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How One Company Scammed Silicon Valley. And How It Got Caught.

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In 2015, Vice President Joe Biden visited the Newark, Calif. laboratory of a hot new start-up making medical devices: Theranos. Biden saw rows of impressive-looking equipment — the company’s supposedly game-changing device for testing blood — and offered glowing praise for “the laboratory of the future.”

The lab was a fake. The devices Biden saw weren’t close to being workable; they had been staged for the visit.

Biden was not the only one conned. In Theranos’s brief, Icarus-like existence as a Silicon Valley darling, marquee investors including Robert Kraft, Betsy DeVos and Carlos Slim shelled out $900 million. The company was the subject of adoring media profiles; it attracted a who’s who of retired politicos to its board, among them George Shultz and Henry Kissinger. It wowed an associate dean at Stanford; it persuaded Safeway and Walgreens to spend millions of dollars to set up clinics to showcase Theranos’s vaunted revolutionary technology.


And its founder, Elizabeth Holmes, was feted as a biomedical version of Steve Jobs or Bill Gates, a wunderkind college dropout who would make blood testing as convenient as the iPhone.

This is the story the prizewinning Wall Street Journal reporter John Carreyrou tells virtually to perfection in “Bad Blood: Secrets and Lies in a Silicon Valley Startup,” which really amounts to two books. The first is a chilling, third-person narrative of how Holmes came up with a fantastic idea that made her, for a while, the most successful woman entrepreneur in Silicon Valley. She cast a hypnotic spell on even seasoned investors, honing an irresistible pitch about a little girl who was afraid of needles and who now wanted to improve the world by providing faster, better blood tests.

Her beguiling concept was that by a simple pinprick — drawing only a drop or two of blood — Theranos could dispense with the hypodermic needle, which she likened to a gruesome medieval torture, and perform a full range of blood tests in walk-in clinics and, ultimately, people’s homes. The premise was scientifically dubious, and Theranos’s technology was either not ready, unworkable or able to perform only a fraction of the tests promised. Many of the people who showed up at clinics actually had their blood drawn from old-fashioned needles. And most of the tests were graded not by Theranos’s proprietary technology, but by routine commercially available equipment.

Despite warnings from employees that Theranos wasn’t ready to go live on human subjects — its devices were likened to an eighth-grade science project — Holmes was unwilling to disappoint investors or her commercial partners. The result was a fiasco. Samples were stored at incorrect temperatures. Patients got faulty results and were rushed to emergency rooms. People who called Theranos to complain were ignored; employees who questioned its technology, its quality control or its ethics were fired. Ultimately, nearly a million tests conducted in California and Arizona had to be voided or corrected.


The author’s description of Holmes as a manic leader who turned coolly hostile when challenged is ripe material for a psychologist; Carreyrou wisely lets the evidence speak for itself. As presented here, Holmes harbored delusions of grandeur but couldn’t cope with the messy realities of bioengineering. Swathed in her own reality distortion field, she dressed in black turtlenecks to emulate her idol Jobs and preached that the Theranos device was “the most important thing humanity has ever built.” Employees were discouraged from questioning this cultish orthodoxy by her “ruthlessness” and her “culture of fear.” Secrecy was obsessive. Labs and doors were equipped with fingerprint scanners.


The heart of the problem, Carreyrou writes, was that “Holmes and her company overpromised and then cut corners when they couldn’t deliver.” To hide those shortcuts, they lied. Theranos invented revenue estimates “from whole cloth.” It boasted of mysterious contracts with pharmaceutical companies that never seemed to be available for viewing. It spread the story that the United States Army was using its devices on the battlefield and in Afghanistan — a fabrication.

Even for a private company like Theranos, disclosure is the bedrock of American capitalism — the “disinfectant” that allows investors to gauge a company’s prospects. Based on Carreyrou’s dogged reporting, not even Enron lied so freely.

Carreyrou’s presentation has a few minor flaws. He introduces scores of characters and, after a while, it becomes hard to keep track of them. In describing these many players he sometimes relies on stereotypes. Of an employee “built like an N.F.L. lineman” the author writes, “his physique belied a sharp intellect.” Actually, it didn’t; big people can also have sharp intellects.

Such blemishes in no way detract from the power of “Bad Blood.” In the second part of the book the author compellingly relates how he got involved, following a tip from a suspicious reader. His recounting of his efforts to track down sources — many of whom were being intimidated by Theranos’s bullying lawyer, David Boies — reads like a West Coast version of “All the President’s Men.” The author is admirably frank about his craft. He feels a “familiar rush” when he hears that patient false negatives could be life threatening — i.e., that he’s onto a big story.

In the end, Carreyrou got the Boies treatment — angry (but ultimately hollow) threats of a lawsuit. Holmes also pleaded with Rupert Murdoch — the power behind The Wall Street Journal and, as it happened, her biggest investor — to kill the story. It’s a good moment in American journalism when Murdoch says he’ll leave it to the editors.

After Carreyrou’s front-page exposé was published in 2015, Theranos’s business prospects collapsed, directors resigned and the S.E.C. sued Holmes for fraud (she settled). The company also settled private suits. Federal regulators, already on the trail, found numerous violations, including sloppy lab procedures and unreliable equipment. Theranos, they determined, put patient health in “immediate jeopardy.” Several of the labs have been shuttered. Carreyrou has reported that Theranos is under criminal investigation and probably headed for liquidation.

The question of how it got so far — more than 800 employees and a paper valuation of $9 billion — will fascinate business school classes for years. The first line of defense should have been the board, and its failure was shocking. Some of the directors displayed a fawning devotion to Holmes — in effect becoming cheerleaders rather than overseers. Shultz helped his grandson land a job; when the kid reported back that the place was rotten, Grandpa didn’t believe him. There is a larger moral here: The people in the trenches know best. The V.I.P. directors were nectar for investor bees, but they had no relevant expertise.


Even outsiders could have spotted red flags, but averted their eyes as if they wanted to believe. Fishy excuses — Holmes blamed a production delay on an earthquake in Japan — were blithely accepted. When a Walgreens team visited Theranos it pointedly asked for — and was denied — permission to see the lab. A company consultant pleaded that the chain not go ahead with in-store clinics. “Someday this is going to be a black eye,” he predicted. But Walgreens was plagued by a “fear of missing out.” Like many executives, they were looking over their shoulder and not at the evidence.

Surely, no one suspected a lie that big. The fundamental premise “was to help people, and not to harm them,” Walgreens recounted, in a legal brief that sounded stunned. Yet another explanation is the gilt-edged and magical status that society confers on Silicon Valley, as a place where fantasies come true.

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