Bad Blood: Secrets and Lies in a Silicon Valley Startup

by John Carreyrou

Tim Kemp had good news for his team. The former IBM executive was in charge of bioinformatics at Theranos, a startup with a cutting-edge blood-testing system. The company had just completed its first big live demonstration for a pharmaceutical company. Elizabeth Holmes, Theranos’s twenty-two-year-old founder, had flown to Switzerland and shown off the system’s capabilities to executives at Novartis, the European drug giant.

Ana’s first meeting with Elizabeth was at Coupa Café, a hip coffee and sandwich place in Palo Alto that had become her favorite haunt outside the office. After filling her in on her background and her travels to Asia, Elizabeth told Ana she envisioned building a disease map of each person through Theranos’s blood tests. The company would then be able to reverse engineer illnesses like cancer with mathematical models that would crunch the blood data and predict the evolution of tumors.

And yet Safeway was still hesitant to walk away from the partnership. What if the Theranos technology did turn out to be game-changing? It might spend the next decade regretting passing up on it. The fear of missing out was a powerful deterrent.

The limited experiment agreed upon fell short of the more ambitious live field trial Mattis had had in mind. Theranos’s blood tests would not be used to inform the treatment of wounded soldiers. They would only be performed on leftover samples after the fact to see if their results matched the army’s regular testing methods. But it was something.

As the two sides prepared for trial, Fuisz noticed one name that appeared as a co-inventor on many of Elizabeth’s patents: Ian Gibbons. With a little research, he learned a few basic facts about the man. Gibbons was a Brit who had a Ph.D. in biochemistry from the University of Cambridge, and he was credited as an inventor on some fifty U.S. patents, including nineteen stemming from his work at a company called Biotrack Laboratories in the 1980s and 1990s.

While Elizabeth was fast to catch on to engineering concepts, Sunny was often out of his depth during engineering discussions. To hide it, he had a habit of repeating technical terms he heard others using. During a meeting with Arnav’s team, he latched onto the term “end effector,” which signifies the claws at the end of a robotic arm. Except Sunny didn’t hear “end effector,” he heard “endofactor.”

For the rest of the meeting, he kept referring to the fictional endofactors. At their next meeting with Sunny two weeks later, Arnav’s team brought a PowerPoint presentation titled “Endofactors Update.” As Arnav flashed it on a screen with a projector, the five members of his team stole furtive glances at one another, nervous that Sunny might become wise to the prank. But he didn’t bat an eye and the meeting proceeded without incident. After he left the room, they burst out laughing.

Arnav and his team also got Sunny to use the obscure engineering term “crazing.” It normally refers to a phenomenon that produces fine cracks on the surface of a material, but Arnav and his colleagues used it liberally and out of context to see if they could get Sunny to repeat it, which he did. Sunny’s knowledge of chemistry was no better. He thought the chemical symbol for potassium was P...

When its case was back on, the Edison did sport a touchscreen software interface, but even that was a letdown. You had to pound on the screen’s icons to get it to work. Tyler and some other members of the group joked that Steve Jobs would have rolled over in his grave if he had seen one of them. Tyler felt a wave of disappointment wash over him but beat it back by telling himself that the 4S, the next-generation device he had heard was in the works, was probably much more intricate.

To Tyler’s dismay, data runs that didn’t achieve low enough CVs were simply discarded and the experiments repeated until the desired number was reached. It was as if you flipped a coin enough times to get ten heads in a row and then declared that the coin always returned heads. Even within the “good” data runs, Tyler and Erika noticed that some values were deemed outliers and deleted. When Erika asked the group’s more senior scientists how they defined an outlier, no one could give her a straight answer. Erika and Tyler might be young and inexperienced, but they both knew that cherry-picking data wasn’t good science. Nor were they the only ones who had concerns about these practices. Aruna, whom Tyler liked and respected, also disapproved of them and so did Michael Humbert, a jovial German scientist Tyler had befriended.

