John let me add my welcome to the Commonwealth. Thank you for having me. Yeah John was actually asking me a Little bit about the Commonwealth level of us I was happy to brag about the fact that it's a place where people of all opinions and Points of view and political persuasions come and we can hear what they have to say and it's a it's a rare Forum in today's world where you don't just hear one side of the story, right? So I think we should all give ourselves a hand for the fact that there is in exists in the world a place like this organization Well, we're here tonight to principally talk about Your brand new book the title is not one that would make you buy it at an airport store but Yeah, but maybe the Secondary title secrets and lies and a Silicon Valley startup that would that would catch my attention but it's it's a fascinating story about a Circumstance that I suspect many of you familiar with because it happened right in our own backyard In fact, I shouldn't use the past tense because it technically continues to happen And so what I'm going to do is not assume everybody has such a tactile Familiarity that we can just get into the subtleties of the story Let's let's start with the basic framework kind of the executive summary of what? brought news Wright's book Well, I guess the first all explained the the story of therenear a young woman named Elizabeth Holmes Dropped out of Stanford University When she was 19 years old in the middle of her sophomore year because she had a vision for a technology that she wanted to create she wanted to be a entrepreneur follow she very much wanted to follow in the footsteps of Steve Jobs whom she admired and the the original vision was for a wristband That would have these micro needles that would draw minut amounts of blood from your wrist and diagnosed you with whatever ailed you and and Simultaneously inject you with the appropriate drug and cure you She called it the therapy and in her early Pitches to investors there was a little diagram that showed you know the therapist and actually the Thera patch was more Science fiction than it was reality and she and her co-founder Realized that after a few months and pivoted to Something that was more inspired by the portable glucose monitors that diabetes patients used to monitor their blood sugar except Elizabeth wanted Her portable device to be able to do every blood test From just a pinprick of blood. How many is that? I mean If you're talking the full range of laboratory tests that's anywhere from several hundred to several thousand Wow and No one had been able to do that before so You know, it was an ambit. It was still an it wasn't the wristband, but it was still an ambitious endeavor and she Proceeded to to build up this company over the the next decade went through several iterations of the technology and by late 2013 fall 2013 via partnership with Walgreens Commercialized her finger stick tests in Walgreens stores in to blood draw centers in the Palo Alto area and another 40 or 45 in Arizona and Became a star and a celebrity here and even beyond Silicon Valley She got a lot of press coverage It's the cover of Fortune magazine in June 2014 Clad in a steve job asked black turtleneck with a very catchy headline the CEO is out for blood and You know made became a fixture on the the tech conference The healthcare conference circuit was invited to the white house several times Won various awards was Invited to join the the board of fellows at Harvard Medical School, which is very prestigious body and was fetid as the the world's youngest self-made female billionaire because by early 2014 their nose had achieved a valuation of more than nine billion dollars and She had kept more than half of the equity and so she was worth almost five billion dollars at that point and so in a nutshell, that's that's the story of thoroughness and We're gonna loop back but one thing that's interesting is well two things one that I thought of when you were saying it wasn't us that These blood tests became available they became available retail. So right All right, you might need doctor to go through exactly in the first Part of thier enosis history the business model had been different she pitched pharmaceutical companies and the idea was that pharmaceutical companies would use these User-friendly fast painless fingerstick tests in clinical trials to test new drugs and so the patients enrolled in clinical trials would have the Thera nose blood testing device in their home and they would prick their finger several times a day and The results would be beamed to the the trials sponsor and and pharmaceutical companies Would be able to save billions of dollars on clinical trials or so Elizabeth claimed and it was only later in starting in 2010 that she pivoted to a direct consumer model and And the there were two retail partners that she would and one in particular Walgreens is the drugstore chain through which she was able to commercialize the technology And the other point that just to get our fact-based here is her Board of Directors Who was read Board of Directors? so in 2011 she met George Shultz through someone at the Stanford Medical School and You all know who probably who George Shultz is a famous former Secretary of State Crafted the Reagan administration's foreign policy is credited by many with winning the Cold War In his 90s now but remains a revered figure and in Republican circles and He lives right off the Stanford campus Has always been very passionate about science and when he met Elizabeth Holmes He was really impressed with what she told him about her technology and He soon thereafter joined her board and then introduced her to his buddies at the Hoover Institution the the think-tank on the Stanford campus and that's how she got to meet Henry Kissinger and and Bill Perry former Secretary of Defense under Bill Clinton Sam Nunn Bill Frist and some former military commanders like Admiral rough head and and they all eventually joined the board and so by the time 2013-2014 came around she had this unbelievable board of No ex statement and retired military commanders who had Incredible resumes and general mattis general mattis as well our current Secretary of Defense. Yep But there's something interesting there and that they are all really smart successful people but What do they know about? biochemistry That's right Not much You know if you thought about I think a lot of people were impressed with this board and few people stopped to think but what does George show us and what dude Henry Kissinger and Sam Nunn and and Jim masse know about medicine and lab testing in particular And I think there were about 12 men on that fairness board and only two of them