The Theranos Story, ch. 29: Blame the scientists! Bring on the lawyers!

click to enlargeIt was the fault of the scientists and the investors! That is the speculation of Quora poster Drew Smith, a former R&D director at biotech firms MicroPhage and SomaLogic. It was a round robin of founder/CEO Elizabeth Holmes’ all-too-rosy forecasts and scientists not wanting to toss a wet wool blanket on the fun by telling her what she didn’t want to hear. Mr Smith, from where his experience lies, believes that the scientists discarded the testing with bad results, passing on only the good even if flawed, in a delusional circle that ultimately went pear-shaped. Then there were the investors, who didn’t apply the usual Deep Discount to the Big Hype that all entrepreneurs weave around the Revolutionary Whatevers, for whatever reason. On this, Mr Smith doesn’t speculate. It must have been those wide-screen blue eyes, black turtlenecks, and nanotainers that kept them mesmerized. Theranos wouldn’t be the first company that failed because they believed their own press releases and pictures! Forbes  Hat tip to reader Bill Oravecz of Stone Health Innovations and WTO Associates.

And the law firms multiply. Continuing to fight Theranos’ many lawsuits in multiple courts are a bevy of Big Law firms. In Chapter 26, Boies Schiller exited, stage left, and Wilmer Hale (formally Wilmer Cutler Pickering Hale and Dorr) entered. Wilmer Hale is representing Theranos in the California class action lawsuit described in Chapter 27 and what we’ve deduced is the Partner Fund Management lawsuit filed in Delaware (Chapter 21). Here’s where Santa unloads his jolly pack of toys for the Law Boys. Cooley LLP (32nd on The American Lawyer’s 2016 Am Law 200 ranking) is busy representing Ms Holmes, who has been separately sued by Partner Fund Management, and defending an Arizona lawsuit (Chapter 22). And on deck for Theranos in the Walgreens action, also in Delaware? (Chapter 23) Newcomer Wilkinson Walsh + Eskovitz, founded earlier this year by top trial lawyers from larger firms. All those billable hours add up to gold in their stockings, coal in Theranos’. Law.com

See here for the 28 previous TTA chapters in this Continuing, Consistently Amazing Saga.

Categories: Latest News, Opinion, and Soapbox.

The Theranos Story, ch. 26: counsel Boies, Schiller & Flexner departs, disagreeing

click to enlargeAppearing in the netherworld of a Saturday weekend edition before a holiday week was this tidbit in the Wall Street Journal announcing that Theranos‘ legal representation will no longer be big, politically connected NY-based law firm Boies, Schiller & Flexner. Their replacement is a big, politically connected Washington, DC-based law firm, WilmerHale.

Reasons why, according to the John Carreyrou article, are disagreements on how to handle the ongoing multiple government investigations of Theranos. It also follows the September departure of in-house general counsel, and former Boies partner, Heather King, who is returning to the firm. Her replacement is David Taylor, who has no visible ties to WilmerHale.

According to Mr Carreyrou, Mr Boies “became Theranos’s outside counsel after being approached in 2011 by two investors in the Palo Alto, Calif., startup. He fiercely defended Theranos against questions about its technology and operations.” Those actions included threats of legal action against the WSJ and pressuring whistleblower Tyler Shultz (ch. 25).

Mr Boies also sits on the Theranos board. His fate there is not disclosed, yet.

David Boies is known as a bare-knucks litigator involved in high profile cases defending Sony, American Express and Big Tobacco, and against Medco, Microsoft and George Bush in the 2000 presidential election. At 75, the chairman is one of the best known figures in what is colorfully termed Big Law.

Perhaps another reason why is found at the end of the article. “The law firm was paid in Theranos stock for its work on the patent case, according to a person familiar with the matter. Boies Schiller was granted more than 300,000 shares valued at $4.5 million, based on a valuation of $15 a share at the time, this person said.” Since this $9 bn Unicorn is now worth about $9, this was a bad investment, indeed.

But Elizabeth Holmes, and whoever is left, are soldiering on to “show who we are through our inventions.” Indeed.

If the link hits the paywall, search on “Theranos and David Boies Cut Legal Ties”.  See here for the 25 previous TTA chapters in this Continuing Saga.

The Theranos Story, ch. 25: is the nadir the $400,000 harassment of whistleblower Tyler Shultz?

click to enlargeA story to make your blood…boil. Tyler Shultz is a 26 year old Stanford University grad with a biology undergraduate degree. He ‘fell in love’ with the Theranos vision of quick small blood sample testing after visiting his grandfather’s home near the campus and meeting, of all people, Elizabeth Holmes in 2011. Tyler snagged a summer internship and then a full time job during their salad and steak days (September 2013). He worked on the assay validation team, which verified the accuracy of blood tests run on Edison machines before they were deployed in the lab for use with patients.

