Theranos, Elizabeth Holmes, and the Cult of Silicon Valley

you founded this company twelve years ago right tell him how old you were I was 19 don't worry about the future we're in good news Elizabeth Holmes was everything Silicon Valley and the media could hope for a brilliant young female entrepreneur who dropped out of Stanford at the age of 19 to start a company called Theron owes Theron has promised to save people from pain and disease through early detection and lead the way into an era of cheaper more consumer driven health care Theron s's big idea was to replace traditional venous blood draws in a doctor's office hospital or lab with simple finger prints one day the company promised patients would do the tests at home and then upload the results for their doctor's homes stacked her board of directors with establishment heavyweights such as George Shultz Henry Kissinger and General James Madison she cozied up to Bill and Hillary Clinton she also catched hundreds of millions of dollars from investors that included the wal-mart heirs Rupert Murdoch and Betsy DeVos for a time her company was worth more than Spotify or uber but today theranos is on the verge of liquidation and its backers have seen their investments completely wiped out Homes has been unmasked as a fraud and it's now facing possible criminal charges the man responsible for uncovering the truth about their nose is John Kerry rue a veteran investigative journalist at The Wall Street Journal his dogged reporting revealed Holmes's tactics of flattery and intimidation that fooled investors and the press allowing its founder to keep up the deception for as long as she did when Kerry ruse stories on thoroughness started appearing in October 2015 Holmes went on the offensive depicting herself as a Silicon Valley disrupter who had become the target of a smear campaign orchestrated by established interests what do you think's going on here this is what happens when you work to change things and first they think you're crazy then they fight you and then all of a sudden you change the world with Cary Roos reporting turning up one revelation after another and regulators finally cracking down Holmes's public demeanor shifted I feel devastated that we did not catch and fix these issues faster though she never went so far as to apologize to the thousands of patients whose health Theron OSes product had put at risk i sat down with John Kerry rude to talk about his new book on thier nose bad blood secrecy and lies in a Silicon Valley startup which has made the New York Times bestseller list and will soon be made into a movie starring Jennifer Lawrence as Elizabeth Holmes bad blood raises tough questions about the failure of regulators to stop their enough the infatuation of the public and the press with the mystique of Silicon Valley and the Shadowlands where innovation capitalism and fraud sometimes get lost so what was thoroughness and who is Elizabeth Holmes fairness is a Diagnostics startup that was founded in 2003 in Silicon Valley by a young Stanford dropout named Elizabeth Holmes she was midway through her sophomore year she had this vision of a medical device that that would test your blood at first it was a an armband they would have these little micro needles that would prick your blood and diagnose what ailed you and then simultaneously inject the appropriate drug and so in fact the the word Thera nose was a combination of the words therapy and diagnosis that original idea proved to be you know more science fiction than than anything that was really feasible and she and her co-founder realized that pretty quickly and so after a couple months they pivoted to what they wanted to they wanted to build a device that was inspired from the portable glucose monitors that diabetes patients used to monitor their blood sugar but Elizabeth wanted it to test all you know to do all the love lab tests known to man which you know was gonna make it a lot more complicated and and but a lot more exciting a lot more exciting too because the proposition was going to be that from a prick just a prick of blood from your finger you'd be able to run all lab tests and be able to do it quickly the results and do Diagnostics on you know various types of prescriptions and all of that yeah I mean it would be anywhere from several hundred to several thousand blood tests you know ranging from the common blood test that your doctor will prescribe just you know to check up on how you're doing to test to detect you know certain types of cancers she was what 19 or 20 to 19 or they dropped out late 1300s like Steve Jobs Steve Jobs was famous for you know what became known as the reality distortion field right but people in the room with him you know had to bow down to his magnetism and his charisma a lot of people talked about Elizabeth Holmes in a similar way what is the essential difference between Steve Jobs ability to distort reality and Elizabeth Holmes right so Elizabeth did idolized jobs it was to the point that she started as you mentioned wearing black turtlenecks and she wanted their nose to fly an apple flag you know at half-mast the day that Steve Jobs died she referred to him as Steve as if she had been best friends with him she hired the same ad agency that Apple had used for some of its legendary ad campaigns when she found out that that added agency had met with Steve Jobs on Wednesdays she decreed that she would have her meetings with the agency shiet Day on Wednesdays and as you say she did share this trait which is like jobs she had this ability to sort of put a spell on people with her big blue eyes that blinked rarely and this deep voice of hers whenever there is a quote-unquote glass ceiling there's an iron woman right behind it and also her intelligence