How Theranos Pulled Off Its $9 Billion Scandal

Summary

The interview with John Carreyrou, author of 'Bad Blood,' reveals the deceptive practices of Theranos, a company that claimed to revolutionize blood testing with minimal blood samples. In reality, their technology was flawed and often inaccurate. Elizabeth Holmes and her team exploited regulatory loopholes and misled investors and partners like Walgreens. Despite skepticism from some medical professionals, the company's secrecy and aggressive marketing allowed it to thrive until investigative journalism exposed the truth. The story underscores the dangers of Silicon Valley's 'move fast and break things' mentality when applied to healthcare.

Takeaways

• 🚫 Theranos claimed to revolutionize laboratory testing with technology that could perform a full range of tests from just a drop or two of blood, but it turned out to be too good to be true.
• 📚 John Carreyrou's book 'Bad Blood' details the story of Theranos, revealing the discrepancies between their public claims and the reality of their technology.
• 🏢 Theranos had deployed their blood testing technology in Walgreens stores, initially in Northern California and later in the Phoenix area.
• 🔬 The company's prototype, the Mini Lab, was malfunctioning, and the Edison device, named after Thomas Edison, could only perform a limited class of blood tests and was error-prone.
• 🛠️ To offer a wider range of tests, Theranos modified Siemens machines to accommodate small blood samples and conducted some tests using traditional methods with venous draws.
• 🕳️ Theranos exploited a regulatory loophole, classifying their tests as 'Laboratory Developed Tests' (LDTs) to avoid close scrutiny from the FDA and CMS.
• 🤝 Theranos courted Walgreens as a retail partner, promising revolutionary technology that could boost Walgreens' growth, despite internal suspicions from a consultant.
• 🤔 The medical community and laboratory scientists expressed concerns about Theranos' secrecy and lack of peer-reviewed publications, but their voices were not widely heard.
• 📉 The company's failure to validate its technology with pharmaceutical companies and its subsequent pivot to direct consumer offerings highlighted a desperation to commercialize unproven technology.
• 💡 Elizabeth Holmes, the founder of Theranos, adopted the Silicon Valley approach of overpromising and underdelivering, which is not suitable for the healthcare industry.
• 🛑 The story of Theranos serves as a cautionary tale about the dangers of applying Silicon Valley's startup culture to healthcare, where the stakes are much higher for patients and doctors.

Q & A

What was the promise of Theranos' technology according to the transcript?

Theranos claimed to have a revolutionary technology that could run the full range of laboratory tests from just a drop or two of blood pricked from the finger, providing fast results at a fraction of the cost of regular laboratories, even cheaper than Medicare.

What was the reality behind Theranos' claims as revealed by John Carreyrou?

The reality was that Theranos had a malfunctioning prototype called the Mini Lab and had gone live with a previous iteration, the Edison, which could only do one class of blood tests poorly. For the rest of the tests, they used modified Siemens machines and for some tests, they used the conventional method of drawing blood and running it on commercial analyzers.

How did Theranos manage to roll out its technology in Walgreens stores?

Theranos exploited a regulatory no man's land, claiming their tests fell under the category of Laboratory Developed Tests (LDTs), which were not closely regulated by the FDA or CMS. They aligned with Walgreens, who was desperate for renewed growth, and managed to sway them despite the skepticism of a laboratory consultant.

What was the role of Elizabeth Holmes and Sunny Balwani in exploiting the regulatory loophole?

Elizabeth Holmes and Sunny Balwani were able to exploit the LDT category, claiming that since they were using their own proprietary machine within their own lab, they did not need to be reviewed by the FDA, and CMS did not look closely at LDTs.

Why were there not more flags raised from the medical community about Theranos?

While there were whispers of skepticism in the field of laboratory science, the company was very secretive, and little information was filtering out. Additionally, the medical community did not see the usual process of publishing studies in peer-reviewed journals, which raised concerns but did not provide concrete evidence of the issues.

What was the significance of the op-eds written by laboratory scientists in scientific journals?

The op-eds raised alarm bells about the secrecy and lack of peer review surrounding Theranos' technology, which is unusual in the medical industry. Although these op-eds did not have a wide readership, they indicated that some in the scientific community had the right intuition about the company's practices.

How did Theranos' approach differ from the traditional approach in healthcare technology?

Theranos, under Elizabeth Holmes' leadership, adopted the Silicon Valley approach of overpromising and underdelivering, which is not suitable for healthcare technology where the reliability of the product has direct implications on health outcomes.

What was the role of Kevin Hunter, the laboratory consultant hired by Walgreens?

Kevin Hunter was hired by Walgreens to help with due diligence on Theranos. He smelled a rat early on and tried to alert Walgreens executives to his suspicions, but they did not heed his warnings.

What was the impact of Theranos' technology on patients and doctors who relied on it?

The impact was potentially severe, as doctors and patients were relying on a technology that was not functioning properly. This could have led to incorrect health decisions being made based on inaccurate test results.

How did the secrecy of Theranos contribute to the delay in uncovering the truth about its technology?

The secrecy of Theranos meant that very little information was available to the public and the medical community, which delayed the discovery of the malfunctioning technology and the company's overpromising.

What lessons can be learned from the Theranos story for both the healthcare industry and Silicon Valley startups?

The story of Theranos highlights the importance of transparency, peer review, and the need for healthcare companies to prioritize patient health over rapid growth and innovation. It also serves as a cautionary tale for Silicon Valley startups to not lose sight of the specific needs and regulations of the industry they are operating in.