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.

Outlines

00:00

🧬 Theranos' False Promises and Deception

Theranos, a Silicon Valley startup, claimed to revolutionize laboratory testing by using a drop of blood for a full range of tests at a fraction of the cost. The company had already launched in Walgreens stores with a technology called the Edison, which was only capable of performing immunoassays and was prone to errors. The actual testing was a mix of malfunctioning prototypes, hacked Siemens machines, and traditional venous draws. Theranos exploited a regulatory loophole, classifying their tests as 'laboratory developed tests' (LDTs) to avoid FDA review. Despite skepticism from some in the medical community, the company's secrecy and media hype overshadowed these concerns. The interview with John Carreyrou, author of 'Bad Blood,' reveals the company's deceptive practices and the failure of due diligence by Walgreens.

05:02

🤫 The Silence of the Medical Community and Theranos' Secrecy

Despite the hype surrounding Theranos and its founder Elizabeth Holmes, there was a lack of peer-reviewed publications and transparency, which raised eyebrows in the scientific community. Whispers of skepticism were present, particularly in the field of laboratory science, but the company's secretive nature meant that little information was available to the public. Some scientists, like Dr. Ioannidis from Stanford, published op-eds in scientific journals, warning about the company's 'stealth research' and lack of peer review. However, these warnings were largely ignored or went unnoticed by the broader public, and the company continued to be celebrated in the media, highlighting the disconnect between Silicon Valley's overpromising culture and the rigorous standards required in healthcare.

Keywords

💡Theranos

Theranos was a health technology corporation in Silicon Valley that claimed to have developed revolutionary blood testing technology. The company is central to the video's theme as it promised to disrupt the laboratory testing industry with its innovative approach but was later found to be fraudulent. The script discusses how Theranos claimed to perform a full range of tests from just a drop of blood, which was too good to be true.

💡John Carreyrou

John Carreyrou is an investigative journalist for The Wall Street Journal and the author of 'Bad Blood,' a book detailing the rise and fall of Theranos. He is a key figure in the video's narrative as his investigative work uncovered the truth behind Theranos's claims, revealing the company's technology as a malfunctioning prototype rather than a viable medical innovation.

💡Mini Lab

The 'Mini Lab' was the last iteration of Theranos's blood testing device. It is mentioned in the script as a malfunctioning prototype that the company was still trying to perfect. The Mini Lab is significant to the video's theme as it represents the false promises made by Theranos about its technological capabilities.

💡Edison

Named after the famous inventor Thomas Edison, the 'Edison' was a previous iteration of Theranos's blood testing technology. The script reveals that it was a very limited machine capable of performing only one class of blood tests, known as immunoassays, and was error-prone. This term is crucial to understanding the deceptive practices of Theranos.

💡Immunoassays

Immunoassays are a type of blood test that measures the concentration of a substance in the blood. In the script, it is mentioned that the Edison machine could only perform immunoassays, which were not done accurately, highlighting the limitations and inaccuracies of Theranos's technology.

💡Siemens

Siemens is a German conglomerate that manufactures medical equipment. The script explains that Theranos modified Siemens machines to accommodate small blood samples for the tests they claimed to perform with their own technology. This keyword is important as it shows how Theranos deceived the public and investors by using existing technology under the guise of their own innovation.

💡Laboratory Developed Tests (LDTs)

LDTs are tests developed and processed by a single laboratory, using its own methods, and are not regulated by the FDA. The script discusses how Theranos exploited the lack of regulation for LDTs to claim their technology did not need FDA review, which is a critical aspect of the video's theme regarding regulatory loopholes and deception.

💡FDA

The FDA, or Food and Drug Administration, is a regulatory body that oversees the safety of food and medical products in the United States. The video discusses how Theranos claimed their technology was exempt from FDA review due to being an LDT, which is a significant point in the narrative of regulatory evasion.

💡CMS

CMS, or the Centers for Medicare and Medicaid Services, is the regulator of clinical laboratories. The script mentions that CMS does not closely regulate LDTs, which allowed Theranos to exploit a loophole in the regulatory system, a key point in understanding the company's fraudulent activities.

