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Regulators Propose Banning Theranos Founder from Blood Testing (wsj.com)
260 points by trimbo on Apr 13, 2016 | hide | past | web | favorite | 193 comments

The more I read about theranos the more apparent it is that there is something fundamentally wrong with it's core goals, leadership and technology. One easily identifiable red flag is the composition of its board. It's nearly all ex-military and government officials not veteran entrepreneurs and technologists. Just to name a few: George Shultz (former Secretary of State), Sam Nunn and Bill Frist (former U.S. Senators), James Mattis (General, USMC, retired) and Gary Roughead (Admiral, USN, retired) Henry Kissinger (former Secretary of State), William Perry (former Secretary of Defense)


In discussion on other HN threads, some commenters suggested that the board was composed that way to grease the wheels of a DoD acquisition of the company's "tech". As OP put it [https://news.ycombinator.com/item?id=11403165]:

John the more I think about Theranos the more I think this “mess” is actually deliberate. Looking at the history of Theranos and the composition of the board it appears Theranos was designed from early on as a vehicle to defrauded the US military.

The plan appeared to be to use their connection and access to some rather “helpful” high brass to offload the technology for billions and then later sweep the fact that it didn’t work under the rug (this tactic has worked fabulously for the last 20 years). Avoid the FDA altogether.

Who would have noticed another $10 billion misspent on some wizz-bang technology given the $100s billions lost in other frauds? When the wheels fell of this plan (some underling didn’t play along) the idea seems to be to blame the scientists and say “we were misled”. They might be evil, but they don’t appear to be stupid.

The first part seems probable (sell to the DoD), but intentional fraud is unlikely. Remember Hanlon's Razor - "Never ascribe to malice that which can be explained by incompetence."

It seems more likely they were very close on the science, and decided to run with it while they worked out the last 10%. That works great for most tech companies, but healthcare technology is very different.

A simpler theory might be that once the board picked up a couple of members in certain areas, it expanded along the social network of the board.

That's my read on it - the board members probably all know each other, or are friends-of-friends. Just like you and I, corporate board members recommend their friends when positions are open.

It probably doesn't hurt to have people like that on your board when you go looking for funding.

Being on a corporate board has got to be the easiest job in the world. When things are going well you collect a six or seven figure paycheck for doing almost nothing.

Tillett’s Razor - ”Never ascribe to incompetence that which can be explained by corruption”

Specialist's Corollary - "To observers, corruption and incompetence are indistinguishable."

Unless you get to see the offshore bank balance.

Has there been any publicized and verifiable facts that they were close to having something that worked?

No. In fact all the independent data suggests that it is impossible with less than 4 drops of blood (~100µl) due to sampling issues. No matter how great the detection technology is if you are not able to get a representative sample then the end result will be garbage.

If 4 drops is a low bound, couldn't they have aimed for say 10? Can't you draw 10 drops of blood relatively easily from the finger? I feel like I've had that done before when donating blood. It'd still be a much less annoying process than vials after vials like it seems like most blood testing is.

It's hard for me to imagine they wouldn't have said "well, one drop didn't work but we could decently with four but we won't do that."

I haven't followed tremendously the story though.

It is really hard to get more than a single drop out of fingerprick. The reason why is the capillaries close up very quickly - if you are really lucky you can get 2 drops out, but anything more is a struggle.

The second problem with fingerprick blood is you pick up quite a bit of skin tissue in the process, but the amount collected is quite variable. What you end up measuring is blood + some unknown percentage of skin tissue derived material. None of these things are good for reproducibility.

More like they had a taste of the science and decided to work out the last 90%.. But that's actually the right way to do science generally.... Just not in this case.

> intentional fraud is unlikely. Remember Hanlon's Razor

Hanlon's razor isn't proof of anything.

No, it's more like a prior.

Why does Hanlon's Razor exist when it can just as easily be put the other way around?

P(malice) <= P(competence & intent); P(stupidity) >> P(competence & intent)

That said, Hanlon's razor can't explain away evidence.

   if (benefit > 0) {
      P(malice) >> P(stupidity)

Yup, when I make a mistake in my income tax filing and over pay by $2k that's incompetence. I wouldn't be so sure about attributing an unreported offshore shell company holding millions of dollars as incompetence.

I agree with your first section, but not the second. A fart can look close to getting to the moon given enough layers of incompetence.

When billions are at stake, sophisticated fraud becomes more likely though. I wouldn't dismiss the theory out of hand.

Hanlon's razor is used by the malicious to fool the incompetent.

I'm a little confused, does the military acquire companies wholesale? I've never heard of that happening, that's not to say it can't but what are some examples of this kind of scheme?

Instead was the plan to milk the military for a long time on R&D expenses and just pocket the cash as one goes along? If so how does that work for the VC-backed structure of the company?

I can answer that for you. No, the US military does not acquire private companies, except in extraordinary circumstances of national security (think: WW2 type events). They'd only do it if the company possesses something of extreme strategic importance and could no longer operate as an on-going concern, and the first thing they'd do is try to arrange a sale to another friendly defense contractor. Buying a private company would be the very last thing they would do in the chain of actions there; further, what they would do, is purchase the technology, not the corporation.

Accordingly, the theory about Theranos being set-up to be sold to the DoD, falls entirely flat.

I have no expertise in any of this, but I was assuming it would be something along the lines of an IDIQ (indefinite delivery, indefinite quantity) contract vehicle: https://en.wikipedia.org/wiki/IDIQ

That makes some sense, though it seems they'd have to deliver something in that case. I'm sure one could keep the charade going for a little bit by delaying/delivering stuff that didn't work, but eventually the docs in the army medical corp would start to raise red flags and the jig would be up. One hopes anyway?

The military pays as much, if not more, for contracts and products as the private sector would pay to acquire the companies involved.

>The plan appeared to be to use their connection and access to some rather “helpful” high brass to offload the technology for billions and then later sweep the fact that it didn’t work under the rug (this tactic has worked fabulously for the last 20 years). Avoid the FDA altogether.

they actually attempted exactly that back in 2012


IMO The Theranos basic concept is viable, but their implementation is flawed.