she's a very intelligent woman I would say that the big difference and the reason why was a fatal mistake for her to model herself after Jobs and Apple is that Apple was a computer company Thera nose was not a traditional tech company it was actually a medical company a health care company because it's device was a blood testing machine that patients and doctors were going to rely on and did rely on for a while for blood tests and as Elizabeth said at the height of her fame 70% of medical decisions that doctors make are based on blood tests when you're in medical space in the medical realm if you deliver a product that doesn't work then lives are at stake is there anything at all to her vision because I mean the way that it's played out you know there isn't there are notices near liquidation at this point and we'll get to that is there anything to her vision of a cheap you know kind of portable incredibly comprehensive non-invasive blood testing a technology if she had been able to pull off and if the company had been able to pull off what she claimed to have pulled off I think it would have been in advance for medicine it would have been a game-changer to be able to draw to test so many analytes off just a small sample of blood do it quickly do it at a you know a fraction of the price of competitors she liked to say that because the test would be so user-friendly and painless and cheap that people would get their blood tested more often and as a result diseases would get diagnosed at an earlier stage so it's a very appealing vision right and it's a logical one if the underlying technology exists and works and the problem is that it never did at their nose and to this day you know when my first investigation came out in late 2015 a week or two later she was at a conference and she said we're gonna put out data soon you know disproving this this reporters reporting and data you never lies and it was only in January of this year January 2018 that Theron has finally published its first peer-reviewed paper and a scientific journal about it's the last iteration of its technology the mini lab and what was amazing about it is the study had been conducted with regular blood draws with the you know the old-fashioned way with the big syringe moreover it only covered a couple of blood tests and some of the tests didn't agree with the results of conventional machines which fairness had to concede in the paper and then last but not least to run these these various tests fairness had had to configure the Machine differently each time because it still hadn't figured out how to fit all the instruments into one box so this was a far cry from what she had promised as far back as September of 2013 when she went live with her finger stick tests in Walgreens stores first in Palo Alto and then in Arizona heathered Holmes and her partners the top level people keep this story alive I mean that this this beautiful dream of a kind of home lab where you would be able to you know be checking your blood you know almost like you're you know checking you know peeing on a strip or something like that right how did they keep that hidden for so long well there's a culture of fear and intimidation at their nose going back to its earliest days Holmes actually sued some ex employees and in 2007 and this culture got worse and and was really enforced by her boyfriend a man named Sonny ball Hwanhee who was 19 years her senior and who's a guy who had made a lot of money during the Internet boom and he joined fairness and late 2009 and and really became the enforcer of this culture you know a quasi tyrant who silenced everyone and treated people badly fired people all the time in addition to Sonny what you had also was you had David Boies as the company's outside counsel starting in 2011 so legendary litigator who did Bush v Gore who became a champion for gay marriage right and you know arguably the the most famous and most feared lawyer in America and he started working as outside counsel for thoroughness in 2011 and he acted as a scarecrow for employees they were afraid of him they were afraid that if they spoke up either internally or after they left went to the media or to regulators that their nose would come after them and sue them and that David Boies this you know great lawyer with a great track record who's also ruthless and feared would be the one coming after them you mentioned Walgreens why did Walgreens and and there were other companies that bought into the vision or started using the services or trying them out why did they buy in if this wasn't really working this is actually one of the craziest parts of the story is Walgreens did not do really any due diligence it hired as I explained in in one chapter of the book it hired a lab consultant named Kevin hunter in 2010 when it began talking to thier no sand and hunters job was to vet the Thera knows technology and help Walgreens decide whether to actually forge on with this partnership and Hunter traveled several times to Palo Alto to meet with Elizabeth and Sonny and he started smelling a rat early on and he tried to alert the people who had hired him at Walgreens and he just could not get through to them they they had this fear of missing out on the Thera knows technology they were obsessed with this notion that if they didn't pursue it then their nose would turn around and forge a deal with CVS their arch rival based in Rhode Island and so this this fear of missing out drove Walgreens amazingly to ignore its own consultants how much of that is I mean its fear of missing out but then it's also the the kind of lure and mystique of Silicon Valley which is the shiny coastal bauble versus being in a you know a kind of 19th century business of retail right of drugstores where you