the green of the company logo and they had the words “Theranos Biomath” emblazoned on them.Seth thought it was a nice team-building gesture and paid for it out of his own pocket.
When Sunny saw the polos, he got angry. He didn’t like that he hadn’t been consulted and he argued that Seth’s gift to his team made the other managers look bad. Earlier in his career, Seth had worked at Roche, the big Swiss drug maker, where he’d been in charge of seventy people and an annual budget of $25 million. He decided he wasn’t going to let Sunny lecture him about management. He pushed back and they got into a yelling match.
Soon thereafter, Seth found another job at Genomic Health in Redwood City. When he went to give his resignation letter to Elizabeth, Sunny was there. He read the letter and threw it in Seth’s face, shouting, “I won’t accept this!”
Seth shouted back: “I have news for you, sir: in 1863, President Lincoln freed the slaves!”
Sunny’s response was to throw him out of the building.It was weeks before Seth was able to retrieve his math books, scientific journals, and the pictures of his wife on his desk. He had to enlist the company’s new lawyer, Jodi Sutton, and a security guard to help him pack his things late on a weeknight when Sunny wasn’t around.
Sunny also got into a yelling match with Tony Nugent. Chelsea attempted to get through to Elizabeth about Sunny, but she was unable to.
Chelsea wanted to quit, but still wasn’t sure. Then one day the Stanford student with the family connections to Mexico stopped by with his father, who was dealing with a cancer scare of some sort. Elizabeth and Sunny persuaded him to allow Theranos to test his blood for cancer biomarkers.
Chelsea was appalled. The validation study in Belgium and the experiments in Mexico and Thailand were one thing. Those were supposed to be for research purposes only and to have no bearing on the way patients were treated. But by 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.
She became further alarmed when not long afterward Sunny and Elizabeth began circulating copies of the requisition forms doctors used to order blood tests from laboratories and speaking excitedly about the great opportunities that lay in consumer testing.
I’m done, Chelsea thought to herself. This has crossed too many lines.
[…]
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?
DR. J
Dr. J was Jay Rosen’s nickname. Rosen is a doctor who is a member of Walgreens’s innovation team, whose goal is to find ideas and technologies that could create growth.
In January 2010, Theranos approached Walgreens with an email stating that it had developed small devices capable of running any blood test from a few drops pricked from a finger in real time and for less than half the cost of traditional laboratories. Two months later, Elizabeth and Sunny traveled to Walgreens’s headquarters in the Chicago suburb of Deerfield, Illinois, and gave a presentation to a group of Walgreens executives. Dr. J, who flew up from Pennsylvania for the meeting, instantly recognized the potential for the Theranos technology. 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.
…The picture Elizabeth presented at the meeting of making blood tests less painful and more widely available so they could become an early warning system against disease deeply resonated with him.
On August 24, 2010, a Walgreens delegation arrived at the Theranos office in Palo Alto for a two-day meeting. Kevin Hunter was the leader of a small lab consulting firm Colaborate. Walgreens had hired him to evaluate and launch a partnership it was setting up with the startup. Hunter’s father, grandfather, and great-grandfather had all been pharmacists.
Walgreens and Theranos had signed a preliminary contract. Walgreens would prepurchase up to $50 million worth of Theranos cartridges and loan the startup $25 million. If the pilot went well, the companies would expand their partnership nationwide.
Hunter asked to see the lab, but Elizabeth said later if there was time. Hunter asked again. Elizabeth pulled Dr. J aside. Then Dr. J informed Hunter that they wouldn’t see the lab yet.
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. In reality, although there was a lab downstairs, it was just an R&D lab where Gary Frenzel and his team of biochemists conducted their research.Moreover, half of the tests on the list couldn’t be performed as chemiluminescent immunoassays, the testing technique the Edison system relied on. These required different testing methods beyond the Edison’s scope.
Carreyrou writes:
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. Theranos had also failed to deliver on his two basic requests: to let him see its lab and to demonstrate a live vitamin D test on its device.Hunter’s plan had been to have Theranos test his and Dr. J’s blood, then get retested at Stanford Hospital that evening and compare results. He’d even arranged for a pathologist to be on standby at the hospital to write the order and draw their blood. But Elizabeth claimed she’d been given too little notice even though he’d made the request two weeks ago.
Despite Hunter’s suspicions, Dr. J and the Walgreens CFO, Wade Miquelon, continued to be big fans of Elizabeth.
In September 2010, Elizabeth and Sunny met with Walgreens executives at the company’s headquarters in Deerfield. Elizabeth and Sunny suggested they do blood tests on the executives. Hunter wasn’t at the meeting, but he heard about the blood tests later. He thought it was a good opportunity to see how the technology performed.
Hunter asked about the blood-test results a few days later on the weekly video conference call the companies were using as their primary mode of communication. Elizabeth responded that Theranos could only release the results to a doctor. Dr J…reminded everyone that he was a trained physician, so why didn’t Theranos go ahead and send him the results? They agreed that Sunny would follow up separately with him.
A month passed and still no results.
There was another issue, too.Theranos had suddenly changed its regulatory strategy. Initially Theranos said the blood tests would qualify as “waived” under the Clinical Laboratory Improvement Amendments, a 1988 federal law that covered laboratories.
CLIA-waved tests usually involved simple laboratory procedures that the Food and Drug Administration had cleared for home use.
Now, Theranos was changing its tune and saying the tests it would be offering in Walgreens stores were “laboratory-developed tests.” It was a big difference: laboratory-developed tests lay in a gray zone between the FDA and another federal health regulator, the Centers for Medicare and Medicaid Services. CMS, as the latter agency was known, exercised oversight of clinical laboratories under CLIA, while the FDA regulated the diagnostic equipment that laboratories bought and used for their testing. But no one closely regulated tests that labs fashioned with their own methods. Elizabeth and Sunny had a testy exchange with Hunter over the significance of the change. They maintained that all the big laboratory companies mostly used laboratory-developed tests, which Hunter knew not to be true.
Hunter argued that it was now even more important to make sure Theranos’s tests were accurate. He suggested a fifty-patient study, which he could easily arrange. Hunter noticed that Elizabeth became defensive immediately. She said they didn’t want to do it “at this time,” and she quickly changed the subject.
After they hung up, Hunter took aside Renaat Van den Hooff, who was in charge of the pilot on the Walgreens side, and told him something just wasn’t right. The red flags were piling up. First, Elizabeth had denied him access to their lab. Then she’d rejected his proposal to embed someone with them in Palo Alto. And now she was refusing to do a simple comparison study. To top it all off, Theranos had drawn the blood of the president of Walgreen’s pharmacy business, one of the company’s most senior executives, and failed to give him a test result!
Van den Hooff told Hunter:
“We can’t not pursue this. We can’t risk a scenario where CVS has a deal with them in six months and it ends up being real.”
Almost everything Walgreens did was done with its rival CVS in mind.
Theranos had cleverly played on this insecurity. As a result, Walgreens suffered from a severe case of FoMO–the fear of missing out.
There were two more things Theranos claimed were proof that its technology works. First, there was clinical trial work Theranos had done with pharmaceutical companies. Hunter had called the pharmaceutical companies, but hadn’t been able to reach anyone who could verify Theranos’s claims. Second, Dr. J had commissioned Johns Hopkins University’s medical school to do a review of Theranos’s technology.
Hunter asked to see the Johns Hopkins review. It was a two-page document.
When Hunter was done reading it, he almost laughed.It was a letter dated April 27, 2010, summarizing a meeting Elizabeth and Sunny had had with Dr. J and five university representatives on the Hopkins campus in Baltimore. It stated that they had shown the Hopkins team “proprietary data on test performance” and that Hopkins had deemed the technology “novel and sound.” But it also made clear that the university had conducted no independent verification of its own. In fact, the letter included a disclaimer at the bottom of the second page: “The materials provided in no way signify an endorsement by Johns Hopkins Medicine to any product or service.”
In addition to Walgreens, Theranos also tried to get Safeway as a partner. Elizabeth convinced Safeway’s CEO, Steve Burd, to do a deal. Safeway loaned Theranos $30 million. Safeway also committed to a massive renovation project of its stores, creating new clinics where customers could have their blood tested on Theranos devices. Burd saw Elizabeth as a genius.
In early 2011, Hunter was informed that Elizabeth and Sunny no longer wanted him on the calls or in meetings between Theranos and Walgreens. Hunter asked: Why Walgreens was paying him $25,000 a month to look out for its interests if he couldn’t do his job, which includes asking tough questions?
THE MINILAB
Elizabeth had told Walgreens and Safeway that Theranos’s technology could perform hundreds of tests on small blood samples.
The truth was that the Edison system could only do immunoassays, a type of test that uses antibodies to measure substances in the blood. Immunoassays included some commonly ordered lab tests such as tests to measure vitamin D or to detect prostrate cancer. But many other routine blood tests, ranging from cholesterol to blood sugar, required completely different laboratory techniques.
Elizabeth needed a new device, one that could perform more than just one class of test. In November 2010, she hired a young engineer named Kent Frankovich and put him in charge of designing it.
Kent had just earned a master’s degree in mechanical engineering from Stanford. Prior to that, he’d worked for two years at NASA’s Jet Propulsion Laboratory in Pasadena, where he’d helped construct Curiosity, the Mars rover. Kent recruited a friend–Greg Baney–from NASA to Theranos.
Carreyrou notes that for several months, Kent and Greg were Elizabeth’s favorite employees. She joined their brainstorming sessions and offered some suggestions about what robotic systems they should consider. Elizabeth called the new system the “miniLab.”
Because the miniLab would be in people’s homes, it had to be small.
This posed engineering challenges because, in order to run all the tests she wanted, the miniLab would need to have many more components than the Edison. In addition to Edison’s photomultiplier tube, the new device would need to cram three other laboratory instruments in one small space: a spectrophotometer, a cytometer, and an isothermal amplifier.
None of these were new inventions…
Laboratories all over the world had been using these instruments for decades. In other words, Theranos wasn’t pioneering any new ways to test blood. Rather, the miniLab’s value would lie in the miniaturization of existing lab technology. While that might not amount to groundbreaking science, it made sense in the context of Elizabeth’s vision of taking blood testing out of central laboratories and bringing it to drugstores, supermarkets, and, eventually, people’s homes.
To be sure, there were already portable blood analyzers on the market. One of them, a device that looked like a small ATM called the Piccolo Express, could perform thirty-one different blood tests and produce results in as little as twelve minutes. It required only three or four drops of blood for a panel of a half dozen commonly ordered tests. However, neither the Piccolo nor other existing portable analyzers could do the entire range of laboratory tests. In Elizabeth’s mind, that was going to be the miniLab’s selling point.
Greg thought they should take off-the-shelf components and get the overall system working first before miniaturizing it. Trying to miniaturize before having a working prototype didn’t make sense. But Elizabeth wouldn’t hear of it.
In the spring of 2011, Elizabeth hired her younger brother, Christian. Although two years out of college–Duke University–and with no clear qualifications to work at a blood diagnostics company, what mattered to Elizabeth was that she could trust her brother. Christian soon recruited five fraternity brothers: Jeff Blickman, Nick Menchel, Dan Edlin, Sani Hadziahmetovic, and Max Fosque. The became known inside Theranosas “the Frat Pack.”
Like Christian, none of the other Duke boys had any experience or training relevant to blood testing or medical devices, but their friendship with Elizabeth’s brother vaulted them above most other employees in the company hierarchy.
Meanwhile, Greg had brought several of his own friends, Jordan Carr, Ted Pasco, and Trey Howard.
Jordan, Trey, and Ted were all assigned to the product management group with Christian and his friends, but they weren’t granted the same level of access to sensitive information. Many of the hush-hush meetings Elizabeth and Sunny held to strategize about the Walgreens and Safeway partnerships were off limits to them, whereas Christian and his fraternity brothers were invited in.
At the holiday party in December 2011, Elizabeth gave a speech which included the following:
“The miniLab is the most important thing humanity has ever built. If you don’t believe this is the case, you should leave now. Everyone needs to work as hard as humanly possible to deliver it.”
By this point, Greg had decided to leave Theranos in two months. He had become disillusioned:
The miniLab Greg was helping build with a prototype, nothing more. It needed to be tested thoroughly and fine-tuned, which would require time. A lot of time. Most companies went through three cycles of prototyping before they went to market with a product. But Sunny was already placing orders for components to build one hundred miniLabs, based on a first, untested prototype. It was as if Boeing built one plane and, without doing a single flight test, told airline passengers, “Hop aboard.”