There have been somewhat recent cases of the SECDEF firing a General or Admiral if a development or acquisition goes awry. The JSF Program Executive Officer, MG David Heinz [0] was one example. I doubt a senior officer would risk a $10Bn acquisition program on unverified technology. Development programs are another story.

The Defense Contract Management Agency (DCMA) [1] are known for being rigid when it comes to the units meeting contracted specifications. They also require technical documentation, so trade secret wouldn't be an excuse. If DCMA are on vacation, then no deliveries take place. This happened during federal shutdowns.

If Theranos sold the DoD a device that was faked and didn't meet specifications, It's entirely likely DCMA would reject the delivery.

Development programs with DoD funding sometimes (often?) go awry, and sometimes specifications get changed (e.g F-35) but the unit must meet contractual specifications.

[0] http://www.washingtonpost.com/wp-dyn/content/article/2010/02...

[1] https://en.wikipedia.org/wiki/Defense_Contract_Management_Ag...

"IMO The Theranos basic concept is viable, but their implementation is flawed."

Can you point to any sources indicating that the basic concept is viable?

There is a market for low cost, minimally invasive lab tests.

Using a smaller needle can be done. A skilled doctor or nurse can use a butterfly needle [0] with a fine tip, and the patient barely notices. As I recall, a 27G needle is about the smallest and not damage the blood cells.

Microfluidic Arrays [1] are one way to carry out some lab tests with smaller samples. What steps are required to get the results from the array would vary between tests.

YC (W16) funded Unima [2] is working on reducing the cost of certain lab tests with paper test strips.

[0] https://en.wikipedia.org/wiki/Winged_infusion_set

[1] https://en.wikipedia.org/wiki/Microfluidics

[2] http://www.unima.com.mx/nsite/index.html

The plan appeared to be to use their connection and access to some rather “helpful” high brass to offload the technology for billions and then later sweep the fact that it didn’t work under the rug (this tactic has worked fabulously for the last 20 years). Avoid the FDA altogether.

While I'm sure this has happened in weapons technology, can you give an example in Health Care? (Where people deliberately avoided the FDA this way) I know there's a ton of waste in the military, I wasn't aware it spread this wide and deep.

The company didn't start as a way to draw blood for civilians but for a quicker/easier way to draw blood on the battle field...hence the original board composition.

That's not strictly true, the board composition was far more traditional prior to 2013, a lot of these government guys came on at that point. From the wikipedia article:


In July 2013, the composition of the Theranos board of directors changed markedly, with departure of Channing Robertson (emeritus professor, chemical engineering, Stanford University),[39] experienced pharma and biotech executive Robert B. Shapiro (former chairman/CEO of the Pharmacia, Monsanto, and G.D. Searle group of companies), and financier Pete Thomas (principal, ATA Ventures).[6][38] Remaining from the original board were Theranos President and COO Ramesh "Sunny" Balwani and former Secretary of State George Shultz;

Let's give the powers that be a hearty welcome to the Age of Transparency. :)

I think you are cheapening the meaning of "fraud" if you think there is hundreds of billions worth of it going on in the government.

I think you need to read what the military have to say on this topic [1].

It is estimated that six percent of all procurement dollars are lost to fraud nation-wide annually. If you apply that amount to USAspending.gov’s figure of $700 billion dollars that the Federal Government spent on average each of the past nine years, that would total $42 billion dollars per year or $378 billion dollars lost to procurement fraud during the past nine years.

1. http://www.dodig.mil/iginformation/archives/finalwebsnips.pd...

Medicare fraud is something like $60 billion or 10% of total spending. It's conceivable that the rest of the government would approach some multiple of $100 billion, even having lower rates of fraud than Medicare.

I have met many later-in-their-career, senior government folks cultivating a transition into the private sector.

They seem particularly vulnerable to this kind of catastrophe. It's like they have their favored peers who are also retiring & they get them connected to a firm by someone who also left and wants to help out other govies. They do 20 years in the military and then go work in private sector for companies that will sell to the government. So the board gets loaded up with civil servants rather than entrepreneurs.

My perception is that their career experience doesn't arm them with the ability to identify a company with inadequate runway & execution talent. They seem to think a a well connected "who-you-know" network would have enough collective wisdom to avoid this scenario, or maybe they don't really consider that failure is possible, given the funding environment of the military.

Henry Kissinger is no debutante

Bill Frist is a medical doctor and has focused on healthcare policy throughout his career, for whatever that's worth.

Umm, the good doctor's wealth comes from HCA, a chain of for-profit hospitals that once held the record for the largest fraud settlement in US history. Frist clearly has excellent PR, because very few people ever mention this.


Frist makes sense on the board in that he definitely knows who to call at the FDA and would get his call answered. As unsavory as it is, lobbying experience is valuable in tightly regulated industries. I have no idea if he's a good doc, or the ethics of HCA, but from a purely pragmatic perspective, of all the names his makes the most sense on that board.

Frist made some ethically questionable statements with respect to a brain damaged woman who was removed from life support. http://www.nytimes.com/2005/06/16/politics/schiavo-autopsy-r...

>Frist clearly has excellent PR, because very few people ever mention this.

Reminiscent of Peter Thiel and Clarium Capital (no fraud there, but tremendous losses). No one ever talks about it.

As has been amply demonstrated by Frist and Ben Carson, being an MD does not necessarily prevent being an idiot as well.

What if the company had been wildly successful, would you still view it's board composition in the same light? I agree with you, these are some pretty powerful 'non-scientific' people and it should raise some questions.

What kind of questions exactly? It seems to me that having such powerful, influential, former members of government on your board would be highly valuable in navigating the difficult regulatory environment companies in this industry face.

Why do you have Henry Kissinger on your board and not a veteran medical device or medical test industry expert. Henry Kissinger might have tons of foreign policy experience but this is a completely different field.

Not having such expertise on their board doesn't mean they don't have that expertise within their company.