Then it all went sideways…and down. Ms Holmes was at his grandfather’s because he is George Shultz, 95 year old former secretary of state and Fellow at the Hoover Institution based at Stanford. Mr Shultz was one of the numerous Washington alumni lending luster to the Theranos board (now advisers), such as Henry Kissinger, Sam Nunn, James Mattis and Bill Frist (the last the only one with an MD).

Tyler Shultz soon discovered, like many new graduates, that his dream job wasn’t all that it was cracked up to be. Except that it wasn’t the hours or the quality of the snacks. He discovered that the Edison machines had highly variable results when tests were rerun with the same blood sample–and they routinely discarded the outliers from the validation reports. Edison testing for a sexually-transmitted infectious disease had a claimed 95 percent sensitivity. “But when Mr. Shultz looked at the two sets of experiments from which the report was compiled, they showed sensitivities of 65% and 80%.” It only got worse when he moved to the production team, where quality control standards were routinely flunked and President Sunny Balwani pressed lab employees to run the tests anyway. Mr Shultz went directly to Ms Holmes, twice, received a nastygram from Mr Balwani for the second, and quit–but not before anonymously sending results to the New York officials who administered a proficiency-testing program and who confirmed that the results sounded like ‘PT cheating’.

The rest of the story by John Carreyou is one of corporate harassment and family estrangement: legal harassment (including private investigators) by none other than David Boies’ law firm on the pretext of ‘confidential information’; the manipulation, currying of favor and misleading of a great but aged man; and a family’s trust fractured if not broken, despite the grandson being proven right, ironically, by the same Washington agencies that his grandfather so loyally served. Mr Shultz is now working on the Cloud DX team for the VITALITI Diagnostic Android Application in the running for the Qualcomm Tricorder XPRIZE. Wall Street Journal  See here for the 24 previous TTA chapters in this Continuing Saga.

The Theranos Story, ch. 22: the human cost of lab error (updated)

click to enlargeSave this one for the coffee or lunch break. What is the cost of a lab error on the human psyche? It can be mildly upsetting to you and your doctor, warning of a developing condition and some changes have to be made–or make for a very bad day/week/months. It can be falsely reassuring or simply confusing.

We know that in April, Theranos flunked a CMS review, and in May voided all test results from its proprietary Edison devices from 2014 and 2015, as well as some other tests it ran on conventional machines. The results were not only off, but way off, according to the WSJ. “Notes from the CMS inspection show that 834 out of 2,890 quality-control checks run on the Edison in October 2014, or 29%, exceeded the company’s threshold of two standard deviations from its average result. Standard deviation is a statistical measurement of variation. In addition, 80% of the 834 quality-control checks that raised a red flag under Theranos’s internal standards were more than three standard deviations from its average result, the inspection notes show.”

They also failed to notify patients for weeks or months, and often not until forced to. At least 10 lawsuits have been filed in Arizona and California. Some of the human stories of Theranos’ improbable lab results, which included tens of thousands of patients, with the cost of retesting, repeated doctor visits and agonizing suspense :

  • After five widely different Theranos blood coagulation tests in six weeks, a retired marketer living in Arizona and his doctor so distrusted the results that the latter recommended that he stop taking warfarin and switch to a milder medication. This patient found out only last Friday that Theranos had corrected a September 2015 test showing his blood taking more than six times longer than normal to clot. The other four tests showed the warfarin wasn’t thinning his blood enough. Contradictory results confusing both doctor and patient on treatment.
  • A thyroid cancer survivor got thyroxine results (T4) from three tests conducted in October 2014. The extremely high results could have indicated hyperthyroidism at the least, or a more serious condition. The results–false after retesting failed to confirm.
  • A breast cancer survivor had extremely high levels of estradiol, which could have been produced by a rare adrenal tumor that can secrete estradiol or an elevated risk of breast-cancer recurrence. Again, false results but found only after retesting.

The comments under the article are worth the long scroll. (They are running 98 percent in favor of Holmes for Prison 2017. Also there are a few shots at Walgreens’ role in legitimatizing Theranos by putting their centers in store; this embarrassing part of the story isn’t over, in this Editor’s opinion.) What is evident–fraud perpetrated on patients and doctors–and anyone who invested. David Boies, their legal supremo and board member, is gonna have a full docket between this and the various legal actions taken by the Alphabet Agencies.

Agony, Alarm and Anger for People Hurt by Theranos’s Botched Blood Tests. If the WSJ is paywalled, search under the headline text.

See here for the agony of TTA’s 21 previous Theranos chapters. We hope that John Carreyrou and the WSJ investigative team, which we’d assume includes Mr Weaver, this article’s author, are awarded the Pulitzer Prize.