One problem that would require a great deal of testing was thermal. Packing many instruments together in a small space led to unpredicted variations in temperature.
THE WELLNESS PLAY
Safeway’s business was struggling. On an earnings call, CEO Steve Burd was asked why the company was buying back stock in order to boost earnings per share. Burd responded that the company was about to do well, so buying back shares was the right move. Burd elaborated by saying that the company was planning a significant “wellness play.” Analysts inferred that Safeway had a secret plan to ignite growth.
Burd had high hopes for the venture. He’d ordered the remodeling of more than half of Safeway’s seventeen hundred stores to make room for upscale clinics with deluxe carpeting, custom wood cabinetry, granite countertops, and flat-screen TVs. Per Theranos’s instructions, they were to be called wellness centers and had to look “better than a spa.” Although Safeway was shouldering the entire cost of the $350 million renovation on its own, Burd expected it to more than pay for itself once the new clinics started offering the startup’s novel blood tests.
…[Burd] was starry-eyed about the young Stanford dropout and her revolutionary technology, which fit so perfectly with his passion for preventative healthcare.
Elizabeth had a direct line to Burd and answered only to him… He usually held his deputies and the company’s business partners to firm deadlines, but he allowed Elizabeth to miss one after the other.
In early 2012, the companies had agreed that Theranos would be in charge of blood testing at a Safeway employee health clinic on its corporate campus in Pleasanton.
Safeway’s first chief medical officer was Kent Bradley. Bradley attended West Point and then the armed forces’ medical school in Bethesda, Maryland. Then he served the U.S. Army for seventeen years before Safeway hired him. Bradley looked forward to seeing the Theranos system in action.
However, he was surprised to learn that Theranos wasn’t planning on putting any of its devices in the Pleasanton clinic. Instead, it had stationed two phlebotomists there to draw blood, and the samples they collected were couriered across San Francisco Bay to Palo Alto for testing. He also noticed that the phlebotomists were drawing blood from every employee twice, once with a lancet applied to the index finger and a second time the old-fashioned way with a hypodermic needle inserted in the arm. Why the need for venipunctures–the medical term for needle draws–if the Theranos finger-stick technology was fully developed and ready to be rolled out to consumers, he wondered.
Bradley’s suspicions were further aroused by the amount of time it took to get results back. His understanding had been that the tests were supposed to be quasi-instantaneous, but some Safeway employees were having to wait as long as two weeks to receive their results. And not every test was performed by Theranos itself. Even though the startup had not said anything about outsourcing some of the testing, Bradley discovered that it was farming out some tests to a big reference laboratory in Salt Lake City called ARUP.
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…
Bradley put together a detailed analysis of the discrepancies. Some of the differences between the Theranos values and the values from the other labs were disturbingly large. When the Theranos values did match those of the other labs, they tended to be for tests performed by ARUP.
Bradley ended up taking his concerns to Burd, but Burd assured the doctor that Theranos’s technology had been tested and was reliable.
Theranos had a temporary lab in East Meadow Circle in Palo Alto. The lab had gotten a certificate saying it was in compliance with CLIA–the federal law that governed clinical laboratories. But such certificates were easy to obtain.
Although the ultimate enforcer of CLIA was the Centers for Medicare and Medicaid Services, the federal agency delegated most routine lab inspections to states. In California, they were handled by the state department of health’s Laboratory Field Services division, which an audit had shown to be badly underfunded and struggling to fulfill its oversight responsibilities.
The East Meadows Circle lab didn’t contain a single Theranos proprietary device. The miniLab was still being developed and was a long way from being ready for patient testing. Instead, the lab had more than a dozen commercial blood and body-fluid analyzers made by companies such as Chicago-based Abbott Laboratories, Germany’s Siemens, and Italy’s DiaSorin. Arne Gelb, a pathologist, ran the lab. A handful of clinical laboratory scientists (CLSs) helped Arne.
One CLS named Kosal Lim was poorly trained and sloppy. An experienced colleague, Diana Dupuy, believed Lim was harming the accuracy of the test results.
To Dupuy, Lim’s blunders were inexcusable.They included ignoring manufacturers’ instructions for how to handle reagents; putting expired reagents in the same refrigerator as current ones; running patient tests on lab equipment that hadn’t been calibrated; improperly performing quality-control runs on an analyzer; doing tasks he hadn’t been trained to do; and contaminating a bottle of Wright’s stain, a mixture of dyes used to differentiate blood cell types.
Dupuy documented Lim’s mistakes in regular emails to Arne and to Sunny, often including photos.
Dupuy also had concerns about the competence of the two phlebotomists Theranos had stationed in Pleasanton. Blood is typically spun down in a centrifuge before it’s tested to separate its plasma from the patient’s blood cells. The phlebotomists hadn’t been trained to use the centrifuge they’d been given and they didn’t know how long or at what speed to spin down patients’ blood. When they arrived in Palo Alto, the plasma samples were often polluted with particulate matter. She also discovered that many of the blood-drawing tubes Theranos was using were expired, making the anticoagulant in them ineffective and compromising the integrity of the specimens.
Dupuy was sent to Delaware to train on a new Siemens analyzer Theranos bought. When she got back to the lab, it was spotless.
Sunny, who appeared to have been waiting for her, summoned her into a meeting room. In an intimidating tone, he informed her that he had taken a tour of the lab in her absence and found not a single one of her complaints to be justified.
Sunny promptly fired her. He rehired her based on Arne’s recommendation. Then Sunny fired Dupuy again several weeks later. She was immediately escorted from the building without a chance to grab her personal belongings. Dupuy sent an email to Sunny–and copied Elizabeth–which included the following:
“I was warned by more than 5 people that you are a loose cannon and it all depends on your mood as to what will trigger you to explode. I was also told that anytime someone deals with you it’s never a good outcome for that person.
The CLIA lab is in trouble with Kosal running the show and no one watching him or Arne. You have a mediocre Lab Director taking up for a sub-par CLS for whatever reason. I fully guarantee that Kosal will certainly make a huge mistake one day in the lab that will adversely affect patient results.I actually think he has already done this on several accounts but has put the blame on the reagents. Just as you stated everything he touches is a disaster!
I only hope that somehow I bring awareness to you that you have created a work environment where people hide things from you out of fear. You cannot run a company through fear and intimidation… it will only work for a period of time before it collapses.”
As for the Safeway partnership, Theranos kept pushing back the date for the launch. Burd had to keep telling analysts and investors on each quarterly earnings call that the new program was just about to launch, only to have it be delayed again. Safeway’s finance department forecast revenues of $250 million, which was aggressive. The revenues hadn’t materialized, however, and Safeway had spent $350 million just to build the wellness centers. Safeway’s board was starting to get upset. Although Burd had done an excellent job during his first decade as CEO, the second decade hadn’t been very good. The costs and delays associated with the wellness centers prompted the board to ask Burd to retire. He agreed.
Safeway then had to contact Sunny or the Frat Pack if they wanted to communicate with Theranos. Sunny always acted upset as if his time was too valuable, as if Theranos’s technology was a massive innovation requiring a huge time commitment. Safeway executives were very upset about Sunny’s attitude. But they still worried that they might miss out, so they didn’t walk away from the partnership.
“WHO IS LTC SHOEMAKER?”
Lieutenant Colonel David Shoemaker was part of a small military delegation meeting in Palo Alto in November 2011 to bless Theranos’s deploying its devices in the Afghan war theatre. Only, instead of blessing the proposal, LTC Shoemaker told Elizabeth that there were various regulations her approach would fail to meet.
The idea of using Theranos devices on the battlefield had germinated the previous August when Elizabeth had met James Mattis, head of the U.S. Central Command, at the Marines’ Memorial Club in San Francisco. Elizabeth’s impromptu pitch about how her novel way of testing blood from just a finger prick could help diagnose and treat wounded soldiers faster, and potentially save lives, had found a receptive audience in the four-star general. Jim “Mad Dog” Mattis was fiercely protective of his troops, which made him one of the most popular commanders in the U.S. military. The hard-charging general was open to pursuing any technology that might keep his men safer as they fought the Taliban in the interminable, atrocity-marred war in Afghanistan.
This type of request had to go through the army’s medical department. Shoemaker’s job was to makes sure the army followed all laws and regulations when it tested medical devices. With regard to Theranos, the company would have to get approval from the FDA at a minimum.
Elizabeth disagreed forcefully, citing advice Theranos received from its lawyers. She was so defensive and obstinate that Shoemaker quickly realized that prolonging the argument would be a waste of time. She clearly didn’t want to hear anything that contradicted her point of view. As he looked around the table, he noted that she had brought no regulatory affairs expert to the meeting. He suspected the company didn’t even employ one. If he was right about that, it was an incredibly na¯ve 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.
Soon thereafter, in response to an email from Shoemaker complaining to the FDA, Gary Yamamoto, a veteran field inspector in CMS’s regional office in San Francisco, was sent to exam Theranos’s lab.
[Elizabeth] and Sunny professed not to know what Shoemaker had been talking about in his email. Yes, Elizabeth had met with the army officer, but she had never told him Theranos intended to deploy its blood-testing machines far and wide under the cover of a single CLIA certificate.
Yamamoto asked why Theranos had applied for a CLIA certificate.
Sunny responded that the company wanted to learn about how labs worked and what better way to do that than to operate one itself? Yamamoto found that answer fishy and borderline nonsensical. He asked to see their lab.
Carreyrou continues:
It looked like any other lab. No sign of any special or novel blood-testing technology. When he pointed this out, Sunny said the Theranos devices were still under development and the company had no plans to deploy them without FDA clearance–flatly contradicting what Elizabeth had told Shoemaker on not one but two occasions. Yamamoto wasn’t sure what to believe. Why would the army officer have made all that stuff up?
…If Theranos intended to eventually roll its devices out to other locations, those places would need CLIA certificates too.Either that or, better yet, the devices themselves would need to be approved by the FDA.
Elizabeth immediately sent an email to General Mattis accusing Shoemaker of giving “blatantly false information” to the FDA and CMS about Theranos. Mattis was furious and wanted to get to the bottom of things ASAP. A colleague of Shoemaker’s forwarded the emails, including Mattis’s responses, to Shoemaker. Shoemaker got worried about what Mattis would do.
Shoemaker met with Mattis to answer the general’s questions. Once Mattis learned more about the rules and regulations governing the situation–the medical devices couldn’t be tested on human subjects without FDA approval except under very strict conditions–he was reasonable. In the meantime, they could conduct a “limited objective experiment” using leftover de-identified blood samples from soldiers.
Although Theranos had the green light to run the “limited objective experiment,” for some reason it never proceeded to do so.
LIGHTING A FUISZ
On October 29, 2011, Richard Fuisz was served a set of papers. It was a lawsuit filed by Theranos in federal court in San Francisco alleging that Fuisz had conspired with his sons from his first marriage, Joe and John Fuisz, to steal confidential patent information to develop a rival patent. The suit alleged that the theft had been done by John Fuisz while he was employed at Theranos’s former patent counsel, McDermott Will & Emery.
Fuisz and his sons were angered by the suit, but they weren’t overly worried about it at first. They were confident in the knowledge that its allegations were false.
Carreyrou writes:
John had no reason to wish Elizabeth or her family ill; on the contrary. When he was in his early twenties, Chris Holmes had written him a letter of recommendation that helped him gain admission to Catholic University’s law school. Later, John’s first wife had gotten to know Noel Holmes through Lorraine Fuisz and become friendly with her. Noel had even dropped by their house when John’s first son was born to bring the baby a gift.
Moreover, Richard and John Fuisz weren’t close. John thought his father was an overbearing megalomaniac and tried to keep their interactions to a bare minimum. In 2004, he’d even dropped him as a McDermott client because he was being difficult and slow to pay his bills. The notion that John had willingly jeopardized his legal career to steal information for his father betrayed a fundamental misunderstanding of their frosty relationship.
But Elizabeth was understandably furious at Richard Fuisz. The patent application he had filed in April 2006 had matured into U.S. Patent 7,824,612 in November 2010 and now stood in the way of her vision of putting the Theranos device in people’s homes. If that vision was someday realized, she would have to license the bar code mechanism Fuisz had thought up to alert doctors to patients’ abnormal blood-test results. Fuisz had rubbed that fact in her face the day his patent was issued by sending a Fuisz pharma press release to info@theranos.com, the email address the company provided on its website for general queries. 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.
