"Hot Startup Theranos Has Struggled With Its Blood-Test Technology"

The story we linked to in June's "Theranos: She's Young, She's Rich, Is She A Marketing Huckster?" was based on the thinking of one of the heavyweights of laboratory diagnostics, Dr. Dr. Eleftherios P. Diamandis*, who was dubious.

That post was one of our least read.

Funny how stuff works out.
From the Wall Street Journal:

Silicon Valley lab, led by Elizabeth Holmes, is valued at $9 billion but isn’t using its technology for all the tests it offers

On Theranos Inc.’s website, company founder Elizabeth Holmesholds up a tiny vial to show how the startup’s “breakthrough advancements have made it possible to quickly process the full range of laboratory tests from a few drops of blood.” 

The company offers more than 240 tests, ranging from cholesterol to cancer. It claims its technology can work with just a finger prick. Investors have poured more than $400 million into Theranos,valuing it at $9 billion and her majority stake at more than half that. The 31-year-old Ms. Holmes’s bold talk and black turtlenecks draw comparisons to Apple Inc. cofounder Steve Jobs. 

But Theranos has struggled behind the scenes to turn the excitement over its technology into reality. At the end of 2014, the lab instrument developed as the linchpin of its strategy handled just a small fraction of the tests then sold to consumers, according to four former employees. 

One former senior employee says Theranos was routinely using the device, named Edison after the prolific inventor, for only 15 tests in December 2014. Some employees were leery about the machine’s accuracy, according to the former employees and emails reviewed by The Wall Street Journal. 

In a complaint to regulators, one Theranos employee accused the company of failing to report test results that raised questions about the precision of the Edison system. Such a failure could be a violation of federal rules for laboratories, the former employee said.  

Theranos also hasn’t disclosed publicly that it does the vast majority of its tests with traditional machines bought from companies likeSiemens AG. 

The Palo Alto, Calif., company says it abides by all applicable federal lab regulations and hasn’t exaggerated its achievements. It disputes that its device could do just 15 tests, declining to say how many tests it now handles or to respond to some questions about its lab procedures, citing “trade secrets.” 

But Theranos’s outside lawyer, David Boies, acknowledges that the company isn’t yet using the device for all the tests Theranos offers. The transition to doing every test with the device is “a journey,” he says. 

Asked about the claim on the company’s website, Mr. Boies replied that using the device for the “full range” of blood tests is a goal Theranos will eventually achieve. 

Theranos points out that it has publicly disclosed doing “certain esoteric and less commonly ordered tests” with traditional machines on blood drawn with smaller needles from veins.
During the Journal’s reporting, Theranos deleted a sentence on its website that said: “Many of our tests require only a few drops of blood.” It also dropped a reference to collecting “usually only three tiny micro-vials” per sample, “instead of the usual six or more large ones.” Heather King, the company’s general counsel, says the changes were made for “marketing accuracy.”...MORE

*He gets the double Doc for his M.D. PhD.

HT on the Journal story: WaPo Wonkblog's "The wildly hyped $9 billion blood test company that no one really understands".

Elizabeth Holmes is not happy. From Business Insider (I can't determine whether they are or are not in the bag for the founder):

Founder of $9 billion dollar startup Theranos fires back at WSJ report: 'How disappointing. Full of falsehoods'

Theranos, the $9 billion biotech startup that claims to have a new approach to blood testing, came under fire on Wednesday when the Wall Street Journal published an incendiary investigative report about the company and its technology. 

Theranos wants to conduct blood tests for health issues through a single finger stick rather than by having to draw vials of blood in a doctor's office. Its goal is to make clinical testing cheaper and faster. 

The Journal's report alleges Theranos is struggling to make its 'revolutionary' in-house technology actually work, and reports that only about 10% of Theranos' blood tests use its technology, with the rest of the tests being carried out using traditional blood-testing tech. Even the company's own employees have concerns about Theranos' blood tests. 

The Journal appears to have made every effort to get Theranos to comment on its five-month reporting. Holmes did not speak with the Journal for the story.But the company struck back against the Journal's report with a lengthy statement released shortly after the WSJ's story was published. 

"Today’s Wall Street Journal story about Theranos is factually and scientifically erroneous and grounded in baseless assertions by inexperienced and disgruntled former employees and industry incumbents. Theranos presented the facts to this reporter to prove the accuracy and reliability of its tests and to directly refute these false allegations, including through over 1,000 pages of statements and documents," according to the statement. 

"Disappointingly, the Journal chose to publish this article without even mentioning the facts Theranos shared that disproved the many falsehoods in the article." 

Elizabeth Holmes, the founder of Theranos, has also been tweeting about the Journal's story. She responded to one software developer's tweet, saying that Theranos offered to show the Journal its technology and they "declined."...MORE

Previously:
 Why Are So Many Political Heavyweights On the Board of Theranos?

Matt Levine: The Blood Unicorn Theranos Was Just a Fairy Tale (9 footnotes!)

Bloomberg View, March 14:

Founder Elizabeth Holmes spun a beautiful fantasy for investors, not so much for patients. 

It has been pretty obvious for a few years now that Theranos Inc. was a huge fraud. Theranos is a blood-testing startup that developed devices, which it called "TSPUs" and "miniLabs," that were supposed to be able to do a wide range of laboratory tests on a finger-prick blood sample. It seems like Theranos founder Elizabeth Holmes really wanted to build devices that would actually do these things, and thought she could, and tried to. But it didn't work, and Theranos ran out of time: It talked Walgreens into offering Theranos tests at its stores, 1 but "it became clear to Holmes that the miniLab would not be ready" in time for the Walgreens rollout. 

So she went with Plan B: "Theranos never used its miniLab for patient testing in its clinical laboratory," but did a dozen tests on the earlier-generation Theranos TSPU, 50 to 60 more tests on blood-test-analysis devices that it bought from other companies and modified to take finger-prick samples, and "the remaining 100-plus tests it offered" on regular unmodified devices bought from other companies or sent out to third-party laboratories. Meanwhile Theranos and Holmes were going around giving interviews about how revolutionary their technology was, without ever mentioning that it didn't work and they didn't use it. This got them a lot of favorable press and a $9 billion valuation, which went on for a while until the Wall Street Journal's John Carreyrou reported in 2015 that the product didn't work and that Theranos was lying about using it, after which Theranos fairly quickly collapsed. 

But the fact that Theranos was a gigantic fraud doesn't quite mean that it committed fraud. It isn't exactly fraud to go around lying to journalists. 2 People do it all the time! If you decide that you want to be a celebrity, and that the easiest path to fame is by convincing people that you've found a magical new blood test, you can lie about that to your heart's content, and if you fool people then that's their problem, not yours. Undeserved celebrity is a central fact of American life; if it was illegal to lie your way to fame then our politics, for one thing, would be very different. 