know you're selling more and more as-seen-on-tv stuff I mean is did that I had played a role for sure I mean Walgreens is this stodgy you know year-old business based in Chicago far from the razzle-dazzle of Silicon Valley the thing that that was a factor here also is Thera nose had a major champion within the ranks of Walgreens executives in the person of jay rosen who was a trained doctor and who was absolutely head over heels for Elizabeth he went by the nickname dr. J he liked to high-five people instead of shaking their hands and he always introduced himself as hi I'm dr. J and I used to play basketball which he thought was a hilarious joke this guy was like a Silicon Valley groupie and he managed to convince the CFO the chief financial officer of Walgreens to also get onboard with the pilot and the two of them really were big champions for this partnership the board of directors and kind of high-profile investors and thoroughness also kind of you know in all-star cast including people like George Shultz Henry Kissinger general mattis would what role did that play I mean that the cultivation of these kind of superstar you know hangers on this is something that Elizabeth did from the very beginning she cultivated the backing of someone who was older more experienced and had a good reputation the first person she did that with was Channing Robertson her engineering professor at Stanford he was a star of the Stanford School of Engineering and he joined her board when she founded their nose and accompanied her to pitch meetings with VCS then a year or two later she met Donald el Lucas a well-known venture capitalists in Silicon Valley who grooms area Larry Ellison the Oracle founder and helped him take Oracle public in the mid-80s and then unfortunately Don Lucas started developing Alzheimer's disease in the 2010/2011 period so she pivoted to George Schultz the famous former Secretary of State and crafted the Reagan administration's foreign policy is credited by many as having won the Cold War and long-standing interest in the kind of the pharma industry drug legalization I mean he's an interesting he's a great older statesman who's widely respected yes and he lives his house is right off the Stanford campus on Stanford land and he's also passionate about science and so when he met Elizabeth in 2011 he was immediately taken in by her wowed by what she claimed her technology could do join her board and then proceeded to introduce her to all his buddies at the Hoover Institution the conservative think-tank on the Stanford campus and that's how she came to meet Henry Kissinger bill Perry who had been Secretary of Defense under Clinton Bill Frist Sam Nunn Admiral rough head and pretty soon all these guys were on the board - Elizabeth lured them with grants of stock and and you know before you knew it she had this this board chock-full of these amazing you know people with amazing resumes as I was reading the book and and following the account I mean you know they kind of feminist in me cropped up I mean like part of this it just sounds like she is you know really working like I mean in a kind of old screwball comedy or something she's a femme fatale who is like wrapping her you know these guys around her finger I mean is that I don't work here that was definitely at work and I know you know it's pretty controversial to say this mid the me2 movement but you know the 15 year history of the company shows that that is what she did over and over again these older men you know she wrapped them around her finger she made them support her and believed in her and I think she did it in part with her intelligence she's very smart woman and she did it with her charm you know she has these big blue eyes and she has this charisma and they were kind of taken in and and you know it ranges from Channing Robertson and Don Lucas at the beginning to Kissinger and then David Boies and Rupert Murdoch at the end of the story we're gonna talk about Murdoch in a second and this is a good time to bring up the press because so you know you have companies like Walgreens buying in without doing due diligence you have investors buying in without really understanding what's going on you talk about how the chief financial officer was like you know I don't really understand this and it doesn't seem to be working but I guess it does I mean like there's that the press was generally uncritical of her and in many cases they're the ones who kind of made her into an investment or a you know a Silicon Valley superstar why did the press buy in isn't the presses supposed to be the the Bulldog and the watchdog of democracy and of the market well she worked the press expertly I mean one thing that should be noted is the first mainstream publication that put her on the map was my newspaper The Wall Street Journal the editorial page of the journal did a friendly interview with her in its Saturday edition and a column called the weekend interview and this was back in September of 2013 and it coincided with the launch of fairness fingerstick tests in Walgreens stores and then story I would say that really rocketed her to fame about six or eight months later was the cover story in Fortune magazine that was published in June 2014 and she's shown you know with a black turtleneck and and bright red lipstick the headline I think is the CEO is out for blood and that was a really arresting photo and it really made her celebrity in Silicon Valley and beyond that said I don't blame the press too much because people like Roger parla who wrote that cover story and then Ken Auletta who wrote a long profile of Elizabeth Holmes six months later in The New Yorker were outright lied to by her I mean you know they they were disabled over you're a reporter you know