The Justice Department had hired David Boies to handle its antitrust suit against Microsoft. Boies won a resounding victory in that case, which helped him rise to national prominence. Just before Theranos sued, all three Fuiszes–Richard, John, and Joe–could tell that they were under surveillance by private investigators.
Boies’s use of private investigators wasn’t 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. When Boies had first been approached about representing Theranos by Larry Ellison and another investor, it was that overarching concern that had been communicated to him. In other words, Boies’s assignment wasn’t just to sue Fuisz, it was to investigate whether he was in league with Quest and LabCorp. The reality was that Theranos was on neither company’s radar at that stage and that, as colorful and filled with intrigue as Fuisz’s life had been, he had no connection to them whatsoever.
Boies had zero evidence that John Fuisz had done what Theranos alleged. Nonetheless, Boies intended to use several things from John’s past to create doubt in a judge or jury. Potentially the most damaging thing Boies wanted to use was that McDermott had made John resign in 2009 after he had an argument with the firm’s other partners. John insisted the firm discontinue its reliance on a forged document in a case before the International Trade Commission in which McDermott was representing a Chinese state-owned company against the U.S. government’s Office of Unfair Import Investigations. McDermott leaders agreed to withdraw the document, but that decision significantly weakened the Chinese client’s defense. Senior partners got upset about it. They argued that there had been several incidents when John didn’t behave as a partner should. One incident was a complaint a client had made–this was Elizabeth’s September 2008 complaint about Richard Fuisz’s patent.
Eventually John was beyond furious. He had launched his own practice after leaving McDermott. The Theranos allegations had caused him to lose several clients. Moreover, opposing counsel mentioned the allegations in order to tar John. Finally, his wife had been diagnosed with vasa previa–a pregnancy complication where the fetus’s blood vessels are dangerously exposed. This added to John’s stress.
John always had a short fuse. During the deposition by Boies’s partners, John was combative and ornery. He used foul language while threatening to harass Elizabeth “till she dies, absolutely.”
In the meantime, Richard and Joe Fuisz were worrying about how expensive the litigation was getting. Also, they knew they were up against one of the most expensive lawyers in the world: David Boies, who was reported to make $10 million a year. But they didn’t know that Boies had agreed to accept stock in Theranos in place of his usual fees. Partly out of concern for his investment, Boies began attending all of the company’s board meetings in early 2013.
Richard Fuisz examined Theranos’s patents. He noticed that the name Ian Gibbons often appeared. Gibbons was British and had a Ph.D. in biochemistry from Cambridge. Fuisz suspected that Gibbons and other Theranos employees with advanced degrees had done most of the technical work related to Theranos’s patents.
IAN GIBBONS
Elizabeth hired Ian Gibbons on the recommendation of her Stanford mentor, Channing Robertson.
Ian fit the stereotype of the nerdy scientists to a T. He wore a beard and glasses and hiked his pants way above his waist. He could spend hours on end analyzing data and took copious notes documenting everything he did at work. This meticulousness carried over to his leisure time: he was an avid reader and kept a list of every single book he’d read. It included Marcel Proust’s seven-volume opus, Remembrance of Things Past, which he reread more than once.
Ian met his wife Rochelle at Berkeley in the 1970s. He was doing a postdoctorate fellowship in molecular biology, while Rochelle was doing graduate research. They didn’t have children. But they loved their dogs Chloe and Lucy, and their cat Livia, named after the wife of the Roman emperor Augustus. Ian also enjoyed going to the opera and photography. He altered photos for fun.
Ian’s specialty was immunoassays. He was passionate about the science of bloodtesting. He also enjoyed teaching it. Early on at Theranos, he would give small lectures to the rest of the staff.
Ian insisted that the blood tests they designed be as accurate in Theranos devices as they were on the lab bench. Because this was rarely the case, Ian was quite frustrated.
He and Tony Nugent butted heads over this issue during the development of the Edison.As admirable as Ian’s exacting standards were, Tony felt that all he did was complain and that he never offered any solutions.
Ian also had issues with Elizabeth’s management, especially the way she siloed the groups off from one another and discouraged them from communicating. The reason she and Sunny invoked for this way of operating was that Theranos was “in stealth mode,” but it made no sense to Ian. At the other diagnostics companies where he had worked, there had always been cross-functional teams with representatives from the chemistry, engineering, manufacturing, quality control, and regulatory departments working toward a common objective. That was how you got everyone on the same page, solved problems, and met deadlines.
Elizabeth’s loose relationship with the truth was another point of contention. Ian had heard her tell outright lies more than once and, after five years of working with her, he no longer trusted anything she said, especially when she made representations to employees or outsiders about the readiness of the company’s technology.
Ian complained confidentially to his friend Channing Robertson. But Robertson turned around and told Elizabeth all that Ian said. Elizabeth fired him. Sunny called the next day because several colleagues urged Elizabeth to reconsider. Ian was brought back but he was no longer head of general chemistry. Instead, he was a technical consultant.
Ian wasn’t the only employee being sidelined at that point. It seemed that the old guard was being mothballed in favor of new recruits. Nonetheless, Ian took it hard.
One day, Tony and Ian–who’d both been marginalized–got to talking. Tony suggested that perhaps the company was merely a vehicle for Elizabeth and Sunny’s romance and that none of the work they didn’t actually mattered. Ian agreed, saying, “It’s a folie a deux.” Tony looked up the definition of that expression, which seemed accurate to him: “The presence of the same or similar delusional ideas in two persons closely associated with one another.”
Ian kept working closely with Paul Patel, who had replaced Ian. Paul had enormous respect for Ian and continued treating him as an equal, consulting him on everything. However, Paul avoided conflict and was more willing than Ian to compromise with the engineers while building the miniLab. Ian wouldn’t compromise and got upset. Paul frequently had to calm him down over the phone at night.Ian told Paul to abide by his convictions and never lose sight of concern for the patient.
Sunny put Samartha Anekal, who had a Ph.D. in chemical engineering, in charge of integrating the parts of the miniLab. Sam struck some as a yes-man who simply did what Sunny told him to do.
As these things were unfolding, Ian had gotten clinically depressed–except he hadn’t been diagnosed as such. He started drinking heavily in the evenings. Rochelle was grieving for her mother, who had just passed away, and didn’t notice how depressed Ian was getting.
Theranos told Ian he’d been subpoenaed to testify in the Fuisz case. Because Rochelle had done work as a patent attorney, Ian asked her to look the Theranos’s patents.
While doing so, she noticed that Elizabreth’s name was on all the company’s patents, often in first place in the list of inventors. When Ian told her that Elizabeth’s scientific contribution had been negligible, Rochelle warned him that the patents could be invalidated if this was ever exposed. That only served to make him more agitated.
On May 15, he called to set up a meeting with Elizabeth. After an appointment was set for the next day, Ian started worrying that Elizabeth would fire him. The same day, the Theranos lawyer David Doyle told Ian that Fuizs’s lawyers–after trying for weeks to get the Boies Schiller attorneys to propose a date for Ian’s deposition–required Ian to appear at their offices in Campbell, California, on May 17.
The morning of May 16, Ian’s wife discovered that he’d taken enough acetaminophen to kill a horse. He was pronounced dead on May 23. Theranos had virtually no response.
Although Tony Nugent and Ian had fought all the time, Tony felt bad about the lack of empathy for someone who had given a decade of his life to the company. Tony downloaded a list of Ian’s patents and created an email, including a photo of Ian, which Tony sent to two dozen colleagues who’d worked with him.
CHIAT/DAY
Chiat/Day was working on a secret marketing campaign for Theranos. Patrick O’Neill, the creative director of the company’s Los Angeles office, was in charge.
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. She’d even tried to convince Lee Clow, the creative genius behind those ads, to come out of retirement to work for her. Clow politely referred her back to the agency, where she had immediately connected with Patrick.
Patrick was drawn in by Elizabeth’s extreme determination to do something great. The Theranos mission to give people pain-free, low-cost health care was inspiring. Advertisers don’t often get a chance to work on something that can make the world better, observes Carreyrou.
Part of the campaign included pictures of patients–played by models–of all different ages, genders, and ethnicities.
The message was that Theranos’s blood-testing technology would help everyone.
Carreyrou again:
Real blood tended to turn purple after awhile when it was exposed to air, so they filled one of the nanotainters with fake Halloween blood and took pictures of it against a white background. Patrick then made a photo montage showing it balancing on the tip of a finger. As he’d anticipated, it made for an arresting visual. Mike Yagi tried out different slogans to go with it, eventually settling on two that Elizabeth really liked: “One tiny drop changes everything” and “The lab test, reinvented.”…
Patrick also worked with Elizabeth on a new company logo. Elizabeth believed in the Flower of Life, a geometric pattern of intersecting circles within a larger circle that pagans once considered the visual expression of the life that runs through all sentient beings.
Although Patrick was enthused, his colleague Stan Fiorito was more circumspect. He thought something about Sunny was strange. He kept using software engineering jargon in weekly meetings even though it had zero applicability to the marketing discussions. Also, Theranos was paying Chiat/Day $6 million a year. Where was it getting the money for this? Elizabeth stated several times that the army was using Theranos technology on the battlefield in Afghanistan. She claimed it was saving soldiers’ lives. Perhaps Theranos was funded by the Pentagon, thought Stan. At least that would help explain the extreme secrecy the company insisted upon.
Besides Mike Yagi, Stan supervised Kate Wolff and Mike Pedito. Kate and Mike were no-nonsense people and they began to wonder about Theranos.
Elizabeth wanted the website and all the various marketing materials to feature bold, affirmative statements. One was that Theranos could run “over 800 tests”on a drop of blood. Another was that its technology was more accurate than traditional lab testing. She also wanted to say that Theranos test results were ready in less than thirty minutes and that its tests were “approved by FDA” and “endorsed by key medical centers” such as the Mayo Clinic and the University of California, San Francisco’s medical school, using the FDA, Mayo Clinic, and UCSF logos.
When she inquired about the basis for the claim about Theranos’s superior accuracy, Kate learned that it was extrapolated from a study that had concluded that 93 percent of lab mistakes were due to human error. Theranos argued that, since its testing process was fully automated inside its device, that was grounds enough to say that it was more accurate than other labs. Kate thought that was a big leap in logic and said so. After all, there were laws against misleading advertising.
Mike agreed with Kate.
Elizabeth had mentioned a report several hundred pages long supporting Theranos’s scientific claims. Kate and Mike repeatedly asked to see it, but Theranos wouldn’t produce it. Instead, the company sent them a password-protected file containing what it said were excerpts from the report. It stated that the Johns Hopkins University School of Medicine had conducted due diligence on the Theranos technology and found it “novel and sound” and capable of “accurately” running “a wide range of routine and special assays.”
Those quotes weren’t from any lengthy report, however. They were from the two-page summary of Elizabeth and Sunny’s meeting with five Hopkins officials in April 2010. As it had done with Walgreens, Theranos was again using that meeting to claim that its system had been independently evaluated. But that simply wasn’t true. Bill Clarke, the director of clinical toxicology at the Johns Hopkins Hospital and one of three university scientists who attended the 2010 meeting, had asked Elizabeth to ship one of her devices to his lab so he could put it through its paces and compare its performance to the equipment he normally used. She had indicated she would but had never followed through. Kate and Mike didn’t know any of this, but the fact that Theranos refused to show them the full report made them suspicious.
To learn how to market to doctors, Chiat/Day suggested doing focus group interviews with a few physicians. Theranos agreed as long as it was very secret. Kate asked her wife, Tracy, chief resident at Los Angeles County General, to participate. Tracy agreed. During a phone interview, Tracy asked a few questions that no one at Theranos seemed to be able to answer. Tracy told Kate that she doubted the company had any new technology. She also doubted you could get enough blood from a finger to run tests accurately.
The evening before the marketing campaign was going to launch, Elizabeth set up an emergency conference call. She systematically dialed back the language that would be used. “Welcome to a revolution in lab testing” was changed to “Welcome to Theranos.” “Faster results. Faster answers.” became “Fast results. Fast answers.” “A tiny drop is all it takes” was now “A few drops is all it takes.” “Goodbye, big bad needle” (which referred only to finger-stick draws) was replaced with “Instead of a huge needle, we can use a tiny finger stick or collect a micro-sample from a venous draw.”
Not everyone at Chiat/Day was skeptical, however. Patrick thought Theranos could become his own big legacy, just as Apple had been for Lee Clow.
