The Theranos Story, ch. 49: CEO Holmes reportedly raising funds for a new company–and feeling like Joan of Arc

June 13, 2018 | by
[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2016/11/jacobs-well-texas-woe1.jpg” thumb_width=”150″ /]Here’s the place where your money will go if you’re an investor. John Carreyrou has now compiled his reporting for the Wall Street Journal on Theranos into a new book, Bad Blood: Secrets and Lies in a Silicon Valley Startup, and it is a Must Read for this Editor and anyone interested in the nexus of Tech, Healthcare, and Hype. (The link goes to AbeBooks, a worthy marketplace for independent booksellers.)

According to Mr. Carreyrou, the founder/CEO Miss Elizabeth Holmes–still leading the company despite settling with the SEC on fraud charges, surrendering her voting control, barred from serving as a public company director or officer for 10 years, and still fighting civil lawsuits–is raising fresh funds for a new venture.

Your eyes did not fool you.

Theranos was a Dogpile of Deceit. From hacking standard Siemens blood testing machines to work with tiny samples, falsifying test results, faking up the Edison test machine, to company financials, it was one lie on the other, chronicled for our Readers in nearly 50 chapters and multiple references. 

Mr. Carreyrou was asked by former Timesman and Vanity Fair reporter Nick Bilton whether, in this unmistakable pattern, Ms. Holmes was a sociopath. Mr. Carreyrou wisely refrained from diagnosis based on a used DSM-V, being a reporter and not her psychiatrist. From Mr. Bilton’s interview podcasted on ‘Inside the Hive’:

“At the end of my book, I say that a sociopath is described as someone with no conscience. I think she absolutely has sociopathic tendencies. One of those tendencies is pathological lying. I believe this is a woman who started telling small lies soon after she dropped out of Stanford, when she founded her company, and the lies became bigger and bigger,” Carreyrou said. “I think she’s someone that got used to telling lies so often, and the lies got so much bigger, that eventually the line between the lies and reality blurred for her.”

Mr. Carreyrou, and by inference anyone who doubted her, like her CFO, and especially those who went public with criticism–well, we are the Bad Guys:

“She has shown zero sign of feeling bad, or expressing sorrow, or admitting wrongdoing, or saying sorry to the patients whose lives she endangered,” he said. He explained that in her mind, according to numerous former Theranos employees he has spoken to, Holmes believes that her entourage of employees led her astray and that the bad guy is actually John Carreyrou. “One person in particular, who left the company recently, says that she has a deeply engrained sense of martyrdom. She sees herself as sort of a Joan of Arc who is being persecuted,” he said.

Mr. Carreyrou was set upon by this ‘martyr’s’ legal pitbulls, one David Boies, until he wisely exited stage left with a bushelful of worthless stock [TTA 21 Nov 16].

(And what is it about Stanford University that fosters people like Ron Gutman, recently ousted from HealthTap over employee abuse and intimidation charges in what may be a Silicon Valley First? [TTA 3 May] Here we have someone who plays with people’s lives and health in vital blood testing. Aren’t some ethics courses long overdue?) 

Mr. Bilton makes the extremely fine point that Silicon Valley will continue to be magnetically attracted to founders equipped with a ‘reality-distortion field’ (as he termed Steve Jobs). SV will relegate Theranos to a biotech outlier. Yet as long as Silicon Valley MoneyMen like Tim Draper will back the likes of Elizabeth Holmes as long as they have a good line of (stuff), despite being embarrassingly proven not just (and only) wrong, but now perpetrating fraud, the Jobsian Myth and black turtlenecks will rise again like Dracula. (Another analogy comes to mind, but precocious children might be reading this.)

We haven’t heard the last of her.

An excellent interview by Tom Dotan of Mr. Carreyrou is podcasted on The Information’s 411 in “You’re So Vein”, which gets the award for Title of the Week (trial signup required, or listen on SoundCloud). Starting at 15:00, interesting comments on the why of Sunny Balwani and Ms. Holmes’ series of ‘marks’ including George Shultz. Also Gizmodo and Politico’s Morning eHealth newsletter.

