In the heart of Silicon Valley, where dreams of technological revolution are born daily, one company stood out as a beacon of hope and innovation. Theranos, founded by the charismatic Elizabeth Holmes, promised to revolutionize the medical industry with a groundbreaking blood-testing device. However, as John Carreyrou reveals in his gripping exposé "Bad Blood," this promise was built on a foundation of lies, deception, and reckless ambition.
The Birth of a Vision
Elizabeth Holmes, like many people, had a fear of needles. This fear sparked an idea that would eventually lead to the creation of Theranos. Her initial concept was a wearable patch that could test patients' blood throughout the day using microneedles, providing real-time information for ongoing diagnoses. This idea seemed revolutionary – a device that could eliminate the need for traditional blood draws while offering continuous monitoring of a patient's health.
In 2004, Holmes founded Theranos with her Stanford University peer, Shaunak Roy. As they began to work on their idea, they quickly realized that microneedles wouldn't be able to draw enough blood for comprehensive testing. Undeterred, they pivoted to a new concept: a credit-card-sized blood-testing machine that would use a simple finger prick to draw a few drops of blood. This small device would then be plugged into a larger, toaster-sized machine that would run diagnostic tests for 240 common ailments, ranging from vitamin D deficiency to HIV.
The potential applications for such a device seemed endless. Holmes and her team envisioned a world where everyone had a Theranos device in their home, allowing for early detection of diseases and saving countless lives. They imagined the machines being used in war zones, disaster areas, and even in the back of army jeeps. The device promised to make healthcare more accessible and affordable, potentially revolutionizing medical diagnostics on a global scale.
The Edison: A Miracle Machine That Wasn't
Theranos named their miracle device the Edison, and the company set out to bring this revolutionary technology to life. However, as the development process unfolded, it became clear that the Edison was facing significant technical challenges.
One of the primary issues was the use of a single pinprick of blood. While this was a key selling point for the Edison, it proved to be a major obstacle in practice. The tiny blood sample made it impossible to screen for the promised 240 ailments. Despite the engineers' best efforts to design special microchambers to move the blood around efficiently, the machine could only test for about 80 common illnesses at best.
Accuracy was another significant concern. As the blood sample became increasingly diluted during the testing process, the reliability of the results came into question. The Edison also faced other technical hurdles:
Temperature sensitivity: The device's performance varied in different climatic conditions, raising concerns about its reliability across diverse geographical regions.
Clogged pipettes: The machine's pipettes, crucial for handling the blood samples, would become clogged and essentially useless within a month of use.
Difficulty in measuring certain elements: The Edison struggled to accurately determine sodium and potassium levels, as the pinprick method of blood extraction caused red blood cells to split apart, skewing the results.
These issues led to growing doubts among Theranos' own staff. Alan Beams, the company's lab director, became so concerned that he convinced management to abandon plans for an HIV test, recognizing the potentially devastating consequences of relying on an error-prone machine for such a critical diagnosis.
Despite these mounting problems, Theranos wasn't allocating sufficient resources to research and development. This lack of investment in solving the Edison's fundamental issues raised eyebrows among outside experts. Timothy Hamill, vice chairman of the University of California's Department of Laboratory Medicine in San Francisco, went on record stating that it was highly unlikely that 240 separate tests could be run on a single drop of blood, even with a thousand years of research.
More moderate voices suggested that Theranos needed at least three more years of intensive R&D before considering a market release. However, these warnings fell on deaf ears as Elizabeth Holmes pressed forward, leveraging her charisma and the growing buzz around Theranos to push ahead with her ambitious plans.
The Rise of a Silicon Valley Star
Despite the technical challenges facing the Edison, Elizabeth Holmes was rapidly becoming a Silicon Valley sensation. She cultivated an image reminiscent of Steve Jobs, complete with a uniform of black turtleneck sweaters and a deliberately deepened speaking voice. This carefully crafted persona, combined with her youth and vision, made her the darling of investors and the media alike.
Holmes' charisma and the promise of Theranos' technology proved irresistible to many. The company chose TBWA\Chiat\Day, the same ad agency that had worked with Apple, to represent them – another nod to Holmes' apparent emulation of Steve Jobs. The agency's CEO, Carisa Bianchi, and executive creative director, Patrick O'Neill, were captivated by Holmes and convinced that Theranos was poised to become the next big thing in tech.
The hype surrounding Theranos grew exponentially. By 2014, the company had reached a staggering valuation of $9 billion. This astronomical figure was bolstered by agreements with major retailers Safeway and Walgreens, both of which planned to incorporate Theranos' blood-testing services into their stores.
Safeway, eager to expand its wellness offerings, invested $350 million to renovate its stores and create special on-site wellness clinics to house the Edison machines. Walgreens, not to be outdone, agreed to install a Theranos device in each of its 8,134 branches. These partnerships lent credibility to Theranos and fueled the perception that the company was on the cusp of revolutionizing healthcare.