If you could get Henry Kissinger on your board and don't have moral issues with him, why wouldn't you? I absolutely understand where you are coming from, but in that respect Kissinger is definitively an exception, because while he may not have the medical credentials, he has tremendous value just because he is someone who is so well known that he can be a door-opener "anywhere".

He's also run a consulting company that's specialising in identifying partners and acting as door-opener for the last 34 years.

In other words: He's not on that board for his expertise in their field, but for his expertise and contacts related to getting in to talk to the right people.

It is undoubtedly helpful to have people on your board who understand the regulatory mechanisms and industry (leaving aside how well the Theranos board actually does this)

Composition of a board is tricky though. In a case like this you would hope to have equal, if not dominant, representation of people who are strong on the science. Anything else is a bit of a red flag.

Yeah, the board members all fit into "ideas guy" archetype. AKA a useless moron that doesn't contribute to the end product in any way, but still takes all the credit for it.

Only those with the title "Director" are board members. Only about 3 people are directors. None of those you mentioned are directors just advisors.

Ex polticians want to share in Silicon Valleys riches too. George HW Bush got lucky and made a large amount on a telecom optical cable play.

Bill Frist is/was actually a highly regarded heart and lung transplant surgeon.

Note that Schultz is a former MIT professor and has run large companies.

no duh

Not really.

Sailor makes the case that there's a strong dose of affirmative action involved. His blog posts don't really contribute much to the discussion other than adding that slight "politically incorrect" slant. His posts just pull from all the other sources people have already mentioned.

Ok, you're free not to read it...


I don't agree with your characterization of the main post, you may also consider that for someone interested in this matter, there is additional information in the comment sections of the linked posts.

I'm also perplexed as to the driving factor behind your somewhat dickish, snide comment.

> Ok, you're free not to read it...

> I'm also perplexed as to the driving factor behind your somewhat dickish, snide comment.

Please don't add to such things.

Funny to see tech VCs try to get into the medical space with no knowledge or expertise in the subject. Expect more of this as clueless GPs try to cash in on personalized medicine trend and shady founders give them every opportunity to hop aboard. There are already professional VCs who do this shit all day everyday, they just hang out in Kendall Square and RT. 128 not SF.

There are plenty of Biotech VCs in the bay area. The one I know best is Third Rock Ventures, but there are others. The timelines for success are extraordinarily long so it's not quite as splashy a space. It's almost impossible to "fail fast" with a "MVP" in the biotech space, so you have to put in tons of capital for a long time.

That said personalized medicine should end up being interesting, but I think it's really, really early days.

Bull Shit. Biotech companies produce more MVP's then any other sector. Just because we don't need to test if the business will work (as much as say a facebook) we do need to test the science. My startup is working on infection resistant materials for around hospitals. Infections are a problem, if we solve it we will have customers, how many and at what cost is the question. But because science is the question, and it's relatively easy to test compared to a business model, we run lots of MVP tests. By the time we seek our first outside investment at the end of summer my team will have built and tested over 1,000 MVPs testing different nanotexture geometries and bacteria. 1,000 MVPs before our angel round, 1,000 opportunities to fail fast. That's not something you'll EVER see in an IT startup.

That's fair, absolutely if you put it that way then yeah MVPs are much more frequent.

I think I see the experiments you're doing more as internal development. I.e. I run bits of my code dozens of times a day to make sure it's working (or not), which I see as analogous to running bench experiments.

Also, I'm thinking more about traditional pharma biotech where you can run tons of experiments but the drug has to be put into people at some point and there's actually a lot that can go wrong there that can't be easily forecast. The only time you get hints at whether your drug is "viable" is when you're in clinical trials and even then until succeeding in Phase III there's a ton of potentially catastrophic risk.

For the record I was a bench biochemist for the better part of a decade, so under no circumstances do I mean to denigrate bench science.

Correct me if I'm wrong but I thought one of the key ideas of a MVP is that it's something you put in the hands of customers to get feedback on. How many of those 1,000s have you given to customers?

> I thought one of the key ideas of a MVP is that it's something you put in the hands of customers...

Internet-type startups, at their core, are about marketing more than they are about technology. Getting the technology right is absolutely no guarantee of success, but you can hack together some PHP and -- if you get the marketing right -- make a shitload of money.

Psychology is kinda hard to do rigorously, so you test marketing the only place you really can -- in the market.

Conversely, the question "does this material prevent infections?" can actually be studied, to a significant extent, in controlled lab experiments. You don't need the marketplace to answer that question.

And for many cases -- such as the OP's -- it's obvious that if the answer is "yes" then you have a valuable product. Period. End of story. Infection-resistant materials aren't a fucking social network. If they work, they are obviously and immediately useful. You'll need to get the business side right, but it's really less difficult than the science itself because hospitals are begging for products to buy that address this problem.

So the question is more "can we solve this totally obviously extant and well-defined and obviously significant problem" rather than "have we identified a problem whose solution will let us win some pocket change of a big number of consumers?"

Figuring out if the science works out IS the MVP test. If you have a product that works your customers will be lining up.

Not true, plenty of biotech startups fail because they believe this.

Consider the pharma route. Does it solve something that slots in, or will the process be hard, or maybe they have something close enough that disrupting the pipeline isn't worth it? Many projects don't get into testing, many testing projects don't get purchased, and as generally only one pharma will want to purchase, scale won't be hit (so you're dependent), and many purchased projects won't get acquired.

There are other routes and they have their own business risks. The MVP / market analysis process is different for biotech, but still should happen. It's pretty fascinating!

> The MVP / market analysis process is different for biotech, but still should happen. It's pretty fascinating!

Right. I think we're all violently agreeing.

Biotech companies do need MVPs and market analysis. My observation is just:

1) The idea of testing product-market fit by building a complete product and putting it out there in uncontrolled settings doesn't really work for a lot of biotech companies. Especially anything that's going to need regulators' approval.

2) Compared with IT startups, Biotech companies are more likely to fail due to having the wrong answer for "but can we make it work?" rather than "is there a market?". So the MVPs optimize for testing former question, which usually means controlled experiments in a lab. There are counter-examples on both sides, I'm sure, just in general.