It becomes fraud in the legal sense if you use those lies to get money. 3  Theranos, in parallel with being a massive fraud, was also raising a lot of money. I used to refer to it pretty regularly as the Blood Unicorn, Elasmotherium haimatos, because it was a Silicon Valley unicorn with a peak valuation of $9 billion that managed to raise $700 million from investors. If you are going around lying publicly about your technology while also raising hundreds of millions of dollars from investors, that certainly suggests that you were defrauding those investors. But it's not a certainty. Theranos wasn't a public company; it raised all that money in negotiated private fundraising rounds where investors received disclosure documents and had the opportunity to conduct due diligence. Perhaps while it was going around talking up its fake product to the press, it was simultaneously giving investors thorough disclosure documents that made clear exactly where its technology stood and exactly what were the risks to its business. Perhaps the investors knew that the technology wasn't ready yet, but invested in the company anyway because they believed that it would be ready one day, and they were kept sufficiently informed of the actual progress for that to be a reasonable belief. This would be a bit of a strange way to roll -- telling self-flattering lies to the press while giving your investors the unvarnished truth 4 -- but it is not impossible, and it would give Theranos a defense against fraud charges. 

But no, no, that's not what happened at all. Instead the Securities and Exchange Commission today brought fraud charges against Holmes, Theranos and its former president, Sunny Balwani, and its complaint alleges pretty strongly that the investors were just as bamboozled as everybody else. In fact, Theranos made direct use of its positive press to raise money: It "sent investors a binder of background materials," which included "articles and profiles about Theranos, including the 2013 and 2014 articles from The Wall Street Journal, Wired, and Fortune that were written after Holmes provided them with interviews" and that included her misleading claims about the state of Theranos's technology....MORE, so much more.

HT: FT Alphaville's Further Reading post

Theranos To Quit Blood Tests, Fire 40% Of Staff

From the Wall Street Journal:

 

Elizabeth Holmes, Theranos’s founder and chief executive, at the Clinton Global Initiative’s 

annual meeting in New York in Sept. 2015. Photo: Brendan Mcdermid/Reuters

 

Theranos Retreats From Blood Tests
Company led by Elizabeth Holmes will shut down facilities and shed more than 40% of its workforce as it shifts to developing products for outside labs

Theranos Inc. said it will shut down its blood-testing facilities and shrink its workforce by more than 40%.

The moves mark a dramatic retreat by the Palo Alto, Calif., company and founder Elizabeth Holmes from their core strategy of offering a long menu of low-price blood tests directly to consumers. Those ambitions already were endangered by crippling regulatory sanctions that followed revelations by The Wall Street Journal of shortcomings in Theranos’s technology and operations.

The shutdowns and layoffs could help the closely held company accelerate its shift to developing products that could be sold to outside laboratories. Ms. Holmes announced in August a new blood-testing device called miniLab, which is about the size of a printer but hasn’t been approved by regulators.

In a statement posted on Theranos’s website late Wednesday, Ms. Holmes said: “We will return our undivided attention to our miniLab platform. Our ultimate goal is to commercialize miniaturized, automated laboratories capable of small-volume sample testing, with an emphasis on vulnerable patient populations, including oncology, pediatrics, and intensive care.”

Theranos has labs in Newark, Calif., and Scottsdale, Ariz., and five blood-drawing sites that send samples to the Arizona lab. The California lab has been closed since regulators decided in July to revoke Theranos’s license to operate the facility, a move Theranos is appealing.
As part of the restructuring, Theranos will shut down those operations entirely. Ms. Holmes said the restructuring “will impact approximately 340 employees” in Arizona, California and Pennsylvania. The company said it had 790 full-time employees as of August 1.

The impact on Theranos’s ongoing appeal of regulatory sanctions is unclear. Regulators also sought in July to ban Ms. Holmes from owning or operating any lab for two years, throwing the future of the Arizona lab into doubt. Theranos has appealed her ban, which hasn’t taken effect.

A retreat from the strategy that won the company a valuation of $9 billion in 2014 could make it less complicated for Ms. Holmes, 32 years old, to keep running Theranos as chief executive if the ban is imposed. She also controls a majority voting stake in the company and can’t be easily removed from her position, according to people familiar with the matter.

Theranos has said it accepted “full responsibility for the issues” at its California lab and had “worked to undertake comprehensive remedial actions,” including improvements in quality, training procedures and systems.

After the regulatory sanctions were announced, Theranos said its research and development unit “has developed many technologies that are not dependent on running a clinical laboratory.”

The miniLab was unveiled at a conference of lab scientists, and Ms. Holmes said it could run accurate tests from a few drops of blood. Theranos sought emergency clearance of Zika-virus blood test but then withdrew its request after federal regulators found that the company didn’t include proper patient safeguards in a study of the new test.

Theranos told the Food and Drug Administration it hadn’t reported results of the tests to doctors or patients, according to a letter obtained by the Journal in a public-records request....MUCH MORE

Theranos: "Can Elizabeth Holmes Save Her Unicorn?"

Following up on Monday's "Watch Out Theranos: Google Is Patenting a Blood Sucking Smartwatch (GOOG)".

A major piece from Bloomberg:

Theranos wants to convince the world it’s for real.

Elizabeth Holmes rarely slips out of character. When she responds to questions in an interview or on a conference stage, she leans forward, leg crossed ankle over knee in a half-lotus manspread power pose. She lowers her voice an octave or two, as if she’s plumbing the depths of the human vocal cord. Although she hates it being remarked upon, her clothing, a disciplined all-black ensemble of flat shoes, slacks, turtleneck, and blazer buttoned at the waist, is impossible not to notice. She adopted this uniform, as she calls it, in 2003, when she founded Theranos, a company seeking to revolutionize the medical diagnostics industry by doing tests using only a few drops of blood.

“I wanted the focus to be on my work,” she says slowly and deliberately. “I don’t want to go into a meeting and have people looking at what I’m wearing. I want them listening to what I’m saying. And I want them to be looking at what we do.” She pauses, then adds, “Because when you walk into the room and you’re a 19-year-old girl, people interact with you in a certain way.”

All the same, Holmes says, she wasn’t prepared for how eager people would be to tear her down. “Until what happened in the last four weeks, I didn’t understand what it means to be a woman in this space,” she says, shaking her head. “Every article starting with, ‘A young woman.’ Right? Someone came up to me the other day, and they were like, ‘I have never read an article about Mark Zuckerberg that starts with ‘A young man.’ ”

Holmes, now 31, is sitting in her office. The surfaces are curved and gleaming, and the giant, orblike light fixtures seem to have been taken from the Starship Enterprise as reimagined by Jean Nouvel. The windows offer panoramic views of the flora of Palo Alto, where Holmes has become one of the most obsessed-over entrepreneurs in Silicon Valley. Partly this is a result of her ambition to make getting a blood test as fast and as simple as checking your bank account balance. If Theranos succeeds, Holmes says, anyone, anywhere, could have access to information about their health and risk of disease anytime they want, without a prescription. Theranos does that, she says, with as little as a finger prick’s worth of blood, a much smaller amount than traditional blood tests, and at a fraction of the cost. Theranos charges from $2.67 for a glucose test to $59.95 for a range of sexually transmitted diseases and posts all of its prices online, a level of transparency no traditional lab company matches. Holmes says her company can conduct reliable testing for 50 percent to 80 percent less than Medicare reimbursement rates, which could lead to astonishing cost savings. She estimates that $2.2 billion would be saved each year in Arizona alone, where the company has a presence in 40 Walgreens pharmacies.

