Sociopaths, Enablers and Due Diligence
Apr 15, 2020
I just finished reading “Bad Blood: Secrets and Lies in a Silicon Valley Startup” by John Carreyrou. It is the story of Theranos and its founder Elizabeth Holmes. Our Bob Roginski sent it to me after I mentioned that I’d seen the HBO documentary “The Inventor: Out for Blood in Silicon Valley.” I highly recommend the book over the much shorter documentary.
I’ve followed this story a bit since first hearing of Theranos and their claims to be able to run hundreds of blood tests simultaneously on just a few drops of blood. Based on my experience this seemed more than unlikely. At Eigenvector we’ve worked on quite a few medical device development projects. This includes projects involving atherosclerotic plaques, cervical cancer, muscle tissue oxygenation, burn wound healing, limb ischemia, non-invasive glucose monitoring, non-invasive blood alcohol estimation and numerous other projects involving blood and urine tests. So we’ve developed an appreciation of how hard it is to develop new analytical techniques on biological samples. Beyond that, we’ve also learned a lot about the error in the reference methods we were trying to match. Even under ideal conditions, with standard laboratory equipment and large sample volumes, results are far from perfect.
So when the whole thing was blown wide open by Carreyrou’s reports in the Wall Street Journal I wasn’t surprised. I read several of the follow up articles as well. But as one reviewer of the book said, “No matter how bad you think the Theranos story was, you’ll learn that the reality was actually far worse.” I’ll say. Honestly it took me a while to get into the book, in fact, I put it down for a month because it just made me so mad.
We’ve had a few consulting clients over the years that were, let’s say, overly enthusiastic. To varying degrees some of them have been unrealistic about the robustness of their technology and have failed to address problems that could potentially impact accuracy. (I’m happy to report that none of our current consulting clients fall into this category.) In some instances things we saw as potential show stoppers were simply declared non-problems. In other cases people abused the data including cherry picking and grossly overfit and non-validated models. (My favorite line was when one client’s lawyer told me I didn’t know how to use my own software.) We have had falling outs with some of these folks when our analysis didn’t support their contentions.
But none of the people we’ve dealt with approached the level of overselling their technology to the degree that Holmes took it. As I see it there are two reasons for this. The first is that Holmes is a sociopath. Carreyrou said he would leave it to others to make that assessment but it seems obvious to me. Maybe she didn’t start out that way, but it’s clear that very early on she started believing her own bullshit. Defending that belief became all that mattered. And she teamed with Ramesh “Sunny” Balwani who was if anything worse. They ran an organization that was based on secrecy, lies and intimidation. And they made sure that nobody on their board had the scientific background to question the feasibility of what they were claiming they’d do.
But the second reason they got as far as they did was because they were exceedingly well connected. The book identifies these connections but doesn’t really discuss them in terms of being enablers of the scam that ensued. It started with Elizabeth’s parents connections to people around Stanford, and Elizabeth’s ChemE professor at Stanford, Channing Robertson. These lead to funding and legal help. From there Holmes just played leapfrog with these connections ending at former secretary of State George Shultz, (who I learned actually lives on the Stanford campus) and his circle including Henry Kissinger, James Mattis and high profile lawyer David Boies. (Boies led the Justice Department’s anti-trust suit against Microsoft, and was Al Gore’s lawyer in he 2000 election.) Famous for his scorched earth tactics, Boies and his firm kept the lid on things at Theranos by threatening lawsuits against potential whistleblowers and further intimidating them by hiring private eyes to surveil them. Having no firmer grasp of the science and engineering realities of what Theranos was attempting than the board members, Boies’ firm did this in exchange for stock options.
It’s second point here that really bothers me. There will always be people like Holmes that are willing to ignore the damage that they may do to others while pursuing wealth or fame and fortune. But this behavior was enabled by well-heeled and well-connected people that failed completely on their due diligence obligations from financial, scientific and most importantly, medical ethics perspectives. Somehow they completely forgot Carl Sagan’s adage “extraordinary claims require extraordinary evidence.” It’s hard to imagine that this could have ever gotten so far out of hand had Holmes attended a state university and had unconnected parents. Investors to whom you are not connected and who are not so wealthy as to be able to afford to lose a lot of money have a much higher standard of proof.
In our consulting capacity at Eigenvector we always try to be optimistic about what’s possible, and we do our best to help clients achieve success. But we never pull our punches with regards to the limitations of the technology we’re working with and the models we develop based on the data it produces. Theranos produced millions of inaccurate blood tests that were eventually vacated. While it doesn’t appear that anybody actually died because of these inaccurate tests, they certainly caused a lot of anxiety, lost time and expense among the customers. It’s our pledge that we will always do our due diligence, and expect those around us to do the same, so that Eigenvector will never be part of a fiasco like this.