had any connection to medicine whatsoever and And none of them had any expertise whatsoever and in Diagnostics and so If you thought about that for a second, that was a major red flag Yeah, and it was either a tell or it was a great reason to invest Right, right and this there's this hedge fund based in in San Francisco called part partner fund management that Met with Elizabeth and and Sonny bhiwani her number two executive who also happened to secretly be your boyfriend in Late, 2013 and 2014 and and tried to do due diligence and and were essentially boldface lied to about Many things including revenue and profit projections and binders of data that weren't real and so on and so forth But one of the things that really sold them on thoroughness was the Board of Directors They were really impressed by the you know the credentials and these people and It didn't occur to them that a start-up with a board. That was that impressive Could be up to no good not to mention that the the lawyer keeping, you know watch on the shop was David Boies Yeah, all right Bush v Gore, right, right. Yeah so Let's loop back because a lot of your book is around the culture of the company From where Howard started originally and how it evolved particularly when the Walgreens and say for your situation So give us some insight into some of the anecdote Examples for example of the way that yeah, and he worked so from from early on The culture of Thera nose was one of secrecy and paranoia and Elizabeth liked to compartmentalize information and to you know keep the the overall picture of the device's development to herself and that communications between say the the engineers And the chemists wasn't necessarily encouraged she also Fired a lot of people during the early years. There was a constant turnover I would say this culture Really? Went into overdrive one her boyfriend Sonny ball Hwanhee who was 19 years older Whom she had met when she was just a teenager before even starting her undergraduate studies at Stanford and he was a software he was to say he came from a software background and and he had Gotten wealthy at the very top of the internet bubble when he had joined a tiny startup a few months before the tech bubble popped and in a couple months before it got acquired for some 250 million dollars and he had walked away with more than forty million dollars and So when Elizabeth first met him Coming out of high school, you know, she saw him as this successful older successful, Silicon Valley Entrepreneur and she wanted to become successful and wealthy and and so he became sort of her Adviser her the guy who were who would teach her about business and in Silicon Valley and eventually, they became a couple and He divorced the the artists he'd been married to and moved to Palo Alto bought a condo. She moved in with him in 2005 and for the first five six years of the company He was her advisor behind the scenes, but he didn't actually work at the company And he that changed in late 2009 at that point therein had burned through 47 million dollars That it had raised in three rounds and was on the verge of bankruptcy and he stepped in and agreed to guarantee a Bank credit line that the company took out to stay afloat and at that point He joined the company as the number two executive the the president and chief operating officer. And then that early culture of paranoia and secrecy Really went to overdrive with him he had a very short temper and You know the the firings if anything increased to the point that a new expression was coined Inside their nose, which was to disappear someone when Windham colleagues You know no longer showed up at the office you know their their Former colleagues would say well Sonny disappeared him or her yeah, and you know as I recount in the book It was just a constant stream of firings. There were also people Quite a few employees who left of their own Volition, you know? Because they had developed qualms and and they didn't want to be a party to what was going on anymore But it was really an unhealthy culture and I was at Kepler's books last night doing a Talk in a book signing in Menlo Park and there were quite a few X. There are no simply's who came. Yeah And and then they a lot of them got in the line the book signing line and some of them you know didn't know one another because they had worked at the company during different eras and And they called themselves. There are no survivors. Hmm and And I heard them, you know use this term and the line So there was an aspect of working at or you know largely Working at there and us was not a pleasant experience because of this culture. The reason I think this is important Not because of the anecdotal nature of it, but because you would expect exactly the opposite in these unicorn Types startup companies particularly ones who are contending to be disruptive in an industry You would think it would be kind of open space everybody talks to each other the CEOs sits with everybody else and talks and there's Chat and crosstalk and that because that's how ideas percolate up. Right, right So but at a certain point, I mean fairness really is the story of a young startup founder who had a habit of over promising to raise money and with the years the over-promising got worse and worse and the gap between Where our technology was and and what she had promised became enormous To the point that when they went live with the the blood tests and Walgreens stores in the fall of 2013 that The gap was so huge that that they had to cheat and they had to hack commercial machines to try to uphold this myth that they had actually created new technology and Part of the the siloing and and the secrecy and the paranoia Became to hide these shenanigans and and when I finally published my first story in in October of 2015 a lot of Employees weren't even even aware of what they had done in the lab and weren't even aware that only a few of the blood tests were done with the thoroughness device and that most of them were done with these hacked commercial machines because you know, They weren't authorized to go in the lab you needed to There was a fingerprint scanner to get in the lab And if you weren't if your finger had been scanned and pre-approved you couldn't get in there and you didn't know what was going on so The culture became about hiding not just what they were doing from the outside, but also hiding from many employees on the inside What was going on? So that's in a sense I mean the board was a tell that in the sense is another tell because if you were really Committed with you're talking about and film you could do it. I think you'd operate 180 degrees different Let's go back to the first maybe what in my