Gordon Book Review Blog

Bad Blood - The story of Theranos

The Bonnie Lea Book Club met to discuss the story of Theranos, a Silicon Valley darling which had attracted over $900 million in investment capital, running for over 15 years, based on lies, deceit, employee abuse and legal intimidation.  Its founder, Elizabeth Holmes, became a billionaire, until the author, a reporter for the Wall Street Journal, began unraveling the lies and exposing the company for what it was.   It is a study in human nature, business, start-ups, a little science, as well as deception, abuse, and power.  This book had it all.  And will be a movie starring Jennifer Lawrence.

Elizabeth Holmes 2014 (Wikipedia.jpg

Theranos was founded in 2003 by Stanford dropout Elizabeth Holmes; over 15 years, she was the pitchman for a dream that everyone wanted to believe: a simple easy way for ordinary people to discern what ailed them: a finger prick blood test that could be done at your local pharmacy.  To her credit Holmes assembled an impressive group of investors, a board that included Henry Kissinger, Howard Shultz, David Boies and General James Mattis, and investors that included a who’s who of Silicon Valley.  But we concluded that she was simply a sociopath who sold a dream, causing pain and damage to innumerable investors, employees, and patients. 

The writing had the pace and feel of a news story (John Carreyou writes for the Wall Street Journal), not a novel, so the first half of the book read as a chronicle, mostly of the people who worked at Theranos.  Because of the high turnover and interesting people working at Theranos, there were too many names to remember.  Most of us found the first few chapters tedious.

About halfway through the book, the author began a chapter using the noun “I”.  Immediately, the book got better. Carreyou’s version became a personal story, not a report.

Jeff recommended this book, so started our discussion with: “How early in the story was Elizabeth ‘faking it’?”   Did she begin lying right away, or only after interest in her vision had real attracted money, and progress on delivering the promises was challenged?  Geoff argued that given her father’s time at Enron, her family’s history of great wealth and its generational evaporation, that honesty and integrity were never part of Ms Holmes makeup.  She lied the moment people began buying into her vision.

Holmes was an exceptionally good liar.  Her vision had a high moral ground: a true force of “good”.  Several of us had watched the HBO documentary on the subject; watching the interviews, her capacity to lie seamlessly, with conviction, was extraordinary.

We discussed the culpability of the Board.  It appeared to have served only an advisory capacity, to give the company credence; they gave her validity, but failed in oversight.  Interestingly, she held full voting control, so could fire Board members that did not suit her.  Furthermore, Board members were men with great achievements... in disciplines other than science or medicine.  Though at one point, the Board conspired to fire her for a variety of corporate infractions; but she made a plea to stay as Chief Executive, and they folded.  We’d all like to have been at that meeting. 

In a private company setting, oversight of financial practices, review of major contracts, understanding of the underlying science, is more limited than in public companies.  Interestingly, Board members were not qualified in the science of what Theranos was doing; but rather, were men of substance in different fields, evidently taken by Holmes’ personality and presence.   And then there’s the generational factor: old guys taken by her charm and looks and the beautiful vision.

The discussion of the board prompted the additional question, Could a guy have pulled it off?  We agreed NO, the whole premise of Theranos was a dream come true for the board and the big investors: high morality around the concept, a woman entrepreneur in a man’s field, a self-made billionaire.  The story need all those elements to reach the level Theranos did.

But there were so many questions, all evident to Monday morning quarterbacks.  How do we count the red flags?

Poor project management. Why didn’t any employee recognize the poor project management?  Theranos attracted incredibly qualified people from many successful businesses.  Jeff offered an example of a phone aggregation scheme which approached his firm years ago based on a new and compelling cost saving angle.  Part of their due diligence was, ‘show us the contracts with the carriers’ before we commit.  Delays and excuses were common: ‘It’s still in legal review’ being the stock answer.  It took Jeff’s company 18 months to discover there was nothing behind the promises; Theranos lasted 15 years.