💡Walgreens

Walgreens is a major retail chain that partnered with Theranos to roll out their blood testing services. The script describes how Theranos convinced Walgreens to believe in their technology, despite the lack of peer-reviewed studies or validation, which is a central part of the video's theme about the dangers of unchecked hype and secrecy in the tech industry.

💡Peer Review

Peer review is a process in which scientific research is evaluated by other experts in the field to ensure its validity and credibility. The script points out that Theranos did not follow this standard practice in the medical field, which is a significant aspect of the video's message about the importance of transparency and validation in healthcare.

Highlights

Theranos claimed to revolutionize the laboratory testing industry with a technology that could run full-range lab tests from just a drop of blood.

John Carreyrou of The Wall Street Journal exposed the truth about Theranos in his book 'Bad Blood'.

Theranos had deployed their blood test in Walgreens stores in Northern California and Phoenix area.

The technology promised fast results at a fraction of the cost compared to regular laboratories, even cheaper than Medicare.

Theranos' prototype, the Mini Lab, was malfunctioning and still in development when they went live with tests.

The Edison, named after Thomas Edison, was a limited machine that could only perform immunoassays and was error-prone.

Theranos used modified Siemens machines to accommodate small blood samples for most of the 250 tests on their menu.

A third category of tests was conducted traditionally with venous draws, using the same amount of blood as other labs.

Theranos exploited a regulatory gap, claiming their tests were laboratory developed tests (LDTs) not requiring FDA review.

Walgreens was courted by Theranos for a partnership, seeking a new way to renew growth.

Walgreens hired a consultant, Kevin Hunter, who suspected issues but was ignored by executives.

The medical community was skeptical due to Theranos' secrecy and lack of peer-reviewed publications.

Academics like Dr. Ioannidis at Stanford and a scientist from the University of Toronto raised concerns in op-eds.

Theranos' overpromise and underdeliver resembled common Silicon Valley narratives but had severe health implications.

Elizabeth Holmes ran Theranos like a tech company rather than a healthcare company, leading to critical mistakes.

Theranos' approach contrasted with traditional healthcare and biotech industries that prioritize peer review and validation.

Transcripts

- Theranos was one of those Silicon Valley stories

that sounded too good to be true.

It was going to revolutionize

the laboratory testing industry.

And it turns out, it was too good to be true.

John Carreyrou of The Wall Street Journal charted

that story about Theranos in his new book, Bad Blood.

John, thanks for joining us.

- Thanks for having me.

- So, let's talk about what Theranos was saying

it's technology could do

and what it was actually doing behind the scenes.

What were they selling to the public and investors?

- Right, so, when I started looking into the company

in early 2015, they had already gone live

with the blood test for a year and half.

- [Steve] And this was in Walgreens?

- In Walgreens stores, they'd rolled out

in a couple Walgreens stores in Northern California

and then another 40 or 45 Walgreens stores

in the Phoenix area.

And the claim was that they had a technology

that could run the full range of laboratory tests

from just a drop or two of blood pricked from the finger,

get you very fast results

and do it at a fraction of the cost as regular laboratories,

even cheaper than Medicare.

The reality was that Theranos had a prototype

that was the last iteration of it's device

called the Mini Lab.

And that was a malfunctioning prototype

that it was still trying to make work.

And when they had gone live in the fall of 2013,

they had gone live with a previous iteration

of the technology they called the Edison,

so named after Thomas Edison,

that was actually a very limited machine.

It could only do one class of blood tests

known as immunoassays.

And it didn't do those tests well.

It was an error ridden machine.

And so for the rest of the tests on the menu,

and they had about 250 tests on the menu,

they had hacked machines made

by the German conglomerate, Siemens.

They had modified them so that they

could accommodate small blood samples.

And then there was a third bucket of tests

that they just did the regular,

the old regular way with venous draws,

drawing the same amount of blood as everyone else

and running it also on commercial analyzers.

- So how does this happen?

This is a highly regulated industry here in the US,

you would think something like this

that was mostly smoke and mirrors

wouldn't be able to get past regulators

let alone into a major retail chain like Walgreens.

What did Elizabeth Holmes and her colleagues do

to sway regulators and sway Walgreens

into believing that this should

actually be put to use on real patients?

- Right.