As much as she courted the attention, Elizabeth’s sudden fame wasn’t entirely her doing. Her emergence tapped into the public’s hunger to see a female entrepreneur break through in a technology world dominated by men. Women like Yahoo’s Marissa Mayer and Facebook’s Sheryl Sandberg had achieved a measure of renown in Silicon Valley, but they hadn’t created their own companies from scratch. In Elizabeth Holmes, the Valley had its first female billionaire tech founder.

Elizabeth was also quick to embrace the trappings of fame. The Theranos security team grew to twenty people. Two bodyguards now drove her around in a black Audi A8 sedan. Their code name for her was “Eagle One.” (Sunny was “Eagle Two.”) The Audi had no license plates—another nod to Steve Jobs, who used to lease a new Mercedes every six months to avoid having plates. Elizabeth also had a personal chef who prepared her salads and green vegetable juices made of cucumber, parsley, kale, spinach, lettuce, and celery. And when she had to fly somewhere, it was in a private Gulfstream jet.

It was true that Elizabeth’s uncle, Ron Dietz, had died eighteen months earlier from skin cancer that had metastasized and spread to his brain. But what she omitted to disclose was that she had never been close to him. To family members who knew the reality of their relationship, using his death to promote her company felt phony and exploitative. Of course, no one in the audience at San Francisco’s Palace of Fine Arts knew this. Most of the one thousand spectators in attendance found her performance mesmerizing.

Clad all in black, she strode solemnly around the stage as she spoke, like a preacher giving a sermon. In a stunt that made for brilliant theater, she pulled a nanotainer out of her jacket pocket midway through and held it up to illustrate how little blood Theranos’s tests required. Calling the fear of needles “one of the basic human fears, up there with the fear of spiders and the fear of heights,” she then told other touching anecdotes. One was about a little girl who got stuck repeatedly with a syringe by a hospital nurse who couldn’t find her vein. Another was about cancer patients whose spirits were broken by all the blood they had to give as part of their treatments.

One of them was from Michael Jordan: “I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”

In a post on his blog about the New Yorker story, Clapper pointed out the medical journal’s obscurity and the flimsiness of the study and declared himself a skeptic “until I see evidence Theranos can deliver what it says it can deliver in terms of diagnostic accuracy.” Pathology Blawg didn’t exactly have a big readership, but Joe Fuisz came across the post in a Google search and brought it to his father’s attention. Richard Fuisz immediately got in touch with Clapper and told him he was onto something. He put him in contact with Phyllis and Rochelle and urged him to listen to what they had to say. Clapper was intrigued by what the three of them told him, especially by the story of Ian Gibbons’s death. But it all sounded too circumstantial to go beyond what he’d already written. What he needed was some sort of proof, he told Fuisz.

With the ground rules for our conversation established, Alan let down his guard and we talked for more than an hour. One of the first things he said was that what Ian had told Rochelle was true: the Theranos devices didn’t work. They were called Edisons, he said, and were error prone. They constantly failed quality control. Furthermore, Theranos used them for only a small number of tests. It performed most of its tests on commercially available instruments and diluted the blood samples. It took me a while to understand the dilution part. Why would they do that and why was it bad? I asked. Alan explained that it was to make up for the fact that the Edison could only do a category of tests known as immunoassays. Theranos didn’t want people to know its technology was limited, so it had contrived a way of running small finger-stick samples on conventional machines. This involved diluting the finger-stick samples to make them bigger. The problem, he said, was that when you diluted the samples, you lowered the concentration of analytes in the blood to a level the conventional machines could no longer measure accurately.

It was all beginning to make sense: Holmes and her company had overpromised and then cut corners when they couldn’t deliver. It was one thing to do that with software or a smartphone app, but doing it with a medical product that people relied on to make important health decisions was unconscionable.