The Theranos story, ch. 17: closing the barn door after the horse

click to enlarge And it may work, though the horse is in the next county. Late last week, with American eyes elsewhere, Theranos announced that they hired two executives with regulatory responsibility–a chief compliance officer and an VP regulatory and quality–and formed a new board committee focused on same. The CCO is Dave Guggenheim, the former assistant general counsel for regulatory law at HIT/medical distribution giant McKesson. The VP, Daniel Wurtz, comes from a similar senior director position at biotech Thermo-Fisher Scientific.

The country maxim, ‘closing the barn door after the horse has bolted’, applies. In fact, the horse is in town and having a growler of beer at the local tavern. The Newark, California lab is shut and the principals, including the CEO Ms Holmes, are technically prohibited from operating a lab for at least two years (that means you, Ms Holmes) starting in a month. Messrs Guggenheim and Wurtz (or similar) should have been on board years ago. Even small companies in our field realize they HAVE to do this!

This also doesn’t affect the interesting interest that DOJ and SEC have in Theranos. [TTA 10 July]

However, this Editor will take the contrarian view that somehow, some way, the ‘fix’ is being worked out, if not in. Don’t make reservations for the fire sale quite yet. The ban on Ms Holmes won’t take place for another month, minimum. That gives time for David Boies, their legal supremo, and his firm to stall for more time, and time for some calls to ask favors from friends, of which he has many in this administration. More than likely, Boies on behalf of Theranos will appeal the CMS rulings to an administrative judge. Ms Holmes may take the hit, but may get a handsome payday to depart despite her reported control, if the investors can salvage something out of the company.

At HQ, they may be rehearsing saying ‘mea culpa, mea culpa, mea maxima culpa’ three times, kneeling deeply, in preparation to Going Forth And Sinning No More.

The Object Lessons taught by the Theranos Troubles, to us in healthcare tech, continue.

WSJTheranos Hires Compliance, Regulatory Executives  (more…)

More reflections on, significance of the Theranos quagmire (updated)

click to enlargeTheranos’ spin towards the Auger In continues. Truth or Consequences are apparent. So are setbacks.

Wired has put together a timeline of the key events in The 9 Events That Have Pretty Much Doomed Theranos, most of which our Readers in following our coverage (index here from 2013) are already familiar with. One interesting point is #7, which touches on another gift to the legal profession–the class action lawsuit. Eight lawsuits are already in process, and at least one names former partner Walgreens Boots.

SEC and DOJ’s interest. The SEC, limited in its action because Theranos got big without going public (see below for more), is likely seeking misrepresentation of technology to investors–as in, ‘it really didn’t work’. Penalties may include repayment or settlements to investors and barring principals from ever leading a public company. The DOJ will likely focus on consumer impact. Knowing that your blood tests are inaccurate but continuing to sell them violates all sorts of Federal health regulations, and can earn the principals orange mock turtlenecks and a long stay in a place with iron bars, pesky regulations and no choice of wardrobe. Sadly, Theranos’ legal counsel and board member David Boies won’t have a chance to unleash one of his favorite intimidation weapons, the libel lawsuit. Instead, he’ll be uncomfortably playing defense (but for how long?) Give the man a crying towel, and remind him to bill in advance. Wired (from April)

*Updated: Here’s the CMS letter, courtesy of the WSJ. (If John Carreyrou doesn’t receive a Pulitzer Prize, the fix is in!–Ed.)

The market demonstrated inefficiency in allowing companies like Theranos to get big without going public. You cannot short or sell the stock (a negative ‘opinion’) which demonstrates that investor-backed Unicorns represent ‘incomplete markets,’ according to Robert Shiller’s Efficient Markets Hypothesis. Of course, before going public, the SEC would have demanded disclosure–another reason why Theranos (and possibly other Unicorns) aren’t. Forbes.

‘Theranos has probably set back the tremendously promising field of microfluidics by a decade.’ An investor who was rooting for Theranos (but didn’t invest) recounts the dodgy behavior of entrepreneurs from eToys.com to Tesla. ‘Hype is what entrepreneurs do best’; fabbed-up PowerPoint decks are par for the course. “Sadly, the journey from charisma to coercion to lying is quick and often complete.” Ms Holmes, you have a lot of company. When Startups Put The Fab in Fabricate. (WSJ; if paywalled, PDF attached)

Where do we go from here? We’ll close with advice to startups in biotech and medical innovation: pace thyself, know thyself. What’s needed: an internal culture amenable to science–and external regulation–and knowing when to apply the brakes to prevent slamming into The Wall Marked Failure. (Mentioned is a useful tool called a pre-mortem) Wired

Nail in the coffin hammers home: Theranos voids, corrects 2 years of test results

click to enlargeTens of thousands of lab results 2013-2015 voided, “corrections” sent. L’affaire Theranos continues, with the not-so-surprising action of Theranos to void all of its Edison machine testing results, from all labs, as well as many processed on conventional equipment during those years.