The Theranos Story, ch. 47: the post-mortem, blaming–and ghost chasing–begin

March 21, 2018 | by
[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2016/04/Yak_52__G-CBSS_FLAT_SPIN.jpg” thumb_width=”150″ /]Now that Elizabeth Holmes is the former CEO of Theranos, many of the publications who huzzahed their ‘revolutionary’ blood testing system three short years ago are publishing their post-mortem analyses, often of how the wool was pulled over their eyes.

Jenny Gold from Kaiser Health News and NPR has a short ‘alarming’ tale of her press visit in November 2014 to a Theranos testing site at a Palo Alto Walgreens for an NPR feature. At Walgreens, she spoke with patients on the record and was invited to witness their blood draw–not the finger prick Theranos (and Walgreens) promoted, but a standard volume blood draw. After multiple and telling upset reactions from her company press handlers, including demanding Ms. Gold erase her audio recording (!) and accusing her of harassment, alarms went off at the Walgreens store for a non-existent fire. She was baited with an interview with Ms. Holmes–which never happened–and wound up with a corporate attorney instead who made unsupported statements. Ms. Gold canceled her story, which if she tracked the bad smell would have been likely the first press shot across the bow. What this post-mortem tells us is the extent of the coverup and the sheer (and unethical) fawning flackery that appeared in places like the New Yorker, Forbes, Inc., and Fortune.  NPR

The FT further digs into our gullibility, our wanting to believe that someone in a black turtleneck could put the Big Labs out of business,  how we in the press hungered for a new and female Steve Jobs to shake up the status quo. Andrew Hill: “Trouble often hits, though, when leaders stick to their story after it has diverged from reality, swerving into embellishment, mythmaking and, in Ms Holmes’s case, apparently fraud.”

But we were no smarter than those who gave Ms. Holmes and Mr. Ramesh ‘Sunny’ Balwani $700 million in Mad Money. (more…)

The Theranos Story, ch. 46: “F for Fake.” SEC’s fraud charges force Elizabeth Holmes out (finally).

March 15, 2018 | by

[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2016/11/jacobs-well-texas-woe1.jpg” thumb_width=”150″ /]Our New Year’s 2018 prediction (after December’s $100 million loan from Fortress Investment Group): “Ms. Holmes will be removed and replaced, then the company will be reorganized and/or renamed.”

Fortress did not have to wait long or get their hands dirty. Today, the Securities and Exchange Commission (SEC) charged both founder and now former CEO Elizabeth Holmes and past CEO/president Ramesh ‘Sunny’ Balwani with securities fraud. While Mr. Balwani will fight the charges, Ms. Holmes escaped trading her black turtleneck for an orange jumpsuit by agreeing to pay a penalty of $500,000 to the SEC, give back 18.9 million shares to the company, give up her uniquely Silicon Valley perk of super-voting equity rights, and is now barred from serving as a public company director or officer for 10 years. From the Theranos release: “As part of the settlement, neither the Company nor Ms. Holmes admitted or denied any wrongdoing.”

This penalty may seem puny in the light of other securities fraud cases, but it appears that Ms. Holmes took little salary out of the company, with most of her long-gone billions in presently worthless remaining stock. 

The exact meaning of fraud, as determined by the SEC in cases like these, is not casual. We can say that we never believed the Edison or miniLabs would work despite the press hype. We can observe that patients and doctors were misled in test results, resulting in major human cost (our Ch. 22).  The fraud here is directly tied to representations made to investors that enabled Theranos’ massive funding, in multiple rounds, of over $700 million between 2013 to 2015. These misleading representations included demonstrations, reports on the functioning of its analyzers, inflating its relationships such as with the DOD, and its regulatory status with the FDA.

It also does not matter that all the funds were privately raised. The SEC in its statement firmly stated that it will treat private equity as it does public when it comes to investments (pay attention, health tech companies): (more…)

The Theranos Story, ch. 39: good news, bad news, and the ugly lawsuit news

April 20, 2017 | by
[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2016/11/jacobs-well-texas-woe1.jpg” thumb_width=”150″ /]It’s that darn well again! Theranos‘ News of the Week ran the gamut from cheap, to expensive, to potentially business terminating.