mind at least was the first encounter with? Underperformance. That was the Novartis right test so the prologue is about of the book is The chief financial officer at the time Sees Elizabeth Holmes and several of her colleagues this takes place in November 2006 come back from a demonstration of the device in Switzerland at Novartis one of the biggest pharmaceutical companies in the world and You know, she's Excited and happy go-lucky the way she usually is but the employees who went with her or not, and they look like Something has gone wrong. And so he wanders downstairs and he tries to figure out what what happened and he approaches Shawna Croix Elizabeth's co-founder and Sean ik wasn't exactly sure what had happened in Switzerland, but after talking to him for a while he gleans from Shawna that actually these demos that they've been doing for investors for Investors who have been coming by the office are not real because the the blood test results at the end of the demos are pre-recorded and and not you know in real time and The CFO at this point was been there eight months Is stunned because he's the one who's been bringing around all these investors and making projections yeah, and he's he's under the impression that demos were real and and and they're certainly under the impression that they're they're real and and He learns that they're not and so he decides to confront Elizabeth and goes to her office and and meets with her and Tells her that this is a line that they can't cross. You know that it's okay to be aspirational as a start-up founder, but you can't you can't essentially lie and mislead investors that's securities fraud and She You know switches flipped and she goes from happy-go-lucky to ice-cold and she looks at him and she says, you know You're not a team player. I think you should get out of here right now And it's clear that she doesn't just mean out of her office. Yes from the company She means he's fired right and and I used that seen as the prologue because I knew it was you know a good way to hook readers and Make them turn the page but I also thought that it was emblematic of the fact that At this company the unethical behavior Isn't something that suddenly happened late in the game where suddenly they were painted into a corner and crossed You know and cut corners. It was actually it started very early on and you know that that scene takes place A couple years after she's founded the company She's 22 years old and and it shows that you know that the unethical behavior was part of the DNA of the company And then the Tennessee tests, right? then when they were still so there were three iterations of the thoroughness technology and the first was a microfluidic system micro fluidics refers to the field that Has repurposed the micro fabrication techniques that were pioneered by the computer chip industry to move tiny quantities of fluids and that that field was you know just coming up when Elizabeth Holmes launched her startup and There was a lot of excitement about it and they made a real effort to build a microfluidic blood testing system Unfortunately They it wasn't working and and and she lost patience And I she was probably under pressure because she had made all these promises to investors. And so she pivoted away from it But even as she pivots away from it in late 2007, she's already started at pilot study with Pfizer Whereby the the thoroughness system has been installed in the homes of terminal cancer patients and Tennessee, who are in clinical trials getting Anti-tumor drugs drugs that will arrest the the growth of their tumors and hopefully buy them a few more months of life and You know back then there were there were some employees that sort of realized that it wasn't right to use a blood testing system that didn't work at all and - and granted one thing to bear in mind is that back then the the Thoroughness blood tests weren't used to inform the treatment of these cancer patients It was a validation experiment and they were to be compared with the the blood the regular blood tests that Pfizer was doing the regular way, but employees were still appalled that These terminal cancer patients in Tennessee were being put through these needless, you know fingerstick Draws several times a day for a technology that absolutely didn't work And then in the middle of that pilot study She pivoted away from the microfluidic platform and to what was essentially a glue dispensing robot a fairness engineer ordered a glue dispensing robot from a company called fizz NAR in New Jersey and It's made to dispense glue Right and fixed a pipette at the end of the robotic arm the robotic arm had three degrees of motion forward and back left and right and up and down and And he reprogrammed the robot robotic arm to sort of mimic what a lab scientists would do at the bet at the bench when he was testing blood and Employees when that pivot - - this machine happened some employees, you know felt let down because it was it was a huge step down from the micro fluidics and and so they took - derisive ly referring to referring to this machine as the glue bot and But Elizabeth Holmes was excited about it. She had a well known industrial designer named Eva Design a sleek black and white case for it to hide its innards and it had a digital user interface and she christened it the edison after thomas edison and And this happened as they were, you know this pivot to what was essentially a completely different machine and a much more rudimentary one happened in the middle of this Validation study using these these cancer patients in tennessee as guinea pigs country you remind me actually maybe something we Maybe went over too fast. Is that Her whole model was based on using capillary blood as opposed engine But from your veins explaining why that's such a big difference Well, it's not just the the fact that you're getting such a small sample of blood It's also that capillary blood tends to be polluted by tissue from from cells and It's not as if you're drawing blood from the the tip of your finger you're just not getting as pure a sample of blood as you are when you're doing it with a needle from the arm and want one problem in particular with capillary blood is known as lysis and when you're Pricking the finger and that milking it to get the blood out Often you're putting stress on the red blood cells that and they explode and that creates more potassium and that creates more potassium than there otherwise would be in the blood and so a problem that no one has solved with A finger stick with capillary blood is is the potassium assay it's you know, there have been studies showing that that Potassium tests are completely unreliable When they're