The incident had made her leery when Theranos sent her a lab report for another one of her patients showing an abnormally high TSH value. The patient was already on thyroid medication and the result suggested that her dose needed to be raised. Before she did anything, Dr. Stewart sent the patient to get retested at Sonora Quest, a joint venture of Quest and the hospital system Banner Health. The Sonora Quest result came back normal. Had she trusted the Theranos result and increased the patient’s medication dosage, the outcome could have been disastrous, Dr. Stewart said. The patient was pregnant. Increasing her dosage would have made her levels of thyroid hormone too high and put her pregnancy at risk.

decided to try him again that day before lunch. This time he picked up the phone. On deep background, he confirmed to me that the FDA had recently conducted a surprise inspection of Theranos’s facilities in Newark and Palo Alto. Dealing a severe blow to the company, the agency had declared its nanotainer an uncleared medical device and forbidden it from continuing to use it, he said.

ON A MUGGY SUMMER DAY at the beginning of August, more than 2,500 people crowded into the grand ballroom of the Pennsylvania Convention Center in Philadelphia. Most were laboratory scientists who had come to hear Holmes speak at the annual meeting of the AACC. “Sympathy for the Devil” by the Rolling Stones was playing on the public announcement system, a choice of music that didn’t seem like a coincidence.

Like her idol Steve Jobs, she emitted a reality distortion field that forced people to momentarily suspend disbelief.

IF HOLMES HAD HOPED to rehabilitate her image and change the media narrative by unveiling the miniLab, that hope was dashed by the flurry of critical articles published in the wake of the event. A headline in Wired captured the reaction best: “Theranos Had a Chance to Clear Its Name. Instead, It Tried to Pivot.”

The possibility that Holmes might pull a rabbit out of her proverbial hat at the AACC meeting had kept Theranos’s restless investors from launching a mutiny. After her appearance was panned and the Zika fiasco made headlines, one of them decided it had had enough: Partner Fund, the San Francisco hedge fund that had invested close to $100 million in the company in early 2014, sued Holmes, Balwani, and the company in Delaware’s Court of Chancery, alleging that they had deceived it with “a series of lies, material misstatements, and omissions.” Another set of investors led by the retired banker Robert Colman filed a separate lawsuit in federal court in San Francisco. It also alleged securities fraud and sought class-action status.

One thing is certain: the chances that people would have died from missed diagnoses or wrong medical treatments would have risen exponentially if the company had expanded its blood-testing services to Walgreens’s 8,134 other U.S. stores as it was on the cusp of doing when Pathology Blawg’s Adam Clapper reached out to me.

THE TERM “VAPORWARE” was coined in the early 1980s to describe new computer software or hardware that was announced with great fanfare only to take years to materialize, if it did at all. It was a reflection of the computer industry’s tendency to play it fast and loose when it came to marketing. Microsoft, Apple, and Oracle were all accused of engaging in the practice at one point or another. Such overpromising became a defining feature of Silicon Valley. The harm done to consumers was minor, measured in frustration and deflated expectations.

Hyping your product to get funding while concealing your true progress and hoping that reality will eventually catch up to the hype continues to be tolerated in the tech industry. But it’s crucial to bear in mind that Theranos wasn’t a tech company in the traditional sense. It was first and foremost a health-care company. Its product wasn’t software but a medical device that analyzed people’s blood. As Holmes herself liked to point out in media interviews and public appearances at the height of her fame, doctors base 70 percent of their treatment decisions on lab results. They rely on lab equipment to work as advertised. Otherwise, patient health is jeopardized.

A sociopath is often described as someone with little or no conscience. I’ll leave it to the psychologists to decide whether Holmes fits the clinical profile, but there’s no question that her moral compass was badly askew. I’m fairly certain she didn’t initially set out to defraud investors and put patients in harm’s way when she dropped out of Stanford fifteen years ago. By all accounts, she had a vision that she genuinely believed in and threw herself into realizing. But in her all-consuming quest to be the second coming of Steve Jobs amid the gold rush of the “unicorn” boom, there came a point when she stopped listening to sound advice and began to cut corners. Her ambition was voracious and it brooked no interference. If there was collateral damage on her way to riches and fame, so be it.

All told, investors in Theranos have lost nearly $1 billion.

All were moved to talk to me, despite the legal and career risks they faced, by one overriding concern: protecting the patients who stood to suffer harm from Theranos’s faulty blood tests. I will forever be grateful to them for their integrity and their courage. They are the true heroes of this story.