This IBD article proves how easy it is to manipulate the press with hyperbole and misdirection.

"Theranos Founder Known as Next Steve Jobs' Pays $500,000 to Settle 'Massive Fraud Charges'"

"The next Steve Jobs"

Uh huh.

One should be less biblical in their retorts when another person questions the next tech craze or the sanity of capital pouring into an idea that is too good to be true on the surface, and transparency issues around data make it impossible to reach a solid conclusion.

I find this one especially close to another big name in the tech space whose promises continue to under deliver… yet his moonshot ideas allow him to burn through other peoples money…

Thanks, CNBC.

Henry Gifford writes: 

I don't think Theranos is a scam.

As soon as I heard about the company's plans to sell blood tests that are much less expensive, and easier to do, and maybe better in other ways, I thought about all the companies that would be hurt by them, and how heavily regulated those companies are, and how hard those companies will fight back, presumably using regulations as part of their defense.

Then I looked and saw the founder has three strikes against her: she's female, she's good looking, she's young. This shouldn't make any difference, but when combined with being an industry outsider, the jealousy factor can be expected to go up, and the ease with which entrenched companies can create doubt and negative publicity is I think greatly increased.

An early battle the company lost was when the regulators declared that the small container they collect blood samples in is a "medical device," and therefore subject to all sorts of regulations, thus they are not allowed to use it. Sure smells to me like regulators looking for something to start a fight about – how many years could the regulators cut off the company's cash flow while they consider the regulatory merits of a small plastic container which will not contact the body? I didn't hear anything about blood collection containers having previously been regulated, so this is extra perfect – it will take a few years to write the regulations….

When the gloves came off and the regulators cut the company down to being allowed to sell one test only – for herpes – I thought that was perfect – the company from Stanford and Palo Alto with the young founder is now associated with a sexually transmitted disease, but barred from testing for glucose, etc.

Looking at the recent press gives me many reasons to be skeptical that the recent reports of fraud are accurate, or have any merit at all.

One article entitled something like "Patients get different test results with Theranos vs. hospital labs" quoted one patient as claiming a potassium test was about 11.3 with Theranos and 9.6 (or so, as far as I remember) with a hospital lab (implied as being the gold standard). Nothing about what they normal variation is, which I understand is significant, or what period of time elapsed between tests, or what the results might have been with 10 or 100 tests done with each technology. The other patient quoted said she got a glucose reading of 103 in a hospital, and 96 (or 99?) from Theranos. Glucose levels in blood can be expected to change by at least that much after a patent walks across a parking lot, even if every test was going to give the same result every time. No article I saw had any other "bad" numbers quoted, but they still made this sound horrible.

The actions of the regulators were described in one article as "State and federal authorities started investigations into the accuracy of the company's blood testing work. In 2016 the Centers for Medicare and Medicaid Services, which oversees blood testing labs in the U.S., banned Holmes from operating a lab and revoked Theranos' blood testing licence." The first sentence describes the beginning of the process, and the second sentence described the end of the process. There was no mention of anything in the middle – did they find anything? If so, what did they find? Was the suspension of the blood testing license related to anything they found other than non-compliance with the declaration that the sample container was a medical device that should be regulated? If they found anything wrong, why was this not mentioned in this article or any other I've seen?

The company, in their defense, claimed to have offered to demonstrate the machine in the offices of The Wall Street Journal, and provided or offered to provide thousands of test results and etc. evidence that their technology worked, but reportedly got no response.

