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Regulators Propose Banning Theranos Founder from Blood Testing

260 points by trimbo 11y ago

jonknee 11y ago
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.
- chimeracoder 11y ago
  > 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?
  - txttran 11y ago
    It says in the article that she has >50% equity.
    - no_wave 11y ago
      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)
  - Animats 11y ago
    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.
  - lawnchair_larry 11y ago
    Her current stake is irrelevant. She sure won't be selling it. It's only a question of what was already cashed out.
- coderjames 11y ago
  > 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."
  - mortona 11y ago
    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.
dwolfson 11y ago
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.
- minikites 11y ago
  Like open source not making all bugs shallow, start-up capitalism doesn't guarantee an accurate assessment.
  - jonknee 11y ago
    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).
    - daveguy 11y ago
      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.
      - jonknee 11y ago
        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. http://www.wsj.com/articles/at-theranos-many-strategies-and-snags-1451259629?mod=e2fb http://www.wsj.com/articles/at-theranos-many-strategies-and-... > 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.
desireco42 11y ago
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.
- WalterSear 11y ago
  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.
  - desireco42 11y ago
    It is not that I studied her, it seemed like young, well educated, successful women, that is all.
    - trhway 11y ago
      >well educated she dropped from Stanford at something like first year.
    - deleted 11y ago
      [deleted]
    - mk1202 11y ago
      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: http://www.ted.com/talks/tan_le_a_headset_that_reads_your_brainwaves http://www.ted.com/talks/tan_le_a_headset_that_reads_your_br...
      - desireco42 11y ago
        Sure, and I was just expressing that. Like I said, I didn't study her, I might have seen article here and there.
  - kzhahou 11y ago
drcode 11y ago
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.
- tclmeelmo 11y ago
  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.
- searine 11y ago
  >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.
  - drcode 11y ago
    > 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.
    - sndean 11y ago
      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 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.
dcgudeman 11y ago
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) https://en.wikipedia.org/wiki/Theranos#Governance https://en.wikipedia.org/wiki/Theranos#Governance
- kelvin0 11y ago
  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.
  - danem 11y ago
    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.
    - dcgudeman 11y ago
      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.
      - deleted 11y ago
        [deleted]
      - benologist 11y ago
        Not having such expertise on their board doesn't mean they don't have that expertise within their company.
makomk 11y ago
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.
forrestthewoods 11y ago
At what point does the fraud become criminal?
- orky56 11y ago
  Based on intent, people being effected, and those people or others complaining about it/going to litigation.
- codingdave 11y ago
  When it violates a criminal statute.
JoaquimBean 11y ago
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.
- entee 11y ago
  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.
  - jonwachob91 11y ago
    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.
    - entee 11y ago
      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.
chollida1 11y ago
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.
- simula67 11y ago
  > 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.
  - chollida1 11y ago
    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.
  - jonknee 11y ago
    > 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.
- return0 11y ago
  Good case of a person who shouldn't have left college.
the_economist 11y ago
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.
- Bootvis 11y ago
  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.
  - musesum 11y ago
    Many fortunes built on Regression to the Mean: http://rationalwiki.org/wiki/Regression_to_the_mean http://rationalwiki.org/wiki/Regression_to_the_mean
- smt88 11y ago
  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.
cylinder 11y ago
Uber skirts city/state regs; you can't mess with the FDA, among other federal agencies (such as FAA).
- jonknee 11y ago
  And Uber was definitively better for consumers, inaccurate blood tests are better for nobody.
- pfarnsworth 11y ago
  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.
  - blakeyrat 11y ago
    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.
    - pfarnsworth 11y ago
      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.
      - blakeyrat 11y ago
        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.
mplewis 11y ago
Rehosted for 24 hours without the paywall: http://pastebin.com/RwipXxds http://pastebin.com/RwipXxds
- djsumdog 11y ago
  thank you sir
- samuraig 11y ago
  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.
electic 11y ago
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.
- enraged_camel 11y ago
  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.
- return0 11y ago
  Yeah, as if Theranos doesn't have the money or the board to lobby ...
- shas3 11y ago
  > 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?
- aab0 11y ago
  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.
- alanh 11y ago
  Pedantic, but… you mean Quest, not Qwest. The latter is (was?) a telecom company.
daveguy 11y ago
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!!!"
plainOldText 11y ago
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.
- facetube 11y ago
  Quick, simple, painless, and wrong.
  - plainOldText 11y ago
    Read my comment above!
- entee 11y ago
  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.
  - plainOldText 11y ago
    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.
    - entee 11y ago
      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.
return0 11y ago
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 ?
- fatjokes 11y ago
  A lot of powerful folks on that board.
stevebmark 11y ago
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.
- jonathankoren 11y ago
  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/genetics/brca-fact-sheet http://www.cancer.gov/about-cancer/causes-prevention/genetic...
  - khomenko 11y ago
    that. there are no real parallels here.
- sk5t 11y ago
  Different situation entirely--here we are looking at an improperly-run clinical diagnostic lab. 23andme's sanctions were for marketing/product offerings to consumers.
mrfusion 11y ago
That sounds oddly specific ...
kqr2 11y ago
Direct link to letter from CMS to Theranos with proposed sanctions and justification for sanctions: http://online.wsj.com/public/resources/documents/cms20160412.pdf http://online.wsj.com/public/resources/documents/cms20160412...
- phonon 11y ago
  Hmmm...skips from page 3 to page 42?
wavesounds 11y ago
"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.
programminggeek 11y ago
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.
ageofwant 11y ago
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.
TheRealPomax 11y ago
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- CaptainZapp 11y ago
  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.
Ankaios 11y ago
Anybody know which retirement funds and other institutional investors are most exposed to Theranos through VC and other investment?
transfire 11y ago
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.
- toomuchtodo 11y ago
  > 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.
- NN88 11y ago
  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.
AzzieElbab 11y ago
Wow this is personal. The 4 trillions dollars empire strikes back
aznpwnzor 11y ago
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.