The Theranos story has also been amplified by its $9 billion valuation, based on its venture capital funding, as well as by the roster of powerful board members (Henry Kissinger, William Perry) and public supporters (Marc Andreessen, among others) Holmes has gathered around her. But Holmes herself is as much a source of fascination as her company. She has just the right mixture of boldness and precocity that Silicon Valley loves. She was only too willing to let that propel her through the business media’s star chamber, though she refused to let photographers use a wind machine to blow her hair.

On a typical day, Holmes would be overseeing Theranos’s 1,000 or so employees, but on this afternoon in late November she’s under siege. In her office, she’s joined by Theranos’s general counsel and a newly retained public-relations crisis expert who monitors every tic and utterance. An aide silently enters the room and hands Holmes a cup of green liquid, which contains coconut water and kale, along with other organic extractions. Stacks of paperwork, test data, and U.S. Food and Drug Administration applications sit on the table in front of her, all intended to prove that Theranos’s products work as she says they do.

After several years of Holmes telling the largely unchallenged story of how Theranos intends to change the world, a blast of cold air came on Oct. 15, when the Wall Street Journal published the result of a five-month investigation by John Carreyrou. The piece reported that as of the end of 2014, Theranos wasn’t using its own products and technology to analyze most of the tests it was conducting for consumers. Former employees, the article further reported, claimed Theranos was cheating on routine proficiency tests, which help federal regulators determine if a particular lab is producing accurate results. The implication was that Theranos’s technology was largely a charade. A series of similarly critical articles followed. Bloomberg News reported that some Theranos partners that had signed deals with the company, including AmeriHealth Caritas and Intermountain Healthcare, hadn’t actually started using the technology yet. The bright-eyed woman the media had clambered over themselves to mythologize was now being picked apart.

On its website, Theranos denied the accusations, then went about trying to find people who could come to its defense. “Here’s what happens every time I have a huge winner,” says Tim Draper, founding partner of venture capital firm DFJ and a Holmes loyalist whose $1 million investment made Theranos’s incubation possible. “The first thing that happens is that the competition sort of pooh-poohs it. Then the next thing that happens is they go, ‘Uh-oh, this is threatening our business.’ … She’s opened the kimono, and it’s scaring the pants off the competition.”...MORE

See also our June 13 post "Theranos: She's Young, She's Rich, Is She A Marketing Huckster?".
And 2014's "Why Are So Many Political Heavyweights On the Board of Theranos?"

Old guys seem to like her:

Theranos Loses Its President, Gains Board Members

First up, the Wall Street Journal:

Theranos Executive Sunny Balwani to Depart Amid Regulatory Probes

Departure of president and operating chief comes amid broad reorganization at embattled company
A top executive who helped build Theranos Inc. into a major blood-testing laboratory is leaving the company amid regulatory probes of the embattled Silicon Valley firm.
.
The departure of Sunny Balwani as Theranos president and chief operating officer comes amid a broader board reorganization announced by the Palo Alto, Calif., firm. In a release late Wednesday, Theranos said it is expanding its board, adding three members to beef up its scientific and medical expertise.
.
The 50-year-old Mr. Balwani, a top associate of Theranos founder Elizabeth Holmes, leaves in the wake of last month’s news that the Securities and Exchange Commission and the U.S. attorney in San Francisco are investigating whether the company misled investors and regulators about the state of its technology and operations. Theranos said it is cooperating with the investigations.
.
Theranos also is attempting to persuade the Centers for Medicare and Medicaid Services, the federal agency that oversees clinical labs, not to shut down its northern California laboratory. Closure of the lab would result in Ms. Holmes and Mr. Balwani being barred from the blood-testing business for at least two years, under federal regulations.
.
Mr. Balwani joined Theranos as its No. 2 executive in 2009, five years after Ms. Holmes founded the company upon dropping out of Stanford University as a 19-year-old sophomore.
“I am deeply grateful for the opportunity to contribute to Theranos’ mission to make healthcare accessible through its technology and products,” Mr. Balwani said in a statement. “I will continue to be the company’s biggest advocate and look forward to seeing Theranos’ innovations reach the world.”
.
Theranos spokeswoman Brooke Buchanan said Mr. Balwani isn’t being blamed for the company’s regulatory problems. Rather, she said, his departure is merely part of a broader reorganization that will see the company appoint a new chief medical officer, to whom its labs will report, a new head of research and a new operating chief. The company is actively recruiting for those positions. Depending on the new COO’s profile and qualifications, he or she could take on both the operating chief and head of research roles, she added.
.
Theranos declined to make Mr. Balwani available for comment....MUCH MORE

And from Reuters via Yahoo:

Blood-testing firm Theranos Inc said it was adding three new members to its board of directors, and announced the retirement of its chief operating officer.

Theranos has been in the spotlight after reports last year suggested that the company was relying on traditional lab tools as it struggles with its own technology. It is currently being investigated by several U.S. regulators.

On Wednesday, Theranos said it would expand its board to include Dr. Fabrizio Bonanni, a former Amgen Inc and Baxter International Inc executive.

The other additions are Dr. William Foege, a former director of the U.S. Centers for Disease Control and Prevention, and Richard Kovacevich, former chief executive officer of Wells Fargo & Co....MORE

Vanity Fair Exclusive: "How Elizabeth Holmes’s House of Cards Came Tumbling Down"

For folks who have been following the story the last fifteen months there is actually quite a bit that's new in this piece and as far as I know this is the first time it's all been pulled together in one place,
From Vanity Fair:

In a searing investigation into the once lauded biotech start-up Theranos, Nick Bilton discovers that its precocious founder defied medical experts—even her own chief scientist—about the veracity of its now discredited blood-testing technology. She built a corporation based on secrecy in the hope that she could still pull it off. Then, it all fell apart.

It was late morning on Friday, October 18, when Elizabeth Holmes realized that she had no other choice. She finally had to address her employees at Theranos, the blood-testing start-up that she had founded as a 19-year-old Stanford dropout, which was now valued at some $9 billion. Two days earlier, a damning report published in The Wall Street Journal had alleged that the company was, in effect, a sham—that its vaunted core technology was actually faulty and that Theranos administered almost all of its blood tests using competitors’ equipment.

The article created tremors throughout Silicon Valley, where Holmes, the world’s youngest self-made female billionaire, had become a near universally praised figure. Curiosity about the veracity of the Journal story was also bubbling throughout the company’s mustard-and-green Palo Alto headquarters, which was nearing the end of a $6.7 million renovation. Everyone at Theranos, from its scientists to its marketers, wondered what to make of it all.

For two days, according to insiders, Holmes, who is now 32, had refused to address these concerns. Instead, she remained largely holed up in a conference room, surrounded by her inner circle. Half-empty food containers and cups of stale coffee and green juice were strewn on the table as she strategized with a phalanx of trusted advisers, including Ramesh “Sunny” Balwani, then Theranos’s president and C.O.O.; Heather King, the company’s general counsel; lawyers from Boies, Schiller & Flexner, the intrepid law firm; and crisis-management consultants. Most of the people in the war room had been there for two days and nights straight, according to an insider, leaving mainly to shower or make a feeble attempt at a couple of hours of shut-eye. There was also an uncomfortable chill in the room. At Theranos, Holmes preferred that the temperature be maintained in the mid-60s, which facilitated her preferred daily uniform of a black turtleneck with a puffy black vest—a homogeneity that she had borrowed from her idol, the late Steve Jobs.