done on capillary blood and as I recount in the book, that's one of the big problems that Dara nose encountered as well How do you Interpret this obsession with Steve Jobs so Well, first of all, you have the history of the of the Holmes family her ancestors were the flesh and yeast family You know who were some of the richest people in America at the turn of the 20th century and and her father had raised her with you know the knowledge of their great success, but also With the knowledge that the later generations of the family had squandered the wealth his grandfather had lived a very Hedonistic lifestyle on an island he had purchased in Hawaii and Squandered most of the money and then his son squandered the rest. And so there was she was raised with you know this This notion that once upon a time the holmes's had been wealthy people, you know At the top sort of the Yeah, they were elite there they were the elites of America once upon a time and and that wasn't the case anymore and so I think she had this desire to to Recreate that and and and she was also Steve Jobs, you know in Silicon Valley. She was starry-eyed about it and Steve Jobs was very much her idol she revered Apple and and I think the enormous mistake that she made is that She modeled herself after Jobs and after Basically the computer industry after you know the traditional Silicon Valley tech industry and Instead. She should have modeled herself after perhaps the the biotech cluster in South San Francisco You know the the Genentech's of the world that have been doing real medical science for decades now But instead she chose as her model the computer hardware and software Industry and it wasn't the right model There's been this culture for a long time now in Silicon Valley of fake it till you make it you know, and the term vapor where it was coined in the early eighties to describe computer software or hardware that was announced with great fanfare by a company and then never delivered or Delivered years late without the features that were promised, you know People like Jobs and Larry Ellison were accused at various points of engaging in this practice and I think if you looked at it from the point of view of Elizabeth Holmes, she thought well That's okay because eventually they did make it, you know these companies did become the real thing with real products and they were juggernauts and their founders became billionaires and icons in America, and that was her plan to use that same playbook, but the problem is you can't really Use you can't roll out paper where in medicine, you know, the medical arena is a different arena and the end consumer Is not you know someone using a buggy smartphone app it's a patient right who in this case is relying on a blood test result to make crucial medical decision there and I think she either lost sight of that or conveniently ignored it but You know the the the traditional Silicon Valley playbook Isn't applicable to to medicine and unfortunately, she tried to apply it to medicine if my app crashes Right, if I get a false negative on a blood test Twitter was famously buggy, you know in its early years I mean, it would not work for hours at a time and You know, the consequence was frustration on the part of its users, but it didn't put anyone in danger so speaking of putting people in danger, I Want to go to the Walgreens slash Safeway part? We kind of have a I think a General assumption that large institutions have cheques and systems in place so that they don't Get a way out on a limb, right? How did Walgreens? get Where they did it's one of the craziest parts of this story There's there's a chapter in the book I think it's chapter 7 of the book where I recount You know Walgreens his attempt at due diligence if you could call it that when Elizabeth and Sonny first approached Walgreens. It's early 2010 and they Assert to Walgreens that they've they have this technology that can do Hundreds of tests off just a drop of blood very quickly or cheaply etc In fact, the the last iteration of the technology the mini lab they haven't even started working on that They start working on it in late 2010. So anyways, that's a big lie and Walgreens should have been able to to figure that out because they hired a laboratory consultant by the name of Kevin hunter to kick the tires and and to try to Check out these claims and and to try to do some verification and he even flew out and met with Elizabeth Holmes and sunny and and other thoroughness employees twice in 2010 and He started asking tough questions and he started suggesting that they do things like a 50 patient comparison study with Stanford and An Elizabeth and Sonny didn't like his questions at all and after a couple months of this They they told his superiors at Walgreens We don't want this guy in meetings anymore they they were they either had these uh in-person meetings about once a month or every week these video conference calls and they wanted him excluded from the meetings and from the video conference calls and you know, the the the unspoken threat was that if Walgreens didn't exclude hunter from the meetings going forward that you know, they would walk away and and Walgreens was terrified that Their nose would walk away and then go to CVS its archrival based in Rhode Island at Walgreens, you know people had this tunnel vision, which was we're in a in a battle to the death with CVS and everything we do is we see it through that prism and And they were terrified that Thera nose would would turn around go to CVS strike deal with them and that you know Then they'd be regretting it for the next 20 years And so I I think it's fair to say that the fear of missing out. Otherwise known as FOMO played at play day Unfortunately a big role in Walgreens dropping the ball and not an excluding Kevin hunter he remained There consultant for a while longer but he was kept at arm's length his role was really they made it impossible for him to do his job and As a result Walgreens never really vetted the supposed there knows technology And then that was that that was a really important part of the story because everyone who came after assumed Walgreens, you know This this blue chip company headquartered in Chicago suburb that's been around for more than hundred years Surely they've done their homework, right? Sure surely they've kicked the tires They wouldn't be rolling out a medical technology that people rely on To make health decisions without having done their homework. And so everyone kind of assumed that Walgreens had Checked this out and therefore, you know if it was good enough for Walgreens It's good enough for me. And they how far down the road. Did they get with regard to actually? testing