Cheap was the settlement of the Center for Medicare and Medicaid Services (CMS) civil penalty against the company for a pinprick of $30,000. What remains: that Theranos cannot own or operate any labs for the next two years. As the company has downsized and done the Silicon Valley pivot to developing labs and testing platforms, the settlement is the barn door closing after the horse has exited and crossed the state line. Theranos press release,

Expensive was the settlement of the Arizona legal action brought by the state Attorney General, Mark Brnovich. $4.65 million settled matters, providing full refunds for 175,940 Arizona consumers who ordered between 2013 and 2016 approximately 1.5 million blood tests and 7.8 million results. Also on the tab are $200,000 in civil penalties, $25,000 in attorneys’ fees, and a claims administrator to dole out the refunds. While it was estimated that only 10.5 percent of tests were inaccurate, the consumer fraud charges were easier for Theranos to settle without admitting wrongdoing. A solid win for the AG as well. Background on this in Ch. 33. Ars Technica, Bloomberg, Theranos press release

Potentially disastrous is the go-ahead given to one of the many lawsuits against Theranos, also charging Elizabeth Holmes and former CEO Ramesh ‘Sunny’ Balwani. The US District Court for the Northern District of California ruled in the case brought by two shareholders, Robert Colman and Hilary Taubman-Dye, represented by Hagens Berman (Ch. 27), that most of the claims of investor fraud would proceed. Theranos’ sole success was having the charge of misrepresentation of securities under the California Corporations Code dismissed on the technicality of purchase from a third party seller. The more damning claims of direct misrepresentation by Ms Holmes and Mr Balwani, mentioning news articles and their advertising campaign, were upheld. Interestingly, the plaintiffs must now show cause why the third party sellers (Lucas Venture Group, Celadon Technology Fund, SharePost), should not be included as defendants. The stage is now set for a class-action lawsuit with potentially thousands of other investors. Theranos page on Hagens Berman website, District Court ruling document.

The final countdown is at the bank. In March, Theranos reported $150 million in cash (ch. 38), down from $200 million in January. Subtract $30,000 to CMS, $4.65 million to Arizona, legal fees, pending lawsuits, and running expenses–with no investors and revenue in–and a burn of about $50 million a quarter, it will be Taps for Theranos before end of year.

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

November 18, 2016 | by
[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2016/11/jacobs-well-texas-woe1.jpg” thumb_width=”150″ /]A 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. 19: the dramatic denouement, including human tragedy

September 9, 2016 | by
[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2016/04/Yak_52__G-CBSS_FLAT_SPIN.jpg” thumb_width=”150″ /]The deconstruction of Theranos continues, con il dramma, rounding back to those who touted it. There isn’t all that much new in Nick Bilton’s Vanity Fair article, but it adds context and color to this (literally) Bloody House of Smoke and Mirrors. (Ah, where’s Christopher Lee when you need him?–Ed.) There’s the usual Inside Baseball of closed-door meetings in ‘war rooms’, G150 jetting to awards, bodyguards, threatening lawyers, crisis managers, COO ‘enforcers’ (Sunny Balwani) and playing the Silicon Valley investor game (with Google Ventures taking a very smart pass). Where this gets unusual is the portrait of Elizabeth Holmes as an obsessive, secretive, blondined Steve Jobs knockoff from the age of 19, with a hot idea that never matched scientific reality from the start, but with a great line of ‘making the world a better place’ magnified by Silicon Valley’s incessant, We’re The Top And You’re Not narcissism.

Even Narcissus ultimately saw a fool in that pool. Played and tarred to a greater or lesser degree were: the only major SV VC lured in, Draper Fisher Jurvetson, and off-SV investors like mutual funds and private equity have lost it all; Fortune, Forbes, CNN plus much of the tech and financial press; and respected people lured to the board like Marine Gen. James Mattis, who had initiated the pilot program in DOD, Henry Kissinger and former Senator Bill Frist MD. Then the alphabet agencies marched in after the author: FDA, CMS, SEC and DOJ.

Oh yes, that Zika test announced in early August? Withdrawn at end of August. Ms Holmes is appealing her two year lab ban. But she still has absolute control of what’s left of the business. Business Insider

Finally, the lede in many articles is the suicide of British chief scientist Ian Gibbons and Ms Holmes reaction. Already ill with cancer, (more…)

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

May 19, 2016 | by

[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2016/04/Yak_52__G-CBSS_FLAT_SPIN.jpg” thumb_width=”150″ /]Tens 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.