Can you name one that fits your line of thinking?

> Does it solve something that slots in

I'm not sure what you mean by this...

> they have something close enough that disrupting the pipeline isn't worth it

This is another incident of thinking that IT startups are the same as Biotech startups, or any science startup. Marginal increments in IT can be worth BILLIONS, marginal increments in Biotech aren't worth the paper they are printed on (that may be a bit of an exaggeration), and the biggest reason is cost to get into market. IT has low costs if any to enter a market place, except in the rare exceptions where the FCC is involved, the average cost to get a drug to market is something like $500MM and YEARS of regulatory approval. It's not worth investing in a marginal increment, you invest in moonshots and as you collect more data and better understand how the drug performs to either continue to invest (if it remains promising) or shelve it if it only looks marginally better.

While the market analysis needs to happen it is much less rigorous than IT startups. Hey 100,000 people die every year from infections acquired in hospitals, great lemme call around see what hospitals are willing to pay and sell to them. Lets not forget the other 600,000 that acquire infections from hospitals, for which under the Affordable Care Act the hospital has to pay for. Great sounds like I have a business as long as my product doesn't surpass a certain price threshold. In biotech you are either a billion dollars or a bust, there is no in-between because new products cost so much you have to have those high returns.

Not many IT startups NEED $500MM just to get their first sale.

I'm not certain the availability of infections-resistant materials is the problem. Most majority-copper alloys are naturally antibacterial, but most hospitals still stick with stainless steel and things that can be bleached or autoclaved.

Your product will not only require extensive marketing to make it into a major hospital system, it will also need to be cheaper than brasses and bronzes.

I'd don't want to detract from the original topic, but if you want to know more you can check out my Appy HN thread -> https://news.ycombinator.com/item?id=11443122

Medical research is in great need of a major shakeup, because I feel like current research models have seriously underperformed in recent years...

...but now that isn't going to happen, primarily because of this debacle.

It's so sad that the "keystone cops" at Theranos have done so much damage to the reputation of the medical startup community- Possibly, they've set medical research back by several years with their bad behavior.

Every time from now on when someone dares suggest that medical regulation is stifling innovation, they will be asked to defend Theranos, which appears indefensible.

I think the damage is largely limited to the reputation of the Silicon Valley medical startup community. The biomedical community (which doesn't have much overlap with the pg definition of "startup") has been very skeptical of Theranos (and I think to a lesser extent, SV) for a long time, well before the WSJ's recent articles. The fallout from Theranos might even help Boston and RTP firm up their positions.

>I feel like current research models have seriously underperformed in recent years...

The research models have performed as they always have, if not better.

The only thing that's changed is the introduction of know-it-all Silicon Valley VCs who think bio is the same as software.

> The research models have performed as they always have, if not better.

I'm not an expert on the history of progress in medical research... however, I do have a medical degree.

Bottom line, I have higher standards and think we could be doing a lot better. Regardless, without counterfactual data it's really a very subjective question.

If you haven't seen it, this a pretty interesting and controversial paper:

Increasing disparities between resource inputs and outcomes, as measured by certain health deliverables, in biomedical research http://www.pnas.org/content/112/36/11335.full

Basically, increased funding of biomedical research hasn't resulted in better output, and that we do, indeed, need to change the model. The current model is really inefficient.

I don't think that paper clearly shows that. It could also be that the low hanging fruit has been taken, and that, as we reach for ever more hard to reach fruits, the effort needed per unit of health improvement necessarily increases.

Another explanation could be that the money givers haven't gotten as much health improvements as they would want because they haven't directly asked for them, as this paper acknowledges:

"A recent focus on productivity has dominated the competitive evaluation of scientists, creating incentives to maximize publication numbers, citation counts, and publications in high-impact journals. [...] The efficiency of society’s investments in biomedical research, in terms of improved health outcomes, has not been studied."

Computer programmers do not produce more profitable programs if you pay programmers by lines of code, either.

Ah, maybe "better output" should have been "health improvement."

And yeah, I heard Casadevall speak at a conference and "used up low hanging fruit" was one of the theories. It's less likely that there'll be another penicillin moment.

It's all pretty depressing, and very true that it's all driven by Science/Nature/Cell publications, not by discoveries.

It's certainly not a recent phenomenon. Genentech was founded in the seventies, and Kleiner Perkins was one of the original investors.

It's just a matter of time before huge writedowns in the valuation happen. And Elizabeth Holmes won't be described as a billionaire for much longer (which unless I have missed something is almost all on paper).

Without a drastic plot twist it appears this company is little more than vaporware. At least the investors that will lose their money are people who should have all known better (and can afford the loss!), back in the dot com boom this thing would have been held by mom and pop.

> And Elizabeth Holmes won't be described as a billionaire for much longer (which unless I have missed something is almost all on paper)

Almost anytime a startup gets to a valuation that high, the founders have had an opportunity to take some money off the table. VCs like this, because it keeps the founders' incentives aligned with the investors' (they are more likely to take risks and swing for the fences if they don't have to worry as much about their own personal net worth).

It's dangerous if the founder divests entirely, but you want them to have enough that they aren't too worried about the risk of the company collapsing to make bold decisions when necessary.

That said, I don't know Theranos's cap table, but it's probably unlikely that her current stake in Theranos is worth $1B on paper even today - did she really manage to achieve a $9B valuation while holding onto 11% of her company?

Expect investor lawsuits against her personally. This goes way beyond business failure. It's unusual for a regulatory agency to bar the CEO from an industry, unless they're a crook.

Her current stake is irrelevant. She sure won't be selling it. It's only a question of what was already cashed out.

It says in the article that she has >50% equity.

I'm going to guess that these big name investors have liquidation preferences of at least 2x, meaning that her stake will probably be worth nothing once this all blows up even if the company maintains any value (and it probably won't anyways)

> back in the dot com boom this thing would have been held by mom and pop.

