Books |
Bad Blood: Secrets and Lies in a Silicon Valley Startup
John Carreyrou
By
Published: Jan 05, 2022
Category:
Non Fiction
Elizabeth Holmes, the 37-year-old founder of the failed blood testing start-up Theranos, has been found guilty of four of 11 charges of fraud. Each count carries a maximum sentence of 20 years in prison, terms that are likely to be served concurrently. It is no exaggeration to say none of this would have happened if Wall Street Journal reporter John Carreyrou hadn’t dug into this high-profile startup… and stayed on this story. Here it is, in lurid detail.
GUEST BUTLER ALI BINAZIR M.D., M.Phil. holds degrees from Harvard College, UC San Diego School of Medicine, and Cambridge University. He is a Happiness Engineer, author and speaker, and is based in California. He last reviewed Blueprint for Revolution.
When I first heard of Theranos around 2012, I instantly smelled a rat: former Secretaries of State George Shultz and Henry Kissinger, and General James “Mad Dog” Mattis served on its board. Why would a company with a purported mission to cure disease and save lives have multiple trained killers and war criminals on its board, but zero actual scientists? It would be like the board of Disney being composed entirely of porn producers. It made no sense. So I wasn’t too keen on reading the book when it came out. Why delve into another sordid tale of Silicon Valley greed, excess, and VC idiocy? I felt as if the basic arc of the narrative was pretty clear.
In fact, the book is much deeper than that, and the tale far more sordid than I had imagined. It’s about vain, greedy, ruthless, mediocre people—namely, Elizabeth Holmes and then-boyfriend Ramesh “Sunny” Balwani—fooling others by appealing to their vanity and greed. It’s about a young woman with big, unblinking blue eyes and a faux baritone seducing a phalanx of older, more powerful men.
It’s also about how otherwise smart, savvy people can be fooled by heuristics (“This other rich miscreant invested, so it must be legit!”) and meta-data (“She dresses like Steve Jobs!”) instead of getting off their asses and looking at primary data. I felt a warm chuckle of schadenfreude when I found that Rupert Murdoch was one of the dupes, to the tune of $125M—a sum he invested after making just one phone call.
Another famous dupe was Walgreens, which was obsessed about not falling behind CVS Pharmacies. They played along for years — even when their internal experts had sounded the bullshit alarm — after Holmes failed to deliver test results and reliable data. One group that was not fooled: actual healthcare venture capitalists. They asked Holmes a few simple questions she should have been able to answer, and she left their offices in a hissy fit. The absence of all of them from Theranos funding rounds should have been a portent to future victims. Why? This:
The one thing Mosley wasn’t sure he completely understood was how the Theranos technology worked. When prospective investors came by, he took them to see Shaunak Roy, Theranos’s cofounder. Shaunak had a Ph.D. in chemical engineering. He and Elizabeth had worked together in Robertson’s research lab at Stanford.
Shaunak would prick his finger and milk a few drops of blood from it. Then he would transfer the blood to a white plastic cartridge the size of a credit card. The cartridge would slot into a rectangular box the size of a toaster. The box was called a reader. It extracted a data signal from the cartridge and beamed it wirelessly to a server that analyzed the data and beamed back a result. That was the gist of it.
When Shaunak demonstrated the system to investors, he pointed them to a computer screen that showed the blood flowing through the cartridge inside the reader. Mosley didn’t really grasp the physics or chemistries at play. But that wasn’t his role. He was the finance guy. As long as the system showed a result, he was happy. And it always did.
Holmes and a few colleagues went to Switzerland to demonstrate the product. When she returned, her colleagues were gloomy. Mosley wondered why.
Mosley wandered downstairs, where most of the company’s sixty employees sat in clusters of cubicles, and looked for Shaunak. Surely Shaunak would know if there was any problem he hadn’t been told about.
At first, Shaunak professed not to know anything. But Mosley sensed he was holding back and kept pressing him. Shaunak gradually let down his guard and allowed that the Theranos 1.0, as Elizabeth had christened the blood-testing system, didn’t always work. It was kind of a crapshoot, actually, he said. Sometimes you could coax a result from it and sometimes you couldn’t.
This was news to Mosley. He thought the system was reliable. Didn’t it always seem to work when investors came to view it?
Well, there was a reason it always seemed to work, Shaunak said. The image on the computer screen showing the blood flowing through the cartridge and settling into the 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 results 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 it.
So, what exactly had happened with Novartis? Mosley couldn’t get a straight answer from anyone, but he now suspected some similar sleight of hand. And he was right. One of the two readers Elizabeth took to Switzerland had malfunctioned when they got there. The employees she brought with her had stayed up all night trying to get it to work. To mask the problem during the demo the next morning, Tim Kemp’s team in California had beamed over a fake result.
The book also has heroes. The whistleblowers within the company spoke to journalists at considerable personal risk from the supremely vindictive and litigious machine of Holmes and Balwani. The doctors who sounded the alarm about discrepant test results got tailed by Theranos goons and personally intimidated by Balwani. These people stood firm because they placed the safety of patients over their own comfort. And I commend John Carreyrou and his editor Mike Siconolfi for their steadfast courage in the face of the shameful, comic-book viciousness of David Boies and his legal team, who were ultimately chastened. Justice: For his coverage of Theranos, Inc., Carreyrou was awarded the George Polk Award for Financial Reporting, the Gerald Loeb Award for Distinguished Business and Financial Journalism. and the Barlett & Steele Award for Investigative Journalism. [To read an excerpt, click here. To buy the book from Amazon, click here. For the Kindle edition, click here.]
Although the book was gripping from beginning to end, it was difficult to get through because of the unrelenting nastiness of Holmes and Balwani. Their routine mistreatment of employees; their summary firing of them without even a minute’s notice to pack up belongings; their intolerance of criticism; their messianic grandiosity (Holmes told employees she was building a religion); their belligerent mediocrity and ignorance: it’s hard to think of less sympathetic characters in a story of fiction, let alone real life. I can’t recall so viscerally wanting someone to get her comeuppance.
One person who comes off especially poorly is George Shultz. He practically disowns his smart, heroically conscientious grandson Tyler Shultz to take the side of Elizabeth Holmes, even after Federal regulatory agencies proved the most damning accusations Tyler made. How’s that for being a 94-year old paragon of wisdom?
Stories, belief, wishful thinking, sex appeal, hype: these can sometimes fool even well-meaning, smart folks. If you were in the place of the starry-eyed investors and board members, would you have been duped,? Or would you have seen through the veil of deceit? After seeing countervailing evidence to a cause you’ve committed to, are you able to admit error and change your mind? Where is that happening in your life right now?
What I learned is that books like these show that people’s cognitive biases and heuristics can potentially be exploited to the tune of $1B, 12 years, and hundreds of investors. But you don’t have to be one of those people. First, know that you can be fooled. Then do your homework and get primary data on whatever you’re deciding on. Get opinions from impartial experts, not fellow investors. Be wary of intimidation, pressure tactics and hype. Refuse to work with or for awful people.
Or you could find yourself a minor character in the film about Elizabeth Holmes that will star Jennifer Lawrence.