GOING LIVE
Alan Beam decided to become a doctor because his conservative Jewish parents thought that only law, medicine, or business was an appropriate career choice. While attending Mount Sinai’s School of Medicine, he didn’t like the crazy hours or the sights and smells of the hospital ward. Instead, he got interested in laboratory science. He pursued postdoctoral studies in virology and a residency in clinical pathology at Brigham and Women’s Hospital in Boston.
In the summer of 2012, having recently read Walter Isaacson’s biography of Steve Jobs–which greatly inspired Alan–he wanted to move to the San Francisco Bay Area. He ended up being hired as laboratory directory as Theranos. He didn’t start until April 2013 because it took eight months before he got his California medical license.
After starting, Alan became concerned about low morale in the lab:
Its members were downright despondent. During Alan’s first week on the job, Sunny summarily fired one of the CLSs. The poor fellow was frog-marched out by security in front of everyone. Alan got the distinct impression it wasn’t the first time something like that had happened. No wonder people’s spirits were low, he thought.
The lab Alan inherited was divided into two parts: a room on the building’s second floor that was filled with commercial diagnostic equipment, and a second room beneath it where research was being conducted. The upstairs room was the CLIA-certified part of the lab, the one Alan was responsible for. Sunny and Elizabeth viewed its conventional machines as dinosaurs that would soon be rendered extinct by Theranos’s revolutionary technology, so they called it “Jurassic Park.” They called the downstairs room “Normandy” in reference to the D-day landings during during World War II. The proprietary Theranos devices it contained would take the lab industry by storm, like the Allied troops who braved hails of machine-gun fire on Normandy’s beaches to liberate Europe from Nazi occupation.
Alan liked the bravado at first. But then he learned from Paul Patel–the biochemist leading the development of blood tests for Theranos’s new device (now called the “4S” instead of the miniLab)–that he and his team were still developing its assays on lab plates on the bench. Alan asked Paul about it and Paul said the new Theranos box wasn’t working.
By the summer of 2013, the 4S had been under development for more than two and a half years. But it still had a long list of problems. Carreyrou writes:
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…
For the dozens of Indians Theranos employed, the fear of being fired was more than just the dread of losing a paycheck. Most were on H-1B visas and dependent on their continued employment at the company to remain in the country. With a despotic boss like Sunny holding their fates in his hands, it was akin to indentured servitude. 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…
With time, some employees grew less afraid of him and devised ways to manage him, as it dawned on them that they were dealing with an erratic man-child of limited intellect and an even more limited attention span.
Some of the problems were because Elizabeth was fixated on certain things. For instance, she thought the 4S–aka the miniLab–was a consumer device like an iPhone, and therefore it had to be small and pretty. She still hoped these devices would be in people’s homes someday.
Another difficulty stemmed from Elizabeth’s insistence that the miniLab be capable of performing the four major classes of blood tests: immunoassays, general chemistry assays, hematology assays, and assays that relied on the amplification of DNA. The only known approach that would permit combining all of them in one desktop machine was to use robots wielding pipettes. But this approach had an inherent flaw: overtime, a pipette’s accuracy drifts… While pipette drift was something that ailed all blood analyzers that relied on pipetting systems, the phenomenon was particularly pronounced on the miniLab. Its pipettes had to be recalibrated every two to three months, and the recalibration process put the device out of commission for five days.
Another serious weakness of the miniLab was that it could process only one blood sample at a time. Commercial machines–which were bulky–could process hundreds of samples at the same time.
If the Theranos wellness centers attracted a lot of patients, the miniLab’s low throughput would cause long wait times, which was clearly inconsistent with the company’s promise of fast test results.
Someone suggested putting six miniLabs on top of one another–sharing one cytometer. They adopted a computer term to name it: the”six-blade.” But they overlooked a basic issue: temperature. Some types of blood test require a very specific temperature.Because heat rises, the miniLabs near the top wouldn’t function.
There were other problems, too. Many of them were fixable but would require a relatively long time. Carreyrou explains:
Less than three years was not a lot of time to develop and perfect a complex medical device… The company was still several years away from having a viable product that could be used on patients.
However, as Elizabeth saw it, she didn’t have several years. Twelve months earlier, on June 5, 2012, she’d designed a new contract with Walgreens that committed Theranos to launch its blood-testing services in some of the chain’s stores by February 1, 2013, in exchange for a $100 million “innovation fee” and an additional $40 million loan.
Theranos had missed that deadline–another postponement in what from Walgreens’s perspective had been three years of delays. With Steve Burd’s retirement, the Safeway partnership was already falling apart, and if she waited much longer, Elizabeth risked losing Walgreens too. She was determined to launch in Walgreens stores by September, come hell or high water.
Since the miniLab was in no state to be deployed, Elizabeth and Sunny decided to dust off the Edison and launch with the older device. That, in turn, led to another fateful decision–the decision to cheat.
Daniel Young, head of Theranos’s biomath team, and Xinwei Gong (who went by Sam), told Alan Beam that he and Sam were going to tinker with the ADVIA, one of the lab’s commercial analyzers. It weighed 1,320 pounds and was made by Siemens Healthcare. Since the Edison could only do immunoassays, Alan grasped why Daniel and Sam were going to try to use the ADVIA, which specialized in general chemistry assays. As Carreyrou describes it:
One of the panels of blood tests most commonly ordered by physicians was known as the “chem 18” panel. Its components, which ranged from tests to measure electrolytes sodium, potassium, and chloride to tests used to monitor patients’ kidney and liver function, were all general chemistry assays. Launching in Walgreens stores with a menu of blood tests that didn’t include these tests would have been pointless. They accounted for about two-thirds of doctors’ orders.
But the ADVIA was designed to handle a larger quantity of blood than you could obtain by pricking a finger. So Daniel and Sam thought up a series of steps to adapt the Siemens analyzer to smaller samples. Chief among these was the use of a big robotic liquid handler called the Tecan to dilute the little blood samples collected in the nanotainters with a saline solution. Another was to transfer the diluted blood into custom-designed cups half the size of the ones that normally went into the ADVIA.
Because they were working with small blood samples, Daniel and Sam concluded that they would have to dilute the blood not once, but twice. Alan knew this was a bad idea:
Any lab director worth his salt knew that the more you tampered with a blood sample, the more room you introduced for error.
Moreover, this double dilution lowered the concentration of the analytes in the blood samples to levels that were below the ADVIA’s FDA-sanctioned analytic measurement range. In other words, it meant using the machine in a way that neither the manufacturer nor its regulator approved of. To get the final patient result, one had to multiply the diluted result by the same factor the blood had been diluted by, not knowing whether the diluted result was even reliable. Daniel and Sam were nonetheless proud of what they’d accomplished. At heart, both were engineers for whom patient care was an abstract concept. If their tinkering turned out to have adverse consequences, they weren’t the ones who would be held personally responsible. It was Alan’s name, not theirs, that was on the CLIA certificate.
Anjali Laghari was in charge of the immunoassay group. She’d worked with Ian Gibbons for a decade. Anjali had spent years trying to get the Edison working, but the device still had a high error rate.
When Anjali started hearing that Theranos was “going live,” she grew very concerned. She emailed Elizabeth and Daniel Young to remind them about the high error rates for some blood tests run on the Edison.
Neither Elizabeth nor Daniel acknowledged her email. After eight years at the company, Anjali felt she was at an ethical crossroads. To still be working out the kinks in the product was one thing when you were in R&D mode and testing blood volunteered by employees and their family members, but going live in Walgreens stores meant exposing the general population to what was essentially a big unauthorized research experiment. That was something she couldn’t live with. She decided to resign.
Elizabeth wanted to persuade Anjali to stay. Anjali asked Elizabeth: Why should they rush to launch before their technology was ready?
“Because when I promise something to a customer, I deliver.”
Anjali questioned this line of thought. The customers who really mattered were the patients who ordered blood tests, believing that the tests were a reliable basis for medical decisions.
After Anjali resigned, her deputy Tina Noyes resigned.
The resignations infuriated Elizabeth and Sunny. The following day they summoned the staff for an all-hands meeting in the cafeteria… Still visibly angry, Elizabeth told the gathered employees that she was building a religion. If there were any among them who didn’t believe, they should leave. Sunny put it more blatantly: anyone not prepared to show complete devotion and unmitigated loyalty to the company should “get the fuck out.”
UNICORN
Elizabeth had met the great statesman George Shultz a couple of years before 2013. She impressed him and won his support. Based on this connection, Elizabeth had been able to engineer a very favorable piece in the Wall Street Journal. The article was published September 7, 2013, just as Theranos was going to launch its blood-testing services. Carreyrou says of the article:
Drawing blood the traditional way with a needle in the arm was likened to vampirism… Theranos’s processes, by contrast,were described as requiring “only microscopic blood volumes” and as “faster, cheaper, and more accurate than the conventional methods.” The brilliant young Stanford dropout behind 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.
Elizabeth planned to use the misleading article and the Walgreens launch as a basis for a new fundraising campaign.
Donald A. Lucas, son of legendary venture capitalist Donald L. Lucas, called Mike Barsanti. Don and Mike had been friendly since they attended Santa Clara University in the 1980s. Don proceeded to pitch Mike on Theranos.
Mike had first heard about Elizabeth seven years earlier. Mike had been interested then, but Don hadn’t been.
[Back in 2006, Mike] asked Don why the firm wasn’t taking a flyer on [Elizabeth] like his father had. Don had replied that after careful consideration he’s decided against it. Elizabeth was all over the place, she wasn’t focused, his father couldn’t control her even though he chaired her board, and Don didn’t like or trust her, Mike recalled his friend telling him.
In 2013, Mike asked Don what had changed.
Don explained excitedly that Theranos had come a long way since then. The company was about to announce the launch of its innovative finger-stick tests in one of the country’s largest retail chains. And that wasn’t all, he said. The Theranos devices were also being used by the U.S. military.
“Did you know they’re in the back of Humvees in Iraq?” he asked Mike.
[…]
If all this were true, they were impressive developments, Mike thought.
…Intent on seizing what he saw as a great opportunity, the Lucas Venture Group was raising money for two new funds, Don told Mike. One of them was a traditional venture fund that would invest in several companies, including Theranos. The second would be exclusively devoted to Theranos. Did Mike want in? If so, time was short.
Mike got an email on September 9, 2013, discussing the “Theranos-time sensitive” opportunity. The Lucas Venture group would get a discounted price, which valued the firm at $6 billion. Don mentioned that Theranos had “signed contracts and partnerships with very large retailers and drug stores as well as various pharmaceutical companies, HMO’s, insurance agencies, hospitals, clinics, and various government agencies.” Don also said that the company had been “cash flow positive since 2006.”
Theranos seemed to be another “unicorn.” Unicorns like Uber had been able to raise massive amounts of money while still remaining private companies, allowing them to avoid the pressures and scrutiny of going public.
Christopher James and Brian Grossman ran the hedge fund Partner Fund Management, which had $4 billion under management. James and Grossman saw the Wall Street Journal article about Theranos and were interested. They reached out to Elizabeth and went to meet with her on December 15, 2013.
During that first meeting, Elizabeth and Sunny told their guests that Theranos’s proprietary finger-stick technology could perform blood tests covering 1,000 of the 1,300 codes laboratories used to bill Medicare and private health insurers, according to a lawsuit Partner Fund later filed against the company. (Many blood tests involve several billing codes, so the actual number of tests represented by those thousand codes was in the low hundreds.)
At a second meeting three weeks later, they showed them a Powerpoint presentation containing scatter plots purporting to compare test data from Theranos’s proprietary analyzers to data from conventional lab machines. Each plot showed data points tightly clustered around a straight line that rose up diagonally from the horizontal x-axis. This indicated that Theranos’s tests results were almost perfectly correlated with those of the conventional machines. In other words, its technology was as accurate as traditional testing. The rub was that much of the data in the charts wasn’t from the miniLab or even from the Edison. It was from other commercial blood analyzers Theranos had purchased, including one manufactured by a company located an hour north of Palo Alto called Bio-Rad.
Sunny also told James and Grossman that Theranos had developed about three hundred different blood tests, ranging from commonly ordered tests to measure glucose, electrolytes, and kidney function to more esoteric cancer-detection tests. He boasted that Theranos could perform 98 percent of them on tiny blood samples pricked from a finger and that, within six months, it would be able to do all of them that way. These three hundred tests represented 99 to 99.9 percent of all laboratory requests, and Theranos had submitted every single one of them to the FDA for approval, he said.