Who also should have known better. If someone doesn't understand how a company they invest in makes a profit, or what the risks to that company are, they have no business investing in it. For example, I hold agency-MBS REITs in my portfolio, but only because I'm willing to read the quarterly filings and keep an eye on news relevant to interest rates. They are absolutely not an investment I would recommend to most people who want something simple they can "set and forget."

No. Retail investors don't have the opportunity to scrutinize the company's records beyond what is publicly availbale, to take up references, or to meet with the management team. The VCs and funds investing in late-stage private companies do have these options. They can do as much, or as little, due-diligence as they like. And not just because they can demand things as a condition of the investment, but because it's perfectly reasonable to spend $50,000 on a couple of expert technical opinions when you're investing $1m+ but unfeasible if you're putting in $30k of life savings.

I can't imagine the stress she must be under right now, unfortunately, it seems like the vast majority of it was her own doing.

Will be interesting to see what the company does. Normally the CEO would be "asked" to step down from having any involvement with the company whatso ever.

However, I believe she's the majority shareholder so the usual remedy of removing her from the company altogether might not work so well.

Man, there goes any hope of a decent exit anytime soon Thernos, as usual its the employees themselves who will absorb the brunt of this. I hope they have alot of money saved because if they try to raise again, and its debatable if t hey'd be able to, its going to be a nasty round.

> However, I believe she's the majority shareholder so the usual remedy of removing her from the company altogether might not work so well.

She could step down voluntarily if she believes that someone else could turn the company around. That would be better than going bankrupt and losing her entire fortune in Theranos stock.

> She could step down voluntarily if she believes that someone else could turn the company around.

The problem is the company is 100% based around her invention that she won't share the inner workings of and apparently that doesn't actually perform up to standards. It's not mismanagement, it's a material issue.

I fully agree that, that would be the best remedy.

But how many CEO's have you talked with in your lifetime?

Every CEO I've ever talked with that has started a company or been there long enough to think of it as their "baby" have all had tough times letting go.

Good case of a person who shouldn't have left college.

"One of those tests, a blood-coagulation test known as prothrombin time, measures how long it takes blood to clot and is often used by doctors to determine which dosage of the blood thinner warfarin to give patients.

Wrong prothrombin time results could cause doctors to prescribe too little or too much warfarin. Too much of the drug, also known by its brand name Coumadin, can cause fatal bleeding, while too little can leave patients vulnerable to clots and strokes, according to medical experts."

Huge free market failure here. Thank god we still have some working government regulation in this country.

How did a company like Theranos get so "far" with all signs early and present pointing to deep, fundamental problems? I refuse to believe investors simply failed to perform due diligence.

I heard from a friend who is fairly prominent in the microfluidics space (doing lab work with much smaller amounts of material than ordinarily required) that initially it was a drug delivery company. Delivering compounds in a reliable time released way is challenging and valuable, and I think their initial foray was in that direction. Apparently it didn't work well early on and they pivoted in this direction, so maybe the VCs were not expert in the space post pivot.

More likely I think they were also enamored with what looked like promising results. I've personally seen situations where technical due diligence on lab tech was poorly done and therefore wrong. Unless the VC has a fairly strong science background/scientific advisors in a related sector, it's super easy to make something look like it's working when it's actually totally busted.

Microfluidics is a sexy field. About ten years ago, it was nearing the peak of its first hype peak. This brought a lot of attention to the field and corresponded to the first time people started talking about precision medicine and "lifestyle" diagnostic tools.

Theranos was at the right time with a very intriguing idea, but one that was ultimately not a model for reality. They were able to get lots of capital at this time in preparation to develop a product that ultimately never materialized (and more fundamentally, may not be physically possible).

There are a couple of companies doing the same thing. They seem legit, and are founded by PhDs and university research scientists. If you look at their websites, you will find details about their technology, publications in scientific journals, professional conference talks & awards, etc. But they are not well known or hyped as much as Theranos. Do you really think the technology is not physically possible?




Oops, missed this comment. If anyone is reading still reading this...

To be honest, I don't know. I think it is possible to get a lot of information out of a single drop of blood. But there are issues with sampling--blood from the capillaries in my finger is very different from blood coming back from my intestine.

Maybe more fundamentally: a lot of "interesting" things are specific proteins. These can be at extremely low concentration--on the order of nanomolar all the way down to femtomolar. It's very difficult to amplify such a signal -- DNA is easy to amplify but proteins are not. At such low levels, the wrong drop of blood may have a dramatically different meaning, due to stochastic effects.

I think they ran in stealth mode for as long as possible. I remember finding out about them and not seeing a lot of information other than a few job postings some time back. Seems like once they started their move into daylight, the Wall Street Journal has been on a mission to take them down.

Maybe the WSJ has been tough on Theranos but there are other journalists who were big boosters, who now feel like they were misled -


Once one journalist finds one problem and does the legwork and prints it, others who know of problems find that journalist because they know he/she will do the legwork and get the story out.

The company then puts their side out to journalists they think might not put them in a bad light, who maybe get special access if they don't ask the toughest questions.

There's a natural triage of journalists in these battleground stocks/stories into pro- and anti- factions, even if the journalists are doing the fairest job they can with the info they get.

Not to say the company, the competition and other interested parties don't feed tips, leaks and tough questions to one side or another.

It's not obvious that the diagnostic assays they were running couldn't scale down.

These assays are performed regularly on large samples no problem, but the sensitivity and accuracy of the assay becomes erratic when you only have a couple micro liters of blood.

Either they couldn't develop proper assays (an engineering problem) or microliters of blood don't contain enough substrates for their assays (a major lapse in knowledge)

It's more like the method of drawing the blood was thought to be the problem. A venous draw is going to be pretty clean, in that whatever tissue got stuck in the aperture of the needle is going to be dwarfed by the quantity of blood taken; I've read that the actual assaying machines use very little of the blood, which makes sense because the reagents used are expensive, plus to the extent you're using optical scanning to read the results (what else might you use?), thinner will tend to be better (note most of the preceding is WAGs on my part from basic principles).