when your mother tells you she loves you you check it out I mean kind of let it fits into this right old man kind of right no and and Roger pearl Karloff was a legal correspondent for fortune and and Ken Auletta writes mostly about media and Technology not health care neither of them had any expertise in medicine and certainly not laboratory science Roger went and talked to all these larger-than-life board members and and kind of used them to get corroboration that from them that she was the real thing and and all he heard from them was you know gushing words of praise yeah I mean I guess that they were really deceived and they didn't necessarily go into those interviews and into those stories thinking that they should be on their guards about you know someone who was who was a pathological liar which she was is there any reason to believe that actual individuals died or were harmed by the rollout of fairness it's very hard to to get an answer to that question because the the correlation between you know someone having a bad health outcome and a blood test is it's very hard to scientifically prove it that said I came across more than a dozen examples of patients who'd gotten unreliable test results from thier nose in most cases luckily their doctors were suspicious about these results and sent them you know to have their blood to be drawn and retested elsewhere one of the stories that I talk about in the book is that of a real estate agent in Phoenix who had ringing in her ear and so her doctor had sent her to thier nose to get her blood tested be a finger stick and her results came back and I think six values came back abnormal and the doctor given the symptom which was ringing in the ear became very concerned that she was on the cusp of a stroke and immediately sent her to the emergency room the patients spent four hours in the hospital and you know underwent a battery of tests finally the hospital ran her labs again and they were normal she then had more tests MRIs over the ensuing week until she she and her doctor finally came to the conclusion that the Thera nurse tests had been inaccurate so that gives you an idea of the the health scare that this company put some people through you had mentioned Rupert Murdoch in passing you work for The Wall Street Journal which is owned by Rupert Murdoch ur by his corporation there's a story in there when you I mean you started writing about darkness and you started uncovering a lot of weirdness going on and a lot of you know dicey things talk a little bit about what happened Murdoch was an investor in thyrion-- house right simultaneously you know owned the newspaper there controlled the newspaper you were writing for and there comes a moment where thorough notes ghost and put the screws to him does your does Rupert Murdock does sir Murdock or what Lord Murdock acquit himself well I mean I would say that in the end he does when I started digging into their notes in early February 2015 he was a month away or three weeks away from investing on 25 million dollars at which he proceeded to do I had no idea that he was an investor he had no idea that I was working on an investigation of the company and the first I heard of I heard a vague rumor that he might be an investor a couple days before we went to print with my first story wasn't able to confirm that and then heard rumors sporadically in the in the following months and year was never able to confirm those rumors finally a year after my first story was published as I went on book leave to write this book I was able to confirm with this source that not only was he an investor but he was the single largest investor he had put in 125 million dollars into the company which stunned me and I also learned shortly thereafter that she had had several meetings with him one at their nose headquarters in Palo Alto a couple months before my story was published in which she brought up my story and said that I had gathered a lot of damaging and false information and that it shouldn't be published she hoped he would kill it and then again just two weeks in late September just two weeks before my we went to press with my story and that time it was in the news court building on the eighth floor where Murdock had his office and I was on the fifth floor working on the story and I had no idea she was in the building hmm where were the regulators in all of this because it is a health care company because it's it's drawing blood etc there's a vast array of you know this this isn't the Wild West or anything who were the regulators and where were they in in all of this well just like she played the press she really played regulators so you have two Health regulators that are involved in regulating the lab industry you have the FDA which reviews and approves the Vittoria equipment that laboratories buy and use in their labs and then you have the Centers for Medicare and Medicaid Services which not many people know aside from running the Medicare program has a second job which is to be the overseer of clinical laboratories in this country and it does that by doing inspections every two years and by having labs do this thing called proficiency testing basically what she did was she navigated a gray area between these these two regulators and she maintained that her tests the the thoroughness tests were what are called laboratory to develop tests which are not test run on commercial machines that have been approved by the FDA they're let their tests that are fashioned by labs with their own methods and that's a part of the lab business that isn't hasn't been closely regulated or policed and the FDA for a while was beginning to make noise about wanting to police police it more aggressively that's now changed under the the Trump administration