In Silicon Valley, where hyperbole and grandiose claims are commonplace, Theranos' bold promises might not have seemed out of place. However, the stakes in medical technology are significantly higher than in software startups. The potential consequences of overstating capabilities in blood testing could be life-threatening.
Nevertheless, Theranos forged ahead, adopting strategies more suited to software development than medical device creation. The company hired Larry Ellison, the billionaire founder of Oracle, as an advisor and applied his model of releasing products early and perfecting them later during beta-testing. This approach, while potentially workable for software, was deeply problematic for a medical device meant to provide critical health information.
As Theranos gained momentum, the gap between its public image and the reality of its technology continued to widen. The company's leadership, spearheaded by Holmes, began to engage in increasingly deceptive practices to maintain the illusion of success and keep the investment money flowing.
A Web of Deception
As the pressure mounted to bring the Edison to market, Theranos resorted to a series of deceptive practices to conceal the device's shortcomings from investors, journalists, and regulators.
Elizabeth Holmes began making extravagant claims about the Edison's capabilities. She asserted that the device could run 800 tests using just a single drop of blood, with results available in under 30 minutes, and that it was fully FDA-approved. These statements were far from the truth.
In reality, the Edison was capable of running only about 20 of the 240 most important tests on a good day. While it could perform immunoassays (tests that check for proteins using antibodies), it couldn't handle hematology tests to determine blood platelet and white blood cell counts, nor could it perform general chemistry tests.
To maintain the illusion, Theranos resorted to a bait-and-switch tactic. When customers arrived at testing centers, only those requiring immunoassays could actually use the Edison's pinprick method. For all other tests, blood was drawn traditionally from a vein and sent to a lab in Palo Alto. There, the samples were tested using conventional machines produced by other manufacturers, notably Siemens.
This deception extended to regulatory bodies as well. When proficiency tests were conducted to assess the quality of Theranos' blood-testing facilities, the company secretly used third-party machines to perform the tests. Regulators were led to believe that these results came from the Edison, further perpetuating the myth of its effectiveness.
Theranos' manipulation of data became increasingly sophisticated. The company cherry-picked successful test results, often from tests conducted on third-party machines, to present to interested parties. They also made false claims about peer-reviewed validation of their technology. The only "peer-reviewed" article about the Edison appeared in an obscure pay-to-publish Italian journal, based on data from just six patients.
The company routinely claimed that its service was more accurate than conventional blood tests. To support this assertion, Theranos argued that 93 percent of incorrect results in conventional blood-testing were due to human error. While technically true, this statement obscured the fact that Theranos' own accuracy rates were far lower than those of its competitors. When regulators finally tested the Edison, they found it to be accurate in only 65 percent of cases on average, with some tests, like those for testosterone, failing an astonishing 87 percent of the time.
Even demonstrations for potential investors were carefully staged. In the early stages of product development, Theranos used mock machines incapable of performing real blood tests. These devices would show blood percolating through them before displaying pre-programmed false readings. For VIP visitors, a pinprick of blood would be put into the Edison for show, but once they left, the sample would be quickly sent to a lab and processed using a conventional Siemens machine.
Dodging Regulation and Scrutiny
Theranos' deception extended beyond its technology and into its dealings with regulatory bodies, particularly the Food and Drug Administration (FDA). The company went to great lengths to avoid FDA inspections while simultaneously portraying itself as a champion of FDA oversight.
The cornerstone of Theranos' regulatory evasion strategy was to argue that the Edison wasn't a medical device at all. Because the blood samples were sent to Palo Alto for analysis, the company claimed that the Edison was merely a tool for transmitting information, thus exempting it from FDA regulation.
This stance changed when Dr. Shoemaker, a lieutenant colonel in the US Army, insisted on FDA approval before considering the installation of Edison devices in military field hospitals. Theranos promised compliance but stalled long enough for Shoemaker to retire, after which the project was quietly abandoned.
The company then adopted a new approach: seeking FDA approval only for tests where the Edison produced reliable results. For instance, Theranos obtained FDA approval for HSV-1 and herpes tests, where the device performed well. In a brazen move, the company then used these limited approvals to position itself as a strong advocate for FDA oversight, generating positive publicity despite the fact that the vast majority of its tests remained unapproved.
Silencing Dissent and Protecting Secrets
As doubts about Theranos' technology grew within the company, management took aggressive steps to prevent information leaks and maintain the facade of success.
Employee discontent was high, resulting in significant staff turnover. Many workers resigned upon realizing the extent of the company's dishonesty. To protect its secrets, Theranos required employees to sign strict confidentiality agreements, effectively muzzling potential whistleblowers.
