‘Fake It Until You Make It’ Won’t Work in Health Tech, Pulitzer Prize Winner Says
For any bioscience entrepreneurs in North Carolina who may be tempted to exaggerate claims about their products and technologies, investigative journalist John Carreyrou has some advice: do so at your own peril.
“The Silicon Valley culture of moving fast and breaking things and faking it until you make it isn’t very well suited to health care,” Carreyrou said Tuesday in his keynote address at the CED’s annual Life Sciences Conference at the Raleigh Convention Center.
“That’s a lesson that’s going to be increasingly important to bear in mind” as information technology and health care technology merge, he said.
Carreyrou is the reporter who exposed fraudulent product claims by Theranos, a Bay Area healthcare technology company, in 2015. The company’s two top executives had for years told investors, board members, partners and customers that Theranos’s lab-on-a-chip diagnostic system could provide a multitude of fast, accurate test results from a drop or two of blood drawn from a finger prick.
The claims proved to be blatantly false.
The subsequent collapse of Theranos, which ceased operations last August, is a cautionary tale writ large by Carreyrou, a 1994 graduate of Duke University.
His coverage in the Wall Street Journal won the Pulitzer Prize – his second – and led to his book, “Bad Blood: Secrets and Lies in a Silicon Valley Startup,” published in 2018. An HBO documentary about Theranos will air in March, and a Hollywood movie starring Jennifer Lawrence is also in the works.
Publicity sparked skepticism
Theranos was founded in 2003 by Elizabeth Holmes, a 19-year-old Stanford University student who dropped out of school to run the company and became known for wearing black turtleneck tops like those worn by Apple founder Steve Jobs.
“She idolized Steve Jobs,” Carreyrou said. “She wanted to walk in his footsteps. She idolized (him) to the point of dressing like him.”
The charismatic CEO helped Theranos attract famous board members including former Secretaries of State Henry Kissinger and George Shultz. The company raised $730 million from venture capitalists and investors, vaulting its valuation to more than $10 billion at its peak in 2013 and 2014.
Holmes, who amassed a personal fortune of about $4.7 billion, was featured in Fortune and Forbes, which portrayed her as a wunderkind entrepreneur and “the youngest self-made female billionaire in the world.”
After reading a similar story about Theranos and Holmes in The New Yorker in 2014, Carreyrou said he remembered thinking, “There are some things that strike me as odd in this story.”
For one, Holmes was a young college dropout with scant training in science or medicine. While it’s common for computer coders without college degrees to create software programs and start businesses, “medicine is different,” Carreyrou said. “You can’t just teach yourself medicine in the basement of your house.”
He also noticed that Theranos hadn’t published any study data on its technology in peer-reviewed journals, the usual route to establishing scientific credibility.
Finally, an “almost silly and ham-handed” quote by Holmes in The New Yorker story, as she tried to explain the company’s technology, struck Carreyrou as “more something that a high school chemistry student would say rather than a sophisticated lab scientist who supposedly invented groundbreaking new science.”
Said Carreyrou: “I picked up on these things, and it didn’t sit well with me.”
He began asking questions and interviewing other emerging skeptics of Theranos, including past and present employees who were alarmed by the company’s deceitful practices.
Carreyrou revealed that Theranos hid the inadequacy of its diagnostic machine during demos for clients or customers by secretly using other machines made by reputable companies to run its blood tests.
“That’s the extent of the deception,” he said.
The company also staged a room lined with impotent Theranos machines for a visit by then Vice President Joe Biden while traditional third-party machines – hidden in an adjacent room – performed the real diagnostic work.
“Biden says he has just seen the lab of the future,” Carreyrou said, eliciting chuckles from the audience.
As the evidence of fraudulent claims about Theranos’s system mounted and clients and partners defected, the company became hostile toward him and the Wall Street Journal, sending lawyers to the newspaper and threatening to sue.
Today it is Holmes and former company president Ramesh “Sunny” Balwani who are on the legal defensive. They were charged with “massive fraud” by the Securities and Exchange Commission and are under federal criminal indictment on multiple wire fraud and conspiracy charges. Their trials will begin later this year or early next year.
Prominent investors duped
Ironically, the largest investor in Theranos was media mogul Rupert Murdoch, owner of the Wall Street Journal, who had invested $125 million in the company. Carreyrou said Murdoch never tried to squelch publication of his stories about Theranos.
“Thankfully Rupert did not intervene,” he said.
Investors, many who believed Theranos would become the Apple or Google of health care technology, are now awash in embarrassment and lost money. In addition to Murdoch, they include the Walton family, heirs to the Walmart empire; Atlanta's Cox family, owners of a media conglomerate; the family of Secretary of Education Betsy DeVos; and business magnate Carlos Slim.
“You may wonder, how could something like this have happened,” Carreyrou said. “One explanation that I’ve come up with is that Elizabeth (Holmes) really framed herself and saw herself as a product of the Silicon Valley culture and tradition. What is undeniably true is that in that traditional Silicon Valley ecosystem people had faked it at the beginning of their careers until they made it, and it’s been quite common.”
He cited Apple founder Steve Jobs, who sometimes would “jerry rig Mac demos” in the computer company’s early days, and Oracle founder Larry Ellison, who would ship database software “that was completely not ready and crawling with bugs.” All the while, Carreyrou said, “Ellison would go out and announce new features that he claimed his software had that they hadn’t even begun working on.”
Microsoft co-founders Paul Allen and Bill Gates also sold an operating system to IBM for its personal computers before the system had been developed, Carreyrou said. They acquired a system from a Seattle programmer and developed into would become known as MS-DOS.
“You increasingly hear people who made money in Silicon Valley say, ‘I’m going to disrupt health care; the health care system is broken and I’m going to bring my whole thinking to health care,’ which is not necessarily a bad thing,” Carreyrou said.
“But it’s got to be done the right way, and not with that Silicon Valley attitude."