The Theranos Story, ch. 55: ‘Bad Blood’s’ altered reality on ‘Mad Money’; it was all Bad Blitzscaling

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She lied and the lies got bigger and bigger and eventually the lies got so big relative to reality that it became a pretty massive fraud. 

The hyperbolic Jim Cramer of CNBC’s ‘Mad Money’ settled down for a chat with John Carreyrou, the author of ‘Bad Blood’, to dissect what Mr. Cramer touted as ‘the best business book since Phil Knight’s book about starting Nike, ‘Shoe Dog”. Mr. Carreyrou outlines Elizabeth Holmes and Sunny Balwani went ‘live’ with fingerstick tests far too prematurely, burned through money, lied to the board, and (schadenfreude alert!) lied to attack dog David Boies, her attorney. There was also a real lack of ‘due diligence’–real diligence–on the part of companies like Safeway and Walgreens. A reveal coming out of this interview is that Walgreens hired a lab consultant, Kevin Hunter, as early as 2010, who ‘smelled a rat’ even then–and Walgreens executives ignored him, frightened that Ms. Holmes would go to CVS. Wrapping Ms. Inexplicable Me up, Mr. Carreyrou attributes her mindset to ‘noble cause corruption’; she really did believe that her blood testing machine would do good because the outcome would be good for society. Thus every corner cut was justified….which explains a lot, but really excuses nothing. The ten-minute video is over at ValueWalk (the transcript is only partial).

LinkedIn’s hyperbolic co-founder Reid Hoffman, like him or not, does have a way with words, and this article in Fast Company is a decent discussion of a new term that he actually coined, ‘blitzscaling’ which is pursuing rapid growth by prioritizing speed over efficiency in the face of uncertainty. It’s quite a lure he sets out to his classes at Stanford, that the only way to have a successful business in winner-take-all (or most) markets is to do this, and if you do it right you’ll have the next Google, completely ignoring the fact that 99.99 percent of businesses don’t need to change the world, just to get to breakeven, get to profitability, and endure (or get bought out). He springboards off this to where Ms. Holmes and Mr. Balwani Went All Wrong. The answer? Product failure=Mortal Risk–to the patient. They needed to meet a Walgreens deadline thus went out prematurely with their nanotainer testing knowing it did not work. The best quote in the article?

There’s a big difference between being embarrassed and being indicted.

The Theranos Story, ch. 38: take our shares, but don’t sue us; Murdoch writes it off

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2016/11/jacobs-well-texas-woe1.jpg” thumb_width=”150″ /]What? They’re not toast yet? Far from it. We’ve missed the impossibly twisty soap opera called Theranos, and our latest episode holds to the previous high standard.

CEO and controlling shareholder Elizabeth Holmes is offering shareholders, supposedly from her personal holdings, about two additional shares for each one purchased. This has been offered to the investors in the 2014-2015 $600 million round who bought in at about $15-17/share (ch. 27), such as Cox and Bechtel. The deal dilutes their share cost to about $5. The caveat? Don’t sue Theranos. According to the Wall Street Journal‘s report (Yahoo Finance as WSJ is paywalled), it was approved by Theranos’s board in February, and most investors have ‘signaled that they will sign off on it’. Others are the family of US Education Secretary Betsy DeVos, the Waltons of Wal-Mart Stores Inc. and John Elkann, the Italian industrialist who controls Fiat Chrysler Automobiles NV.

One who is washing his hands is News Corp. executive chairman Rupert Murdoch. He reached a separate settlement for a nominal sum–rumored to be $1–to sell back his shares and legally write off his $125 million investment.

Others are not so lucky. Early investors before that round are not included. (more…)

The Theranos Story, ch. 34: It’s a conspiracy! It’s a vendetta!

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2016/11/jacobs-well-texas-woe1.jpg” thumb_width=”150″ /]Updated Well, that is what one of her major investors says, and he would know! Just when we thought that a week would go by with not a peep about Theranos, we get three. Peeps, that is.

First, the Conspiracy Theory. This is being propounded by early Theranos investor Tim Draper of Silicon Valley VC Draper Fisher Jurvetson. It was all John Carreyrou’s ‘strange vendetta’ against her, to wit: “Elizabeth is the victim of a witch hunt.” The Wall Street Journal reporter set off a cascade of press coverage that compelled, nay, forced Federal regulators (FDA, CMS, SEC, DOJ) and state counterparts to go after Theranos and CEO Elizabeth Holmes. Mr Draper bluntly accused Mr Carreyrou of doing it for money; “the guy is getting $4 million to continue this charade”, referring to the advance on his book proposal “Bad Blood”. The most nauseating part of the Ars Technica interview is this mock-libertarian rejoinder from Mr Draper: “It’s the press creating a series of events that negatively impact technology, progress and our economy.”

So it was all a mistake, an illusion–there was nothing significantly wrong with the Edison Lab, or Theranos’ business practices! (Hat tip to Bill Oravecz of Stone Health Innovations)

Mr Draper perhaps did not consider that Mr Carreyrou’s reporting blew up the $100 million investment of the WSJ‘s owner, Rupert Murdoch (Ch. 27), not just DFJ’s. And SafewayWalgreens, Larry Ellison, Cox Enterprises, Bechtel Group….