Holmes had learned a lot from Jobs. Like Apple, Theranos was secretive, even internally. Just as Jobs had famously insisted at 1 Infinite Loop, 10 minutes away, that departments were generally siloed, Holmes largely forbade her employees from communicating with one another about what they were working on—a culture that resulted in a rare form of executive omniscience. At Theranos, Holmes was founder, C.E.O., and chairwoman. There wasn’t a decision—from the number of American flags framed in the company’s hallway (they are ubiquitous) to the compensation of each new hire—that didn’t cross her desk.

And like Jobs, crucially, Holmes also paid indefatigable attention to her company’s story, its “narrative.” Theranos was not simply endeavoring to make a product that sold off the shelves and lined investors’ pockets; rather, it was attempting something far more poignant. In interviews, Holmes reiterated that Theranos’s proprietary technology could take a pinprick’s worth of blood, extracted from the tip of a finger, instead of intravenously, and test for hundreds of diseases—a remarkable innovation that was going to save millions of lives and, in a phrase she often repeated, “change the world.” In a technology sector populated by innumerable food-delivery apps, her quixotic ambition was applauded. Holmes adorned the covers of Fortune, Forbes, and Inc., among other publications. She was profiled in The New Yorker and featured on a segment of Charlie Rose. In the process, she amassed a net worth of around $4 billion. 

One of the only journalists who seemed unimpressed by this narrative was John Carreyrou, a recalcitrant health-care reporter from The Wall Street Journal. Carreyrou came away from The New Yorker story surprised by Theranos’s secrecy—such behavior was to be expected at a tech company but not a medical operation. Moreover, he was also struck by Holmes’s limited ability to explain how it all worked. When The New Yorker reporter asked about Theranos’s technology, she responded, somewhat cryptically, “a chemistry is performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel.”

Shortly after reading the article, Carreyrou started investigating Theranos’s medical practices. As it turned out, there was an underside to Theranos’s story that had not been told—one that involved questionable lab procedures and results, among other things. Soon after Carreyrou began his reporting, David Boies, the superstar lawyer—and Theranos board member—who had taken on Bill Gates in the 1990s and represented Al Gore during the 2000 Florida recount case, visited the Journal newsroom for a five-hour meeting. Boies subsequently returned to the Journal to meet with the paper’s editor in chief, Gerard Baker. Eventually, on October 16, 2015, the Journal published the article: HOT STARTUP THERANOS HAS STRUGGLED WITH ITS BLOOD-TEST TECHNOLOGY.

During the two days in the war room, according to numerous insiders, Holmes heard various response strategies. The most cogent suggestion advocated enlisting members of the scientific community to publicly defend Theranos—its name an amalgam of “therapy” and “diagnosis.” But no scientist could credibly vouch for Theranos. Under Holmes’s direction, the secretive company had barred other scientists from writing peer-review papers on its technology.

Absent a plan, Holmes embarked on a familiar course—she doubled down on her narrative. She left the war room for her car—she is often surrounded by her security detail, which sometimes numbers as many as four men, who (for safety reasons) refer to the young C.E.O. as “Eagle 1”—and headed to the airport. (She has been known to fly alone on a $6.5 million Gulfstream G150.) Holmes subsequently took off for Boston to attend a luncheon for a previously scheduled appearance at the Harvard Medical School Board of Fellows, where she would be honored as an inductee. During the trip, Holmes fielded calls from her advisers in the war room. She and her team decided on an interview with Jim Cramer, the host of CNBC’s Mad Money, with whom she had a friendship that dated from a previous interview. It was quickly arranged.

Cramer generously began the interview by asking Holmes what had happened. Holmes, who talks slowly and deliberately, and blinks with alarming irregularity, replied with a variation of a line from Jobs. “This is what happens when you work to change things,” she said, her long blond hair tousled, her smile amplified by red lipstick. “First they think you’re crazy, then they fight you, and then, all of a sudden, you change the world.” When Cramer asked Holmes for a terse true-or-false answer about an accusation in the article, she replied with a meandering 198-word retort.

By the time she returned to Palo Alto, the consensus was that it was time, at last, for Holmes to address her hundreds of employees. A company-wide e-mail instructed technicians in lab coats, programmers in T-shirts and jeans, and a slew of support staff to meet in the cafeteria. There, Holmes, with Balwani at her side, began an eloquent speech in her typical baritone, explaining to her loyal colleagues that they were changing the world. As she continued, Holmes grew more impassioned. The Journal, she said, had gotten the story wrong. Carreyrou, she insisted, with a tinge of fury, was simply picking a fight. She handed the stage to Balwani, who echoed her sentiments.

After he wrapped up, the leaders of Theranos stood before their employees and surveyed the room. Then a chant erupted. “Fuck you . . .,” employees began yelling in unison, “Carreyrou.” It began to grow louder still. “Fuck you, Carreyrou!” Soon men and women in lab coats, and programmers in T-shirts and jeans, joined in. They were chanting with fervor: “Fuck you, Carreyrou!,” they cried out. “Fuck you, Carreyrou! Fuck. You. Carrey-rou!” 

The Game

In Silicon Valley, every company has an origin story—a fable, often slightly embellished, that humanizes its mission for the purpose of winning over investors, the press, and, if it ever gets to that point, customers, too. These origin stories can provide a unique, and uniquely powerful, lubricant in the Valley. After all, while Silicon Valley is responsible for some truly astounding companies, its business dealings can also replicate one big confidence game in which entrepreneurs, venture capitalists, and the tech media pretend to vet one another while, in reality, functioning as cogs in a machine that is designed to not question anything—and buoy one another all along the way.

It generally works like this: the venture capitalists (who are mostly white men) don’t really know what they’re doing with any certainty—it’s impossible, after all, to truly predict the next big thing—so they bet a little bit on every company that they can with the hope that one of them hits it big. The entrepreneurs (also mostly white men) often work on a lot of meaningless stuff, like using code to deliver frozen yogurt more expeditiously or apps that let you say “Yo!” (and only “Yo!”) to your friends. The entrepreneurs generally glorify their efforts by saying that their innovation could change the world, which tends to appease the venture capitalists, because they can also pretend they’re not there only to make money. And this also helps seduce the tech press (also largely comprised of white men), which is often ready to play a game of access in exchange for a few more page views of their story about the company that is trying to change the world by getting frozen yogurt to customers more expeditiously. The financial rewards speak for themselves. Silicon Valley, which is 50 square miles, has created more wealth than any place in human history. In the end, it isn’t in anyone’s interest to call bullshit.

“I DON’T THINK YOUR IDEA IS GOING TO WORK,” ONE PROFESSOR RECALLS TELLING HOLMES.

When Elizabeth Holmes emerged on the tech scene, around 2003, she had a preternaturally good story. She was a woman. She was building a company that really aimed to change the world. And, as a then dark-haired 19-year-old first-year at Stanford University’s School of Chemical Engineering, she already comported herself in a distinctly Jobsian fashion. She adopted black turtlenecks, would boast of never taking a vacation, and would come to practice veganism. She quoted Jane Austen by heart and referred to a letter that she had written to her father when she was nine years old insisting, “What I really want out of life is to discover something new, something that mankind didn’t know was possible to do.” And it was this instinct, she said, coupled with a childhood fear of needles, that led her to come up with her revolutionary company.