Whereas a fingerstick produces a few drops of blood that flow to the surface moving past the tissue and cells that were cut getting to the blood vessels, and they'll contribute unrelated proteins, lipids from cell membranes, etc. etc. On its face, many many people have said this is so problematic real evidence that it worked was needed; heck, even a theory would have been nice, but neither were forthcoming.

> A venous draw is going to be pretty clean, in that whatever tissue got stuck in the aperture of the needle is going to be dwarfed by the quantity of blood taken

From the many blood draws I have done, standard practice is to fill a tosser vial before collecting the real samples in order to remove these contaminants.

From the ones done on me for bog standard tests in the last dozen years or more, that wasn't done, but the extra gunk in the vial just might be intended to grab the contaminants as well as stabilize the blood. Or maybe these more standard tests allow for whatever amount of contamination is in the drawn blood, suppose it's 2-3 orders of magnitude less.

They don't throw out the first vial right there in front of you.

When they only take one vial, they'd better not be throwing it out and sending my doctor and myself "results"!

Now, it's possible I'm mis-remembering this, although the protocol includes showing me the vial after the draw so I can confirm it's labeled correctly and I tend to remember additional vials, since that manipulation often hurts more than anything else. I'll pay attention, heck, ask the phlebotomist in a few months during my next annual checkup.

...optical scanning to read the results (what else might you use?)

There's been some research into using piezoelectric elements coated with antigen or other reactive surfaces.

A positive result (meaning antibodies are attaching themselves to the substrate) would change the resonant frequency of the surface.


There are a couple of companies doing the same thing. They seem legit, and are founded by PhDs and university research scientists. If you look at their websites, you will find details about their technology, publications in scientific journals, professional conference talks & awards, etc. But they are not well known or hyped as much as Theranos.




It was obvious to a great number of other diagnostics firms that this technology was hard to scale down.

I was at one of those firms 25 years ago and they were working on it back then. Either they abandoned the effort, or are still trying, but they haven't launched a single microfluidic immunoassay.

Like open source not making all bugs shallow, start-up capitalism doesn't guarantee an accurate assessment.

And with this specific industry it would be cheaper to not do the deep assessment (medical compliance work is $$$ and you can only lose 1x your investment, if it is real you can make 100x).

But if it is 100x more likely to not be real then it is worth investing the money to do the confirmation. This is true for medical and a lot more. Any company with a scientific foundation should have due diligence in the form of test accuracy, precision and reliability before a penny is invested. Anyone investing in a company where the technology is a scientific breakthrough should insist on confirmation tests. If those are forged then it becomes a criminal issue and you don't get to hide behind an officer level position.

I think with this specific industry testing and compliance is more important in due diligence.

She had an inside track to a lot of investors (and big name board members) which helped her immensely. Add on a nice demo and it's not hard to imagine.

According to the WSJ she was childhood friends with Tim Draper's daughter and that's where she got her first round.


> The first $1 million came from Tim Draper, a founder of Draper Fisher Jurvetson, through two of his funds. Ms. Holmes was a childhood friend of his daughter and came to him “with extraordinary energy and brilliance,” he says.

At that point you have a very bright founder who interviews well and is backed by Draper. Everyone else assumes everyone else did their research.

A combination of greed, badly wanting to win the VC lottery, and not wanting the obligation of knowing whoever holds their stock is a whale.

If you've ever invested in something and found out you were about to lose it, part of you flirts with the idea of selling while you still have plausible deniability. You know that if you ask too many questions, you'll lose that plausible deniability. Of course it doesn't really make a difference, you know damn well, but it's part of the grieving process.

Of note is that this letter is dated before the big dog-and-pony show they did of appointing a bunch of experts to their scientific and medical advisory board. Guess that was their attempt to get ahead of this news.

Rehosted for 24 hours without the paywall: http://pastebin.com/RwipXxds

Thanks. I find it interesting that they refer to "redactions" in the CMS report that Theranos wanted to "protect trade secrets". I suspect it is more dirt that would show just how much they are hiding behind their facade. I wonder if CMS will end up releasing the full report to the public.

thank you sir

I've been short Theranos from the beginning. It's very obvious to people who have interacted with the type of person Holmes is.

> Stanfraud graduate (not even graduated)

> Father has a IV in his name

> Both parents work in DC (east coast)

These are HUGE red flags in a field where results are much more tightly correlated with technical expertise. They wouldn't be in another field that is less tightly correlated such as banking or politics.

Furthermore, anybody that has done any amount of research in any capacity knows that an undergraduate claiming their research project (in biology especially. CS is possible) could launch an entire company is either purposefully delusional or incompetent.

It seems like Theranos was a scheme to trick investors. It feels like the emperor has no clothes, but it was one of those ideas where "they are successful because they are successful" without anyone looking behind the curtain.

Maybe it's that legitimate medical tests take long enough that you could get a lot of sales and investment off of early trials and social proof.

I don't know anything about it to say that it really was a Bernie Madoff type situation, but it has a bizareness to it that feels similar.

Direct link to letter from CMS to Theranos with proposed sanctions and justification for sanctions:


Hmmm...skips from page 3 to page 42?

Why haven't we heard anything from the VCs or , for that matter from anyone except WSJ ? If this letter is true, this is completely gross, how can a startup which is being punished for fraud still enjoy high valuations and, apparently the tolerance (if not support) of the silicon valley ?

A lot of powerful folks on that board.

I wonder how much Quest and LabCorp have lobbied to get Theranos under the microscope. Almost all labs have findings including FDA labs that need be to corrected. I just find it odd that WSJ seems to get access to government documents, internal information, and competitor benchmarks over and over again. Theranos faults aside, something does not smell right here.

WSJ has been going after Theranos for a long time now and I believe they broke the first stories. If you're an internal leaker, ex-employee, or hostile official, who are you going to leak to or give tips about where to dig up bodies? The WSJ, of course.

> I just find it odd that WSJ seems to get access to government documents, internal information, and competitor benchmarks over and over again.

Umm, what's odd? FOIA? Perseverance in reporting? High quality investigative journalism from someone (John Carreyrou) with a track record?

