Bad Blood

by John Carreyrou

Cover image

Publisher: Alfred A. Knopf
Copyright: 2018
ISBN: 1-5247-3166-8
Format: Kindle
Pages: 302

Buy at Powell's Books

Theranos was a Silicon Valley biotech startup founded by Elizabeth Holmes in 2003. She was a sophomore chemical engineering major at Stanford University when she dropped out to start the company. Theranos's promised innovation was a way to perform blood tests quickly and easily with considerably less blood than was used by normal testing methods. Their centerpiece product was supposed to be a sleek, compact, modern-looking diagnostic device that could use a finger-stick and a small ampule of blood to run multiple automated tests and provide near-immediate results.

Today, Holmes and former Theranos president Ramesh "Sunny" Balwani are facing federal charges of wire fraud. Theranos, despite never producing a working product, burned through $700 million of venture capital funding. Most, possibly all, public demonstrations of their device were faked. Most of their partnerships and contracts fell through. For the rare ones where Theranos actually did testing, they either used industry-standard equipment (not their own products) or sent the samples to other labs.

John Carreyrou is the Wall Street Journal reporter who first broke the story of Theranos's fraud in October of 2015. This book is an expansion of his original reporting. It's also, in the last third or so, the story of that reporting itself, including Theranos's aggressive attempts to quash his story, via both politics and targeted harassment, which were orchestrated by Theranos legal counsel and board member David Boies. (If you had any respect for David Boies due to his association with the Microsoft anti-trust case or Bush v. Gore, this book, along with the similar tactics his firm appears to have used in support of Harvey Weinstein, should relieve you of it. It's depressing, if predictable, that he's not facing criminal charges alongside Holmes and Balwani.)

Long-form investigative journalism about corporate malfeasance is unfortunately a very niche genre and deserves to be celebrated whenever it appears, but even putting that aside, Bad Blood is an excellent book. Carreyrou provides a magnificent and detailed account of the company's growth, internal politics, goals, and strangely unstoppable momentum even while their engineering faced setback after setback. This is a thorough, detailed, and careful treatment that draws boundaries between what Carreyrou has sources for and what he has tried to reconstruct. Because the story of the reporting itself is included, the reader can also draw their own conclusions about Carreyrou's sources and their credibility. And, of course, all the subsequent legal cases against the company have helped him considerably by making many internal documents part of court records.

Silicon Valley is littered with failed startups with too-ambitious product ideas that were not practical. The unusual thing about Theranos is that they managed to stay ahead of the money curve and the failure to build a working prototype for surprisingly long, clawing their way to a $10 billion valuation and biotech unicorn status on the basis of little more than charisma, fakery, and a compelling story. It's astonishing, and rather scary, just how many high-profile people like Boies they managed to attract to a product that never worked and is probably scientifically impossible as described in their marketing, and just how much effort it took to get government agencies like the CMS and FDA to finally close them down.

But, at the same time, I found Bad Blood oddly optimistic because, in the end, the system worked. Not as well as it should have, and not as fast as it should have: Theranos did test actual patients (badly), and probably caused at least some medical harm. But while the venture capital money poured in and Holmes charmed executives and negotiated partnerships, other companies kept testing Theranos's actual results and then quietly backing away. Theranos was forced to send samples to outside testing companies to receive proper testing, and to set up a lab using traditional equipment. And they were eventually shut down by federal regulatory agencies, albeit only after Carreyrou's story broke.

As someone who works in Silicon Valley, I also found the employment dynamics at Theranos fascinating. Holmes, and particularly Balwani when he later joined, ran the company in silos, kept secrets between divisions, and made it very hard for employees to understand what was happening. But, despite that, the history of the company is full of people joining, working there for a year or two, realizing that something wasn't right, and quietly leaving. Theranos management succeeded in keeping enough secrets that no one was able to blow the whistle, but the engineers they tried to hire showed a lot of caution and willingness to cut their losses and walk away. It's not surprising that the company seemed to shift, in its later years, towards new college grads or workers on restrictive immigration visas who had less experience and confidence or would find it harder to switch companies. There's a story here about the benefits of a tight job market and employees who feel empowered to walk off a job. (I should be clear that, while a common theme, this was not universal, and Theranos arguably caused one employee suicide from the stress.)

But if engineers, business partners, a reporter, and eventually regulatory agencies saw through Theranos's fraud, if murkily and slowly, this is also a story of the people who did not. If you are inclined to believe that the prominent conservative Republican figures of the military and foreign policy establishment are wise and thoughtful people, Bad Blood is going to be uncomfortable reading. James Mattis, who served as Trump's Secretary of Defense, was a Theranos booster and board member, and tried to pressure the Department of Defense into using the company's completely untested and fraudulent product for field-testing blood samples from soldiers. One of Carreyrou's main sources was George Shultz's grandson, who repeatedly tried to warn his grandfather of what was going on at Theranos while the elder Republican statesman was on Theranos's board and recruiting other board members from the Hoover Institute, including Henry Kissinger. Apparently the film documentary version of Bad Blood is somewhat kinder to Shultz, but the book is methodically brutal. He comes across as a blithering idiot who repeatedly believed Holmes and Theranos management over his grandson on the basis of his supposed ability to read and evaluate people.

If you are reading this book, I do recommend that you search for video of Elizabeth Holmes speaking. Carreyrou mentions her personal charisma, but it's worth seeing first-hand, and makes some of Theranos's story more believable. She has a way of projecting sincerity directly into the camera that's quite remarkable and is hard to describe in writing, and she tells a very good story about the benefits of easier and less painful (and less needle-filled) blood testing. I have nothing but contempt for people like Boies, Mattis, and Shultz who abdicated their ethical responsibility as board members to check the details and specifics regardless of personal impressions. In a just world with proper legal regulation of corporate boards they would be facing criminal charges along with Holmes. But I can see how Holmes convinced the media and the public that the company was on to something huge. It's very hard to believe that someone who touts a great advancement in human welfare with winning sincerity may be simply lying. Con artists have been exploiting this for all of human history.

I've lived in or near Palo Alto for 25 years and work in Silicon Valley, which made some of the local details of Carreyrou's account fascinating, such as the mention of the Old Pro bar as a site for after-work social meetings. There were a handful of places where Carreyrou got some details wrong, such as his excessive emphasis on the required non-disclosure agreements for visitors to Theranos's office. (For better or ill, this is completely routine for Silicon Valley companies and regularly recommended by corporate counsel, not a sign of abnormal paranoia around secrecy.) But the vast majority of the account rang true, including the odd relationship between Stanford faculty and startups, and between Stanford and the denizens of the Hoover Institute.

Bad Blood is my favorite piece of long-form journalism since Bethany McLean and Peter Elkin's The Smartest Guys in the Room about Enron, and it is very much in the same mold. I've barely touched on all the nuances and surprising characters in this saga. This is excellent, informative, and fascinating work. I'm still thinking about what went wrong and what went right, how we as a society can do better, and the ways in which our regulatory and business system largely worked to stop the worst of the damage, no thanks to people like David Boies and George Shultz.

Highly recommended.

Rating: 9 out of 10

Reviewed: 2019-05-30

Last modified and spun 2019-05-31