Holmes had indeed mastered the Silicon Valley game. Revered venture capitalists, such as Tim Draper and Steve Jurvetson, invested in her; Marc Andreessen called her the next Steve Jobs. She was plastered on the covers of magazines, featured on TV shows, and offered keynote-speaker slots at tech conferences. (Holmes spoke at Vanity Fair’s 2015 New Establishment Summit less than two weeks before Carreyrou’s first story appeared in the Journal.) In some ways, the near-universal adoration of Holmes reflected her extraordinary comportment. In others, however, it reflected the Valley’s own narcissism. Finally, it seemed, there was a female innovator who was indeed able to personify the Valley’s vision of itself—someone who was endeavoring to make the world a better place....MUCH MORE

Fortune Senior Editor: "How Theranos Misled Me" (and Theranos responds)

From Fortune, Dec. 17:

How Theranos Misled Me
And how I screwed up, too.

In a June 2014 cover story for Fortune, I helped raise to prominence the inventor-entrepreneur Elizabeth Holmes and her remarkable—I think everyone will still go along with that adjective—diagnostics company Theranos.

Fairly high up in my story there is a whopping false statement. After explaining that Theranos’s tests could be performed with a finger-stick, rather than using traditional venipuncture (a syringe in the crook of the arm), I wrote that the company “currently offers 200—and is ramping up to offer more than 1000—of the most commonly ordered blood diagnostic tests, all without the need of a syringe.”

Sixteen months later, John Carreyrou of the Wall Street Journal published a now famous front-page story containing a wide range of unflattering accusations about Theranos. Among them, he reported that one “former senior employee” had told him—in an account generally corroborated by three other former employees—that as of December 2014, the company was actually performing only about 15 finger-stick tests using its proprietary technology; the remainder were being performed using conventional, third-party analyzer machines, made by companies like Siemens—i.e., the same machines used by conventional labs like Quest Diagnostics and LabCorp.

In that Journal article, a Theranos spokesperson was quoted flatly denying the newspaper’s allegations in a blanket manner, but refusing to be specific, citing trade secrets. Notably, from my perspective, she did not say how many tests the company had, in fact, been performing by proprietary methods in December 2014.

In a longer statement issued the same day on its website, Theranos further blasted the Journal for, among other things, relying on the accounts of “anonymous, disgruntled former employees,” but still declined to state how many proprietary tests it had really been performing.

It wasn’t until a week later—on Oct. 22—that Theranos, after stonewalling and threats of legal action failed to quell the furor, offered a serious, 14-page response to the Journal article, addressing the full panoply of its accusations. Among other things the company asserted that, as of December 2014, it had in fact been performing “more than 80 of the tests on our online test menu via finger-stick,” and that all but “a few” of those “ran using proprietary technologies.” It also asserted that in the fourth quarter of 2014, 57% of all tests ordered had been performed by finger-stick.

Those figures, if accurate, would suggest that the company might well be accomplishing, as it has claimed, something genuinely innovative and beneficial to society. I should add that the company’s extremely low prices and price-transparency would also be of unquestionable benefit to society, even if the company weren’t doing anything technologically innovative. On the other hand, all these advances matter only if Theranos’s tests are also reliable, which the Journal article also cast doubt upon. In my opinion, the evidence for this was weaker than its evidence that the company was misrepresenting its accomplishments....MORE

HT: Business Insider

On Dec. 18th Fortune published "Did Theranos mislead Fortune?"
And on the 20th: "Letter to the Editor: Theranos Responds"

Our June piece "Theranos: She's Young, She's Rich, Is She A Marketing Huckster?" was one of the earliest to link to credible sources who thought there was no there, there.

Theranos still has not responded to the substantive criticisms, instead going with smoke, mirrors, hand waving and changing the subject.

"Angry customer files class action suit against Theranos"

From The Verge:

The suit alleges customer fraud

The blood-testing startup Theranos has been hit with a consumer fraud class action lawsuit, a week after the company voided two years’ worth of Edison blood test results.

The suit, which was filed today in the district of Northern California, alleges that Theranos’ proprietary blood testing device, Edison, "did not work" and that Theranos’ tests weren’t accurate. So patients who used Theranos’ services were subject to "unnecessary or potentially harmful treatments" or may not have been notified about a treatable condition, according to a complaint.

"The lawsuit filed today against Theranos is without merit," Theranos spokesperson Brooke Buchanan told The Verge. "The company will vigorously defend itself against these claims."

This is the first class action suit against Theranos — but it’s not yet clear if it will stand up to a judge’s scrutiny. For the suit to move ahead, the judge has to certify the class saying there is evidence that there are a number of similarly situated people who suffered the same damage. Even the suit moves ahead, it’s not clear how plaintiffs will show that they’ve suffered damages because of Theranos’ tests. A single Theranos customer is bringing this lawsuit on behalf of himself and two other potential classes of consumers — people who bought Theranos tests in Arizona as well as nationwide. The suit attacks Theranos’ practices on multiple fronts. For instance, although Theranos advertised proprietary technology, the company didn’t use its own blood-testing device, Edison, for most laboratory testing, the suit says. It also says that the company shared incorrect information with the public to attract customers. Finally, Theranos didn’t conduct its testing according to federal guidelines, according to the complaint....MORE

WSJ: "At Theranos, Many Strategies and Snags"

Following up on yesterday's "Blooomberg's Matt Levine on Theranos". 

We're starting to get into the details of what went on to entice the venture capitalists.
Our considered judgement thus far: What the hell?

From the Wall Street Journal:
Dec. 27, 2015 6:40 p.m. ET

Elizabeth Holmes’s blood-testing ambition has long collided with technological problems  

The night before a big meeting with a Swiss drug company in 2008, Theranos Inc. founder Elizabeth Holmes and a colleague sat in a Zurich hotel, sticking their fingers with a lancet.

They drew drops of their own blood to try the company’s testing machine, but the devices wouldn’t work, says someone familiar with the incident. Sometimes the results were obviously too high. Sometimes they were too low. Sometimes the machines spit out only an error message.

After two hours, the colleague called it quits, leaving Ms. Holmes still squeezing blood from her fingers to test it again.

Ever since she launched Theranos in 2003 when she was 19 years old and dropped out of Stanford University, Ms. Holmes has been driven by ambition that is big even by Silicon Valley standards. Instead of a smartphone app to hail a car or order food, she wants to revolutionize health care with a vast range of diagnostic tests run with a few drops of finger-pricked blood.

Now 31, Ms. Holmes has emphasized a variety of strategies—a hand-held device, tests for drugmakers, drugstore clinics—while trying to turn her dream into a business. She often has collided with technological problems, according to interviews with more than 20 former Theranos employees, company emails and complaints filed with federal regulators.

In Switzerland, she went ahead and pricked her finger in front of a group of Novartis AG executives at the meeting the next day, testing for a protein that measures inflammation, says the person familiar with the incident.

All three of her Theranos devices flickered with error messages, the person says. Ms. Holmes was unfazed, blamed a minor technical glitch and continued to pitch the vast potential of her technology.

