
Theranos Trouble: A First Person Account - jackgavigan
http://www.mondaynote.com/2015/10/18/theranos-trouble-a-first-person-account/
======
bedhead
I manage money for a living and I always get fascinated with frauds and
"bullshit businesses" for shorting. This whole flap is so funny to me because
about a year ago after reading a few things about Theranos and hearing a few
anecdotes from people in the lab business, I thought to myself, "Man, I wish
this company was public so I could short it." There were just so many of these
little red flags.

Anyway, in these situations the response from the company often gives the best
indication of how genuinely dire things are. In my experience, Theranos'
response has been really, _really_ worrisome. The hasty Cramer appearance (Mad
Money??? Uhhh, this isn't a public company). The lawyered-up non-denials and
general evasiveness. The editing of the website. The world's most expensive
attorneys. The threats to the now-deceased co-founder (realize this was not a
response to the WSJ, but still). The reluctant bending to FDA requests.

If this company was public it would be my largest short.

~~~
saryant
This is why I think shorts provide a valuable service to the economy. They
have an incentive to snuff out fraud and deception in publicly traded
companies and act as a bulwark against that sort of behavior.

Sadly we don't have an equivalent for privately traded firms.

~~~
Maarten88
Why is it not enough when all private investors just loose their money if it
turns out this company is worth much less that they hoped and payed for? What
would it add when a short-seller makes a profit on the loss of the investors
who took on the risk trying to create a business. Who would pay the
shortseller's profit?

In general, I think all derivatives should be taxed the equivalent of casino
tax, because that's what it is: betting in a zero-sum game for society. Of
couse we know that betting provides very good predictive information, but that
does not seem like a good reason to treat financial betting different from
other form of gambling.

~~~
troydavis
To your question of "Who would pay the shortseller's profit?": in most cases,
shorting a stock isn't causing more cumulative loss[1]. There's no additional
"payment" or transferred gain. Shorting lets the market incorporate the
collective doubt earlier than it could otherwise, but it's the same "payment"
(share price change).

One could make a strong argument that shorting prevents some shareholders from
taking a much bigger loss. Some shareholders would have purchased in this
hypothetical run-up that short sales would soften. When "it turns out this
company is worth much less that they hoped and payed for," those shareholders
would lose more because the difference between what they paid and what it's
worth would be larger.

That's particularly true for the quintessential long-term retail investor who
fundamentally believes in the company. That person is likely going to own it
until the company's product is proven or disproven, and the fluctuations in
between aren't going to affect them (other than as above, if they bought at an
inflated price).

Shorting also creates an incentive for skepticism. One could argue that, if
Theranos' technology doesn't work, making it harder and more expensive
(dilutive) for them to raise money is a service to society.

[1]: an arguable exception is shorting solely to make other investors lose
confidence (rather than due to a negative view of the company). However (a)
that's not the case here, (b) often it's actually the undiscovered seed of a
real issue (someone has to be first..), and (c) shorting enough of a stock to
meaningfully depress it is much, much tougher to do than it sounds, since the
short investor will need to purchase/repay shares at some point, the possible
exposure when they do is unbounded, and they'll need capital to cover their
unrealized loss in the interim. This is not a trade anyone takes lightly.

------
srunni
This Theranos story just keeps getting more and more bizarre. George Church
publicly criticized its board in a remark to the WaPo
([http://www.washingtonpost.com/news/wonkblog/wp/2015/10/15/th...](http://www.washingtonpost.com/news/wonkblog/wp/2015/10/15/the-
wildly-hyped-9-billion-blood-test-company-that-no-one-really-understands/)).
Considering that Holmes is on the Harvard Medical School Board of Fellows,
while Church is one of its most prominent researchers, why is he suddenly
speaking out? If someone like him was concerned about Theranos, how did she
end up on the Board of Fellows in the first place?

Then Michael Moritz of Sequoia specifically pointed to Theranos as an example
of the 'subprime unicorn' boom
([http://www.ft.com/cms/s/0/91063628-73f5-11e5-bdb1-e6e4767162...](http://www.ft.com/cms/s/0/91063628-73f5-11e5-bdb1-e6e4767162cc.html)),
which is a pretty odd choice, considering the vast majority of unicorns are
software companies with very different risks from what Theranos faces. DFJ is
one of Theranos's investors
([https://www.facebook.com/dfj/posts/10101511622019206](https://www.facebook.com/dfj/posts/10101511622019206)),
and I can't imagine Moritz would want to publicly antagonize them.

And why did the Murdoch-owned Journal publish the original article anyway,
despite the Theranos board being stacked with Republican heavyweights? What's
the point of having Henry Kissinger and George Shultz on your board, if not to
prevent these sorts of incidents?