Sunny and Elizabeth’s boldest claim was that the Theranos system was capable of running seventy different blood tests simultaneously on a single finger-stick sample and that it would soon be able to run even more. The ability to perform so many tests on just a drop or two of blood was something of a Holy Grail in the field of microfluidics.
There were some basic problems with trying to run many tests on small samples of blood. If you used a micro blood sample to do an immunoassay, then there usually wasn’t enough blood for the different set of lab techniques a general chemistry or hematology assay required. Another fundamental problem was that in transferring a small sample to a microfluidic chip, some blood was lost. This doesn’t matter for large blood samples, but it can be a crucial problem for small blood samples. Yet Elizabeth and Sunny implied that they had solved these and other difficulties.
James and Grossman not only liked the presentations by Elizabeth and Sunny; they also were impressed by Theranos’s board of directors. In addition to Shultz and General Mattis, the board now had Henry Kissinger, William Perry (former secretary of defense), Sam Nunn, and former navy admiral Gary Roughead. Like Shultz, all of these board members were fellows at the Hoover Institution at Stanford.
Sunny sent the hedge fund managers a spreadsheet with financial projections.
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. Theranos hadn’t had a real chief financial officer since Elizabeth had fired Henry Mosley in 2006.
Partner Fund invested $96 million. This valued Theranos at $9 billion, which put Elizabeth’s net worth at almost $5 billion.
THE GRANDSON
Carreyrou writes this chapter about Tyler Shultz, the grandon of George Shultz:
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. After interning at Theranos that summer, he’d changed his major to biology and applied for a full-time position at the company.
Tyler became friends with Erika Cheung.
Their job on the immunoassay team was to help run experiments to verify the accuracy of blood tests on Theranos’s Edison devices before they were deployed in the lab for use on patients. This verification process was known as “assay validation.”
[…]
One type of experiment he and Erika were tasked with doing involved retesting blood samples on the Edisons over and over to measure how much their results varied. The data collected were used to calculate each Edison’s blood test’s coefficient of variation, or CV. A test is generally considered precise if its CV is less than 10 percent. To Tyler’s dismay, data runs that didn’t achieve low enough CVs were simply discarded and the experiments repeated until the desired number was reached. It was as if you flipped a coin enough times to get ten heads in a row and then declared that the coin always returned heads. Even with the “good” data runs, Tyler and Erika noticed that some values were deemed outliers and deleted. When Erika asked the group’s more senior scientists how they defined an outlier, no one could give her a straight answer. Erika and Tyler might be young and inexperienced, but they both knew that cherry-picking data wasn’t good science. Nor were they the only ones who had concerns about these practices.
Tyler and colleagues tested 247 blood samples on Edison for syphilis, 66 of which were known to be positive. The devices correctly identified only 65 percent of the sample on the first run, and 80 percent on the second run.
Yet, in its validation report, Theranos stated that its syphilis test had a sensitivity of 95 percent.
There were other tests where Tyler and Erika thought Theranos was being misleading. For instance, a blood sample would be tested for vitamin D on an analyzer made by the Italian company DiaSorin. It might show a vitamin D concentration of 20 nanograms per milliliter–a normal result for a healthy patient. When Erika tested the sample on the Edison, the result was 10 or 20 nanograms per milliliter–indicating a vitamin D deficiency. Nonetheless, the Edison was cleared for use in the clinical lab on live patient samples, writes Carreyrou.
In November 2013, while working in the clinical lab, Erika received a patient order from the Walgreens store in Palo Alto. As was standard practice, first she did a quality-control check. That involves testing a sample where you already know the concentration of the analyte.
If the result obtained is two standard deviations higher or lower than the known value, the quality-control check is usually deemed to have failed.
Erik’a first quality-control check failed. She ran it again and that one failed as well. Because it was during Thanksgiving, no one Erika normally reported to was around. Erika sent an email to the company’s emergency help line.
Sam Anekal, Suraj Saksena, and Daniel Young responded to her email with various suggestions, but nothing they proposed worked. After awhile an employee named Uyen Do from the research-and-development side came down and took a look at the quality-control readings.
Twelve values had been generated, six during each quality-control test.
Without bothering to explain her rationale to Erika, Do deleted two of those twelve values, declaring them outliers. She then went ahead and tested the patient sample and sent out a result.
This wasn’t how you were supposed to handle repeat quality-control failures. Normally, two such failures in a row would have been cause to take the devices off-line and recalibrate them. Moreover, Do wasn’t even authorized to be in the clinical lab. Unlike Erika, she didn’t have a CLS license and had no standing to process patient samples. The episode left Erika shaken.
Tyler Shultz moved to the production team in early 2014. This put him back near Erika and other colleagues from the clinical lab.
Tyler learned from Erika and others that the Edisons were frequently flunking quality-control checks and that Sunny was pressuring lab personnel to ignore the failures and to test patient samples on the devices anyway.
Tyler asked Elizabeth about validation reports, and she suggested he speak with Daniel Young. Tyler asked Daniel about CV values: Why were so many data runs discarded when the resulting CV was too high? Daniel told him that he was making the mistake of taking into account all six values generated by the Edison during a test. Young said that only the median value mattered. It was obvious to Tyler that if the Edison’s results were accurate, such data contortions–and the associated dishonesty–wouldn’t be needed in the first place.
Furthermore, all clinical laboratories undergo “proficiency testing” three times a year.
During its first two years of operation, the Theranos lab had always tested proficiency-testing samples on commercial analyzers. But since it was now using the Edisons for some patient tests, Alan Beam and his new lab codirector had been curious to see how the devices fared in the exercise. Beam and the new codirector, Mark Pandori, had ordered Erika and other lab associates to split the proficiency-testing samples and run one part on the Edisons and the other part on the lab’s Siemens and DiaSorin analyzers for comparison. The Edison results had differed markedly from the Siemens and DiaSorin ones, especially for vitamin D.
When Sunny had learned of their little experiment, he’d hit the roof. Not only had he put an immediate end to it, he had made them report only the Siemens and DiaSorin results. There was a lot of chatter in the lab that the Edison results should have been the ones reported. Tyler had looked up the CLIA regulations and they seemed to bear that out…
Tyler told Daniel he didn’t see how what Theranos had done could be legal. Daniel’s response followed a tortuous logic. He said a laboratory’s proficiency-testing results were assessed by comparing them to its peers’ results, which wasn’t possible in Theranos’s case because its technology was unique and had no peer group. As a result, the only way to do an apples-to-apples comparison was by using the same conventional methods as other laboratories. Besides, proficiency-testing rules were extremely complicated, he argued. Tyler could rest assured that no laws had been broken. Tyler didn’t buy it.
In March 2014, using an alias, Tyler emailed the New York health department because it ran one of the proficiency-testing programs in which Theranos had participated. Without revealing the name of the company in question, he asked about Theranos’s approach. He got confirmation that Theranos’s practices were “a form of PT cheating” and were “in violation of the state and federal requirements.” Tyler was given a choice: reveal the name of the company or file an anonymous complaint with New York State’s Laboratory Investigative Unit. He chose the second option.
Tyler told his famous grandfather George about his concerns. He said, moreover, that he was going to resign. George asked him to give Elizabeth a chance to respond. Tyler agreed. Elizabeth was too busy to meet in person, so Tyler sent her a detailed email. He didn’t hear anything for a few days.
When the response finally arrived, it didn’t come from Elizabeth. It came from Sunny. And it was withering. In a point-by-point rebuttal that was longer than Tyler’s original email, Sunny belittled everything from his grasp of statistics to his knowledge of laboratory science.
On the topic of proficiency testing, Sunny wrote:
“That reckless comment and accusation about the integrity of our company, its leadership and its core team members based on absolute ignorance is so insulting to me that had any other person made these statements, we would have held them accountable in the strongest way. The only reason I have taken so much time away from work to address this personally is because you are Mr. Shultz’s grandson…
I have now spent an extraordinary amount of time postponing critical business matters to investigate your assertions–the only email on this topic I want to see from you going forward is an apology that I’ll pass on to other people including Daniel here.”
Tyler replied to Sunny with a one-sentence email saying he was resigning. Before he even got to his car, Tyler’s mother called and blurted, “Stop whatever you’re about to do!” Tyler explained that he had already resigned.
“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 insist on carrying out your vendetta against her, you will lose.”
Tyler was dumbfounded. Elizabeth was threatening him through his family, using his grandfather to deliver the message.
Tyler went to the Hoover Institution to meet with his grandfather.George listened to what Tyler had to say. Finally, George told his grandson that he thought he was wrong in this case.
In the meantime, a patient order for a hepatitis C test had reached the lab and Erika refused to run it on the Edisons, writes Carreyrou. The reagents for the hepatitis C test were expired. Also, the Edisons hadn’t been recalibrated in awhile. Erika and a coworker decided to use commercially available hepatitis kits called OraQuick HCV. That had worked until the lab had run out of them. They tried to order more, but Sunny had gotten upset and tried to block it. Sunny also learned that it was Erika who had given Tyler the proficiency-testing results. Sunny asked Erika to meet with him and then told her, “You need to tell me if you want to work here or not.”
Erika went to meet Tyler, who suggested that she join him for dinner at his grandfather’s house. Perhaps having two people with similar experiences would be more persuasive. Unfortunately, while Charlotte, George’s wife, seemed receptive and incredulous, George wasn’t buying it.
Tyler had noticed how much he doted on Elizabeth. His relationship with her seemed closer than their own. Tyler also knew that his grandfather was passionate about science. Scientific progress would make the world a better place and save it from such perils as pandemics and climate change, he often told his grandson. This passion seemed to make him unable to let go of the promise of Theranos.
George said a top surgeon in New York had told him the company was gong to revolutionize the field of surgery and this was someone his good friend Henry Kissinger considered to be the smartest man alive. And according to Elizabeth, Theranos’s devices were already being used in medevac helicopters and hospital operating rooms, so they must be working.
Tyler and Erika tried to tell him that couldn’t possibly be true given that the devices were barely working within the walls of Theranos. But it was clear they weren’t making any headway. George urged them to put the company behind them and to move on with their lives.
The next morning Erika quit Theranos.
FAME
After Theranos sued Richard Fuisz, Richard and Joe Fuisz resolved to fight it to the very end. However, after they’d spent more than $2 million on their defense and after they realized how outgunned they were by Theranos’s lawyers–led by David Boies–they decided it would be better to settle.
It amounted to a complete capitulation on the Fuiszes’ part. Elizabeth had won.
At a meeting with Boies, the two sides drafted the settlement agreement.Then Richard and Joe signed.
…Richard Fuisz looked utterly defeated. The proud and pugnacious former CIA agent broke down and sobbed.
Roger Parloff, Fortune magazine’s legal correspondent, saw an article about the case involving Theranos and the Fuiszes. Parloff called Dawn Schneider, Boies’s long-term public relations representative. She offered to meet Parloff at his office. On the walk across Midtown, Schneider thought that a better story to write about was Theranos and its brilliant young founder. When she arrived at Parloff’s office, she told him about Theranos and said, “this is the greatest company you’ve never heard of.”
Parloff went to Palo Alto do meet with Elizabeth.
…what Elizabeth told Parloff she’d achieved seemed genuinely innovative and impressive. As she and Sunny had stated to Partner fund, she told him the Theranos analyzer could perform as many as seventy different blood tests from one tiny finger-stick draw and she led him to believe that the more than two hundred tests on its menu were all finger-stick tests done with proprietary technology. Since he didn’t have the expertise to vet her scientific claims, Parloff interviewed the prominent members of her board of directors and effectively relied on them as character witnesses… All of them vouched for Elizabeth emphatically. Shultz and Mattis were particularly effusive.
“Everywhere you look with this young lady, there’s a purity of motivation,” Shultz told him. “I mean she is really trying to make the world better, and this is her way of doing it.”
Mattis went out his way to praise her integrity. “She has probably one of the most mature and well-honed sense of ethics–personal ethics, managerial ethics, business ethics, medical ethics that I’ve ever heard articulated,” the retired general gushed.
Parloff’s cover story for Fortune magazine was published June 12, 2014. Elizabeth instantly became a star. Forbes then ran its own piece.
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. Elizabeth became the youngest person to win the Horatio Alger award. Time magazine named her one of the one hundred most influential people in the world. President Obama appointed her a U.S. ambassador for global entrepreneurship, and Harvard Medical School invited her to join its prestigious board of fellows.
Carreyrou continues:
As much as she courted the attention, Elizabeth’s sudden fame wasn’t entirely her doing… In Elizabeth Holmes, the Valley had its first female billionaire tech founder.
