[SystemSafety] Theranos

[Prof. Dr. Peter Bernard Ladkin]

There is lots more to the story. The con was brought into the open by a series of articles by Wall 
Street Journal's John Carreyrou in 2015. There is what appears to be a compendium of stories, on the 
Long Island University www site, some 61pp long. The URL is very messy however, and I can't be 
bothered to decode it, so I am not exactly sure it is what it says it is. Besides, the WSJ 
presumably has copyright on all its stories. It comes up under a Google search for "Theranos wall 
street journal".

Carreyrou wrote a book on it called "Bad Blood: Secrets and Lies in a Silicon Valley Startup", 
published in 2018, which apparently became a US bestseller. Costs just under €8 in paperback and 
less than €1.50 for the Kindle edition with Amazon. The WSJ's own compendium pages are at 
https://www.wsj.com/livecoverage/elizabeth-holmes-trial-theranos/card/gRCzasZjEgzlpCatXwq5

Former CEO Elizabeth Holmes was convicted earlier this year in Federal Court in San Jose of four of 
eleven counts. She was sentenced to over 10 years in prison in November 2022.

This was a very sophisticated fraud. In contrast to most, which have to do with financial 
shenanigans, this was centred on science. The point being that, since you are up against the 
physical world, not just bean counters, there is a significant risk that it comes crashing down at 
some point. As Richard Feymann wrote apropos the Challenger accident, "nature cannot be fooled". But 
people can apparently be fooled about nature, in this case for some 15 years.

Holmes was a freshman when she quit Uni to start Theranos. Indeed, part of her defence was that she 
didn't actually know that the technology didn't work. I find that plausible. Lots of people have 
written about how she is some kind of PR genius. Some scientists have pointed out that if she'd 
stuck around in her Stanford undergrad program a little longer, she might have learned enough 
science to figure out that her company's approach couldn't work.

So what were the rest of the employees thinking? I doubt that any were thinking to cash out and get 
out, because they would have had preferred stock which could only have been sold with company 
agreement. Many of them were directly involved in misleading people. There were Theranos testing 
centres in big stores. They took their drops of blood, didn't of course perform all of the claimed 
300 tests, just a few. I understand that the blood was diluted to perform the tests (always or just 
sometimes? I don't remember). Of course the results were not reliable (re: Feynmann). Holmes, 
though, was not convicted on any count of defrauding customers. Presumably because the Theranos 
centres were offering to test your blood for this-and-that, and indeed they did. And they gave you 
back honest results; they weren't lying to you. And (see below) Theranos is far from the only 
company doing that.

There were and are plenty of biological scientists around who knew that the claims Theranos was 
making were implausible. I guess that for a company like that to run, you have to make sure that the 
business people and the scientists are kept well out of each other's worlds, and that the scientists 
who interface with management have to be encouraged, enticed or browbeaten, or all three, into only 
giving answers management wants to hear.

So what was the Board doing, all this time? Theranos was in existence some 15 years, 2003 to 2018. 
It took over two years to go under, even after the WSJ revelations.

One answer to these questions may be that all that the company needed to do to be successful was to 
be a bit better than its technological rivals (Siemens Healthineers and suchlike) and stick around 
long enough. And, as noted, you can quickly become "a bit better" by first being less reliable and 
then working on improving your reliability. That is a plausible business strategy, although I doubt 
it is one with which anybody on this list would sympathise. The trouble with the strategy is that, 
if you don't actually have the revolutionary technology you promised, your technological rivals are 
likely to quickly catch up. But still, the market is huge. Everyone even faintly elderly living in a 
country with Western levels of health care could do with an annual blood test, and thorough ones 
cost real money (mine is the far side of €200). So even if you become just one of a few providers of 
kit, you'd still do OK.

There is also a regulatory issue, explicated succinctly by Ana Santos Rutschman 
https://theconversation.com/how-theranos-faulty-blood-tests-got-to-market-and-what-that-shows-about-gaps-in-fda-regulation-168050 
The finger-pricking device was claimed by Theranos to be a Class I device whereas the FDA concluded 
in 2015 that it was Class II. Theranos was also offering "laboratory developed tests" which the FDA 
does not regulate pre-market. Theranos was way from being the only offerer of unreliable 
lab-developed tests - Rutschman lists some others.

In contrast, as far as I know, in Germany you can't give blood for a test unless it is performed by 
medical personnel under supervision of a medical doctor. Having it done at the apothecary is not on 
(although there is now a route by which they can give Covid-19 vaccinations).

PBL

Prof. i.R. Dr. Peter Bernard Ladkin, Bielefeld, Germany
Tel+msg +49 (0)521 880 7319  www.rvs-bi.de