Second, the belated reporting of deficiencies at the Scottsdale lab found by CMS (Centers for Medicare and Medicaid Services) on 29 September. According to the Wall Street Journal report (co-authored by Mr Carreyrou), “Theranos responded to the inspection findings in Arizona with a plan to correct its lab deficiencies, but the lab regulator in November rejected the plan and proposed sanctions for the Arizona lab as well.”  This preceded the closing of all labs and the ‘refocusing’ of Theranos on the miniLab. Their general counsel stated, “After months of careful consideration, and prior to CMS’s unannounced inspection in Arizona, Theranos decided to close its laboratories.” Usually, these CMS reports are issued after 90 days. Theranos is appealing the sanctions arising from the California lab inspection with an administrative law judge, which include lab license revocation and a two-year ban on Ms Holmes from blood-testing operations.

Third, Theranos announced an eight-person Technology Advisory Board (TAB) to be led by Dr. Channing Robertson and Howie Rosen. The academics, executives, and entrepreneurs will be charged with “reviewing specific Theranos technology initiatives associated with product development, design and deployment” as well as four other mandates. Analogies concerning horses, roads and the status of barn doors come to mind. Release.

And finally another Theranos Washington connection, besides new SecDef and ‘Warrior Monk’ James Mattis, now an alumnus. It seems that the vetting of Betsy DeVos, nominee for Secretary of the Department of Education, uncovered that she has an investment in Theranos of more than $1 million. However, the Office of Government Ethics also reported her whopping earnings of less than $201. Since others like Rupert Murdoch, Bechtel, Walgreens, Cox, and others ponied up $50 to $100 million, hers is a mere bag of shells by comparison. MedCityNews, who has dubbed it the ‘As Theranos Turns’ soap opera. Hat tip to Bill Oravecz of Stone Health Innovations.

See here for the 33 previous TTA chapters in this Continuing, Consistently Amazing Saga, including Arizona’s lawyering up for a prospective Theranos lawsuit (Ch. 33) the firing of 155 remaining staff (Ch. 32), the resignation of now-DOD Secretary General Mattis from the BOD (Ch. 31), and Theranos’ annus horribilis (Ch. 30).

The Theranos Story, ch. 27: investor ‘whales’ surface in class action lawsuit news

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2016/11/jacobs-well-texas-woe1.jpg” thumb_width=”150″ /]Don’t jump…you may land on one of them! In the Bottomless Well that is The Unicorn Losing Its Horn, The Transubstantiation of a $9 bn valuation to $9, to mix up a Whole Lotta Metaphors, the latest is that Certain Big Investors (‘whales’ in Vegas Lingo) and at least one minnow have lost their shirts, or maybe their sleeves and cuff links.

The first is via a class action lawsuit filed Monday against Theranos in San Francisco Federal Court by Hagens Berman Sobol Shapiro LLP, seeking to represent potentially hundreds of purchasers of Theranos shares from July 29, 2013, through October 5, 2016 .

According to the Wall Street Journal, the charges relate to “false and misleading claims about its operations and technology while soliciting money from investors.” Hagens Berman is representing Silicon Valley investment banker Robert Colman, who is the retired co-founder of Robertson Stephens & Co. (a legendary, now defunct, investment bank specializing in tech that blew up after the dot-com bust). He invested through a VC fund, Lucas Venture Group, who participated in Theranos’ Series G funding in late 2013. Lucas was invited to invest $15 million, and their principals had personal ties to Elizabeth Holmes, according to TechCrunch. The second plaintiff, Hilary Taubman-Dye, purchased Theranos shares at $19/share on SharesPost Inc., an online exchange for shares of private companies, in August 2015. Her claim is that she tried to cancel it after the Wall Street Journal exposé in October, but the purchase went through in December after Theranos, Elizabeth Holmes and an unidentified third party refused to buy back the shares as a secondary transaction. TechCrunch identified her as a “longtime technical recruiter who now works in investor relations for a TV production company” which means that her investment was likely no bag of shells for her. Their respective investments are not disclosed.

The second, according to a second article in the Journal, comes from the usual ‘sources familiar with the matter’ and papers filed by Theranos in Delaware and Arizona. These include some very atypical startup investors, such as Rupert Murdoch of News Corp. and family-controlled Cox Enterprises, at $100 million each in the 2014-15 round when shares were valued at $17/each, and an undisclosed amount by Riley Bechtel of Bechtel Group, who was later named to the board of directors. Other, more typical Silicon Valley investments date back to when Theranos was the more pedestrianly named Real Time Cures in 2004 and the shares were 15 cents each:

  • Oracle co-founder Larry Ellison
  • VCs from firms such as ATA Ventures and Draper Fisher Jurvetson. The latter’s Tim Draper and his daughter (!) have been quite critical of anyone, especially John Carreyrou of the WSJ, claiming that Ms Holmes was perhaps mistaken in her scientific and business practices. (Partner Jurvetson in reports has expressed a more ‘que será, será’ attitude.) (more…)

