John Carreyrou is a French-American investigative reporter at the Wall Street Journal. He won the Pulitzer Prize in Explanatory Reporting in 2003 for a series of stories that exposed corporate scandals in the United States and then again in 2015 for a series of stories on abuses of Medicare. For his coverage of the Theranos scandal, Carreyrou was awarded the George Polk Award for Financial Reporting, the Gerald Loeb Award for Distinguished Business and Financial Journalism in the category of Beat Reporting, and the Barlett & Steele Silver Award for Investigative Business Journalism. For Bad Blood: Secrets and Lies in a Silicon Valley Startup, Carreyrou has won the Financial Times and McKinsey Business Book of the Year Award. A film version, starring Jennifer Lawrence and directed by Adam McKay, is on its way.
In Bad Blood: Secrets and Lies in a Silicon Valley Startup, Carreyrou chronicles the emergence and the downfall of a start-up company established by Elizabeth Holmes when she was 19 years of age and had briefly attended Stanford University. Holmes was born into a wealthy family and conceived the idea of combining nano- and micro-technology into computerised diagnostics. Her original idea was to draw blood painlessly from the skin using microneedles and for it to be analysed almost immediately, enabling readings to be communicated wirelessly to a patient’s doctor, thereby permitting prompt adjustment to pharmacotherapy for a wide variety of conditions. This quickly evolved into the development of hand-held devices with a cartridge and reader system that blended microfluidics and biochemistry. She promoted a world in which drugs would be minutely tailored to individuals’ needs by Theranos’ blood monitoring technology.
During the Theranos era starting in 2005, Holmes was young and unqualified, but she possessed a potent combination of charisma and unbounded ambition. As Carreyrou documents, she was also not inhibited by a commitment to honesty or accuracy in her representations to investors, regulators, doctors, or patients. She leveraged members of her family and then multiple high-profile persons, commencing with her Stanford University professor, Channing Robertson, who gushed about her that: “You start to realize that you are looking in the eyes of another Bill Gates or Steve Jobs.” By 2006 Holmes had convinced Pfizer to undertake a pilot project with her technology in Tennesee. At around the same time she secretly started a romantic relationship with Sunny Balwani, a Pakistani man about two decades older than she, who had made a large sum of money from the sale of an internet company in the 1990s. She quickly promoted him to run much of the Theranos business on a day-to-day basis, including the hiring and firing of staff. She modelled herself on Steve Jobs, even adopting his clothing (black turtlenecks and slacks), and met regularly with Don Lucas, who had made $25 billion in part by exaggerating the software capabilities of Oracle.
Holmes recruited a formidable line-up of prominent names to the Theranos board, including General James Mattis, later President Trump’s Secretary of Defense, George Shultz, President Nixon’s Secretary of Labor and of the Treasury, and President Reagan’s Secretary of State, Henry Kissinger, also President Nixon’s Secretary of State, and Sam Nunn, the former Chairman of the United States Committee on Armed Services.
From the outset of her start-up, Holmes was obsessed with protecting the confidentiality of not just what Theranos was doing, but all of its allegedly groundbreaking intellectual property. An aspect of her anxieties was her imposition of a requirement on all employees that they sign multiple non-disclosure agreements. This had the collateral benefit that it was impossible for others to scrutinize the legitimacy of her claims about the efficacy of Theranos’ technology. A consistent pattern that she also developed was of abrupt and often arbitrary firings of persons who ceased to enjoy her confidence.
In 2010 Holmes approached the innovation team of Walgreens, claiming to have developed small devices capable of running any blood test from a few drops of blood pricked from the finger in real time and for less than half the cost of traditional laboratories. They were receptive, as then was Safeway, which started to hire phlebotomists for its wellness clinics. However, neither venture ever completely got off the ground, in spite of each company’s investment of large sums of money into Theranos. At Safeway, for instance, the launch of the program had to be postponed repeatedly, on one excuse after another.
Through the revelations of former employees of Theranos, Carreyrou documents a litany of lies and misrepresentations made by Holmes and other senior staff in an attempt to cover up the ongoing incapacity of the technology to produce the promised results.
For a time good news flowed, and the value of Theranos skyrocketed. The United States Food and Drug Administration approved Theranos’ proprietary finger-stick test for HSV-1, one of two strains of the Herpes virus, and Arizona passed a law allowing citizens to have their blood tested without a doctor’s orders. Rupert Murdoch also invested over $100 million in Theranos after being provided with projections of $330 million in profits on revenues of $1 billion in 2015, and $505 million in profits on revenues of $2 billion in 2016. A valuation of $10 billion was asserted. Vice President Joe Biden visited the laboratory and lent it his support. Holmes was profiled on the front page of Fortune and was said to be the world’s youngest self-made female billionaire with a net worth of around $4.5 billion.