but so she really drove a truck through this this loophole at the same time she paid lip service to the fact that she was voluntarily submitting each of her proprietary tests to the FDA that turned out to be in part her undoing because after she submitted data for a few of these fingerstick tests my source is that the FDA told me that that the data actually didn't look good and aside from hearing from me because I was running by an FDA source of mine what I was learning in my reporting trying to figure out if it was allowed and so the FDA was concerned by what it was hearing from me but it was also concerned by the clinical data it had ever received from fairness and decided it should inspect the company and see if it could find any better data on site and it turned out that they did inspect they couldn't find any better data and they they said you know we better shut this down because these these tests are gonna be inaccurate and and unreliable in the large scheme of things you know in reading the book and following the story you know I'm kind of torn between two interpretations one is that you know is this a case of kind of market failure in the sense that it went on for so long and it got you know a lot of money I mean it hosed you know Rupert Murdoch for over a hundred million dollars it's catered around regulations which I can kind of understand I'm a good libertarian I get that you know they capture their you know you work around that is it market failure in the sense that it took so long to come out or is a kind of market success because it did unravel because of all of the different institutions in a in a kind of market system what's the kind of big disposition of this story I think its market failure in one key way which is that Walgreens was a key linchpin here an enabler in the sense that it helped the Thera notes commercialize the blood tests and make him available directly to patients and Walgreens you would think would have done its due diligence and would have vetted the technology and incomprehensibly did not do so and because of Walgreens is failure to vet and to do due diligence she was able to go live with the technology and then in late 2013 approached investors and say look obviously my product is for real and I've really done what I am saying I've done because you know we're offering the service in Walgreens stores Walgreens wouldn't be letting us do this if it weren't real and if the tests weren't accurate and that suckered in investors like partner fund management the San Francisco hedge fund they'd put in almost a hundred million and it suckered in the other billionaire investors the likes of Rupert Murdoch Betsy DeVos and her family which put in a hundred million dollars the Coxes which controlled Cox Enterprises in Atlanta put in a hundred million dollars the Waltons the heirs of Sam Walton who founded Walmart they put in 150 million via to investment vehicles and they were in large part sold on the investment but by the notion that the the product was already commercialized what is the lesson for the press do you think as well as consumers of the press you know whether or not you're gonna you're in a position to invest a hundred million dollars in something you know what what what do or what do media people and consumers of media need to take away from this story it to me it's not just the media and consumers of the media it's really American society at large we've come to deify these these young you know college dropouts who found these startups in Silicon Valley and attract a lot of funding and pretty soon become these unicorns you know which is the term that's been coined to to describe companies private companies that have reached a valuation of a billion dollars of more Thera notes by the way achieved at its peak evaluation of ten billion dollars and for a couple months there it was more valuable than uber Airbnb and Spotify not many people realize that I think the lesson is that these are in the end these are just young kids and you know we we've turned them into these icons and these heroes and they've become what you know our children aspire to be when they come out of college and graduate school and I think the Thera knows scandal should make us re-examine this whole value system final point what what is Elizabeth Holmes up to and you play out the final weeks of fairness right so she's essentially now turning the lights off she laid off another 100 employees about a month and a half ago so the headcount of the company is down to about 20 employees that same day she sent out an email to investors explaining that the cash level the company was going to drop below three million dollars the summer at which point the private equity firm fortress will be able to seize their knows assets and liquidate it so we're very likely looking at a liquidation of fairness as a company by August the company will have ceased to exist by then and I hear from my sources that Elizabeth is telling people even though she's been charged with fraud by the SEC and she has settled those charges without admitting or denying wrongdoing she's telling people she's going to start a new company I think the odds of that happening or are pretty low because a lot of people forget there's been a second investigation going on a criminal one it's been spearheaded by the US Attorney's Office in San Francisco it's two and a half years old at this point it's very advanced and I think criminal indictments of Elizabeth Holmes at Sonny ball wanting her ex-boyfriend or a distinct possibility well we will leave it there we have been talking with John Kerry who it's the Wall Street Journal reporter and the author of bad blood secrets and lies and a Silicon Valley startup for reason I'm Nick Gillespie [Music]

