This company is looking less and less like they're struggling to develop new technology, more and more like a deliberate sham. Given that so much of their support thus far has been due solely to the Cult of Disruption, I can't help but wonder if news like this might make at least a few investors consider a return to good old-fashioned due diligence before placing their bets.
It's also laughable that he thinks the volume of blood drawn for a standard test is what makes him pass out. Nope, that's a purely psychological reaction. If we're talking about donating blood, I'd believe it could be a physical effect, but that's equal to 50 vials in a blood test...
Search for Theranos (and related terms) in HN history with the search bar at the bottom of the page.
A lot of high profile posters making very embarrassing defences of Theranos. Lots of thinly veiled accusations of ageism, sexism, ludditism, etc. I fear few will learn any lasting lessons from this saga.
This is true. There were in fact people voicing their suspicion that Theranos was all a crock of shit in the very first discussions on Theranos on HN.
Warning signs were there. People were voicing specific technical concerns, as well as less specific concerns over the technical expertise of those involved. For the most part, these critics were brushed off. HN's voting system did not promote their comments; rather it promoted the apologetics.
Random thought: maybe "gratuitous positivity" is as damaging as "gratuitous negativity" and should be treated the same way. Only seems fair, doesn't it?
It doesn't look like there's a conflict of interest (Morin, as far as I can tell, is not a Theranos investor), but I think you're overlooking the fact that a lot of prominent tech investors are sitting on investments in companies that have been significantly overvalued, and the cracks in some of these companies are starting to become apparent.
There's a decent discussion on this here[1]. Red flags, like reports of late-stage investors marking down the value of some of their unicorn investments, are starting to mount and I think that has to be worrisome for investors who are sitting on large unrealized gains that could easily evaporate.
Expect to see a lot more hand-waving on the part of investors as prominent unicorns come apart at the seams.
Morin, according to his AngelList profile, is an investor in a number of unicorns, including AirBnB, Dropbox, Evernote and Slack. Two of the mutual funds that invested in Dropbox have reportedly marked down their investments[2] and some media reports suggest Evernote is in trouble[3].
Not a conflict of interest in the legal sense, but more of a conflict of interest in the ethical sense since venture capitalists have a lot to lose if the allegations have any truth.
My take on it is that Elizabeth Holmes set out to make this idea a reality, but has been unable to do so. Sadly, all signs point to her trying to buy time via smoke and mirrors. If she has misled investors in the same way she has misled the media, given that she has raised $400 million, she's looking at decades in federal prison.
I see this whole thing ending in tragedy, whether that just means the loss of $400 million that could have gone to other startups, a full-scale criminal prosecution, or some other dramatic end. Whatever happens, a happy ending no longer seems to be in the cards.
Prosecution seems fabulously unlikely, given how infrequently founders have gotten in trouble with the law for misleading their investors. Holmes won't be close to the most lurid bad-faith founder claim (if that's how the story indeed ends).
You'd be amazed at the seemingly minor misrepresentations that a federal prosecutor can turn into a fraud case. That said, whether or not it gets that far depends entirely on the how the investors feel about it, exactly what they were told, whether they choose to report it as a crime to the FBI, etc.
I wouldn't be too sure about that. Investor fraud isn't the only thing we're talking about here. There are questions about the accuracy of the blood tests themselves.
You're right, it is possible that people started with good intentions and sincere beliefs, then got desperate. That does happen. I do feel bad for the many innocent and even idealistic people who will suffer the consequences along with the true miscreants. On the other hand, there are others who had information the rest of us don't have, and a specific duty (to their own investors) to blow the whistle early if they saw anything amiss. It's a lot harder for them to claim innocence.
Pfizer, on the other hand, told the Financial Times that the company's dealings with Theranos were limited. "We've done only very limited historical exploratory work with Theranos through a few pilot projects,
So, the root of this could simply have been poor reporting not deception. I mean you generally don't do multiple pilot projects with vaporware and Pfizer is a huge drug company.