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. Each week brought a new media interview or conference appearance. Other well-known startup founders gave interviews and made public appearances too but with nowhere near the same frequency. The image of the reclusive, ascetic young woman Parloff had been sold on had overnight given way to that of the ubiquitous celebrity.
Elizabeth excelled at delivering a heartwarming message that Theranos’s convenient blood tests could be used to catch diseases early so that no one would have to say goodbye to loved ones too soon, notes Carreyrou. She soon started adding a new personal detail to her interviews and presentations: her uncle had died of cancer.
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. To family members who knew the reality of their relationship, using his death to promote her company felt phony and exploitative.
Of course, at that time, most people who heard Elizabeth in an interview or presentation didn’t know about the lies she was telling. But she was a great salesperson. Elizabeth told one story about a little girl who got stuck repeatedly because the nurse couldn’t find the vein. Another story was about cancer patients depressed because of how much blood they had to give.
Patrick O’Neill, from TBWA/Chiat/Day, was Theranos’s chief creative officer. He was raising Elizabeth’s profile and perfecting her image.
To Patrick, making Elizabeth the face of Theranos made perfect sense. She was the company’s most powerful marketing tool. Her story was intoxicating. Everyone wanted to believe in it, including the numerous young girls who were sending her letters and emails. It wasn’t a cynical calculus on his part: Patrick was one of her biggest believers. He had no knowledge of the shenanigans in the lab and didn’t pretend to understand the science of blood testing. As far as he was concerned, the fairy tale was real.
With over five hundred employees, Theranos had to move to a new location. Patrick designed Elizabeth’s new office:
Elizabeth’s new corner office was designed to look like the Oval Office. Patrick ordered a custom-made desk that was as deep as the president’s at its center but had rounded edges. In front of it, he arranged two sofas and two armchairs around a table, replicating the White House layout. At Elizabeth’s insistence, the office’s big windows were made of bulletproof glass.
THE HIPPOCRATIC OATH
Alan Beam had become disillusioned:
For his first few months as laboratory director, he’s clung to the belief that the company was going to transform with its technology. But the past year’s events had shattered any illusion of that. He now felt like a pawn in a dangerous game played with patients, investors, and regulators. At one point, he’d had to talk Sunny and Elizabeth out of running HIV tests on diluted finger-stick samples. Unreliable potassium and cholesterol results were bad enough. False HIV results would have been disastrous.
Two of Alan’s colleagues had recently resigned out of disagreement with what they viewed as blatantly dishonest company policies.
One day Alan was talking with Curtis Schneider, one of the smartest people at Theranos, with a Ph.D. in inorganic chemistry and having spent four years as a postdoctoral scholar at Caltech.
He told Curtis about the lab’s quality-control data and how it was being kept from him. And he confided something else: the company was cheating on its proficiency testing. In case Curtis hadn’t registered the implication of what he’d just said, he spelled it out: Theranos was breaking the law.
A few weeks later, Christian Holmes contacted Alan.
Christian wanted Alan to handle yet another doctor’s complaint. Alan had fielded dozens of them since the company had gone live with its tests the previous fall. Time and time again, he’d been asked to convince physicians that blood-test results he had no confidence in were sound and accurate. He decided he couldn’t do it anymore. His conscience wouldn’t allow him to.
He told Christian no and emailed Sunny and Elizabeth to inform them that he was resigning and to ask them to immediately take his name off the lab’s CLIA license.
December 15, 2014, there another article about Theranos in the New Yorker. Adam Clapper, a pathologist in Columbia Missouri, who writes a blog about the industry Pathology Blawg, noticed the article. He was very skeptical about Theranos. Joe Fuisz noticed the article and told his father about it. Richard read the article and got in touch with Adam. Adam felt initially that he would need more proof.
A few days later, Richard noticed that someone named Alan Beam had looked at his LinkedIn profile. Richard saw that Alan had been laboratory director at Theranos. So he sent him an InMail, thinking it was worth a shot. Alan got back to him.
Alan called and said to Richard, “You and I took the Hippocratic Oath, which is to first do no harm. Theranos is putting people in harm’s way.” Alan filled him in on all the details.
Richard told Adam about what he’d learned from Alan. Adam agreed that the information changed everything. However, he was worried about the legal liability of going against a $9 billion Silicon Valley company with a litigious history and represented by David Boies. That said, Adam knew an investigative reporter at the Wall Street Journal. John Carreyrou.
THE TIP
Adam called John Carreyrou at the Wall Street Journal. Carreyrou says that even though nine times out of ten, tips don’t work out, he always listened because you never knew. Also, he happened to have just finished a year-long investigation in Medicare fraud and he was looking for his next story.
February 26, 2015, Carreyrou reached Alan Beam. Alan agreed to talk as long as his identity was kept confidential.
…the Theranos devices didn’t work. They were called Edisons, he said, and they were error-prone. They constantly failed quality-control. Furthermore, Theranos used them for only a small number of tests. It performed most of its tests on commercially available instruments and diluted the blood samples.
…Theranos didn’t want people to know its technology was limited, so it had contrived a way of running small finger-stick samples on conventional machines. This involved diluting the finger-stick samples to make them bigger. The problem, he said, was that when you diluted the samples, you lowered the concentration of analytes in the blood to a level the conventional machines could no longer measure accurately.
He said he had tried to delay the launch of Theranos’s blood tests in Walgreens stores and had warned Holmes that the lab’s sodium and potassium results were completely unreliable… I was barely getting my head around these revelations when Alan mentioned something called proficiency testing. He was adamant that Theranos was breaking federal proficiency-testing rules.
There was more:
Alan also said that Holmes was evangelical about revolutionizing blood testing but that her knowledge base on science and medicine was poor, confirming my instincts. 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.
It’s not that there were rules against such a romantic involvement in the Silicon Valley startup world.Rather, it’s that Elizabeth was hiding the relationship from her board. What other information might she be keeping from her board?
Alan told Carreyrou how he had brought up his concerns with Holmes and Balwani a number of times, but Balwani would either rebuff him or put him off, writes Carreyrou.
Alan was most worried about potential harm to patients:
He described the two nightmare scenarios false blood-test results could lead to. A false 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.
Carreyrou experienced the familiar rush of a big reporting breakthrough, but he knew that he needed to get corroboration. He proceeded to speak with others who had been associated with Theranos and who were willing to talk–some on the condition of anonymity. A good start. However, getting documentary evidence was “the gold standard for these types of stories.” This would be harder.
Carreyrou spoke with Alan again.
Our conversation shifted to proficiency testing. Alan explained how Theranos was gaming it and he told me which commercial analyzers it used for the majority of its blood tests. Both were made by Siemens… He revealed something else that hadn’t come up in our first call: Theranos’s lab was divided into two parts. One contained the commercial analyzers and the other the Edison devices. During her inspection of the lab, a state inspector had been shown only the part with the commercial analyzers. Alan felt she’d been deceived.
He also mentioned that Theranos was working on a newer-generation device code-named 4S that was supposed to supplant the Edison and do a broader variety of blood tests, but it didn’t work at all and was never deployed in the lab. Diluting finger-stick samples and running them on Siemens machines was supposed to be a temporary solution, but it had become a permanent one because the 4S had turned into a fiasco.
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.
Carreyrou reached out to twenty former and current Theranos employees. Many didn’t respond. Those Carreyrou got on the phone said they’d signed strict confidentiality agreements.They were worried about being sued.
Carreyrou’s initial conversations with Alan and two others had been “on deep background,” which meant Carreyrou could use what they said but had to keep their identities confidential. Subsequently, he spoke with a former high-ranking employee “off the record.” This meant that Carreyrou couldn’t make use of any information from that conversation. But Carreyrou did learn corroborating information even though it was off the record. This further bolstered his confidence.
Carreyrou knew he needed proof that Theranos was delivering inaccurate blood-test results. He discovered a doctor, Nicole Sundene, who had made a complaint about a Theranos blood test on Yelp. Carreyrou met with Dr. Sundene, who told him about the experience of one of her patients, Maureen Glunz.
The lab report she’d received from Theranos had shown abnormally elevated results for calcium, protein, glucose, and three liver enzymes… Dr. Sundene had worried she might be on the cusp of a stroke and sent her straight to the hospital. Glunz had spent four hours in the emergency room on the eve of Thanksgiving while doctors ran a battery of tests on her, including a CT scan. She’d been discharged after a new set of blood tests performed by the hospital’s lab came back normal. That hadn’t been the end of it, however. As a precaution, she’d undergone two MRIs during the ensuing week…
When I met with Dr. Sundene at her office, I learned that Glunz wasn’t the only patient whose results she found suspect. She told me more than a dozen of her patients had tested suspiciously high for potassium and calcium and she doubted the accuracy of those results as well. She had written Theranos a letter to complain but the company hadn’t even acknowledged it.
Carreyrou met a Dr. Adrienne Stewart, who told him about two of her patients who’d gotten incorrect results from Theranos. One patient had to delay a long-planned trip to Ireland because an incorrect result from Theranos suggested she could have deep vein thrombosis. A second set of tests from another lab turned out to be normal. Also, ultrasound of the patient’s legs didn’t reveal anything.
Another of Dr. Stewart’s patients had gotten a test result from Theranos indicating a high TSH value.
The patient was already on thyroid medication and the result suggested that he dose needed to be raised. Before she did anything, Dr. Stewart sent the patient to get retested at Sonora Quest, a joint venture of Quest and the hospital system Banner Health. The Sonora Quest result came back normal. Had she trusted the Theranos result and increased the patient’s medication dosage, the outcome could have been disastrous, Dr. Stewart said. The patient was pregnant. Increasing her dosage would have made her levels of thyroid hormone too high and put her pregnancy at risk.
Carreyrou also met with Dr. Gary Betz. He had a patient on medication to reduce blood pressure. High potassium was one potential side effect of the medication, so Dr. Betz monitored it. A Theranos test showed that his patient had an almost critical level of potassium. A nurse sent Dr. Betz’s patient back to get retested. But the phlebotomist was unable to complete the test despite three attempts to draw blood. Dr. Betz was very upset because if the initial test was accurate, an immediate change in the patient’s treatment was crucial. He sent his patient to get tested as Sonora Quest. The result came back normal.
As an experiment, Carreyrou and Dr. Sundene had each gotten their blood tested by Theranos and by another lab. Carreyrou:
Theranos had flagged three of my values as abnormally high and one as abnormally low. Yet on LabCorp’s report, all four of those values showed up as normal.Meanwhile, LabCorp had flagged both my total cholesterol and LDL cholesterol as high, while the Theranos described the first as “desirable” and the second as “near optimal.”
Those differences were mild compared to a whopper Dr. Sundene had found in her results. According to Theranos, the amount of cortisol in her blood was less than one microgram per deciliter. A value that low was usually associated with Addison’s disease, a dangerous condition characterized by extreme fatigue and low blood pressure that could result in death if it went untreated. Her LabCorp report, however, showed a cortisol level of 18.8 micrograms per deciliter, which was within the normal range for healthy patients. Dr. Sundene had no doubt which of the two values was the correct one.
Carreyrou mentions a “No surprise” rule they have at the Wall Street Journal.
We never went to press with a story without informing the story subject of every single piece of information we had gathered in our reporting and giving them ample time and opportunity to address and rebut everything.
Carreyrou met with Erica Cheung.
She said Theranos should never have gone live testing patient samples. The company routinely ignored quality-control failures and test errors and showed a complete disregard for the well-being of patients, she said. In the end, she had resigned because she was sickened by what she had become a party to, she told me.
Carreyrou also met with Tyler Shultz, who gave him a detailed account of his experiences with Theranos. Finally, Carreyrou met with Rochelle Gibbons, the widow of Ian Gibbons.
I flew back to New York the next day confident that I’d reached a critical mass in my reporting and that it wouldn’t be too long before I could publish. But that was underestimating whom I was up against.
THE AMBUSH
On May 27, 2015, Tyler went to his parents’ house for dinner, as he tried to do every two weeks. His father, looking worried, asked Tyler if he’d spoken with an investigative journalist from the Wall Street Journal. Yes, said Tyler. His father: “Are you kidding me? How stupid could you be? Well, they know.”
His father told him that his grandfather George had called. George said if Tyler wanted to get out of a “world of trouble,” he would have to meet with Theranos’s lawyers the next day and sign something. Tyler called his grandfather and arranged to meet him later that night.