Pedantic, but… you mean Quest, not Qwest. The latter is (was?) a telecom company.

It is entirely possible they lobbied, but in this case it seems warranted. Theranos seems really shady and the leadership seems to be grossly unqualified.

Yeah, as if Theranos doesn't have the money or the board to lobby ...

Anybody know which retirement funds and other institutional investors are most exposed to Theranos through VC and other investment?

Uber skirts city/state regs; you can't mess with the FDA, among other federal agencies (such as FAA).

And Uber was definitively better for consumers, inaccurate blood tests are better for nobody.

I guess you prefer the old way where taxi cabs had a virtual monopoly, and it was expensive as hell. Uber did the right thing by disrupting this market.

Theranos potentially could have been amazing for medicine, but more and more this looks like an epic disaster.

Unless you want a taxi cab with wheelchair access; Uber utterly fails that market.

The traditional cab companies (who have to cover that market by law) are quite right in crying foul, IMO.

No, the traditional cab companies do not have to cover this market by law. I am aware of only one cab company in the DFW area (Yellow) that offers wheelchair vans as an option. A quick search shows that there are plenty of cab companies around the US that do not have wheelchair capabilities at all.

Also, for the record, small cab companies were allies of Uber here in Dallas.

You are entirely mistaken. It is required my municipal and county code that taxicab companies in Dallas dispatch wheelchair accessible vehicles[0].

The extent to which it is enforced I have no idea but that would be up to consumers to make complaints to the regulatory body.

[0]: http://dallascityhall.com/departments/codecompliance/Pages/T...

The exact wording of the code:

"When a wheelchair accessible vehicle is requested, the operating authority must provide a wheelchair accessible vehicle, or cause one to be provided, without unreasonable delay."

Highlighted for emphasis. The cab company does not need to own or operate the vehicle. They just need to make sure the customer is provided with one at the same rate they would charge a customer who did not require one. This is not the same as what was originally stated above.

The level of hair-splitting you are engaging in is absurd.

Your exact statement was "No, the traditional cab companies do not have to cover this market by law."

That is simply false.

Uber isn't a taxi company, and wheelchair access is a very small percentage of customers. Also, Uber's 5-6 years old, give them a chance to fix that problem in the coming months/years before crying foul along with a bunch of monopolists like the taxi companies. They have done nothing for us, except sit on their monopolies. The number of times I was passed by open taxis on the street, or stuck waiting hours for a scheduled taxi makes me glad they are all going out of business.

I also disagree with things like "taxi medallions", I'm just saying that Uber throws out the baby with the bathwater.

Right now, there's a real risk they'll put legit taxi companies out of business, and then those people in wheelchairs who need transportation are simply screwed. But nobody at Uber cares, of course, because the company is run by complete jerks.

I know many friends and former Googlers who are now at Uber and can tell you that it's not run by complete jerks. The company and the employees take their commitments to the cities they operate in very seriously. There might have been issues pre-2015, but not anymore.

Also, you appear to be wrong about each taxi company requiring to support wheelchairs. As far as I can tell from my brief search, the ADA requires training, not supporting vehicles that allow wheelchairs.

ADA mandates "equivalent service" for transportation.

Most places in US ignore that.


> Sec. 37.103 Purchase or lease of new non-rail vehicles by private entities primarily engaged in the business of transporting people.

> (a) Application. This section applies to all acquisitions of new vehicles by private entities which are primarily engaged in the business of transporting people and whose operations affect commerce, in which a solicitation for the vehicle is made (except as provided in paragraph (d) of this section) after August 25, 1990.

> (c) Demand responsive systems. If the entity operates a demand responsive system, and purchases or leases a new vehicle other than an automobile, a van with a seating capacity of less than eight persons (including the driver), or an over-the-road bus, it shall ensure that the vehicle is readily accessible to and usable by individuals with disabilities, including individuals who use wheelchairs, unless the system, when viewed in its entirety, meets the standard for equivalent service of Sec. 37.105 of this part.

As far as I can tell, the taxi drivers need to take people with wheelchairs, as long as you can fold up the wheelchair and it fits in the car. They aren't allowed to tell them to wait for another car if the car they have can accommodate them. But besides training, the ADA doesn't mandate that companies have wheelchair-lifting vehicles, from my searching.

> Uber isn't a taxi company

In what sense?

In the sense that it is not charging monopoly rents on taxi medallions.

Plenty of cities don't have the medallion system.

> Uber isn't a taxi company

That's funny. You must work for Uber PR.

> and wheelchair access is a very small percentage of customers.

Well in that case, fuck 'em. And fuck the ADA too.

Please don't post uncivil, unsubstantive comments. If you'd like to make a thoughtful criticism, that's fine, but dismissive snark is destructive here.



You should probably look up what the ADA requires taxi companies to do.

I can't imagine being in her shoes. Kind of sorry for her, she was supposed to be an inspiration for women everywhere.

On the other hand, she is an excellent example of how not to be disconnected from reality for founders.

That statement borders on the obscene.

Just because someone gets anointed by family connections to money and PR, that doesn't make them an 'inspiration', regardless of gender.

Obscene to feel for someone who fucked up their career so bad? It's just common empathy.

Not if the f-up was the result of their own fraud and they'll have a golden parachute anyway.

Obscene to think that she should be an inspiration for anybody.

C'mon, the point is a lot of people were inspired by a young woman forming a powerhouse medical company. Now we've found out it was all smoke and mirrors for years, and everyone who looked up to her was let down.

It is not that I studied her, it seemed like young, well educated, successful women, that is all.

>well educated

she dropped from Stanford at something like first year.

There are a good number of successful young females working in tech. They just aren't billionaires or hyped as much, that's all.

Here's an example:


Sure, and I was just expressing that. Like I said, I didn't study her, I might have seen article here and there.

At what point does the fraud become criminal?

Based on intent, people being effected, and those people or others complaining about it/going to litigation.

When it violates a criminal statute.

Wow this is personal. The 4 trillions dollars empire strikes back

wsj's paywall prevents me from getting to their version of "the facts" and their presentation of it. So I'll just make up my own.