According to the Wall Street Journal, Theranos told CMS during its lab inspections that they ran 890,000 tests a year, so we are between 1.5 and 2 million tests being, at minimum, voided. The Edison was used for 12 out of 200 tests, at least initially, with conventional machines performing the rest.

The voiding was verified by John Carreyrou of the WSJ by cross-checking his sources with Phoenix-area medical practices (the Walgreens marketing area), which confirmed receiving corrected test reports. One doctor reported that many of the voided results were for calcium, estrogen and testosterone tests. Here is where it cuts to danger levels: “The doctor said one corrected report is for a patient she sent to the emergency room after receiving abnormally elevated test results from Theranos in late 2014. The corrected report from Theranos now shows normal values for those tests, according to the doctor.”

But how can you send corrected results, which would require a rerun, of samples at least a year and perhaps two years old? It’s not clear if this pertains to standard tests run on miscalibrated machines (see below on Siemens) or somehow Edison tests were re-evaluated.

This reads like a last ditch effort to stay out of the Alphabet Monster’s clutches (CMS, FDA, DOJ, SEC), or at least survive their squeeze. COO Sunny Balwani was bid adieu last week, along with the company adding three members with scientific expertise to one of its many boards. Of course, as we previously noted, these boards are Silicon Valley Sock Puppets. The one to watch is legal Attack Dog David Boies (to whom the First Amendment and a free press are so much tissue paper to be ripped) who also sits on the governing board–politically well wired and the kind of bully attorney you call in when you are facing Big Trouble and need Big Defense–or Offense.

Walgreens Boots–reportedly fit to be tied, because Theranos won’t disclose the extent of the corrections, and surely assessing its legal options. Siemens must be equally unhappy that its equipment was 1) miscalibrated by Theranos and 2) Theranos didn’t monitor test water purity; thus they have become inadvertently tainted.

One must wonder if founder Ms Holmes is considering the fit and finish of orange turtlenecks, or residency in a country with no US extradition treaty. For the company, the flat spin above is likely non-recoverable. Sadly, Clipper Theranos will crash down on other, far more honest innovative companies lined up on the runway. Wall Street Journal (if paywalled, copy and search on the headline); Forbes, Ars Technica. Our Theranos dossier here.

Theranos–the drama and examination continues

The latest chapters:

Theranos’ boards–the advisory board chock full of Blast From The Past political figures like George Shultz, Sam Nunn, Bill Frist and Henry Kissinger–and a governing board–are standing by CEO/founder Elizabeth Holmes. Of course, they have essentially no choice, because Ms Holmes utterly and completely controls the company in the Silicon Valley Manner. The governing board, split off from the advisory board after The Troubles started last October–consists of Ms. Holmes, COO Sunny Balwani, Riley Bechtel of the eponymous construction firm, retired Marine Corps General James “Warrior Monk” Mattis and David Boies, prominently featured in both articles below. Mr Boies is politically well wired and the kind of attorney you call in when you are facing Big Trouble and need Big Defense–or Offense. These boards of course bear responsibility for the governance of the company, including fiduciary, and the actions being taken by CMS, the US Attorney’s office in San Francisco and the Securities and Exchange Commission (SEC) may be making for some sleepless nights. New York Times, Vanity Fair (which overlaps the NYT article)

Trust But Verify is the extraordinarily apt ‘eyebrow’ on this ‘rise and fall’ Quartz article reviewing l’affaire Theranos by a professor of medicine at Dartmouth College. For the non-scientists among us, it gives a layman’s explanation on why venous blood for most tests is needed versus fingerpricks (the latter mixes blood and tissue fluid, and doesn’t accurately measure large molecules such as proteins and lipids–but fine for the smaller blood glucose molecules, as testing diabetics know). It also touches on the Icahn Institute/Mount Sinai study [TTA 26 April, see comment] and points to the Smoking Gun of boards largely not constituted of those with medical or biochemical expertise.

Update: Bloomberg explores a POV in an opinion piece that blood tests are inherently variable, and only one factor in a proper diagnosis. Theranos’ promises to run multiple blood tests on a tiny quantity of blood are not only suspect but also that the “assumption that succeeding in this quest would improve public health” is specious indeed. Theranos and the Blood Testing Delusion

The stakes are high, and getting higher, for Ms Holmes, indeed.

[Ed. Donna’s comment below our earlier article, Theranos’ triple whammy: CMS, DOJ and SEC, addresses some concerns our Readers may have about our coverage. While we are a website interpreting the news and the Editors generally refer to multiple published sources in an article to supply various points of view, we also express our opinions. We try our level best to be fair, to stay in good humor and buttress our points. When you the Reader has a point to add, differs with our interpretation, or believes that your Editors are hanging too far out on that swaying limb, please feel free to comment. We do have a Comments policy which isn’t onerous…it’s posted here.]