customers at Walgreens they by the time I started digging into the company they had commercialized the blood test in Walgreens stores for more than a year and a half and They they were in more than 40 locations most of them in Arizona. They had chosen Arizona because Arizona's Policies are very pro-business and and late on regulation. That was one reason and the other was that the Phoenix area has very high concentration of uninsured patients and Thera knows Like to advertise it's very low Prices and it's true that it offered low prices and it knew that the patients who would be sensitive to those low prices Were the patients who actually had to pay for their labs? Uninsured patients because insured patients and and Medicare patients have their labs covered by insurance what did they do about this that the technology didn't work I mean Right, I mean that's where it gets Unbelievable. They They would try to validate tests on so the mini lab which was the last version of the technology that the the Edison the second generation of the technology was limited in that it could only do one class of blood tests known as Immunoassays and there are about half dozen classes of blood tests And so the the mini lab was going to be able to do the other classes of blood tests, too But by the time they rolled out the finger stick tests in Walgreens stores The mini lab was just a prototype. That didn't work It was years from from functioning so they couldn't exactly use that so they dusted off the the edison and They tried validating some finger stacks Fingerstick tests on the on the edison but according to my source at sources I learned Subsequently when I started digging into the reporting that the validation Experiments that they ran were very shoddy and they they cut all sorts of corners. They Ignored data points. I mean, it's very well known in science. You don't ignore any data. You don't eliminate any data points. That's scientific fraud And they were engaging in this type of behavior because they were trying to get the validation reports for these blood tests to look The way they should look in order to put the tests online and so they did put about a half dozen tests online on the Edison that weren't reliable and because the Edison could only do immunoassays they needed to come up with a way to Pretend that they had technology to do some of these other classes of tests. So they Hacked a machine called the Siemens ad via 1800 which is a big hulking commercial analyzer that isn't at all made to test tiny samples of finger stick blood But they had the brilliant idea that they could modify this machine and adapt it to small finger stick samples and one of the ways they did that is they Diluted the blood the finger stick samples to create more volume because the adviye machine was built two Tests. Yeah, you know normal sized samples of blood. So to create more volume. They would dilute the blood and There are several problems with that one is that there's already a dilution step in the advocates protocol so this amounted to double dilution and when you're Altering the the sample multiple times you're creating more room for error the the other thing is that they were diluting the sample so much that the analytes whose Concentration they were trying to measure in the blood The concentration got so low that it fell beneath the fda-approved analytic measurement range of the machines so it meant using these machines in the way that the manufacturer hadn't intended and the way that the FDA certainly hadn't approved it approved them in it and it led to Another series of unreliable tests. So that patients now were actually yes, right, right, you know They did about I think they did about 80 tests using this hacked method with the Siemens machine Well, we could go on and on about this element, but I think You pretty well establish that I will use the term scam. There's a fair of the And I want to go now to where you become part of the story if I can put it that way Were you first sniffed out something was? Different here and how that led to your right estimation. So I Turn us and Elizabeth Holmes First came on my radar when I read a profile of Elizabeth Holmes in the New Yorker magazine in late 2014 at that point. She'd become a celebrity that had been about a year or more since she had, you know, risen the fame and She'd graced the cover of Fortune magazine six months prior and but for me that that's that was the first time that I discovered that this company existed and that this young woman had founded it and I learned of the company's valuation and and of her great wealth and There was a thing There are a couple things but one thing in particular that struck me as odd as I was reading that New Yorker profile in the subway home You know from Manhattan to Brooklyn where I live which was this notion that a 19 year old college dropout with just two semesters of Chemical Engineering classes under her belt had just dropped out and pioneered, you know groundbreaking new medical science In silicon this this has happened before in Silicon Valley there have been precedents with Mark Zuckerberg before him Bill Gates You know these guys taught themselves how to code and how to program on a computer when they were young legend has it that Zuckerberg taught himself how to code on his father's computer when he was 10 years old and you know, That's believable You you can do that with a computer manual and if you spend hours and hours and hours at the keyboard You can teach yourself how to code but you can't really do that in medicine In medicine, you usually have to have formal training go to medical school often Do a fellowship get your PhD Do postdoctoral studies Do years of research sometimes decade of research before you start adding value and as I say in the book It's no coincidence that most Nobel laureates and medicine earn their Nobel Prizes in their 60s it takes a lifetime of Training and work to add value in medicine, and I knew that and so I smelled a rat but to be fair I Might not have done anything with that hunch. If I hadn't gotten a tip three or four weeks later and the tip came from a clinical pathologist Who was based in the Midwest who wrote a an obscure blog? Called the pathology blog and and he spelled it BL AWG and I don't know how many readers he had. But I would I would speculate that. It wasn't much more than 10 and And I had come across him the previous year doing a Series of stories on Medicare fraud and abuse and I had sought his assistance trying to understand laboratory billing And how clinical labs billed Medicare and he had patiently explained the the Arcane art of laboratory billing to me and I used that knowledge to expose this scam at a