Bad Blood: Secrets and Lies in a Silicon Valley Startup

Theranos’ first science hire, back in 2005, was Ian Gibbons, a nerdy British biochemistry PhD with a specialty in immunoassays and dozens of medical patents to his name. As the years went by, Ian became frustrated with the ongoing problems Theranos engineers had in getting his blood tests to work accurately in their machines. He especially chafed at the rule restricting interoffice communication between the company’s various divisions, which made collaboration difficult, but Elizabeth wanted the firm in “stealth mode” to protect its intellectual property from snooping competitors. 

Ian also lost faith in his CEO: He "had heard her tell outright lies more than once and, after five years of working with her, he no longer trusted anything she said" (143). In 2010, Ian complained to their mutual acquaintance, Channing Robertson, who told Elizabeth, who promptly fired Ian. Staffers lobbied for his return, so Elizabeth rehired him but with reduced authority.

Relegated to a desk in the common area and largely ignored by Elizabeth and Sunny, Ian still consulted with the biochemistry and engineering departments, but the constant pressure from above to cut corners dragged him down until he suffered a full-blown depression. Deposed to testify in the lawsuit against Dr. Fuisz, Ian consulted his wife, Rochelle, a former patent attorney. She discovered that Elizabeth’s name is on nearly every patent, whereas Ian knew she had little to do with most of the inventions; such a revelation could invalidate Theranos’ patents.

Ian’s first deposition was scheduled for May 2013. Just before that date, Ian took an overdose of acetaminophen. His wife rushed him to the hospital, where he died of liver failure eight days later. At Theranos, the news was reported tersely to a few employees; most thought he died of cancer. No memorial was held. One coworker was miffed at how Ian’s death had been treated. To him it seemed “as if working at Theranos was gradually stripping them all of their humanity” (149). 

By early 2013 TWBA\Chiat\Day, the ad agency for Elizabeth’s beloved Apple Inc, was revamping the Theranos website and developing a smartphone app for the company in preparation for its public rollout during the launch of the Walgreens blood-test centers. Chiat\Day’s ad proposals were simple and elegant, like Apple’s.

The new Theranos logo was a version of an ancient Pagan symbol, the Flower of Life—a circle with smaller circles intersecting within. Circles surrounded pictures of patients and of tiny 1.29-centimeter vials, called nanotainers, used by the blood readers. New slogans were devised, including “‘One tiny drop changes everything’ and ‘The lab test, reinvented’” (153).

Elizabeth wanted Chiat\Day to say on the Theranos website that the blood readers could get 800 tests from one drop of blood and that their system was more accurate than traditional labs—Elizabeth’s theory was that it was automated and therefore not prone to human error—and also that it was FDA approved. Chiat\Day was leery of these claims and said so. Just before the website launch, Elizabeth backed away from the most extreme claims and altered the text to more accurately reflect the actual service. 

Employees who disagreed with Elizabeth and Sunny tended to get fired. Many replacement hires chosen by Sunny were PhDs from India, fresh out of university and naïve about corporate culture. Their H-1B visas would be revoked if they lost their Theranos jobs, so they were eager to say yes to whatever the top brass demanded. Sunny drove them hard; “it was akin to indentured servitude" (164).

After three years of delays, Elizabeth finally committed Theranos to launch its Walgreens blood-test centers by September 2013. As the day approached and major problems with the company’s blood readers remained, nervous company engineers resorted to reverse-engineering a standard blood assay machine made by Advia. They tried to miniaturize its components and adapt them to the old Edison machine but were only partly successful. A couple of important researchers, recognizing that the machines weren’t ready for the public, resigned for ethical reasons. Angry, Elizabeth called a general meeting, telling her employees that the work was a religious calling and any doubters should get out. 

Just before the Walgreens rollout in September 2013, a feature on Elizabeth appeared in The Wall Street Journal, including an interview with her and lavish praise for her accomplishments. In it, former Secretary of State George Shultz called her “the next Steve Jobs or Bill Gates” (174). Shultz, a Theranos board member, was one of Elizabeth’s biggest champions. The article, by Pulitzer Prize winner Joseph Rago, was a coup. Elizabeth parlayed the good news into a new money-raising campaign. With all the private capital flowing into Silicon Valley, several startups, including Theranos, rose in value to more than $1 billion; these were dubbed “unicorns.” Among them were Uber and Spotify.

Visiting investors to the Theranos campus found a heavy security presence that escorted them everywhere, including to the bathroom. This gave people the impression that Theranos was sitting on some extremely valuable intellectual property. Inside, the company displayed graphs showing that Theranos equipment was as accurate as industry-standard equipment. What they didn’t mention was that the equipment tested didn't include the Edison or miniLab but instead were conventional machines purchased elsewhere.

Elizabeth and Sunny also claimed they had solved the problem of microfluidic management, and their proprietary machines could conduct 70 different tests off a single finger-prick sample. To help win over skeptics, Theranos lately boasted on its board such luminaries as Shultz, retired general James Mattis, and Henry Kissinger. Sunny projected 2015 profits north of $1 billion on revenues of $1.68 billion. As it turned out, he made up these numbers “from whole cloth" (182), and in-house projections were several times lower. With new funds pouring in, Theranos in early 2014 was valued at $9 billion. Majority owner Elizabeth was now worth $4.5 billion. 

Tyler Shultz, grandson of George Shultz, interned at Theranos during his undergraduate years at Stanford. Inspired by Elizabeth’s vision, Tyler changed his major to biology, finished school, and promptly applied for and got a job at Theranos. His doubts began with the Edison, whose innards he was privileged to view one day. The mechanics consisted mainly of a robotic arm holding a pipette, combined with a balky touchscreen. Data from tests run on the Edison to check its accuracy were routinely thrown out if they didn’t conform to expectations, but “cherry-picking data wasn’t good science" (187).

Because the equipment was so inaccurate, Theranos technicians would take six measurements and then use the average of those results as the finding to report to the patient. Theranos’ public claims of high accuracy simply didn’t stand up to inspection. Worse, during proficiency testing to remain accredited, Theranos would run tests on outside machines it had bought rather than the Edison and miniLab. Tyler suspected the company was breaking the law.

Tyler did some quiet digging and learned from outside sources that Theranos’ testing methods amounted to cheating that broke state and federal requirements. He filed an anonymous complaint with one of the regulatory agencies. He also discussed it with his grandfather, who, as a board member, suggested Tyler set forth his concerns directly to Elizabeth. He does so in a polite email but gets back a withering response from Sunny, who tells Tyler he’s “too junior and green to understand what he was talking about" (196).

Tyler resigned, and Theranos HR told him to leave at once. In the parking lot, he got a frantic phone call from his mother, who said George Shultz received a message from Elizabeth warning Tyler “that if you insist on carrying out your vendetta against her, you will lose” (197). Tyler immediately visited his grandfather at his office at Stanford’s Hoover Institution. Shultz read the email evidence and concluded, “They can’t convince me that you’re stupid. They can, however, convince me that you’re wrong” (197-98). At dinner that night at the Shultz house, Tyler brought a concerned coworker, Erika Cheung, to back up his story, but George was unmoved, his devotion to Elizabeth overriding any concerns from Tyler. He suggested they forget Theranos and get on with their lives. Cheung quit the next day.