260 points by trimbo 11y ago

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.

chimeracoder 11y ago
> 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?
- txttran 11y ago
  It says in the article that she has >50% equity.
  - no_wave 11y ago
    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)
- Animats 11y ago
  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.
- lawnchair_larry 11y ago
  Her current stake is irrelevant. She sure won't be selling it. It's only a question of what was already cashed out.
coderjames 11y ago
> 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."
- mortona 11y ago
  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.

dwolfson 11y ago

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.

minikites 11y ago
Like open source not making all bugs shallow, start-up capitalism doesn't guarantee an accurate assessment.
- jonknee 11y ago
  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).
  - daveguy 11y ago
    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.
    - jonknee 11y ago
      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. http://www.wsj.com/articles/at-theranos-many-strategies-and-snags-1451259629?mod=e2fb http://www.wsj.com/articles/at-theranos-many-strategies-and-... > 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.

desireco42 11y ago

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.

WalterSear 11y ago
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.
- desireco42 11y ago
  It is not that I studied her, it seemed like young, well educated, successful women, that is all.
  - trhway 11y ago
    >well educated she dropped from Stanford at something like first year.
  - deleted 11y ago
    [deleted]
  - mk1202 11y ago
    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: http://www.ted.com/talks/tan_le_a_headset_that_reads_your_brainwaves http://www.ted.com/talks/tan_le_a_headset_that_reads_your_br...
    - desireco42 11y ago
      Sure, and I was just expressing that. Like I said, I didn't study her, I might have seen article here and there.
- kzhahou 11y ago

drcode 11y ago

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.

tclmeelmo 11y ago
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.
searine 11y ago
>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.
- drcode 11y ago
  > 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.
  - sndean 11y ago
    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 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.

dcgudeman 11y ago

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) https://en.wikipedia.org/wiki/Theranos#Governance https://en.wikipedia.org/wiki/Theranos#Governance

kelvin0 11y ago
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.
- danem 11y ago
  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.
  - dcgudeman 11y ago
    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.
    - deleted 11y ago
      [deleted]
    - benologist 11y ago
      Not having such expertise on their board doesn't mean they don't have that expertise within their company.

makomk 11y ago

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.

forrestthewoods 11y ago

At what point does the fraud become criminal?

orky56 11y ago
Based on intent, people being effected, and those people or others complaining about it/going to litigation.
codingdave 11y ago
When it violates a criminal statute.

JoaquimBean 11y ago

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.

entee 11y ago
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.
- jonwachob91 11y ago
  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.
  - entee 11y ago
    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.

chollida1 11y ago

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.

simula67 11y ago
> 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.
- chollida1 11y ago
  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.
- jonknee 11y ago
  > 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.
return0 11y ago
Good case of a person who shouldn't have left college.

the_economist 11y ago

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.

Bootvis 11y ago
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.
- musesum 11y ago
  Many fortunes built on Regression to the Mean: http://rationalwiki.org/wiki/Regression_to_the_mean http://rationalwiki.org/wiki/Regression_to_the_mean
smt88 11y ago
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.

cylinder 11y ago

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

jonknee 11y ago
And Uber was definitively better for consumers, inaccurate blood tests are better for nobody.
pfarnsworth 11y ago
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.
- blakeyrat 11y ago
  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.
  - pfarnsworth 11y ago
    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.
    - blakeyrat 11y ago
      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.

mplewis 11y ago

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

djsumdog 11y ago
thank you sir
samuraig 11y ago
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.

electic 11y ago

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.

enraged_camel 11y ago
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.
return0 11y ago
Yeah, as if Theranos doesn't have the money or the board to lobby ...
shas3 11y ago
> 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?
aab0 11y ago
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.
alanh 11y ago
Pedantic, but… you mean Quest, not Qwest. The latter is (was?) a telecom company.

daveguy 11y ago

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!!!"

plainOldText 11y ago

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.

facetube 11y ago
Quick, simple, painless, and wrong.
- plainOldText 11y ago
  Read my comment above!
entee 11y ago
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.
- plainOldText 11y ago
  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.
  - entee 11y ago
    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.

return0 11y ago

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 ?

fatjokes 11y ago
A lot of powerful folks on that board.

stevebmark 11y ago

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.

jonathankoren 11y ago
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/genetics/brca-fact-sheet http://www.cancer.gov/about-cancer/causes-prevention/genetic...
- khomenko 11y ago
  that. there are no real parallels here.
sk5t 11y ago
Different situation entirely--here we are looking at an improperly-run clinical diagnostic lab. 23andme's sanctions were for marketing/product offerings to consumers.

mrfusion 11y ago

That sounds oddly specific ...

kqr2 11y ago

Direct link to letter from CMS to Theranos with proposed sanctions and justification for sanctions: http://online.wsj.com/public/resources/documents/cms20160412.pdf http://online.wsj.com/public/resources/documents/cms20160412...

phonon 11y ago
Hmmm...skips from page 3 to page 42?

wavesounds 11y ago

"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.

programminggeek 11y ago

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.

ageofwant 11y ago

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.

TheRealPomax 11y ago

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CaptainZapp 11y ago
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.

Ankaios 11y ago

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

transfire 11y ago

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.

toomuchtodo 11y ago
> 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.
NN88 11y ago
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.

AzzieElbab 11y ago

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

aznpwnzor 11y ago

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.