Carreyrou had sent a list of seven areas he wanted to discuss with Elizabeth to Matthew Traub, a representative of Theranos. Included in one section was the coefficient of variation for one of the blood tests. It happened to be a number that Tyler had calculated. It was because of that number that Elizabeth had been able to tie Tyler to the investigative reporter.
However, the number Elizabeth tied to Tyler could have come from anyone. When Tyler met with his grandfather, he categorically denied speaking with any reporter. George told Tyler: “We’re doing this for you. Elizabeth says your career will be over if the article is published.”
Tyler summarized all the issues he had raised earlier regarding Theranos. But his grandfather still didn’t agree with Tyler’s views. George told his grandson that there was a one-page document Theranos wanted him to sign swearing confidentiality going forward. Theranos argued that the Wall Street Journal article would include trade secrets of the company. Tyler said he would consider signing the document if the company would stop bothering him.George then told Tyler that there were two Theranos lawyers upstairs.
Tyler felt betrayed because he had specifically asked to meet his grandfather with no lawyers. His grandmother Charlotte told Tyler that she was questioning whether Theranos had a functioning product and that Henry Kissinger was also skeptical and wanted out.
The two lawyers, Mike Brill and Meredith Dearborn, were partners at Boies, Schiller & Flexner.Brille told Tyler he had identified him as a source for the Journal article.
He handed him three documents: a temporary restraining order, a notice to appear in court two days later, and a letter stating Theranos had reason to believe Tyler had violated his confidentiality obligations and was prepared to file suit against him.
Brille pressed Tyler to admit that he had spoken with a reporter. Tyler kept denying it. Brille kept pushing and pushing and pushing. Finally, Tyler said the conversation needed to end. His grandfather jumped in and defended Tyler and escorted the lawyers out of the house.
[George] called Holmes and told her this was not what they had agreed upon. She had sent over a prosecutor rather than someone who was willing to have a civilized conversation. Tyler was ready to go to court the next day, he warned her.
George and Elizabeth reached a compromise. George and Tyler would meet again at George’s house the following morning. Tyler would look at the one-page document. George asked Elizabeth to send a different lawyer.
The next morning, Tyler wasn’t surprised to see Brille again. Brille had new documents.
One of them was an affidavit stating that Tyler had never spoken to any third parties about Theranos and that he pledged to give the names of every current and former employee who he knew had talked to the Journal. Brille asked Tyler to sign the affidavit. Tyler refused.
George asked Tyler what it would take for him to sign it. Tyler said Theranos would have to agree not to sue him. George wrote the requirement on the affidavit. Then he and Brille went into another room to talk.
In the interim, Tyler decided he wasn’t going to sign anything. After speaking with two lawyers soon thereafter, Tyler stuck with his decision. Brille had been threatening to sue immediately, but then told Tyler’s lawyer that they were going to delay the lawsuit in order to try to reach some agreement.
Tyler–through his lawyer–began exchanging drafts of the affidavit with Brille. Tyler tried to make concessions in order to reach some agreement. For instance, he agreed to be called a junior employee who couldn’t have known what he was talking about when it come to proficiency testing, assay validation, and lab operations. But Theranos kept pushing Tyler to name the Journal‘s other sources. He refused.
As the stalemate dragged on, Boies Schiller resorted to the bare-knuckle tactics it had become notorious for. Brille let it be known that if Tyler didn’t sign the affidavit and name the Journal‘s sources, the firm would make sure to bankrupt his entire family when it took him to court. Tyler also received a tip that he was being surveilled by private investigators.
Tyler got a lawyer for his parents. That way Tyler and his parents could communicate through attorneys and those conversations would be protected by attorney-client privilege.
This led to an incident that rattled both Tyler and his parents. Hours after his parents’ new lawyer met with them for the first time, her car was broken into and her briefcase containing her notes from the meeting was stolen.
TRADE SECRETS
A Theranos delegation met Carreyrou at the offices of the Journal. David Boies came with Mike Brille, Meredith Dearborn, and Heather King, who was now general counsel for Theranos. Matthew Traub was there. The only Theranos executive was Daniel Young.
Carreyrou brought along Mike Siconolfi, head of the Journal‘s investigations team, and Jay Conti, the deputy general counsel of the Journal’s parent company.
Carreyrou had sent eighty questions, at Traub’s request, as a basis for the discussion. King began the meeting by saying they were going to refute the “false premises” assumed by the questions. The lawyers tried to intimidate Carreyrou. King warned:
“We do not consent to your publication of our trade secrets.”
Carreyrou wasn’t going to be intimidated. He retorted:
“We do not consent to waiving our journalistic privileges.”
King became more conciliatory as they agreed to start going through the questions one at a time. Daniel Young was the only one there who could answer them.
After Young acknowledged that Theranos owned commercial blood analyzers, which he claimed the company used only for comparison purposes, rather than for delivering patient results, I asked if one of them was the Siemens ADVIA. He declined to comment, citing trade secrets. I then asked whether Theranos ran small finger-stick samples on the Siemens ADVIA with a special dilution protocol. He again invoked trade secrets to avoid answering the question but argued that diluting blood samples was common in the lab industry.
Carreyrou pointed out that if they weren’t prepared to answer such basic questions that were at the heart of his story, what was the point of meeting? Eventually Boies got angry and criticized Carreyrou’s reporting methods, saying he asked loaded questions to doctors. Much more back-and-forth ensued between members of the Theranos delegation and Carreyrou, Siconolfi, and Conti.
How could anything involving a commercial analyzer manufactured by a third party possibly be deemed a Theranos trade secret? I asked. Brille replied unconvincingly that the distinction wasn’t as simple as I made it out to be.
Turning to the Edison, Carreyrou asked how many blood tests it performs. The answer was that it was a trade secret.
I felt like I was watching a live performance of the Theater of the Absurd.
…It was frustrating but also a sign that I was on the right track.They wouldn’t be stonewalling if they had nothing to hide.
For four more hours, the meeting went on like this. Young did answer a few questions.
He acknowledged problems with Theranos’s potassium test but claimed they had quickly been solved and none of the faulty results had been released to any patients. Alan Beam had told me otherwise, so I suspected Young was lying about that.Young also confirmed that Theranos conducted proficiency testing differently than most laboratories but argued this was justified by the uniqueness of its technology.
A few days later, Theranos threatened Erika Cheung with a lawsuit and also started started threatening Alan Beam again. However, Alan had consulted a lawyer and felt less vulnerable to Theranos’s intimidation tactics.
Boies sent a twenty-three page letter to the Journal threatening a lawsuit if the paper published a story that defamed Theranos or revealed any of its trade secrets. Boies attacked Carreyrou’s journalistic integrity.
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. The doctors were Lauren Beardsley and Saman Rezaie…
The truth was that I hadn’t planned on using the patient case Dr. Beardsley and Rezaie had told me about because it was a secondhand account. The patient in question was being treated by another doctor in their practice who had declined to speak to me. But, while their signed statements in no way weakened my story, the likelihood that they had caved to the company’s pressure worried me.
Meanwhile, Dr. Stewart reassured Carreyrou that she was standing up for patients and for the integrity of lab testing. She wouldn’t be pressured. Balwani later told her that if the Journal article was published with Dr. Stewart in the story, her name would be dragged through the mud. When Carreyrou spoke with Dr. Stewart, she asked him please not to use her name in the story.
LA MATTANZA
Roger Parloff of Fortunestill believed in Theranos. During an interview with Elizabeth for a second article he was working on, he asked about an Ebola test Theranos had been developing.
Given that an Ebola epidemic had been raging in West Africa for more than a year, Parloff thought a rapid finger-stick test to detect the deadly virus could be of great use to public health authorities and had been interested in writing about it. Holmes said she expected to obtain emergency-use authorization for the test shortly and invited him to come see a live demonstration of it at Boies Schiller’s Manhattan offices.
Parloff arrived at the offices, and they told him they wanted to do two tests, one for Ebola and the other to measure potassium. They pricked his finger twice.
Parloff wondered fleetingly why one of the devices couldn’t simultaneously perform both tests from a single blood sample but decided not to press the issue.
For some reason, the results of the tests were delayed. An indicator of the machine’s progress seemed to be moving very slowly.
Balwani had tasked a Theranos software engineer named Michael Craig to write an application for the miniLab’s software that masked test malfunctions. When something went wrong insider the machine, the app kicked in and prevented an error message from appearing on the digital display. Instead, the screen showed the test’s progress slowing to a crawl.
[…]
In the absence of real validation data, Holmes used these demos to convince board members, prospective investors, and journalists that the miniLab was a finished working product. Michael Craig’s app wasn’t the only subterfuge used to maintain the illusion.During demos at headquarters, employees would make a show of placing the finger-stick sample of a visiting VIP in the miniLab, wait until the visitor had left the room, and then take the sample out and bring it to a lab associate, who would run it on one of the modified commercial analyzers.
Parloff had no idea he’d been duped.
Back in California, Holmes had invited Vice President Joe Biden to visit the company’s facilities.
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.
Carreyrou writes:
A few days later, on July 28, I opened that morning’s 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.
Of course, because of the firewall between the Journal‘s news and editorial side, Paul Gigot and his staff had no idea what Carreyrou was working on. Nonetheless, Carreyrou was annoyed because it seemed like Holmes was trying to make it more difficult for the paper to publish Carreyrou’s investigation.
Carreyrou went to speak with his editor, Mike Siconolfi, hoping they could speed up the publication of his Theranos article. But Mike, who was Italian American, urged patience and then asked Carreyrou, “Did I ever tell you about la mattanza?” La mattanza was an ancient Sicilian ritual in which fishermen waded into the Mediterranean Sea with clubs and spears. Then they stood perfectly still for hours until the fish no longer noticed them. Someone would give the signal and the fishermen would strike.
DAMAGE CONTROL
Soon after Carreyrou started investigating Theranos, the company completed another round of fund-raising. They raised $430 million, $125 million of which came from Rupert Murdoch, who controlled News Corporation, the parent company of the Journal.
He was won over by Holmes’s charisma and vision but also by the financial projections she gave him. The investment packet she sent forecast $330 million in profits on revenues of $1 billion in 2015 and $505 million in profits on revenues of $2 billion in 2016. These numbers made what was now a $10 billion valuation seem cheap.
Murdoch also derived comfort from some of the other reputable investors he heard Theranos had lined up. They included Cox Enterprises, the Atlanta-based, family-owned conglomerate whose chairman, Jim Kennedy, he was friendly with, and the Waltons of Walmart fame. Other big-name investors he didn’t know about ranged from Bob Kraft, owner of the New England Patriots, to Mexican billionaire Carlos Slim and John Elkann, the Italian industrialist who controlled Fiat Chrystler Automobiles.
On two separate occasions when Holmes met with Murdoch, she brought up Carreyrou’s story, saying it was false and would damage Theranos. Both times, Murdoch maintained that he trusted the Journal‘s editors to handle the matter fairly.
Meanwhile, Theranos continued to try to intimidate Carreyrou’s sources. For instance, two patients who had appointments with Dr. Sundene fabricated negative stories and posted them on Yelp. Dr. Sundene had to hire an attorney to get Yelp to remove the bad reviews.
The Journal finally published Carreyrou’s story on the front page on Thursday, October 15, 2015.
The headline,”A Prized Startup Struggles,” was understated but the article itself was devastating. In addition to revealing that Theranos ran all but a small fraction of its tests on conventional machines and laying bare its proficiency-testing shenanigans and its dilution of finger-stick samples, it raised serious questions about the accuracy of its own devices. It ended with a quote from Maureen Glunz saying that “trial and error on people” was “not OK,” bringing home what I felt was the most important point: the medical danger to which the company had exposed patients.
The story sparked a firestorm…
Other news organization picked up the story and produced critical pieces. In Silicon Valley, everyone was talking about the Theranos story. Some, including venture capitalist Marc Andreesen, defended Theranos. Others revealed that they had had their doubts for some time:
Why had Holmes always been so secretive about her technology? Why had she never recruited a board member with even basic knowledge of blood science? And why hadn’t a single venture capital firm with expertise in health care put money into the company?
Many others didn’t know what to believe.
Carreyrou writes:
We knew that the battle was far from over and that Theranos and Boies would be coming at us hard in the coming days and weeks. Whether my reporting stood up to their attacks would largely depend on what actions, if any, regulators took.
Carreyrou was trying to speak with his source at the FDA and finally reached him:
On deep background, he confirmed to me that the FDA had recently conducted a surprise inspection of Theranos’s facilities in Newark and Palo Alto. Dealing a severe blow to the company, the agency had declared its nanotainter an uncleared medical device and forbid it from continuing to use it, he said.