~~~
noname123
> Considering that Holmes is on the Harvard Medical School Board of Fellows,
> while Church is one of its most prominent researchers, why is he suddenly
> speaking out?

I think Dr.Church's lab is very prominent in the field of synthetic biology;
if I have to guess, his lab's work funding comes from lots of federal research
grants outside of Harvard Medical school. So financially and politically, I
don't think his hands are tied at all.

Also on principle, as a tenured faculty in academia, I don't think he is bound
by the same rules/expectations as a FTE at a regular company.

~~~
srunni
I'm not saying that I'm surprised that he spoke out - I mean the timing of it
is unusual. Why didn't he say something when Holmes was appointed to the Board
of Fellows, or when the company first started its PR blitz in late 2013?
Theranos's unusual board has been in the news for a long time:
[http://fortune.com/2014/06/12/theranos-board-
directors/](http://fortune.com/2014/06/12/theranos-board-directors/)

------
wamatt
As someone that's used Theranos a few times, I too have wondered about the
accuracy and contemplated doing something similar.

However, if one is going to make comparisons, I think it's better to use the
same draw of blood for both lab companies. Or at least within an hour of each
other.

There are too many variables at play, and numbers can change between morning
and afternoon even on the same day depending on the test.

Repeated tests and obtaining standard deviations would also be a good idea.

~~~
neurotech1
Everyone seems to criticize Theranos but I'm 99% sure other labs have similar
variances in results without a WSJ story. The FDA should investigate Quest and
the other labs. With the Electronic Health Records, relying on a single lab
result could be problematic.

~~~
semi-extrinsic
It appears that most tests done by Theranos are using the same techniques as
any other lab, so naturally the variances would be similar. The only test
their Edison machine is FDA approved for is herpes simplex. They have caught
some flak, however, for allegedly diluting blood samples before standard
analysis.

~~~
djhn
What ends would diluting it achieve?

~~~
jkimmel
They take smaller blood draws from finger tip pricks that aren't large enough
in volume to run on a standard machine from Siemens et al.

To get around this, they supposedly dilute the samples to a point where the
concentrations of analytes are well below the machines minimum operating
specifications.

~~~
dekhn
Theranos responded that they use the exact manufacturer dilution protocol on
their volumes. I don't know of any fact-based article saying they were
operating the machines below their minimum specs.

------
danso
edit: site seems to be down, here's a mirror

[https://archive.is/C6arp](https://archive.is/C6arp)

> _I write the CEO with facts and figures (and supporting documents), and
> request a response...You can guess what happened: Nothing, no response. I
> shrugged it off and went on to other topics, but the question nagged at me._

If a former Apple executive who works down the road from Theranos can't get a
reasonable response, makes me wonder if Theranos ever addressed
customer/client concerns?

~~~
larrys
"If a former Apple executive who works down the road from Theranos can't get a
reasonable response, makes me wonder if Theranos ever addressed
customer/client concerns?"

A few possibilities (in all fairness to Theranos)

1) Elizabeth Holmes doesn't know who Jean-Louis Gassée is..(noting her age).

2) She gets a ton of email and didn't see who wrote the email. So it could
have been from anyone and unless for some reason she had noted the name in the
reply address (and it was more than "jlg@") she would have just passed on it.

3) She forwarded it for someone to handle (given 1&2 above) and they haven't
acted on it yet.

Noting JLG says "You can guess what happened: Nothing, no response." but
doesn't specify if he waited 1 day or 4 weeks.