network of cancer centers but I hadn't spoken to him at that point in 7 or 8 months and He called me because he had read The New Yorker story - and Knowing a thing or two about blood testing had been immediately dubious about the claims in it and had had quickly posted a short sceptical item on his blog and He had been contacted almost immediately by a little band of Thera no skeptics one of whom was this guy Richard fuse who had been a childhood neighbor of Elizabeth and her parents in the 80s when they lived in Washington and was a medical inventor and entrepreneur And this is sort of a crazy Plot twist but when Elizabeth dropped out of Stanford and and founded tharros, he and his wife Lorraine. We're still friends with the holmes's and and fuses very proud you know, I would say even vain man and His pride was hurt that the holmes's hadn't sought his advice Even though they knew very well that he had decades of experience Patenting medical inventions and building companies and selling companies and so forth And so and at the same time he thought Elizabeth's vision had merit So he had gone on the thoroughness website checked it out had listened to an interview she'd given hi NPR in 2005 and had figured out that there was this one part of her vision that she he hadn't patented which was the alert mechanism to alert doctors when a blood test result is abnormal and he had gone ahead and filed a patent and patented that and you know, which This is probably not a very nice thing to do and she didn't immediately she and her parents didn't really know he had done that but eventually did because patent applications are made public in the USPTO x' database 18 months after they're filed and then elizabeth had come to develop this theory that He had used his son. John fuse who had worked at the same Law firm that their nose had used briefly To for its patent work and she had developed this theory that john fuse had stolen information from thier Knossos own provisional patents and given it to his father and and I looked at those allegations very closely and the litigation that arose from them and came to the conclusion that What fuse had done wasn't very nice, but he had not stolen any information from Thera nose But she did sue him. She sued him in 2011 and that lawsuit that litigation went on for three years and She hired David Boies to to litigate that case and throughout the litigation fuse you know who had a background in medicine and was a trained physician had become convinced that their nose was a scam and so he told you know the pathology blogger of his experience and his suspicions and It helped that he also had just made contact with a an employee who had just left their nose. Who was the outgoing laboratory director? And so when I heard that, you know I was very conscious of the fact that the pathology blogger was like three times removed from any You know primary information and that fuse himself whom I talked to as well was a secondhand source But the fact that I was being told that there was a primary source who just left the company and was alleging You know all manner of wrongdoing got me got my ears to the lab director the lab director Yeah, and so from then on it was you know My mission was to get this lab director on the phone and make contact with him and I did After a couple weeks and he was terrified. He was being hounded by fairness lawyers He had sent a bunch of emails to himself to his gmail account and they were Pressuring him to delete them. He had hired a lawyer She was not a very she definitely wasn't Competent to to take on his case and go up against Boise Schiller Flexner and so she was intimidated by The heavy duty lawyers on the other side and and he was under all this stress and so He would only speak to me if I granted him Confidentiality and so I did I figured you know all I had were rumors and innuendo if I couldn't get this guy to talk and I Promised him I would treat him as an anonymous source, and I would guard his his identity which I'm I still do to this day because he's Identified in the book under a pseudonym. He goes by Alan beam, which is not his real name and During that first phone call with Alan beam that must have lasted an hour or more I learned about you know The fact that very few of the blood tests were actually done on thier nose technology that these Edison machines were faulty that most of the tests were done on commercial instrument that You know that they had modified that Elizabeth and Sonny were a couple and were hiding it from the Board of Directors from employees from the public You know Henry Kissinger had been quoted in The New Yorker piece as saying that He and his wife had tried to set Elizabeth up on dates. Mm-hmm. So it was clear She was lying to her board about the relationship So I pretty much immediately knew this was a big story and especially the part about you know gambling with patients health and lives and The same time the journal wasn't gonna let me go to print with a story based on just one source, however Good, that source was if the source was anonymous and so it became a game of corroboration and over the ensuing months. I said about corroborating what Alan beam was telling me and That's how I came across other former therapist employees one of whom was Tyler Schultz, right who was George Schultz his grandson and Tyler Schultz had worked at their nose and had had worked there eight months and and come to the conviction that it was a fraud and that it was a scam during his eight months and at the tail end of his eight months had tried to alert his grandfather and and open his eyes to what was going on and George hadn't believed him and so he'd had to Leave their nose and keep all of this bottled up for a year and then When I started poking around and calling a lot of his ex-colleagues He heard that this journal reporter was Was poking around and so he looked me up on on LinkedIn. Hmm and at that point Alan beam had told me about Tyler and said, you know, he might be someone you can try as well and I thought the connection with the grandfather was interesting and as you know linkedin has this feature that enables You to see who's checking out your profile. And so I immediately noticed when Tyler Schultz checked out my profile Yeah, so I sent him an InMail through LinkedIn Didn't hear back for a month And was was making headway You know with the story in other ways and then When I had sort of lost hope that he would get back to me my phone rings One afternoon in the journal newsroom. And it's Tyler Also terrified very nervous calling from a burner phone Because he was he was worried that their nests would somehow You know trace our communications and I had to grant him