Ms. Holmes and several current or former Theranos directors declined interview requests. A spokeswoman for Theranos, Brooke Buchanan, says Ms. Holmes recalls only one machine with an error message, because someone tripped over the cord. A second machine ran perfectly, and the third wasn’t used, the spokeswoman says. A Novartis spokeswoman wouldn’t comment.

Since a Wall Street Journal article in October, Ms. Holmes has defended the Palo Alto, Calif., company’s laboratory work and promised to publish data proving the accuracy of its more than 240 tests, ranging from pregnancy to diabetes.

She said earlier this month that customer volume was higher than ever. The company has said it performed millions of tests, with highly positive feedback.

For now, though, Theranos has stopped collecting tiny samples of blood from patients’ fingers for all but one of its tests while it waits for the Food and Drug Administration to review the company’s applications for wider use of the small proprietary vials called “nanotainers.” As a result, Theranos is using traditional lab machines for most of its tests.

Many technology startups struggle to overcome problems while developing their products. Theranos has always faced an extra burden because blood tests sometimes provide life-or-death answers.

David Philippides, an engineer who worked on Theranos devices from January 2013 to November 2014, says the company didn’t show enough regard, based on his involvement in research while he was there, for the scientific rigor of medical research.

“The time was not taken to develop anything properly,” Mr. Philippides says. “This is science. You need time.” He says he was fired after refusing to go to Arizona to retrieve a broken machine.

The Theranos spokeswoman says he held only a “junior role” that gave him “no visibility into the extent of” the company’s research and development. She says the company employs more than 80 scientists with doctorates....MORE

Theranos Is Flopping Like A Dying Fish

Sometimes they flop themselves right back into the water, but that's not the way to bet.

From ZeroHedge:

Dead Unicorn Bounce? Theranos Hires "Compliance" Execs Following CEO's 2-Year Ban

Sometimes you have to know when to "stay down." Having been barred from owning or operating a lab for at least two years, Elizabeth Holmes, Theranos founder and CEO, said that:

...the company would be "shutting down and subsequently rebuilding the lab from the ground up, rebuilding quality systems, adding highly experienced leadership, personnel and experts, and implementing enhanced quality and training procedures."

And it appears, as Reuters reports, that is what they are doing as desperate investors maintain the dream despite its total crushing by regulatory authorities and any reality checks...

Theranos Inc hired two executives to oversee regulatory, quality and compliance standards, in a bid to turn around the struggling blood-testing company after it received sanctions from U.S. regulators.

Dave Wurtz, who previously worked at Thermo Fisher Scientific, was appointed vice president, regulatory and quality. He will work on getting FDA clearances and approvals, marketing new products, and look into medical-device quality systems....MORE

And last month Vanity Fair relayed Draper Fisher Jurvetson's Tim Draper's thoughts:

World’s Most Loyal V.C. Says Theranos Critics Are Just Haters
Tim Draper goes to bat for Elizabeth Holmes.

When Theranos C.E.O. Elizabeth Holmes was growing up, her neighbor was famous Silicon Valley venture capitalist Tim Draper. A family friend to the Holmeses, Draper’s children grew up playing with Elizabeth. He also, incidentally, wrote one of the first seed checks to Theranos a decade ago, long before it was valued at $9 billion (and later, just $800 million). His Sand Hill Road firm, Draper Fisher Jurvetson, has continued to support Holmes. And he’s still defending the company today, even after a series of critical Wall Street Journal reports revealed that the start-up often relied on generic machines to run its blood tests because its own proprietary Edison machines—the technology that the entire business ran on—didn’t work.

Despite it all, Draper told Bloomberg’s Emily Chang in aninterview published Thursday night, “nothing’s gone wrong with Theranos.” The venture capitalist compares Theranos to “the way Uber was attacked by taxi drivers, and Bitcoin was attacked by the banks,” he says. “Theranos is being attacked by the powers that be in big pharma, in [Holmes’s] competitors, in the world of medical insurance, the people in government who are going to be very much affected by a really cheap, really effective, wonderful solution.”

In Draper’s view, Big Pharma is terrified of Theranos, and is demanding the government regulate it in ways that it wouldn’t regulate Theranos’s competition. Instead, Draper says, “we should be really focused on the consumer. The consumers love it.” ...MORE

See our June 2015 piece "Theranos: She's Young, She's Rich, Is She A Marketing Huckster?" for the thinking of one of the heavyweights of laboratory diagnostics, Dr. Dr. Eleftherios P. Diamandis.

Blooomberg's Matt Levine on Theranos

From Bloomberg, Dec. 21:

...People are worried about unicorns.
I have to say that I don't understand the public relations strategy of Theranos, the Blood Unicorn. There was a Bloomberg Businessweek cover story this month, and this weekend there was another big article in the New York Times, and Theranos seems to have cooperated with both of them, and its chief executive officer Elizabeth Holmes was interviewed for both of them. Obviously if you are Elizabeth Holmes you have to know that the only questions anyone wants to ask you are to the effect of: Is your company legit? Can you actually do the blood tests that you've claimed you can do? And obviously you need to have answers for those questions. But she never does. It's a lot of this:

Ms. Holmes insists, however, that the company can still rely on some of its technology, which she won’t specify.

And this:

Ms. Holmes argues that the company’s focus over time simply shifted away from the pharmaceutical industry, but it was able to successfully use its technology. “We can show you the programs we’ve done,” she said in the interview. But when pressed for examples, the company did not provide details. 

No no no no no, that is bad PR, obviously the details are what people want. The time for "trying to take back control of the Theranos story" is after your tests work. Then these interviews are easy: People ask you if your tests work, and you say yes, and you point to the FDA approval or peer review or whatever, and everyone is convinced, and the story is about how Theranos has been unfairly maligned. Without that, the story is still about how Theranos still won't answer direct questions about its tests. Also:

She claims her mother dressed her and her brother in black turtlenecks when they were young and now she finds them comfortable. Moreover, she wanted to deflect attention from what she might be wearing. But now she admits she is frustrated about how to handle the media fascination they seem to have created.

When times were good, every story was about the black turtlenecks; now every story is about how she doesn't like all the stories about the black turtlenecks. It is turtlenecks all the way down. The way to change the story is to have better facts: The media is actually fascinated with Theranos's product, right now, but Theranos doesn't have much to say about it. So, turtlenecks.

Meanwhile in the Wall Street Journal, "U.S. Probes Theranos Complaints." And elsewhere in unicorns, high private valuations mean that private tech company employee stock options aren't as exciting as they used to be....

Although I hadn't seen the above at the time we posted "Fortune Senior Editor: "How Theranos Misled Me" (and Theranos responds)" compare/contrast:

Our June piece "Theranos: She's Young, She's Rich, Is She A Marketing Huckster?" was one of the earliest to link to credible sources who thought there was no there, there.
Theranos still has not responded to the substantive criticisms, instead going with smoke, mirrors, hand waving and changing the subject.

We have agreeance* on the waving with the hands.

*See "He Did It All for the Etymologist Nookie".

