Theranos

I finished reading Bad Blood, about Theranos, the Silicon Valley med-tech company that claimed they could perform a large number of blood tests, from a very small sample, in a very short period of time.

They raised $600 million US dollars as of last May. Last week, the founder Elizabeth Holmes was charged with wire fraud. Some really smart investors got taken to the cleaners.

I’m not 100% sure this is on-topic (apologies if it is not), but I thought it was valuable for a couple of reasons.

One, many of the stock picks on this board are technology stocks, and based in Silicon Valley. This book gives you an idea of the seedy underbelly of technology start-ups, fake it till you make it, and pivoting. Hopefully it encourages a bit of skepticism.

Two, it re-inforces what the knowledgebase says about investing in companies with great management. Theranos was a horror show of misrepresentation, dishonesty, internally siloing information, bullying employees, and other unbelievable behaviour.

It was written by the Wall Street Journal investigative reporter that broke the story that led to the fall of the company. Consider it a hi-tech All The Presidents Men.

https://www.penguinrandomhouse.com/books/549478/bad-blood-by…

David.

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So, you didn’t directly say it, but I infer from your post that you recommend it as a read?

Is it a must read, 5 out of 5 stars?

It is a great read…don’t know that it’s a must-read for devious Silicon Valley informational purposes.

jackie

I recommend it - it was pretty shocking - a good modern cautionary tale. The author interviewed some key players who had NDAs, and Theranos was very litigious.

David

One, many of the stock picks on this board are technology stocks, and based in Silicon Valley. This book gives you an idea of the seedy underbelly of technology start-ups, fake it till you make it, and pivoting. Hopefully it encourages a bit of skepticism.

Two, it re-inforces what the knowledgebase says about investing in companies with great management. Theranos was a horror show of misrepresentation, dishonesty, internally siloing information, bullying employees, and other unbelievable behaviour.

I think I mentioned on another post that my son worked for a competitor to Theranos that was bought by Illumina. After the sale some of the employees moved to San Diego. One guy made the move from there to Theranos and called my son to ask if he could use his name as a reference. As the conversation unfolded Ryan commented that Theranos “sounds like a scam.” He said if you knew just a little about the complexity of what they were trying to do you would have known the claims were vastly overstated. That was 2014.

When I am looking at an investment I am reminded of the boardroom scene from “Big”. (In this movie Tom Hanks wishes to be big and grows from the size of child to an adult, but when he gets there he still has the brain of a 12 year old. The insight of a 12 year old is what allows him do well at his toy company job. Anyway…) In this scene the hot shot MBA unveils a prototype of next year’s hot toy along with charts and focus group studies. The toy is a building that turns into a robot. When he proudly asks if there are any questions Tom Hanks says: “I don’t get it.”

MBA: What exactly don’t you get?
TH: It turns from a building into a robot, right?
MBA: Precisely.
TH: What is fun about that?

https://www.youtube.com/watch?v=3ERuhks3GNk

My rambling point is that it is a great idea to get past those slick PowerPoints that are presented by George Clooney lookalikes and ask the really simple questions. Does it work? Who’s going to buy it? Can they make money? Yeah the hover board that is powered off of teen spirit sounds great, but realllly?

The simplest questions are the best and should be asked first.

Jeb

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Theranos. Ha! I was thinking about trying one of their blood tests, but I decided to read a bit about them first. All I had to know was that Henry Kissinger was on their board of directors and it was clear that running away fast was the only option.

I know a couple of people who worked there. One was there for quite a while, involved in IT stuff. Another was brought in at an executive level, quickly determined it was a fraud, and left within a week.

Sounds like it might be a book worth reading.

-IGU-

All I had to know was that Henry Kissinger was on their board of directors and it was clear that running away fast was the only option.

Oh come on. Kissinger has been on the board of director of American Express for decades. Should everyone run away from that? When he joined the company stock was around $4 (split adjusted) now it’s around $100. One of the safest companies in the US? I would say. He’s also been on the board of ContiGroup, an international infrastructure company that does well over $10B a year around the world (and yes, could be a CIA front cover, among actually doing infrastructure. He’s also been on the board of MMoA and other non-profits, including some affiliated with the Olympics and others.

I have no particular love for Kissinger, his Vietnam policy actually killed a couple of my friends, but he has also done honorable things, even good things, including in international arenas across his long life.

Perhaps you don’t know how a board works? Not everybody is there to peer through the green eyeshades and tote up the profits, or even to know how the technology works, necessarily. Kissinger was doubtless there for the contacts he could provide: “Hello, Mr. Walgreen’s CEO? I’m Henry Kissinger and I think you should take a meeting with Liz Holmes, our CEO at Theranos, who may have something that could seriously change the game for your company…” I say this because I served on boards of some non-profits when I ran a station in Chicago, and I (at least) understood that they had not invited me in because of my brilliance in accounting or even knowing how a Museum worked, I was there because I could round up my pals at other stations and help publicize the fund raising events with PSAs to the public without spending any of their hard-won grant money. Kissinger was there because his name on the masthead offered a Rolodex of worldwide contacts.

Yes, shame on him for not knowing it was a fraud, but then Theranos managed to fool nearly everyone including the sharpies at the Wall Street Journal, the board at Walgreen’s, and the entire medical testing community, at least for some time, so I’m willing to cut Henry some slack for not knowing the intricacies of how blood tests work.

I don’t forgive him for Vietnam. For Theranos? Eh, he got duped, like thousands of others./ Holmes? Could be pathological, or could just be that she started breathing her own oxygen and got caught up in the hype and didn’t know which way to run after the technology didn’t work out. I lean towards pathological, given the timelines and the scope of the failure, but I haven’t read the book (yet) so I don’t know.

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RE: Theranos? Eh, he got duped, like thousands of others.

As TMFJebbo says, ask the simple questions. In exchange for $600M, Theranos should have been required to submit their machines to inspection by experts who surely would have recognized that they were faked using traditional machines (https://gizmodo.com/lawsuit-claims-theranos-ran-fake-tests-t…). I wouldn’t expect Henry Kissinger to tell a commercial machine from a prototype, but surely someone was in the room to do that. In addition, commercial machines require much larger samples than Theranos claimed, so if there had been a live demonstration using samples collected from ill patients (who would have readings outside the normal range and unpredictable by Theranos), the investors could determine that the Theranos machine was incapable of reading ultra-small samples.

I think Holmes (and probably more than a few others) should be prosecuted, but I have little sympathy for people who did not ask the simple questions.

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I just watched the author’s (John Carreyrou) presentation on the book yesterday! It’s worth checking out if you haven’t read the book:
https://www.youtube.com/watch?v=vlQtwv0dpY4

It’s definitely an interesting story, however I don’t think there’s much to learn from it for this board, because it’s a story for venture capitalists to learn from. Theranos had pretty much no revenue at all throughout its existence. It was a pure story. Which is fine, that’s the daily bread of VCs (AirBnB started as a story for angel investors as well), but in Theranos case there was half a billion in investments and no controls - no functioning board of directors, no audits or inspections, hard questions were never re-asked when rebuffed, all the red flags you should look out for…

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