confidentiality as well. And there was he wouldn't talk to me But once I did he he gradually got comfortable and I could tell he wanted to unburden himself and and his story came pouring fourth and that added a pretty Unbelievable twist to this whole there are no story that the Tyler George axis So Last part of this though is You finally decide to publish right right October 6 2015 Yeah, and the company Darren, you know Tyler had good reason to be paranoid and as did Alan beam because the company did eventually figure out that they were among my confidential sources and and threatened them and There's a surreal incident that's Recounted in the book about the way Tyler was ambushed. Yeah, there are no lawyers at his grandfather's own house And then had to withstand months of legal threats Fairness wanted him to sign documents basically recant recanting and Also naming my sources and Tyler Withstood this pressure and and never caved and so in large part thanks to him I was able to go the press with the story in October of 2015 so what the last thing I want to get to audience questions, obviously because they're better than mine the But I'd tell about how you were treated once you published the story and You know, it's like yeah So the story was published on October 15th 2015, which I think was a It was a Thursday, I think and Elizabeth home was in Boston for her first meeting of the Harvard Medical School Board of fellows And so she went on CNBC and she did it from Boston. She Spoke to Jim Cramer and Thera knows had let it be known that you know, she would basically rebut the Wall Street Journal article At that point. I was already working on a second day story because I'd gotten wind before we went to bed with the first story that The FDA had inspected the company But I hadn't gotten confirmation and I was finally able to get confirmation day that the the first story was published and so I immediately was on deadline with a second story, but She came on Kramer. It must have been like five or six in the afternoon in New York time And so that's that Mad Money program. Yeah so I was Standing over the shoulder of a page one editor who was editing my story and we both stopped what we were doing and turned up the volume on the TV To see what she would have to say and and she played the the role of the aggrieved Startup Silicon Valley entrepreneur, who You know is is being attacked by a reporter in league with? you know her competitors namely quest and LabCorp and the centrist entrenched duopoly that that you know is pulling my strings and and and then Kramer although it's a friendly interview does ask her? about some of the allegations in the article and she proceeds to dodge and bob and weave And then the next day or that night she flies back to Palo Alto just address what is beginning to be a growing crisis because then my second story comes out that reveals that the FDA has just done an inspection and and has Taken away from fairness the ability to use its little blood vial which effectively meant that their nose could no longer do fingerstick testing and that evening late afternoon california time She and sunny gather employees in the cafeteria of the Thera nose headquarters on page mill road in Palo Alto and she gives a defiant speech about how You know I'm I'm just this biased reporter who's out to get her and this and my reporting is seated by competitors and by disgruntled employees and how she's going to take on the The Wall Street Journal and The Wall Street Journal is a tabloid and she says And And then Sonny goes on and he gives a sort of a defiant speech as well and three months earlier if the FDA had approved one of thier enosis fingerstick test the herp this herpes test and It had been a big moment of victory for thier nose and they had celebrated in that same cafeteria and Sonny had led the assembled employees and in a I don't know if I'm allowed to say that this word but in a few chant, yeah And the F Hughes had been directed at Qwest in lab court and at the end of that now we're back to two days after my first story and At toward the end of Sonny's speech one of the senior hardware engineers asks him if he can lead them in another chance and everyone immediately understands what he means which chant he means and and Sonny's of course happy to indulge him. And so they start chanting if you carry Roo you carry, Roo and in that's and then About a week after that she came to our technology conference in Laguna Beach A lot of people were wondering whether she would come and she came with her big security detail and she sat on stage and sat through a half an hour interview with our technology editor and There was so much interest in the story at that point that the journal Live streamed it on its website and I couldn't go out to California so I watched it from the newsroom in New York and she Told one bald-faced lie after another over the course of that half hour, and and I was really I suspected that she would come out swinging and that she would deny but her willingness to Lie in public in front of an audience and and really say things that were verifiably false I thought was stunning and and yeah, so the the early parts the early weeks after the story were The response was that the Wall Street Journal is wrong and we're fighting this and You know Right, John. Kerry Roux is a rogue reporter. I suggest that when you read this book just Like they say don't read don't use your computer, you know Like a half an hour 45 minutes before you want to go to sleep Don't read the latter part of this book before you want to go to sleep it it gets the real john lecarre a page-turner I want to go to the audience questions that because they're really good ones I'm not going to be able to get to all of them, but I'm going to try to consolidate some themes here one of them I think is Suggest that this a lot of scams start off as scams. Yep And but that this did not this started off as a bonafide a Effort right she didn't I mean I I fully believe that she did not drop out of Stanford at 19 With a premeditated plan to defraud investors and to put patients in harm's way She dropped out as this idealistic Entre entrepreneur or would-be entrepreneur Who really did want to follow in the steps of? Steve Jobs, and and she had this idea this cool idea and she wanted to make it happen and she had this charisma and and She raised a lot of money over the years and Made some progress building a device never really got there and Soon started, you know over-promising and lying exaggerating and the lies got bigger and bigger and over the course of 12 years it became a giant lie, and she But she always intended to catch up. I think I think in her mind Her attitude