Employee management was characterized by all the wrong practices for successful businesses: silos between departments, oppressive oversight, often by Elizabeth’s boyfriend Sonny (a truly despicable character), high turnover, and heavy handed post-employment legal intimidation.  Even employees posting anonymously to GlassDoor, an employer rating site, were harassed for bad reviews.   The life and death (by suicide) of scientist Ian Gibbons was among the most tragic human events I've read in non-fiction.

Rick posed an insightful business strategy question:  Why didn’t Theranos build on early little victories to gain time for continued improvement and development?  Holmes’ commitment to her vision was admirable from a certain perspective, but science and physics prevented many core aspirations from coming true.  Some visions defied laws or thermodynamics or physics.  Perhaps for the dream train to keep running, the impossible dream had to remain alive.  

Juxtaposed to the high minded vision is the overall morality displayed: so many people suffered. $900 million taken from investors, employees working in a toxic environment characterized by lies and intimidation, and customers, patients  and doctors who relied on blood tests to make health decisions.  Rob asked, Could a fraud of this magnitude happen again?  While there are many bad actors in business, and capitalism attracts its fair share of these, today's oversight and business transparency should prevent a repeat.  But that's what we said after Ponzi, and Madoff.  Only time will tell.

Elizabeth Holmes’ trial begins next summer.  We asked, What’s the appropriate sentence?  We agreed her transgressions cross so many lines: securities, employment practices, health care, regulatory.  We began with thoughts of a minimum 5-10 years sentence, real time, would be a start.  Some argued the damage done deserve way more than just 5-10.  Will the Holmes charm get her a lighter sentence?

We discussed some of the legal elements.  Legal was big.  Of the $700 - $900 million that Theranos raised, some $300,000,000 was consumed in legal expenses.  One third of a company’s budget was spent to quell the truth!  Super lawyer David Boies is revealed to be almost as despicable a character as Sunny Balwani, Holmes’ paramour and company hatchet man.  We asked, can an NDA be enforced if either party is violating or compelling the counter-party to violate a criminal law?   Maybe maybe not, but the threat of a lawsuit that will bankrupt an employee will prevent employees from talking.  Legal intimidation at its worst.

One interesting side story was that of Richard Fuisz, former family friend who for reasons motivated purely by personal malice, tried to sabotage Theranos when it appeared to be a real company.  Fuisz was just another character in the parade of dirt bags the Holmes family hung out with, but also succumbed to the legal onslaught by Theranos’ high priced legal team.   In the end, however, he was able to connect the author with Theranos’ former medical director, giving the investigation a boost.

Beyond the incredible lies and intimidation and legal muscle, how did Holmes keep this together for 15 years?   For one, she played the gaps in regulations exceptionally well.  FDA oversight? They always seemed to provide enough reason to avoid oversight.   Everybody wanted this to work.  Everyone wanted to believe in the dream.

But at the center was Elizabeth Holmes.  When giving demonstrations of the ‘Edison’ black box that was tasked with performing multiple analyses from a single fingerstick blood sample and it failed, she redirected the conversation to the customer, but didn’t go back to engineering and say fix it!  She knew it couldn’t be fixed.

A doctor friend of Rob’s pointed out that Elizabeth never took the Hippocratic oath, nor understood ‘patient first’.  She was neither a health care professional, nor biochemist, nor engineer.  She was a fake.  And an unusually good liar.

Were there any winners?  Yes, a few.

Tyler Shultz, former employee, grandson of George Shultz, and early whistleblower, is now succeeding in a business with micro fingerstick tests.  While the tests cannot do 200+ different tests, it can do several, enough to build a successful company around.  Shultz and his parents were the epitome of integrity.

Erika Cheung was a young 22 year old biologist who was one of the early whistleblowers.

The blogger from the Midwest, - a nobody from nowhere who gave the author John Carreyrou enough science and a contact to get the story started.  Dams get broke by a little leak.  He knew something about the science was suspicious, and made connections  for the story finally to come to light.

There have been some comparisons of Holmes to Steve Jobs: our conclusion, aside from the black turtlenecks, he had the goods, she was a sociopath. 


Our next book is The Emperor of All Maladies, a study of Cancer


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