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Sunday, July 8, 2018
Reading List: Bad Blood
- Carreyrou, John. Bad Blood. New York: Alfred A. Knopf, 2018. ISBN 978-1-9848-3363-1.
-
The drawing of blood for laboratory tests is one of my least
favourite parts of a routine visit to the doctor's office. Now,
I have no fear of needles and hardly notice the stick, but
frequently the doctor's assistant who draws the blood (whom I've
nicknamed Vampira) has difficulty finding the vein to get a good
flow and has to try several times. On one occasion she made an
internal puncture which resulted in a huge, ugly bruise that
looked like I'd slammed a car door on my arm. I wondered why
they need so much blood, and why draw it into so many
different containers? (Eventually, I researched this, having
been intrigued by the issue during the O. J. Simpson trial; if
you're curious,
here
is the information.) Then, after the blood is drawn, it
has to be sent off to the laboratory, which sends back
the results days later. If something pops up in the test
results, you have to go back for a second visit with
the doctor to discuss it.
Wouldn't it be great if they could just
stick
a fingertip and draw a drop or two of blood, as is
done by diabetics to test blood sugar, then run all the tests on
it? Further, imagine if, after taking the drop of blood, it
could be put into a desktop machine right in the doctor's office
which would, in a matter of minutes, produce test results you
could discuss immediately with the doctor. And if such a
technology existed and followed the history of decline in price
with increase in volume which has characterised other high
technology products since the 1970s, it might be possible to
deploy the machines into the homes of patients being treated
with medications so their effects could be monitored and relayed
directly to their physicians in case an anomaly was detected.
It wouldn't quite be a Star Trek medical
tricorder,
but it would be one step closer. With the cost of medical care
rising steeply, automating diagnostic blood tests and bringing
them to the mass market seemed an excellent candidate as the
“next big thing” for Silicon Valley to
revolutionise.
This was the vision that came to 19 year old Elizabeth
Holmes after completing a summer internship at the Genome
Institute of Singapore after her freshman year as a
chemical engineering major at Stanford. Holmes had
decided on a career in entrepreneurship from an early
age and, after her first semester told her father,
“No, Dad, I'm, not interested in getting a Ph.D.
I want to make money.” And Stanford, in the heart
of Silicon Valley, was surrounded by companies started
by professors and graduates who had turned inventions
into vast fortunes. With only one year of college behind
her, she was sure she'd found her opportunity. She showed
the patent application she'd drafted for an arm patch
that would diagnose medical conditions to Channing
Robertson, professor of chemical engineering at
Stanford, and Shaunak Roy, the Ph.D. student in whose lab
she had worked as an assistant during her freshman
year. Robertson was enthusiastic, and when Holmes said
she intended to leave Stanford and start a company to
commercialise the idea, he encouraged her. When the company
was incorporated in 2004, Roy, then a newly-minted Ph.D.,
became its first employee and Robertson joined the board.
From the outset, the company was funded by other people's
money. Holmes persuaded a family friend, Tim Draper, a
second-generation venture capitalist who had backed, among other
companies, Hotmail, to invest US$ 1 million in first round
funding. Draper was soon joined by Victor Palmieri, a corporate
turnaround artist and friend of Holmes' father. The company was
named Theranos, from “therapy” and
“diagnosis”. Elizabeth, unlike this scribbler, had
a lifelong aversion to needles, and the invention she described
in the business plan pitched to investors was informed by this.
A skin patch would draw tiny quantities of blood without pain by
means of “micro-needles”, the blood would be
analysed by micro-miniaturised sensors in the patch and, if
needed, medication could be injected. A wireless data link
would send results to the doctor.
This concept, and Elizabeth's enthusiasm and high-energy pitch
allowed her to recruit additional investors, raising almost US$
6 million in 2004. But there were some who failed to be
persuaded: MedVentures Associates, a firm that specialised in
medical technology, turned her down after discovering she had no
answers for the technical questions raised in a meeting with the
partners, who had in-depth experience with diagnostic
technology. This would be a harbinger of the company's
fund-raising in the future: in its entire history, not a single
venture fund or investor with experience in medical or
diagnostic technology would put money into the company.
Shaunak Roy, who, unlike Holmes, actually knew something about
chemistry, quickly realised that Elizabeth's concept, while
appealing to the uninformed, was science fiction, not science,
and no amount of arm-waving about nanotechnology, microfluidics,
or laboratories on a chip would suffice to build something which
was far beyond the state of the art. This led to a
“de-scoping” of the company's ambition—the
first of many which would happen over succeeding years. Instead
of Elizabeth's magical patch, a small quantity of blood would be
drawn from a finger stick and placed into a cartridge around the
size of a credit card. The disposable cartridge would then be
placed into a desktop “reader” machine, which would,
using the blood and reagents stored in the cartridge, perform a
series of analyses and report the results. This was originally
called Theranos 1.0, but after a series of painful redesigns,
was dubbed the “Edison”. This was the prototype
Theranos ultimately showed to potential customers and
prospective investors.
This was a far cry from the original ambitious concept.
The hundreds of laboratory tests doctors can order
are divided into four major categories: immunoassays,
general chemistry, hæmatology, and DNA amplification.
