How Theranos Pulled Off Its $9 Billion Scandal
Summary
TLDRThe 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
🧬 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.
🤫 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.
Mindmap
Keywords
💡Theranos
💡John Carreyrou
💡Mini Lab
💡Edison
💡Immunoassays
💡Siemens
💡Laboratory Developed Tests (LDTs)
💡FDA
💡CMS
💡Walgreens
💡Peer Review
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.
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