Channel: undefined

Views: 1,789,534

Rating: 4.8413057 out of 5

Keywords: libertarian, Reason magazine, reason.com, reason.tv, reasontv, Nick Gillespie, Justin Monticello, Todd Krainin, science, medicine, Silicon Valley, investigative journalism, regulation, innovation, technology, health care, blood, blood testing

Id: ta1DqI4xDRw

Length: 31min 5sec (1865 seconds)

Published: Thu Jun 07 2018

Reddit Comments

[u/MrGravityPants]

This isn't a bad interview. I don't think it's really a documentary, but it explains the issues with this company pretty damn well.

I also think this reporter, John Carreyrou of the Wall Street Journal is a great reporter. They go into the fact that Theranos tried to get Rupert Murdock to stop this guys reporting from appearing in the WSJ. Murdock was the single largest private investor in Theranos. And say what you want about Murdock doing evil shit, but he never once interfered in the reporting done by Carreyrou or the Journal. Even after directly being asked to step in.

I don't want to stretch this one example, but I think it's good that the owner of the WSJ didn't try and ask questions. Even if just to find out if he should try and quietly get his money back before the stories appear in the WSJ. Apparently there is some journalistic integrity at the top of Corporate Journalism. Maybe just some, but it's better than nothing.

[u/s1ssycuck]

And yet people still fall for child prodigy stories.

[u/Alimbiquated]

The giveaway is the claim that the technology can do a lot of different things at the same time. There may be a technology someday that can, but startups never have anything like that. You always start with a niche product that does one thing really well for a small group and branches from there.

Apple started with mainboards for hobbyists, Tesla started with the Roadster, Microsoft started with a BASIC interpreter, etc. Nobody ever started with a product that can do everything.

The fact that she was able to get any VC money shows how broken the system is.

[u/TheJawsThemeSong]

This was great, I can't wait to see a full length documentary style shoot of this.