Despite these measures, the company couldn't stem the tide of resignations, including the departure of its entire executive team. To address this issue, Theranos, under the guidance of Elizabeth's boyfriend and second-in-command Sunny Balwani, began systematically hiring Indian employees who were dependent on their work visas to remain in the United States. This strategy exploited these workers' vulnerability, as they were less likely to speak out against the company's practices for fear of losing their jobs and being deported.
The pressure to maintain secrecy and the toxic work environment had tragic consequences. Ian Gibbons, a British biochemist who had been working on Theranos' immunoassays for years, committed suicide in 2013. Gibbons had been demoted for questioning the company's honesty regarding its testing methods and replaced by a less qualified but more compliant junior scientist. Though Theranos kept Gibbons on in a lesser role, the demotion took a severe toll on his mental health, ultimately leading to his suicide.
The Human Cost of Deception
The full extent of the harm caused by Theranos' reckless behavior may never be known. What is clear is that the company's faulty Edison devices were used extensively before the truth came to light. In Arizona alone, Theranos performed one million blood tests before Walgreens terminated its partnership with the company.
The potential for misdiagnosis and incorrect treatment based on these unreliable test results is staggering. Theranos was eventually forced to repay $4.65 billion it had received for carrying out blood tests in Arizona, but this financial penalty pales in comparison to the potential health consequences for those who relied on the company's flawed tests.
The Unraveling of Theranos
As impressive as Theranos' rise had been, its fall was equally spectacular. The carefully constructed facade began to crumble as more and more inconsistencies came to light.
John Carreyrou, the author of "Bad Blood" and a reporter for The Wall Street Journal, played a crucial role in exposing Theranos' fraudulent practices. His investigative reporting, which began in 2015, brought to light many of the issues detailed in this summary and ultimately led to the company's downfall.
As the truth emerged, Theranos' partnerships dissolved. Walgreens terminated its relationship with the company, and other investors began to distance themselves. The FDA investigated Theranos' claims and practices, leading to sanctions and restrictions on the company's operations.
In 2018, the U.S. Securities and Exchange Commission (SEC) charged Theranos, Elizabeth Holmes, and Sunny Balwani with "massive fraud." Holmes was forced to relinquish control of Theranos, pay a $500,000 fine, and was barred from serving as an officer or director of a public company for ten years.
The criminal case against Holmes and Balwani followed, with both facing multiple counts of fraud. In January 2023, Holmes was sentenced to more than 11 years in prison for defrauding investors. Balwani was also convicted on multiple counts of fraud and conspiracy.
Lessons from the Theranos Scandal
The Theranos saga offers several important lessons for the tech industry, investors, and the public:
The dangers of "fake it till you make it": While this mentality is common in Silicon Valley, it can have disastrous consequences when applied to healthcare and other critical industries.
The importance of due diligence: Investors and partners should thoroughly investigate claims, especially when dealing with revolutionary technology in sensitive fields like healthcare.
The power of charisma and storytelling: Holmes' ability to captivate investors and the media demonstrates how a compelling narrative can sometimes overshadow substance.
The need for robust regulatory oversight: The ease with which Theranos avoided proper scrutiny highlights the importance of stringent regulation in the healthcare sector.
The value of whistleblowers and investigative journalism: The Theranos fraud might have continued much longer without the courage of internal whistleblowers and the persistence of journalists like John Carreyrou.
The potential dangers of hero worship in business: The cult of personality that developed around Elizabeth Holmes blinded many to the realities of Theranos' technology.
Conclusion
"Bad Blood" is a cautionary tale about the dark side of Silicon Valley's culture of disruption and innovation. It reveals how unchecked ambition, coupled with a willingness to deceive, can lead to catastrophic consequences, especially in fields where human lives are at stake.
The story of Theranos serves as a stark reminder of the importance of ethical leadership, transparent business practices, and the critical role of proper oversight in the development of new technologies. It also highlights the crucial function of investigative journalism in holding powerful entities accountable.
As we continue to push the boundaries of technology and seek revolutionary advancements in healthcare and other fields, the lessons from the Theranos scandal should serve as a sobering reminder of the potential costs of valuing hype over substance, and the paramount importance of integrity in business and scientific endeavors.
The Theranos story is not just about a failed company or a fraudulent product. It's a complex narrative that touches on issues of gender in tech, the culture of Silicon Valley, the ethics of healthcare innovation, and the sometimes blurry line between visionary thinking and delusion. It serves as a powerful reminder that even in the fast-paced world of tech startups, there are no shortcuts when it comes to developing reliable, life-saving medical technology.
In the end, "Bad Blood" is more than just an exposé of a single company's misdeeds. It's a compelling exploration of human nature, ambition, and the sometimes toxic intersection of technology and healthcare. It challenges us to think critically about the promises made by charismatic leaders and to demand evidence and transparency, especially when lives are at stake.
As we move forward in an era of rapid technological advancement, the story of Theranos stands as a stark warning of what can go wrong when innovation outpaces ethics, and when the drive for success overshadows the responsibility to do no harm.