"Runaway Stories and Fairy Tale Endings: The Cautionary Tale of Theranos"

From Professor Damodaran's Musings on Markets:

I saw the new Steve Jobs movie, with the screenplay by Aaron Sorkin, over the weekend. As a long-time Apple user and investor, I must confess that I was bothered by the way in which the film played fast and loose with the facts, but I also understand that this is a movie. Sorkin clearly saw the benefit of using the launches of the Macintosh in 1984 and the iMac in 1997 as the bookends of the movie and the tortured relationship between Jobs and his daughter to create an emotional impact, and took dramatic license with the truth. As I watched the movie though, I kept thinking about Theranos, a company with a gripping narrative and a CEO who, like Steve Jobs, wears only black and who seemed headed for a biopic until a few weeks ago. 

The Theranos Story: The Build Up
The Theranos story has its beginnings in March 2004, when Elizabeth Holmes, a 19-year old sophomore at Stanford, dropped out of college and started the company. The company was a Silicon Valley start-up with a non-Silicon Valley focus on an integral, but staid part, of the health care experience, the blood test. Ms. Holmes, based on work that she had been doing in an Stanford lab on testing blood for the SARS virus, concluded that she could adapt technology to allow for multiple tests to be run on much smaller quantities of blood than the conventional tests did and a quicker and more efficient turn around of results (to doctors and patients). In conjunction with her own stated distaste for the needles required for conventional blood tests, this became the basis for the Theranos Naotainer, a half-an-inch tube containing a few drops of blood that would replace the multiple blood containers used by the conventional labs. 

The story proved irresistible to just about everyone who heard it, her professor at Stanford who encouraged her to start the business, the venture capitalists who lined up to provide her hundreds of millions of dollars in capital and health care providers who felt that this would change a key ingredient of the health care experience, making it less painful and cheaper. The Cleveland Clinic and Walgreens, two entities at different ends of the health care spectrum, both seemed to find the technology appealing enough to adopt it. The story was irresistible to journalists, and Ms. Holmes quickly became an iconic figure, with Forbes naming her the “the youngest, self-made, female billionaire in the world” and she was the youngest winner of "The Horatio Alger award" in 2015. 

From the outside, the Theranos path to disrupting the business seemed smooth. The company continued to trumpet its claim that the drop of blood in the Nanotainer could run 30 lab tests and deliver them efficiently to doctors, going as far as listing prices on its website for each test that were dramatically lower (by as much as 90%) than the status quo. In venture capital rankings, Theranos consistently ranked among the most valuable private businesses with an estimated value in excess of $9 billion, making Ms. Holmes one of the richest women in the world. The world seemed truly at her feet and reading the news stories, the disruption seemed imminent.

Source: Wall Street Journal

The Theranos Story: The Let DownThe Theranos story started to come apart on October 16, when a Wall Street Journal articlereported that the company was exaggerating the potential of the Nanotainer and that it was not using it for the bulk of the blood tests that it was running in house. More troubling was the article’s contention that senior lab employees at the company found that the nanotainer’s blood test results were not reliable, casting doubt on the science behind the product. 

In the following days, things got worse for Theranos. It was reported that the FDA, after an inspection at Theranos, had asked the company to stop using the Nanotainer on all but one blood test (for Herpes) because it had concerns about the data that the company had supplied and the product's reliability. GlaxoSmithKline, which Ms. Holmes had claimed had used the product, asserted that it had not done business with the start up for the previous two years and the Cleveland Clinic also backed away from its adoption. Theranos initially went into bunker mode, trying to rebut the thrust of the critical articles rather than dealing with the substantial questions. It was not until October 27 that Ms. Holmes finally agreed that presenting the data that the Nanotainer worked as a reliable blood testing device would be the most “powerful thing” that the company could do. It is entirely possible that the data that the company has promised to deliver will be so conclusive that all doubts will be set aside, but it does seem like the spell has been broken....MORE

HT: Alpha Ideas (India) linkfest 

"Theranos’ Letter To Shareholders Shows The Company Is On Its Deathbed" (FRAU.D)

Let's see if Tim Draper has Changed his tune. From July 2016's "Theranos Is Flopping Like A Dying Fish":
Sometimes they flop themselves right back into the water, but that's not the way to bet....

... World’s Most Loyal V.C. Says Theranos Critics Are Just Haters

Tim Draper goes to bat for Elizabeth Holmes.
When Theranos C.E.O. Elizabeth Holmes was growing up, her neighbor was famous Silicon Valley venture capitalist Tim Draper. A family friend to the Holmeses, Draper’s children grew up playing with Elizabeth. He also, incidentally, wrote one of the first seed checks to Theranos a decade ago, long before it was valued at $9 billion (and later, just $800 million). His Sand Hill Road firm, Draper Fisher Jurvetson, has continued to support Holmes. And he’s still defending the company today, even after a series of critical Wall Street Journal reports revealed that the start-up often relied on generic machines to run its blood tests because its own proprietary Edison machines—the technology that the entire business ran on—didn’t work.

Despite it all, Draper told Bloomberg’s Emily Chang in aninterview published Thursday night, “nothing’s gone wrong with Theranos.” The venture capitalist compares Theranos to “the way Uber was attacked by taxi drivers, and Bitcoin was attacked by the banks,” he says. “Theranos is being attacked by the powers that be in big pharma, in [Holmes’s] competitors, in the world of medical insurance, the people in government who are going to be very much affected by a really cheap, really effective, wonderful solution.”...

And today's story from BuzzFeed:

“The most viable option that we have identified to forestall a near-term sale or a potential default under our credit agreement is further investment by one or more of you.”

Theranos, the disgraced blood testing company, is in dire financial straits and may have to default on a $100 million loan, according to a letter to shareholders from its CEO Elizabeth Holmes that was obtained by BuzzFeed News.

In the note, sent to investors Tuesday, the embattled Theranos founder said that the company had hit delays on a blood test for the Zika virus and had been unable to obtain approval for the product from the Food and Drug Administration. It also asked its existing investors for more money.

FDA approval was necessary for the company to unlock a tranche of debt funding from private equity firm Fortress Investment Group, which in December agreed to loan Theranos $100 million, but in installments and upon the achievement of certain milestones.

Up until Tuesday, the company had only received $65 million of that commitment from Fortress, wrote Holmes, who said she asked Fortress if it would release the next $10 million tranche without the FDA approval for the test. That was not assured, according to Holmes, who then explained that to cut costs, all but a handful of employees had been notified that they would be laid off within 60 days. The Wall Street Journal first reported on those layoffs and said that headcount would be reduced from 125 employees to less than two dozen....MUCH MORE

U.S. Department of Justice: Theranos Founder Holmes, Ex-CEO Balwani Charged With Wire Fraud

From the U.S. Attorney's Office, Northern District of California:

Theranos Founder and Former Chief Operating Officer Charged In Alleged Wire Fraud Schemes

Elizabeth Holmes and Ramesh “Sunny” Balwani Are Alleged To Have Perpetrated Multi-million Dollar Schemes To Defraud Investors, Doctors, and Patients.

SAN JOSE - A federal grand jury has indicted Elizabeth A. Holmes and Ramesh “Sunny” Balwani, announced Acting United States Attorney Alex G. Tse, Federal Bureau of Investigation (FBI) Special Agent in Charge John F. Bennett; Food and Drug Administration (FDA) Commissioner Scott Gottlieb; and U.S. Postal Inspection Service (USPIS) Inspector in Charge Rafael Nuñez.  The defendants are charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud.  According to the indictment returned yesterday and unsealed today, the charges stem from allegations Holmes and Balwani engaged in a multi-million dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients.  Both schemes involved efforts to promote Palo Alto, Calif.-based Theranos.

