- November 2, 2016
- Posted by: Dave Marston
- Category: Biotech, Funding trends, Innovation
Intelligent, persuasive woman promises to CHANGE THE WORLD. No need for tubes of blood – a mere finger prick will suffice for dozens of blood tests! Patterns herself on Steve Jobs, right down to the monochrome clothing and enigmatic speaking style. Develops new technology, raises money. Gives a widely viewed TED Talk, gets a profile in Fortune magazine, appears on CNBC. Raises more money, at a multi-billion dollar valuation even as the company sells dollars for dimes. Strikes deals with Walgreen’s and other huge names in healthcare.
And then it all comes crashing down. Unless she can mount a successful appeal this summer, Ms. Holmes will be barred for two years from any involvement with her company or any healthcare company. She may go to prison.
It’s tragic. Ms. Holmes is intelligent and may be well-intentioned. But investors backed an idea as fanciful as a perpetual motion machine. Based on bad lab results, patients were told they needed medicine and treatment they really didn’t, or failed to receive medicine and treatment they did need.
It’s doubly tragic because we’ve seen it all before, we know better, and somebody should have caught this earlier. Ms. Holmes started Theranos in 2003. THIRTEEN years ago! It took until 2015 for John Carreyrou at the Wall Street Journal to reveal the truth – that the magic box could not actually perform dozens of blood tests from a drop of blood, when other labs needed a couple of ounces, reagents and cultures, and so on.
Why didn’t this all come to light earlier? There are at least four reasons.
Reason 1: Ms. Holmes herself is superb at giving a non-answer to a direct question, even while seeming to answer the question fully and in detail. Watch her interview with Jim Cramer on Mad Money. It’s breathtaking. Cramer asks the hard questions, but she glides across them like a figure skater in a black, mock turtleneck. At 8:30 in, he asks if she will “go head to head against Quest and LabCorp… 200, 300, 400 patients…”, to prove Theranos’ methods work, and she begins her response with “We’ve already done it…” Consider that, that at the time of this interview (a) Theranos’ technology wasn’t working (b) There was no prospect of it ever working as well as Quest’s and LabCorp’s, because it was a fantasy since Day 1, and (c) Ms. Holmes knew both of these facts. In that context, her performance in the interview is jaw dropping.
Reason 2: If an idea is compelling and people are greedy enough, the facts cease to matter. In this case, investors wanted to believe Theranos could disrupt the US market for blood testing, which is controlled about 100.0% by Quest and LabCorp. These two are best known to Americans as the companies that mail you a surprise bill for $521.37, four months after your physician visit, and have already marked it “Past Due”. To say that people were pulling for a new entrant is an understatement.
Reason 3: We’ve come to feel that science is something we can validate or invalidate, simply by deciding to believe in it or not. Yes, I’ll play the global warming card here. The evidence of human-induced climate change is bulletproof. But some people refuse to believe in the science that underpins this conclusion. It’s like standing on the beach when the tide comes in, and believing that your shoes are still dry. Well, everyone can see you’re up to your knees in water, so no, your shoes are wet. Theranos was like this, only in reverse: even though truckloads of pure and applied science were needed for their technology and methods to work, nobody ever confirmed that basis was in place. They were persuaded by Ms. Holmes’ adroit non-answers and biased by their own desire (and financial interests) to overthrow a century’s worth of documented, proven methods.
Reason 4: Ms. Holmes is probably a bit… mentally ill, and few people realized this until recently. To be sure, sociopaths are common in the business world, but truly crazy people are rare. As the Brits would say, it’s just not cricket. When you’re trying to deal with people who are crazy, you can’t count on anything. She was born to a high-achieving family, excelled at elite schools, and her parents told her she could be anything she wanted to be when she grew up. Unfortunately for the thousands of patients who got criminally flawed Theranos blood tests, she took that to heart. She wanted to be a scientist. She thought that wanting to be a scientist was the same as being a scientist. No need for a B.S. or M.S. degree. She also believed that wanting to be a success was the same as being a success. No need for the hard work, clinical trials and validation, quality systems and procedures, repeatable results under a variety of conditions. When you’re dealing with a crazy person who doesn’t believe she needs to know old science to create new science, and she’s not answering your questions while making you feel stupid for asking them in the first place, good luck getting to the bottom of that.
The lessons of all this? If something sounds too good to be true, it is. If you’re asking questions and not getting real answers, then it’s your fault if you invest money anyway and lose it all. If somebody is really smart, really persuasive, and her self-image and self-worth depend on fooling you, she’ll find a way. Due diligence should be spelled “do diligence.” Science and science fiction aren’t the same thing. Clinical trials exist for a reason. And, at least for a few years, you’re gonna keep getting those “overdue” bills from Quest and LabCorp.