Most recent articles quoted several people as not having been able to find out anything about how their new machine works. Neither journalists at The Wall Street Journal nor anyplace else could find out anything, or find anyone who knew anything. This is consistent with the box the company came up with being a hollow cardboard box, or some other fraud. But, I know how to find out what is inside the box, and what is inside the company's labs. With a quick search I found about 190 patents assigned to Theranos, all for technologies related to what they claim they are doing. I know a thing or two about patents, and a couple of years ago I read some of the patents assigned to Theranos, including some whose inventor was the company founder (there are many of those). The patents are complex but I think mostly well written – this I think says a lot in a field where I think most patents are so poorly written they are worthless. Theranos hired an expensive law firm that specializes in bio patents – a good sign. The US Patent and Trademark Office makes about as many mistakes as any other large organization, but probably not more, and is not quick to grant patents that do not meet the standards, including not being anticipated by prior art – someone else's idea that came first. Getting patents means they probably came up with something. The patents are mostly different enough from each other to not be minor variations on the same theme. Getting about 190 patents, a huge number, means they are apparently working hard and really coming up with things. Many things, probably very valuable. But, most importantly, anyone who works in bio or writes regularly about bio and claims they have no idea what Theranos is doing, and has no way of finding out what Theranos is doing, is not making any mistake – they are lying. They are surely lying because bio is a field that is very dependent on patents. All the articles I've read are consistent with 100% of the people quoted knowing the company has many patents in their core area, but playing dumb and lying by claiming to have no idea what is going on. The existence of the patents means that if they are good patents, which I expect they are, Theranos really has a lock on much better blood tests for years to come. I think it is quite possible that Theranos came up with much, much better blood tests, so much better that they could dominate the field for decades to come (as old patents expire then-current and evolving technologies are covered by newer patents). All evidence I have seen points to this being possible, and not unlikely. If this is the case, then the real story is as follows:

Young dropout comes up with much better blood testing methods, gets strong patents, raises money and actually brings the technology to market fairly quickly – patents, company, and sales, the unusual dream come true, actually done at lightning speed in an industry where patents are almost expired when products come to market (drugs, frequently). Founder stacks the board with powerful people that are not industry insiders, to help defend against the inevitable attacks from the entrenched competitors. Regulators and competitors in one of the most regulated industries can't find any real problem, so they invent a technicality related to exactly what makes the company special – the small collection container. Then they allow the company to test only for a sexually transmitted disease. Fill in the details after this.

Then they find the founder guilty of fraud – but no news reports explain the nature of the fraud, or mention any law or regulation that was broken. Perhaps the fraud was using the small sample container without approval before the approval was required?

I don't know the real story, but none of the stores I've read ring true.

I suspect the real fraud is what the regulators have done, and what the competitors continue to sell while better technologies exist.

anonymous writes: 

I always love a good contrarian position, so thanks for posting yours. Here is what I don't get:

She wasn't doing this on a shoestring budget. She has hundreds of millions.

If the thing works, couldn't she just show the world?

If the thing works, wouldn't Walgreens be out there saying "no wait, this thing works everybody, we of course tested it before we entered into an agreement with Theranos"?

David Lillienfeld writes: 

I'll go beyond that: Not everyone in the valley was pushing to get into the company. There were many who weren't. That's in contrast to, say, 23andme a decade ago or Gilead a couple of decades ago.

The first BoD was stocked with major names in American politics–with absolutely little if any healthcare expertise. Maybe that makes sense to some, it doesn't to me. George Schultz may have been a great SecState, but I fail to see the value add for healthcare. Maybe because it's simply not there. It's not always a matter of hearing the right answer as even knowing what are the right questions to ask.

As for shoestring budget, the office bldg. (I pass it every day) sits on a commanding bluff on Page Mill and Porter. It's hardly low-cost. The company may not have spent like drunken sailors, but low budget doesn't seem to have been its thing either. Not Brooks Brothers, not Jos A Banks, maybe Paul Stuart. I guess the finance people could be grateful it wasn't Savile Row.

Now, let's look at the founder. She has little knowledge of the deeply regulated environment that is healthcare in the US. Rage against those regulations all you want, they define much of the marketplace. Her age means she hasn't lived through the inevitable crises in the healthcare world, for which knowledge of FDA, EMA, ECs, IRBs, etc is invaluable. Think it's an accident that there are very few young CEOs in the biotech world–start-ups or otherwise?

Think surgeons. Do you want the surgeon who just finished her training to do your Whipple procedure, or the chief of surgery? I'll take the latter, just as I'd prefer the former for my appendectomy. Theranos was a Whipple–high risk, big potential reward. Age wasn't in her favor. Enough said.

I'll leave aside the scientific basis for Theranos's products–it simply wasn't there.

As I put it to someone else on the list who asked me for an evaluation of Theranos a few years back when this person had been approached about making an investment in the company, if something looks too good to be true, it probably is.





Speak your mind


Resources & Links