~~~
Pyxl101
This is why senior leaders have executive assistants. C-level execs of large
companies get a lot of email and don't read all of it themselves, at least not
initially, especially if the email is from someone they don't know.

Emailing a large company's leader from the outside is and should be tantamount
to emailing a part of their customer service team, if you are a customer. At
least, that's how they need to arrange it if they want to be responsive and
are failing to be. Good customer service will also escalate complaints
internally so that they're properly dealt with, not just responded to (though
they might be escalated to a subordinate of the person you intended to
contact, rather than the person themselves). If someone emails your CEO, it's
a fair bet that they're either really happy, or really unhappy and need
attention, versus contacting frontline support.

Companies that have good customer service typically have an "executive
customer service" team made up of their best CS reps, who have good judgment
and can handle unusual situations. Executive CS would for sure research and
discover who sent the communication, and consider that fact as part of their
response, and how to escalate it internally.

To summarize, if a company cares about providing customer service, they can
certainly do so, and they should look at email sent to their public
figureheads as an extension of their customer service responsibility, or a
delegated responsibility to the CEO's assistant. There is no excuse for the
lack of response.

This is also true for internal communication within a company, by the way.
It's routine for assistants to respond on behalf of the person they support
for matters that are within their area of responsibility. One of the marks of
a higher grade executive assistant is that you can trust them with all of your
communication, and can trust them to decide on their own what they can
properly respond to on your behalf.

------
noname123
Also somewhat tangential, but completely related, I'm curious peeps in
biotech, what are your guys' opinions on Oxford Nanopore MinION?

IMHO, MinION is even more exciting than Theranos in that it is a real-time
USB-stick sequencer that sequence a whole complete genome or the metagenomics
inside a person's blood or guts (currently < 6hrs, in matters of minutes for
detecting viral genomes in blood such as ebola since you can feed the
sequencing data in a real-time pipeline to a BLAST to the viral genome
reference database). Due to the early access program, there are quite a few
papers published on its protocol attesting its pro's and con's.

Illumnia, the current king of genome sequencing has more its stock price than
10x since it has beaten out its NGS competitors as the "sequencer de-jure".

MinION, IMO like PacBio won't beat Illumina ever in read-error rate; however,
can open up a new market in sequencing patient samples in clinical settings -
which may be an order of magnitude bigger than academic sequencing. However,
the argument against it is that there are already RT-PCR blood tests that can
detect reliably in clinical settings different viral infections; also
sequencing may be real-time, but you still need technicians to do the sample
prep (e.g., extract the DNA and prep it for the NGS adapters).

Would love to hear people's opinions on the viability of nanopore sequencing
here.

------
rcurry
This is like the fourth or fifth article on Theranos making the front page of
HN in the last week or so.

It's kind of like living on the San Andreas Fault and noticing your dog is
starting to get really nervous...

~~~
saryant
Reminds me of the rise and fall of Enron. Endless puff pieces about how
amazing Ken Lay is and how they're revolutionizing the energy industry until a
few reporters actually looked at their financials and published their
concerns.

Enron was dead eight months later.

Substitute Lay for Holmes, financial fraud for medical concerns and that WSJ
article on Theranos for Fortune's _Is Enron Overpriced?_ and there you go.

------
joshu
Anyone know what the error bars on all these tests are?

------
bhaumik
Well this piece certainly wasn't "on the broader topic of lab exams and other
healthcare mysteries". She might've replied if she knew it would be called
"Theranos Trouble".

------
murbard2
Totally tangential question, but does the "too many blood cells" translate
into greater endurance and stamina for you?

~~~
jane_is_here
In polycythaemia vera, it translated to strokes and heart attacks.

Just like it does for the Tour De France. Rob Goris was a recent example
[http://velonews.competitor.com/2012/07/news/goris-30-dies-
of...](http://velonews.competitor.com/2012/07/news/goris-30-dies-of-heart-
attack-at-the-tour_227637)

~~~
murbard2
Yes, I understand it's primarily a health concern. I just wonder if, just like
for the Tour De France, it also affects stamina. I don't intend to imply that
it would a silver lining, I'm merely trying to test my understanding of some
biological mechanism.

------
frozenport
A great reminder that Theranos is not vaporware!