Unspinning the Theranos scientific advisory board communications spin

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2016/04/Yak_52__G-CBSS_FLAT_SPIN.jpg” thumb_width=”150″ /]Spinning oh so flatly…..As reported in MedCityNews (and here) yesterday, Theranos has made a Radio City Rockettes-showy move in opening at least part of its scientific books to a prestigious group of eight academic researchers from top-flight institutions. The Theranos press release is a masterpiece of positive spin to counter the negative results of the CMS report released last Thursday. However, when the fine-spun web is picked apart by Matthew Herper, a staff reporter for Forbes, it embarrassingly falls apart. The clues are all there, of course, in the elided language, the lack of specificity on numbers, the over-the-top quotes from the CEO and one of the advisory board members….

Upon interviewing three members of the scientific and medical advisory board, the glowing statement of Dr Helfet–who had been a co-chair of Theranos’ existing scientific board–was revealed as not quite accurate in the impression it gave.

  • The full advisory board has not met as a group yet. The impression was given in the release that they did.
  • They were split into three groups, each spending about a day at the Palo Alto HQ “viewing data shown to them by the company about its blood tests, examining Theranos’ Edison machines, and asking questions”. They did not visit any working labs, including the two under CMS fire.
  • Drs Ladenson and Spitalnik thought that what they saw looked “promising” and “intriguing” but would not answer questions on whether Theranos’ devices were ready to be used. Eight hours for Dr Spitalnik was, as he stated, was enough to whet the appetite, but not more than that.

It remains that Theranos has not published one peer-reviewed study, despite promises, promises. The company leadership took in a lot of investor money, gained a $9 billion valuation, got Safeway and Walgreens as partners (now rescinded)–never proving that Theranos’ tests would do what they said they would do. Besides being the bottom line and the one proposition that must be proved, they potentially endangered trusting patients in Arizona and California. And gave a black eye and probably a broken nose to innovation in and consumer access to lab testing.

At least the Yak-52 aerobatic aircraft and its pilot are in a planned, recoverable flat spin. Nothing about Theranos’ spin can be. Forbes

Is Theranos’ ‘blood testing for all’ a responsible selling proposition?

Theranos’ recent troubles on their blood testing (Walgreens halting expansion, FDA halting nanotainers as ‘uncleared medical devices’ and last week chain grocery/drugstore Safeway dropping their $350 million deal for 800 locations) have been well covered in media both here and elsewhere. But what if their Unique Selling Proposition–that people should have the ‘basic human right’ to order up their own inexpensive blood tests and then be responsible for their own interpretation–is counter-productive for many patients? After all, it’s what Theranos has been organized and raised $400 million+ on. Dr Robert Wachter of UCSF, who is no top-down Ezekiel-esque ‘nanny stater’, lends a caution: “There are a lot of companies, including Theranos, that have an interest in making you believe that more data will magically make you healthier. It won’t, at least not in the short-term.” When is ’empowerment’ confusing without recourse to interpretation? Some results are easier to read than others. Does having the data make the average person healthier for real? Personally, this Editor would welcome the ability to walk into her local Walgreens and order up a few to see what’s up–but then again she can do her own research and ask a doctor or nurse to help. Who can (inexpensively) close the interpretation gap? Theranos is wrapped in scandal but goes hard to change laws to its advantage (Mashable)

Soapbox: How healthcare disruption can be sidetracked

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2014/04/Thomas.jpg” thumb_width=”170″ /]Ron Hammerle’s comment on Disruptive innovation in healthcare hasn’t begun yet: Christensen (TTA 31 Mar), posted on LinkedIn’s Healthcare Innovation by Design group, made the excellent point that a potentially disruptive and decentralizing healthcare service–retail clinics–has been sidetracked, at least in the US, leaving an open question on their reason for being. This Editor thought it was worthy of a Soapbox. Mr. Hammerle knows of what he speaks because his Tampa, Florida-based company, Health Resources Ltd., works with retail and employer-based clinics to connect them via telemedicine/telehealth systems with medical centers.

When Clayton Christensen first anticipated that retail clinics would be disruptive to the established healthcare industry, their business model was potentially disruptive. What has subsequently happened, however, is a prime example of how potentially disruptive movements can be sidetracked.

After acquiring MinuteClinic and laying the foundation for taking retail clinics national, CVS Caremark chose to make deals with hospitals, which could easily afford to rent, open and operate such clinics without making money on the front end or facing real disruption. Retail clinics were a loss leader to hospitals in exchange for large, downstream revenues, and slightly-enhanced market share for the retailer’s pharmacy.

After CVS shocked Walgreens with one-two punches involving MinuteClinic and Caremark acquisitions, Walgreens came back with three counter-punches of its own:

1. They doubled the number of their clinics (to 700) in less than two years, thwarted AMA opposition, leapfrogged ahead of CVS in clinic count and totally changed the retail clinic model by setting up politically-invisible, broader service, make-your-profit-up-front, employer-based clinics. (more…)