 Holmes, 34, of Los Altos Hills, Calif., founded Theranos in 2003.  Theranos is a private health care and life sciences company with the stated mission to revolutionize medical laboratory testing through allegedly innovative methods for drawing blood, testing blood, and interpreting the resulting patient data.  Balwani, 53, of Atherton, Calif., was employed at Theranos from September of 2009 through 2016.  At times during that period, Balwani worked in several capacities including as a member of the company’s board of directors, as its president, and as its chief operating officer.

According to the indictment, Holmes and Balwani used advertisements and solicitations to encourage and induce doctors and patients to use Theranos’s blood testing laboratory services, even though the defendants knew Theranos was not capable of consistently producing accurate and reliable results for certain blood tests.  The tests performed on Theranos technology, in addition, were likely to contain inaccurate and unreliable results.

The indictment alleges that the defendants used a combination of direct communications, marketing materials, statements to the media, financial statements, models, and other information to defraud potential investors.  Specifically, the defendants claimed that Theranos developed a revolutionary and proprietary analyzer that the defendants referred to by various names, including as the TSPU, Edison, or minilab.  The defendants claimed the analyzer was able to perform a full range of clinical tests using small blood samples drawn from a finger stick.  The defendants also represented that the analyzer could produce results that were more accurate and reliable than those yielded by conventional methods—all at a faster speed than previously possible.

The indictment further alleges that Holmes and Balwani knew that many of their representations about the analyzer were false.  For example, allegedly, Holmes and Balwani knew that the analyzer, in truth, had accuracy and reliability problems, performed a limited number of tests, was slower than some competing devices, and, in some respects, could not compete with existing, more conventional machines....

...MUCH MORE

Well, so much for "Theranos CEO Elizabeth Holmes Is Allegedly Looking to Start Another Company"

And I guess that's a wrap for Equality Day here at Climateer Investing.

"Google barely moves needle on gender, diversity in staff" (GOOG)
Syrian Women Invite Their Western Sisters To Come Help Finish Off ISIS
"Amazon Vows to Include Women, Minorities in Board Search" (AMZN)

Dammit! DFJ's Tim Draper Is NOT Batshit Crazy!

He only sounds like that when he speaks.

From FT Alphaville, May 11:

Draper, Fisher, mistaken

Sandy Cohen lookalike Tim Draper, a founder of elite venture capital fund Draper Fisher Jurveston (DFJ), took to CNBC yesterday wearing a Bitcoin tie, to defend Silicon Valley against the encroachments of the big, bad government.

His opinions include the idea that holding “total hero” Mark Zuckerberg accountable in front of congress for Facebook's data leaks sends a “very bad message to all of our youth”. Then there was his defense of Theranos, who the Securities and Exchange Commission recently charged with, in the SEC's words, “massive fraud”.

DFJ were the first investors in Theranos, ponying up $500k in 2004 to then 19 year old founder Elizabeth Holmes, so she could begin to realise her vision of creating an all-in-one blood test to detect a range of diseases.

Come 2015, and Theranos was sporting a $9bn dollar valuation, having raised $700m from investors such as Oracle chief executive Larry Ellison and Rupert Murdoch to disrupt medical technology. Unfortunately, it turns out that Ms Holmes was full of hot air. From the SEC complaint:

Theranos raised more than $700 million from late 2013 to 2015 while deceiving investors by making it appear as if Theranos had successfully developed a commercially-ready portable blood analyzer that could perform a full range of laboratory tests from a small sample of blood. They deceived investors by, among other things, making false and misleading statements to the media, hosting misleading technology demonstrations, and overstating the extent of Theranos’ relationships with commercial partners and government entities, to whom they had also made misrepresentations. 

Theranos and Ms Holmes settled the case, with Ms Holmes agreeing to return millions of shares to the company, pay a $500k fine and not serve as an officer or director of a public company for 10 years.

Given the above, and reports that Theranos is in the process of winding down, some might expect Mr Draper to show humility. Perhaps even apologise to the Wall Street Journal's John Carreyrou, who expertly covered Theranos' downfall over the past few years, and who Mr Draper, along with his family, has relentlessly criticised.
He went... in a different direction....MUCH MORE

Related:
July 2016
Theranos Is Flopping Like A Dying Fish

Sometimes they flop themselves right back into the water, but that's not the way to bet....
...World’s Most Loyal V.C. Says Theranos Critics Are Just Haters
Tim Draper goes to bat for Elizabeth Holmes.

And previously on Mr. Draper:

July 2014 
Silicon Valley: Venture Capitalist Tim Draper Has a Cringworthy YouTube Channel

December 2013
Venture Capitalist Tim Draper Wants To Split California Into Pieces And Turn Silicon Valley Into Its Own State

September 2014
UPDATE: California Will NOT Be Splitting Into Six Separate States

April 2015
Guy Who Wanted To Split California In Six Pieces Launches Contest To Keep It Together

September 2012
Climateer Line of the Day: Mammary Edition

...Detroit has “lived off this automotive tit long enough.”

-Draper, Fisher, Jurvetson's Tim Draper

as quoted by Forbes' Eric Savitz in

"Tim Draper Live From Detroit: On Next-Gen Entrepreneurs"

November 2017

"DFJ Co-Founder Jurvetson Exits Firm Amid Harassment Charges" 

...Meanwhile, last week the D-man was saying:

Tim Draper On Bitcoin: 'In 5 Years If You Use Fiat Currency, They Will Laugh At You'

I'm starting to think the entire state of California has gone nuts.  

Seriously, I'm not just talking Sand Hill Road, they're as detached from reality as their Hollywood brethren. Now however I'm wondering about all that space between the two as well. 

And just so you know, it was not Mr. Draper who starred in 2014's "The Silicon Valley Secessionist Clarifies His Batshit Insane Plan".
That was Andreessen Horowitz's Balaji Srinivasan.

Not to be confused with Sherpa's Shervin Pishevar who we met in  2016's "Silicon Valley Wants to Fund California's Secession, #Calexit":

The secessionist, Mr. Pishevar, is a co-founder and MD of Sherpa Capital who own Munchery (early, A, B, C) Airbnb (D round) Uber (D, E) and Beepi, ipsy, Shyp and Expa.
They seem to have avoided Bitly, Borkly, Barnly, Molestly, Strinkingly, Happily, Crappily, Maply, Morply, Dottly, Dootly, Godly and Angrily.
(all real startups) 

Unfortunately Sherpa investee Washio-the Uber for washing clothes-has already folded (see what I did there?)...

...If the federal government lost access to California’s 39-million-person tax base, it would presumably grow uncomfortable.

And California, in particular, is a dangerous state to lose. California is a top crop producer; there’s Hollywood, there’s plenty of marijuana, there’s a massive tourism industry....MORE 

Roger that, the ole "You'll miss us when we're gone" pitch, over.

Who gets the Bitly, Borklys in the divorce?
And the stoned tourists lost in Hollywood?