was the ends justify the means it's okay. If I cut all these corners, it's okay if I tell all these lies Because eventually I'll get the technology to deliver on what I've promised and it will work and then it will be a great advance for for you know Laboratory medicine and it'll be for the good of society. Yeah when you see her interviewed on She's quite passionate about the long term social benefit and I think a large part of that is genuine Yeah That's what that's the point and there many people are curious about so what has happened to the company now What so the the Elizabeth Holmes? Laid off another 100 employees about a month and a half ago So the headcount of the company is now down to about 20 people. It's a shell of what it was yeah, when I started digging into the company, it had 800 employees and Had this beautiful new headquarters on page Mill Road in Palo Alto They have long since abandoned that pricey real estate. And now that the 20 employees left are in a manufacturing facility across San Francisco Bay and Newark The SEC has charged her and Sonny and the company with fraud She settled the fraud charges without admitting or denying wrongdoing She was fined a half million dollars relinquished most of her shares and her controlling interest in the company and Agreed to a ten-year officer director ban in a public company a lot of people feel like that's a very light Punishment get given the the magnitude of the wrongdoing and its really a slap on the wrist And to those people I say Don't forget that there's another investigation that's ongoing a criminal one Spearheaded by the US Attorney's Office in San Francisco. Mm-hmm. I'm told that's pretty advanced and that that criminal charges are very possible and even likely In terms of the company The company probably has another two months before it runs out of money and and then will be liquidated. I expect it to cease to exist by August and another Kind of overarching question that appears here is What do what have we learned from this? I mean the VC community what have they learned the Walgreens and That everybody was affected by this Is their right I mean, I think that in Recent years. We've come to lionize, you know these tech entrepreneurs who create these companies and Become fabulously rich and and who's you know? Creations do impact our lives that when you think about Facebook and Twitter, I know these are products that we use every day And We tend to forget that these are young people Barely adults, you know, she was 19 years old when she dropped out basically a kid With the amount of money that's gushed in the Silicon Valley in large part because the Fed has kept interest rates At rock-bottom for 10 years after the the Great Recession So people were no longer able to get returns for you know from traditional investments like bonds And so I think that contributed in a big way to this enormous flow of money into Silicon Valley and and People like Elizabeth Holmes and these young founders were able to dictate the terms And to do whatever they wanted and to in thier Knossos case Keep more than 99 percent of the voting rights The the board couldn't even the Board of Directors couldn't even reach a quorum without her I mean it was it was that was not a real Board of Directors. It had no power whatsoever And it's also given rise to the situation where where these companies because they have access to so much money in the private markets Put off going public for a long time and Are able to continue? operating not in a transparent way and at least not as transparently as they would have to if the I if they IPO tanned and they suddenly had to You know put out earnings every quarter and put out annual reports and answer analyst questions and peer review it and know yeah, and then I would say another another big lesson here is that She modeled herself after the traditional Silicon Valley, you know, the the Silicon Valley that started with the microprocessor Industry in the 50s and 60s that became the the personal computer industry That became the internet industry in the late 90s and is now you know, essentially smartphone apps and companies like uber but that's not medicine and and increasingly there is a convergence between traditional tech and and health particularly with a right, and and and so increasingly there's going to be this convergence and I think the the Thera knows story is really a cautionary tale to tech founders and and VCS and everyone involved in this health tech space that You always have to remember that when you're building a device that is ultimately a medical device used for medical decisions that your your end customer is the patient and you should always have the the patient in mind And that vaporware doesn't fly right or the blue screen of death. Yeah The last question because one of the lingering on from here again one of the lingering thoughts that she had which was really a Paradigm shift in medicine was the retailer's ation I'll call it of blood testing so that we could go to Walgreens and find out what our cholesterol level is or whatever We were interested in is is that going to occur? do you think I mean that was not necessarily a bad idea one of the ironies of The theros debacle. Is that a safe way, you know invested 350 million dollars in remodeling the the pharmacy sections of its supermarkets and For years now these areas have been these little clinics have been empty but in the past couple years Senora quests in Arizona has reached a partnership with Safeway and is offering a blood test to two retail consumers Hopefully sinto requests ISM, you know their results are more reliable. Yeah the Thera knows One thing to to bear in mind about about their nose is it liked it and Elizabeth like to advertise how low that the prices were But that was a fiction too. It was not a fiction in the sense that their nose wasn't offering those prices it was but what was a fiction was that the company that that was a business model that could work and that the company could actually make money that way There really was no secret way that their nose was going to make those low prices Profitable it had the same costs as other labs and and in lab testing You know there there are enormous cost cost of equipment cost of personnel a cost of shipping the blood samples is an enormous cost and regulatory cost in regulatory costs and and Their nose had made none of those costs really go away. So That was a mirage the low prices Were not something that was sustainable well we are out of time, but I there's two ways for you to follow up on this number one is get this book and read it and Second is wait for the movie to come out Doesn't tell us who is Thank you very much