However, by 2015/2016 Holmes knew that the Wall Street Journal was investigating Theranos and that former employees were leaking information to Carreyrou. Her lawyers pursued a determined campaign to staunch the leaks and to persuade the Journal not to publish the fruits of Carreyrou’s work. They failed. On 15 October 2015, the first part of Carreyrou’s devastating expose was published. At this point the wheels commenced to fall off, and the increasingly desperate attempts of Holmes and her legal representatives foundered. The Centers for Medicine and Medicaid (the CMS) intervened to inspect the Theranos Laboratory. It found that the Theranos devices produced grossly erratic results, calling into question the accuracy of all of the claims advanced by Theranos.
A hedge fund that had invested close to $100 billion in Theranos in 2014 sued Holmes, Balwani, and Theranos, alleging that it had been deceived by “a series of lies, material misstatements and omissions.” Walgreens, which had spent more than $140 million, also sued, accusing Theranos of failing to meet “the most basic quality standards and legal requirements”. The CMS imposed a ban on Theranos, and Holmes closed its laboratories in California and Arizona. Theranos accepted a settlement whereby it paid $4.65 million into a fund that reimbursed 76,217 Arizonans who had ordered blood tests from the company. The personal relationship between Holmes and Balwani terminated, and in 2018 Holmes and Balwani were charged civilly by the Companies and Securities Commission. She resolved the allegations by relinquishing her voting control over Theranos, returning a large portion of her stock, paying a $500,000 penalty, and agreeing to being barred from being an officer or director of a company for a period of 10 years. Then the criminal charges of fraud were filed. She and Balwani were each required to post bail bonds of $500,000. The charges, which carry sentences of imprisonment of up to 20 years, will not be resolved for some time. Carreyrou claims that investors in Theranos lost nearly $1 billion.
Carreyrou raises an issue that will intrigue readers: is Holmes simply a privileged corporate sociopath? He leaves it to psychologists to decide whether Homes fits the clinical profile but observes that “there’s no question that her moral compass was badly askew” (p. 299). He repudiates the proposition that Holmes became captive to Balwani’s nefarious influence, noting that before Balwani joined Theranos, “Holmes had already been misleading pharmaceutical companies for years about the readiness of her technology. And with actions that ranged from blackmailing her chief financial officer to suing ex-employees, she had displayed a pattern of ruthlessness at odds with the portrait of a well-intentioned young woman manipulated by an older man” (p. 298).
Carreyrou concedes that it is unlikely that Holmes set out initially to defraud investors and to cause risk to patients. It is more likely that she had a vision for improving healthcare that she pursued passionately 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” (p. 299).
Babiak and Hare (2009), Boddy (2011) and Ronson (2011), among others, have written about white collar psychopaths and the havoc that they can cause. Carreyrou’s extraordinary recounting of the Theranos saga portrays a person completely unfettered by morality who amassed a personal fortune until regulators and investigative journalism finally made her accountable and brought her corporate career to a halt. The picture painted by Carreyrou is of a “ruthless manipulator” who surrounded herself with the scions of the American establishment, defrauded investors, assumed a fake deep voice, and was not prepared to allow anyone or anything stand in the way of her zeal to pursue her technological vision. The courts will now have to undertake the task of determining whether her conduct constituted serious criminality.
Carreyrou’s Bad Blood: Secrets and Lies in a Silicon Valley Startup is a book the reader will not forget. It is an engrossing account of all that is wrong with contemporary entrepreneurialism and why corporate regulators must be empowered, resourced, and alert to protect the community from gross misconduct by senior officeholders. Carreyrou’s Bad Blood is well written, comprehensively researched, and deeply troubling. It is a remarkable case study of unconstrained capitalism and the risks posed to all of us when profiteering is permitted to take precedence over regulation of health services and the development of health technologies. It should be read by all with an interest in the evolving health service environment and in the potential for antisocial conduct in the health sector.
Ian Freckelton, QC
tamara.dmello@tandf.com.au
References
- Babiak P. & Hare R.D (2009). Snakes in Suits: When Psychopaths Go to Work.: Harper Collins. [Google Scholar]
- Boddy C. (2011). Corporate Psychopaths: Organizational Destroyers.: Springer. [Google Scholar]
- Ronson J. (2011). The Psychopath Test.: Picador. [Google Scholar]