Suffice to say that this debacle won't do any further biotech investment any good, and that's a great shame.

US$ 10B is a lot to piss away, I hope some good came of it.

That sounds oddly specific ...

To Read the Full Story, Subscribe or Sign In.

When you click on the discussion you see a "web" link at the top.

This takes you to Google News search from where you can click through to the article.

It usually works.

My personal opinion is that their technology was too disruptive and would have ultimately undermined too much money making in the industry so it had to be stopped. The whole things smacks too much like a witch hunt. Including the fact that whenever I mention my opinion is gets down voted to oblivion.

> Including the fact that whenever I mention my opinion is gets down voted to oblivion.

Because its just conjecture has no proof behind it? HN isn't the place for conspiracy theories.

I hear you, but it always seemed like snake oil to me considering that we're essentially dealing with physics here on a fundamental level and no amount of trickery using minimization will change any of that.

In light of all the negativity about this company, I would like to note that I have a friend who regularly uses their services in Arizona and is delighted by them.

But _should_ he be delighted. As far as we know, the results of tests are totally unreliable.

Astrologers also have happy customers, that doesn't mean their money is well spend.

Many fortunes built on Regression to the Mean: http://rationalwiki.org/wiki/Regression_to_the_mean

The good parts of Theranos are not original, and the original parts are not good.

To put it another way: none of the Theranos-only innovations turned out to be medically sound.

Federal regulators "banning" a specific person from an industry is rare. 23 and Me didn't receive anything close to this type of regulation, scrutiny, and public accusations. Theranos may not be a perfect company, but it's likely some powerful people are pulling strings to snub them out for an agenda that supersedes regulation.

I think that's because 23 And Me's tests actually did what they said they did. The problem with 23 And Me was that all about the reporting of the results, not that the results were fundamentally flawed. The FDA's problem with 23 And Me was that they were coming very close to, and perhaps were, crossing the line into giving medical advice. It's legitimately very hard to interpret the results of say a BRCA1[0] test, and so doing at home isn't recommended.

In the case of Theranos, there are high school biology labs that are run safer and better.

[0] http://www.cancer.gov/about-cancer/causes-prevention/genetic...

that. there are no real parallels here.

Different situation entirely--here we are looking at an improperly-run clinical diagnostic lab. 23andme's sanctions were for marketing/product offerings to consumers.

It's sad to hear Theranos still has issues, but I think people should give them credit for showing the world the lab experience can be quick, simple and painless; not to mention the fact that they actually publish their prices online, which other labs do not do. You can also order and view all your results on the phone app, which is also nice.

Lots of things are quick, simple and painless, but also utterly useless. If the labs don't work, how did they prove it could be all of those things?

I like public prices and a nice phone app, but that's completely peripheral to the actual objective of real, reliable, verifiable medical data.

My understanding is that they've had issues with just some of their tests, not all of them. For instance, I wouldn't call Google useless if it couldn't answer reliably a small percentage of my queries. Yep, I know it's not a perfect analogy, but still.

Theranos could ditch the faulty tests and provide only those which are reliable, and the experience they would provide would still be superior to that of other labs, by a long shot.

Now if you want to question their honesty as a company, as a way of doing things, well, that's a different story.

I think there's plenty of evidence to question their honesty as a company :-P

You're right there are a few labs they do on commercial hardware that does work, and I think they're allowed to provide a test (for Herpes I think? could be wrong on specific test) that is inherently based on very small sample sizes. As I recall though, none of those tests use any new tech at all, and if it's an old blood test then it's not going to require less sample, therefore not that much less painful re. needles anyway.

Take that all away and you have a nice app and pricing experience. Pluses to be sure, and I'd love those things to happen more in medicine, but not very innovative or well positioned to take down $10B megacorps.

Lab tests aren't 100% reliable either, it's true. But the nature of that unreliability is understood and the value of the resulting tests are well established to be related to a clinical outcome. The main criticism of Theranos is that they never put themselves to that kind of test or scrutiny.

From my experience, their prices are much lower than those offered by the competition.

All things being equal, even if the only advantage Theranos has over its competition is lower pricing, I'd take it, because having access to affordable medicine has numerous positive implications for the entire society. What's the point of all the medical innovation if people cannot afford it? Ideally we should strive for both innovative and affordable healthcare, but unfortunately things in the healthcare sector are moving extremely slow.

Having an advantage implies they can do equivalent tests with their proprietary methods, which has not been rigorously proven.

If the tests aren't actually equivalent, they haven't improved anything. Charging less for vaporware doesn't mean it's better, it's still fuckin' vaporware. :P

"Just some of their tests, not all of them"

As of now, the -only- test they are allowed to perform is for HPV, by traditional methods.

The FDA has "concerns" about every other test they offer or have offered.

I really don't know how to say this politely, but pretty much all of your statements are incorrect.

* First off, it's HSV not HPV. Pay attention, as they are two different viruses.

* Theranos' proprietary test system for the herpes simplex 1 virus IgG (HSV-1) has been approved by FDA, so no, it's not by traditional methods. [1]

* Other tests are performed actually by traditional methods

I'm not associated with Theranos in any way, so I couldn't care less, but please don't throw around random statements.

[1] http://techcrunch.com/2015/07/18/theranos-gains-fda-approval...

have you read yourself the link you submitted?

"This new approval, classified as CLIA certificate of waiver, allows testing outside of the lab for those determined to be so simple there is little room for error."

If i remember this is the "lab developed tests" loophole that Threanos was trying to sneak through, and which was shut close for them on the basis that spreading their devices around, like interstate commerce, is a clear violation of the loophole and they do need actual FDA approval... the rest of the story we have been observing for the last several months.

Quick, simple, painless, and wrong.

Read my comment above!

Note the letter, dated March 18th gave Theranos 10 days to respond (April 1st). According to the company they responded within the timeframe and have not received any sanctions yet.

Rumor is the response was short and read: "Bring it, Feds! We have Kissinger! ... KISSINGER!!!"

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