PS: 400M is a lot of money, but probably not enough to do much R&D and start jumping though the hoops if the FDA get's picky.
Matthew Herper recently totaled R&D spending from the 12 leading pharmaceutical companies from 1997 to 2011, and found that they had spent $802 billion to gain approval for just 139 drugs: a staggering $5.8 billion per drug.
Granted, we are talking about medical devices, but as soon as the FDA wants clinical trials things get damm expencive and 400M is a drop in the bucket. 200K is about a weeks budget for a well staffed modern lab. Sure, you can get a minor iteration in a week, but nobody is going to send anything down the pipeline without a lot more research than that.
Given how loaded her board is with insanely high-ranking ex-government officials, you can pretty almost certain that any federal prosecution will not happen.
My favorite uncle has a brother who is rich behind wildest dreams. He invested in this supposed unicorn. What did or does she do to get rich people to pull out their wallets and possibly dump their money down the drain?
I, on the other hand have so much opportunity knocking at my door (demoing my tech to Google, Samsung, about to go onto an inventor reality tv show and tons more), yet am unable to connect with the same rich people including my uncle's brother.
As they say it only takes one wealthy person to invest in you and others will follow. Not sure what other signals that need to happen to show him and or others that based on my history I should be given a similar shot. Been at this for 8 years and these amazing opportunities continue to knock and knock. All opportunities are a huge honor, yet extremely frustrating when you don't have the resources to take advantage of it all!
You're being modded down for whining, no doubt, but I can see where you're coming from. Every dollar that goes to Theranos (or Enron, or any number of other slickly-packaged plays) is a dollar that doesn't go to someone else's company. Gotta be frustrating to watch that happen over and over when you're personally sure you're a better bet.
im not surprised of being downvoted ... i sound like a whiner no doubt. Whining that if your born rich and affluent or have strong ties to such then getting your startup funded is a ton easier.
Pardon my whining about how getting funding works for a good majority of start-uppers. Like how many Ivy Leaguers has YC funded? Is it a majority or minority amount?
My 8 year history indicates my strong points are ideas, marketing the ideas and building them out some with teams of consultants who are not 500% vested as I.
I'd love to find a true startup partner who has connections and is vested the same as I. One who will and drop everything to help me take advantage of all this opportunity.
My favorite uncle is my father's cousins husband. His brother was the CEO of large well know retail store.
as history shows one have to be either a Harvard dropout or a Stanford graduate. Not understanding the difference here is like not understanding a difference between finger-prick and venous blood samples :)
I interviewed at Theranos a year ago, and found the employees to be smart and dedicated.
However, the company was the most secretive I've interviewed at and the employees complained about being overworked. The fact the founder sold C++ compilers to Chinese universities when g++ is open-source sounded odd.
But I still had hope in them even after they passed on me -- a Silicon Valley company actually making a difference in the people's health. I WANT TO BELIEVE.
If this turns out to be smokes and mirrors, I'd be very saddened. Theranos' failure would confirm what everyone interested in biotech knows but wishes wasn't true: that advancements in this field do not move at the speed of the digital economy.
Holmes ran that business in high school. She was born in 1984, so that would put the date around 2000. There were good reasons not to use G++ in 2000. When Alexandrescu's book was published, in 2001, it was somewhat notorious on my team (shipping code on G++) for how much of it didn't work well, or at all, in G++.
Heck, virtually any C++ compiler was a big pile of sharp edges back then, by comparison to just a few years later. Especially if you dared to use it for embedded work, not so much due to the "embedded" part but just because the embedded suite compilers were just so much further behind the C++ curve.
Yep, but the commercial compilers generally had better STLs (particularly for debugging), debuggers that could properly mangle/demangle symbols, and precompiled headers --- in addition to different sets of C++ features that did or didn't work properly.
Largely true, but I recall actually isolating one chunk of code and compiling with g++ just to get halfway sane error messaging around a (IIRC) template-related error. I.e. you could do worse. The primary compiler for that code was the circa-2001 ARM tools suite. I wrote a few novels worth of feedback and bug reporting to them...