So for one thing they exploited a,

what I call a regulatory no man's land,

in the laboratory space.

You have on the one hand the FDA

which regulates reviews and improves

the laboratory instruments that labs use

that they buy off the shelf and that they use in their labs.

And on the other hand, you have CMS,

the Centers for Medicare and Medicaid Services,

which is the regulator of clinical laboratories.

But, then there's this category of tests

known as laboratory developed tests

which are fashioned by labs with their own methods

that aren't really regulated by either of these entities.

And Elizabeth Holmes and her boyfriend, Sunny Balwani,

were able to exploit this third category

and say we fall in this category, what are known as LDTs,

because we're using our own proprietary machine

within the walls of our own lab.

Therefore, we don't have to be reviewed by the FDA

or at least our machines

don't have to be reviewed by the FDA.

And CMS which regulates labs doesn't look closely at LDTs

so that's the loophole that they were able to exploit.

Theranos had been doing, had been attempting

to validate it's technology for years

with pharmaceutical companies.

All these validation studies with big pharma companies

had failed and in early 2010 it was running out of options

so it decided to go straight to consumers.

And the way to do that was to align with a retail partner

and so they started courting Walgreens.

And they told Walgreens, we've got this great technology,

it's portable, it can do all these tests

off just a drop of blood and we want to partner with you.

And Walgreens was desperate for a new way to renewed growth.

And so it started meeting with Elizabeth in Palo Alto

and in Chicago where Walgreens is based.

And it hired a laboratory consultant, named Kevin Hunter

to help it do due diligence.

And this guy, Keven Hunter, as I explained in the book,

very early on smelled a rat.

And tried to alert Walgreens executives to his suspicions

and they just wouldn't listen to him.

- So these tests are being done in Walgreens,

you know they're hyping the technology,

cover stories on famous magazines and so forth.

Why weren't we hearing much from the medical community

or if we were why did it seem so diminished?

Why weren't there more flags from peers in the industry

- Right. - yelling at them?

- There were whispers in especially

the field of laboratory science.

But the bottom line is that the company was so secretive

and very little if anything was filtering out

of the company itself.

So, while there were some skeptics in academia

and in the field of laboratory testing,

all they could say was that there was this company

that was getting a lot of hype,

who's founder was becoming a Silicon Valley celebrity,

at the same time wasn't doing

what you usually do in medicine,

which is that you publish studies about your innovation

and you publish them in peer reviewed publications

and you have your peers check what you're doing

and verify it.

So there were a couple laboratory scientists

who actually wrote op-eds in scientific journals.

One of them was Dr. Ioannidis at Stanford

who came out with a gen op-ed in, I believe it was 2015.

I'd already started digging into the company at that point.

A couple months later, a laboratory scientist

at the University of Toronto, I believe,

had another op-ed in another scientific journal.

- Which no one reads these by the way,

it's not like The Wall Street Journal

where everyone's going to see it.

It's like these nerdy guys just talking about it.

- And you know, they started raising alarm bells

about the secrecy, about the,

they called it the stealth research.

- Which doesn't happen in this industry,

it should be peer reviewed right?

- Right, it should be, it certainly hasn't been the way

medical science has unfolded for the past century.

And so, to their credit, they were on the right track.

They didn't have the goods in terms of knowing

what was actually going on behind the scenes.

But, they had the right intuition.

- This story sounds a lot like what we hear

from Silicon Valley, the overpromise and under deliver.

- Right.

- You know, we're going to put out this really cool phone,

turns out to be faberware.

How does that relate to what happened with Theranos?

- In this case, I think Elizabeth lost sight of the fact

that her company wasn't a computer software company.

- Even though she was running it like that.

- She was running it like that.

She lost sight of the fact that it was first and foremost

a health care company.

A medical technology company who's product

doctors and patients were going to rely on

to make crucial health decisions.

- And if that new iPhone doesn't come out

it's not going to effect your health.

- And that's a big part of what went wrong with this story

is by really draping herself in the modus operandi

of Silicon Valley, instead of modeling herself after

say the biotech industry or another corner

of the healthcare industry.

She ended up behaving that way

and while it's OK most of the time to behave

that way in traditional tech, it isn't in healthcare.