In immunoassay tests, blood plasma is exposed to
an antibody that detects the presence of a substance
in the plasma. The antibody contains a marker which
can be detected by its effect on light passed through
the sample. Immunoassays are used in a number of common
blood tests, such the
25(OH)D
assay used to test for vitamin D deficiency, but cannot perform
other frequently ordered tests such as blood sugar and red and
white blood cell counts. Edison could only perform what is
called “chemiluminescent immunoassays”, and thus
could only perform a fraction of the tests regularly ordered.
The rationale for installing an Edison in the doctor's office
was dramatically reduced if it could only do some tests but
still required a venous blood draw be sent off to the laboratory
for the balance.
This didn't deter Elizabeth, who combined her formidable
salesmanship with arm-waving about the capabilities of the
company's products. She was working on a deal to sell four
hundred Edisons to the Mexican government to cope with an
outbreak of swine flu, which would generate immediate revenue.
Money was much on the minds of Theranos' senior management. By
the end of 2009, the company had burned through the US$ 47
million raised in its first three rounds of funding and, without
a viable product or prospects for sales, would have difficulty
keeping the lights on.
But the real bonanza loomed on the horizon in 2010. Drugstore
giant Walgreens was interested in expanding their retail
business into the “wellness market”: providing
in-store health services to their mass market clientèle.
Theranos pitched them on offering in-store blood testing.
Doctors could send their patients to the local Walgreens to have
their blood tested from a simple finger stick and eliminate the
need to draw blood in the office or deal with laboratories.
With more than 8,000 locations in the U.S., if each were to be
equipped with one Edison, the revenue to Theranos (including the
single-use testing cartridges) would put them on the map as
another Silicon Valley disruptor that went from zero to hundreds
of millions in revenue overnight. But here, as well, the
Elizabeth effect was in evidence. Of the 192 tests she told
Walgreens Theranos could perform, fewer than half were
immunoassays the Edisons could run. The rest could be done only
on conventional laboratory equipment, and certainly not on a
while-you-wait basis.
Walgreens wasn't the only potential saviour on the horizon.
Grocery godzilla Safeway, struggling with sales and earnings
which seemed to have reached a peak, saw in-store blood testing
with Theranos machines as a high-margin profit centre. They
loaned Theranos US$ 30 million and began to plan for
installation of blood testing clinics in their stores.
But there was a problem, and as the months wore on, this became
increasingly apparent to people at both Walgreens and Safeway,
although dismissed by those in senior management under the spell
of Elizabeth's reality distortion field. Deadlines were missed.
Simple requests, such as A/B comparison tests run on the
Theranos hardware and at conventional labs were first refused,
then postponed, then run but results not disclosed. The list of
tests which could be run, how blood for them would be drawn, and
how they would be processed seemed to dissolve into fog whenever
specific requests were made for this information, which was
essential for planning the in-store clinics.
There was, indeed, a problem, and it was pretty severe,
especially for a start-up which had burned through US$ 50
million and sold nothing. The product didn't work.
Not only could the Edison only run a fraction of the tests its
prospective customers had been led by Theranos to believe it
could, for those it did run the results were wildly unreliable.
The small quantity of blood used in the test introduced random
errors due to dilution of the sample; the small tubes in the
cartridge were prone to clogging; and capillary blood collected
from a finger stick was prone to errors due to
“hemolysis”, the rupture of red blood cells, which
is minimal in a venous blood draw but so prevalent in finger
stick blood it could lead to some tests producing values which
indicated the patient was dead.
Meanwhile, people who came to work at Theranos quickly became
aware that it was not a normal company, even by the eccentric
standards of Silicon Valley. There was an obsession with
security, with doors opened by badge readers; logging of
employee movement; information restricted to narrow silos
prohibiting collaboration between, say, engineering and
marketing which is the norm in technological start-ups;
monitoring of employee Internet access, E-mail, and social media
presence; a security detail of menacing-looking people in black
suits and earpieces (which eventually reached a total of
twenty); a propensity of people, even senior executives, to
“vanish”, Stalin-era purge-like, overnight; and a
climate of fear that anybody, employee or former employee, who
spoke about the company or its products to an outsider,
especially the media, would be pursued, harassed, and bankrupted
by lawsuits. There aren't many start-ups whose senior
scientists are summarily demoted and subsequently commit
suicide. That happened at Theranos. The company held no
memorial for him.
Throughout all of this, a curious presence in the company was
Ramesh (“Sunny”) Balwani, a Pakistani-born software
engineer who had made a fortune of more than US$ 40 million in
the dot-com boom and cashed out before the bust. He joined
Theranos in late 2009 as Elizabeth's second in command and
rapidly became known as a hatchet man, domineering boss, and
clueless when it came to the company's key technologies (on one
occasion, an engineer mentioned a robotic arm's “end
effector”, after which Sunny would frequently speak of its
“endofactor”). Unbeknownst to employees and
investors, Elizabeth and Sunny had been living together since
2005. Such an arrangement would be a major scandal in a public
company, but even in a private firm, concealing such information
from the board and investors is a serious breach of trust.
Let's talk about the board, shall we? Elizabeth was not only
persuasive, but well-connected. She would parley one connection
into another, and before long had recruited many prominent
figures including:
- George Schultz (former U.S. Secretary of State)
- Henry Kissinger (former U.S. Secretary of State)
- Bill Frist (former U.S. Senator and medical doctor)
- James Mattis (General, U.S. Marine Corps)
- Riley Bechtel (Chairman and former CEO, Bechtel Group)
- Sam Nunn (former U.S. Senator)
- Richard Kobacevich (former Wells Fargo chairman and CEO)
Posted at July 8, 2018 21:32