He explained that the FDA had targeted the little tube because, as a medical device, it clearly fell under its jurisdiction and gave it the most solid legal cover to take action against the company. But the underlying reason for the inspection had been the poor clinical data Theranos had submitted to the agency in an effort to get it to approve its tests. When the inspectors failed to find any better data on-site, the decision had been made to shut down the company’s finger-stick testing by taking away the nanotainter, he said. That wasn’t all: he said the Centers for Medicare and Medicaid Services had also just launched its own inspection of Theranos.
Holmes tried to jump ahead of the story by stating that the nanotainter withdrawal was a voluntary decision.
We quickly published my follow-up piece online. Setting the record straight, it revealed that the FDA had forced the company to stop testing blood drawn from patients’ fingers and declared its nanotainter an “unapproved medical device.” The story made the front page of the paper’s print edition the next morning, providing more fuel to what was now a full-blown scandal.
Holmes called a meeting of all company employees.
Striking a defiant tone, she told the assembled staff that the two articles the Journalhad published were filled with falsehoods seeded by disgruntled former employees and competitors. This sort of thing was bound to happen when you were working to disrupt a huge industry with powerful incumbents who wanted to see you fail, she said. Calling the Journal a “tabloid,” she vowed to take the fight to the paper.
A senior hardware engineer asked Balwani to lead them in a chant. A few months earlier, they’d done a certain chant directed at Quest and LabCorp. Everyone remember this chant.
Balwani was glad to lead the chant again. Several hundred employees chanted:
“Fuck you, Carrey-rou! Fuck you, Carrey-rou!”
The following week, the Journal was hosting the WSJ D.Live conference at which Holmes was scheduled to be interviewed.
Holmes came out swinging from the start. That was no surprise: we had expected her to be combative. What we hadn’t fully anticipated was her willingness to tell bald-faced lies in a public forum. Not just once, but again and again during the half-hour interview. In addition to continuing to insist that the nanotainter withdrawal had been voluntary, she said the Edison devices referred to in my stories were an old technology that Theranos hadn’t used in years. She also denied that the company had ever used commercial lab equipment for finger-stick tests. And she claimed that the way Theranos conducted proficiency-testing was not only perfectly legal, it has the express blessing of regulators.
The biggest lie, to my mind, was her categorical denial that Theranos diluted finger-stick samples before running them on commercial machines.
By this point, several prominent Silicon Valley figures were publicly criticizing the company. John-Louis Gassee published a blog post in which he mentioned pointedly different blood-test results he received from Theranos and Stanford Hospital. He wrote Holmes asking about the discrepancy, but never got a reply.
Shultz, Kissinger, Sam Nunn, and other ex-statesmen left the Theranos board and instead formed a board of counselors. David Boies joined the Theranos board.
Within days, the Journalreceived a letter from Heather King demanding a retraction of the main points of the two articles, calling them “libelous assertions.” David Boies stated that a defamation suit was likely. The Journal received another letter demanding that it retain all documents concerning Theranos.
But if Theranos thought this saber rattling would make us stand down, it was mistaken. Over the next three weeks, we published four more articles. They revealed that Walgreens had halted a planned nationwide expansion of Theranos wellness centers, that Theranos had tried to sell more shares at a higher valuation days before my first story was published, that its lab was operating without a real director, and that Safeway had walked away from their previously undisclosed partnership over concerns about its testing.
In an interview with Bloomberg Businessweek, Holmes said she was the victim of sexism.
In the same story, her old Stanford professor, Channing Robertson, dismissed questions about he accuracy of Theranos’s testing as absurd, saying the company would have to be “certifiable” to go to market with a product that people’s lives depended on knowing that it was unreliable. He also maintained that Holmes was a once-in-a-generation genius, comparing her to Newton, Einstein, Mozart, and Leonardo da Vinci.
Carreyrou comments:
There was only one way the charade would end and that was if CMS, the chief regulatory of clinical laboratories, took strong action against the company. I needed to find out what had come of that second regulatory inspection.
THE EMPRESS HAS NO CLOTHES
Based on a complaint from Erika Cheung, a veteran CMS field inspector, Gary Yamamoto and his colleague Sarah Bennett made a surprise inspection of Theranos’s lab. Yamamoto and Bennett planned to spend two days, but there were so many issues that they asked for more time. Balwani asked if they could return in two months and they agreed.
In late 2015 and early 2016, Carreyrou tried to find out about the second inspection conducted by Yamamoto and Bennett. Finally he learned that the CMS inspectors had found “serious deficiencies.”
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 lab to lose its federal certification.
This was major. The overseer of clinical laboratories in the United States had not only confirmed that there were significant problems with Theranos’s blood tests, it had deemed the problems grave enough to put patients in immediate danger. Suddenly, Heather King’s written retraction demands, which had been arriving like clockwork after each story we published, stopped.
However, Theranos continued to minimize the seriousness of the situation. In a statement, it claimed to have already addressed many of the deficiencies and that the inspection findings didn’t reflect the current state of the Newark lab. It also claimed that the problems were confined to the way the lab was run and had no bearing on the soundness of its proprietary technology. It was impossible to disprove these claims without access to the inspection report. CMS usually made such documents public a few weeks after sending them to the offending laboratory, but Theranos was invoking trade secrets to demand that it be kept confidential…
Carreyrou filed a Freedom of Information Act request to try to force CMS to release the inspection report.
But Heather King continued to urge the agency not to make the report public without extensive redactions, claiming that doing so would expose valuable trade secrets. It was the first time the owner of a laboratory under the threat of sanctions had demanded redactions to an inspection report, and CMS seemed unsure how to proceed.
Carreyrou finally got his hands on a copy of the CMS report.
For one thing, it proved that Holmes had lied at the Journal’s tech conference the previous fall: the proprietary devices Theranos 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. During one month, they had failed quality-control checks nearly a third of the time. One of the blood tests run on the Edisons, a test to measure a hormone that affects testosterone levels, had failed quality control an astounding 87 percent of the time. Another test, to help detect prostrate cancer, had failed 22 percent of its quality-control checks. In comparison runs using the same blood samples, the Edisons had produced results that differed from those of conventional machines by as much as 146 percent. And just as Tyler Shultz had contended, the devices couldn’t reproduce their own results. An Edison test to measure vitamin B12 had a coefficient of variation that ranged from 34 to 48 percent, far exceeding the 2 or 3 percent common for the test at most labs.
As for the lab itself, it was a mess: the company had allowed unqualified personnel to handle patient samples, it had stored blood at the wrong temperatures, it had let reagents expire, and it had failed to inform patients of flawed test results, among many other lapses.
[…]
The coup de grace came a few days later when we obtained a new letter CMS had sent to Theranos. It said the company had failed to correct forty-three of the forty-five deficiencies the inspectors had cited it for and threatened to ban Holmes from the blood-testing business for two years.
Carreyrou met up with Tyler Shultz. Carreyrou points out that Tyler never buckled even though he was under enormous pressure. Moreover, his parents spent over $400,000 on legal fees. Were it not for Tyler’s courage, Carreyrou acknowledges that he might never have gotten his first Theranos article published. In addition, Tyler continued to be estranged from his grandfather, who continued to believe Elizabeth and not Tyler.
Not long after this meeting between Tyler and Carreyrou, Theranos contacted Tyler’s lawyers and said they knew about the meeting. Because neither Tyler nor Carreyrou had told anyone about the meeting, they realized they were under surveillance and being followed. (Alan Beam and Erika Cheung were probably also under surveillance.) At this juncture, Tyler wasn’t too worried, joking that next time he might take a selfie of himself and Carreyrou and sent it to Holmes “to save her the trouble of hiring PIs.”
Soon thereafter, there was more bad news for Theranos. Carreyrou:
…we reported that Theranos had voided tens of thousands of blood-test results, including two years’ worth of Edison tests, in an effort to come back into compliance and avoid the CMS ban. 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. Once again, Holmes had hoped to keep the voided tests secret, but I found out about them from my new source, the one who had leaked to me CMS’s letter threatening to ban Holmes from the lab industry. In Chicago, executives at Walgreens were astonished to learn of the scale of the test voidings. The pharmacy chain had been trying to get answers from Theranos about the impact on its customers for months. On June 12, 2016, it terminated the companies’partnership and shut down all the wellness centers located in its stores.
In another crippling blow, CMS followed through on its threat to ban Holmes and her company from the lab business in early July. More ominously, Theranos was now the subject of a criminal investigation by the U.S. Attorney’s Office in San Francisco and of a parallel civil probe by the Securities and Exchange Commission.
Many investors in Theranos were fed up:
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.” Another set of investors led by the retired banker Robert Coleman filed a separate lawsuit in federal court in San Francisco. It also alleged securities fraud and sought class-action status.
Most of the other investors opted against litigation, settling instead for a grant of extra shares in exchange for a promise not to sue. One notable exception was Rupert Murdoch. The media mogul sold his stock back to Theranos for one dollar so he could claim a big tax write-off on his other earnings. With a fortune estimated at $12 billion, Murdoch could afford to lose more than a $100 million on a bad investment.
[…]
Walgreens, which had sunk a total of $140 million into Theranos, filed its own lawsuit against the company, accusing it of failing to meet the “most basic quality standards and legal requirements” of the companies’ contract. “The fundamental premise of the parties’contract–like any endeavor involving human health–was to help people, and not to harm them,” the drugstore chain wrote in its complaint.
Carreyrou concludes the chapter:
The number of test results Theranos voided or corrected in California and Arizona eventually reached nearly 1 million. The harm done to patients from all those faulty tests is hard to determine. Ten patients have filed lawsuits alleging consumer fraud and medical battery. One of them alleges that Theranos’s blood tests failed to detect his heart disease, leading him to suffer a preventable heart attack. The suits have been consolidated into a putative class action in federal court in Arizona. Whether the plaintiffs are able to prove injury in court remains to be seen.
One thing is certain: the chances that people would have died from missed diagnoses or wrong medical treatments would have risen expontentially if the company had expanded its blood-testing services to Walgreen’s 8,134 other U.S. stores as it was on the cusp of doing when Pathology Blawg’s Adam Clapper reached out to me.
EPILOGUE
Theranos settled the Partners Fund case for $43 million, and it settled the Walgreens lawsuit for more than $25 million. On March 14, 2018, the Securities and Exchange Commission charged Theranos, Holmes, and Balwani with conducting “an elaborate, years-long fraud.”
To resolve the agency’s civil charges, Holmes was forced to relinquish her voting control over the company, give back a big chunk of her stock, and pay a $500,000 penalty. She also agreed to be barred from being an officer or director in a public company for ten years. Unable to reach a settlement with Balwani, the SEC sued him in federal court in California. In the meantime, the criminal investigation continued to gather steam. As of this writing, criminal indictments of both Holmes and Balwani on charges of lying to investors and federal officials seem a distinct possibility.
It’s one thing for a software or hardware company to overhype the arrival of its technology years before the product was ready. The term “vaporware” describes this kind of software or hardware. Microsoft, Apple,and Oracle were all accused of this at one point, observes Carreyrou.
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 health-care company. Its product wasn’t software but a medical device that analyzed people’s blood. As Holmes herself liked to point out in media interviews and public appearances at the height of her fame, doctors base 70 percent of their treatment decisions on lab results. They rely on lab equipment to work as advertised. Otherwise, patient health is jeopardized.
So how was Holmes able to rationalize gambling with people’s lives?
Carreyrou ends the book:
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. I’m fairly certain she didn’t initially set out to defraud investors and put patients in harm’s way when she dropped out of Stanford fifteen years ago. By all accounts, she had a vision that she genuinely believed in and threw herself into realizing. But in her all-consuming quest to be the second coming of Steve Jobs amid the gold rush of the “unicorn” boom, there came a point when she stopped listening to sound advice and began to cut corners. Her ambition was voracious and it brooked no interference. If there was collateral damage on her way to riches and fame, so be it.
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This outperformance increases significantly by focusing on cheap micro caps. Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals. We rank microcap stocks based on these and similar criteria.
There are roughly 10-20 positions in the portfolio. The size of each position is determined by its rank. Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost). Positions are held for 3 to 5 years unless a stock approachesintrinsic value sooner or an error has been discovered.
The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods. We also aim to outpace the Russell Microcap Index by at least 2% per year (net). The Boole Fund has low fees.
If you are interested in finding out more, please e-mail me or leave a comment.
My e-mail: jb@boolefund.com
Disclosures: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Boole Capital, LLC.