And to think I was shipping C++ software compiled during the egcs days. Of course, it compiled on IRIX, AIX, HP-UX and a few other compilers - I think some were still based on cfront - so we were using the boring, simple parts of C++ that everyone supported.
The compilers thing sounds like a made up story to give her am interesting bio. None of the news stories about it have any details.
She obviously didn't write a C++ compiler worth selling at that age in that time period , so at most it was likely some sort of off-the-shelf reselling sales gig.
[...] a Silicon Valley company actually making a difference in the people's health.
Except, in many ways, it isn't: 'disrupting' lab blood testing[1] is far from a public health priority --just because the founder is scared of blood and thinks phlebotomies are "barbaric" doesn't make it so.
[1] As opposed to point-of-care (viz, no-lab) testing, which is a genuine public health priority: i.e. portable glucose monitors, field tests for malaria, and so on.
I don't think it's all smokes and mirrors. I think there was likely a legitimate intent. After all, everyone has been talking about using microfluidics and microliter quantity samples for assays for nearly decades. It seems like the time is right in terms of tech maturity, for these things to hit clinical reality... Why not try to be the first on the scene?
FWIW, this isn't the only company to be trying this sort of thing, there was a company in the first batch of indie.bio claiming to do this, perhaps tellingly at demo day, the attempted live demo failed.
The tl;dr is that Theranos makes their own machines, which makes every test that they perform technically a "Lab Developed Test" LDT which doesn't have the same oversight that machines which are sold to others. As long as they make their machines and use their machines, they're effectively exploiting a loophole.
From the article:
The backdrop for this dispute is an unusual regulatory structure that does, in fact, confer upon some–though not all–conventional lab tests an extra layer of validation that Theranos’s do not yet have. Most labs, like Quest and Laboratory Corp. of America, perform many of their routine tests using analyzers they buy from medical-device manufacturers, like Siemens, Olympus, and Beckman Coulter. Before those manufacturers can sell such equipment, they must obtain U.S. Food and Drug Administration approval for the tests those analyzers perform–a process that is in addition to, and more searching than, the audits and proficiency tests required to win CMS certification for the lab itself.
At the same time, for other procedures conventional labs will devise their own lab-developed tests, or LDTs, which they do not have cleared by the FDA. While the FDA takes the position that it could require approval for LDTs, for many years it has said it would forgo that right in the exercise of its “enforcement discretion.”
Theranos, which does not buy any analyzers from third parties, is therefore in a unique position. While it would need FDA approval to sell its own analyzers to other labs, it doesn’t do that. It uses its analyzers only in its own CMS-certified lab. All its tests are therefore LDTs, effectively exempt from FDA oversight.
to be fair, their competition has well-known financials. The size of the existing market for blood tests is already large; any penetration would give you a sizable business.
"If this company obtains 1% of a $500 billion market, things will be great!" is not due diligence. Here, everything realistically comes down to the technology because the company's ability to gain and sustain market share is almost wholly dependent on it having a superior technology.
Not all VCs are equally (in)competent. I've always felt that one of the root causes of the ~2000 dot-com bubble was a proliferation of incompetent VCs chasing the glut of investment capital. Things seem roughly the same these days, or maybe even worse, since the eventual-rationality of the public markets can't come into play if there's no IPO.
The first VC who backed Theranos is a pretty smart guy. Was first in his class at Stanford, has an otherwise pretty nice portfolio of companies he has funded
My take on this is that theranos started out with good intentions, and just hasn't been able to make it happen so they are trying to buy time. The early stage investments were probably sound, but later rounds are a little questionable. Sometimes you have to know when to fail.
I never understood what was unique about this company. I worked for a company over a decade ago that did a clinical trail for a bacterial pneumonia micro-assay at Arup Labs in SLC. This seemed like the same thing but with a lot more fanfare. I called some folks I used to work with to check if I was missing something and they felt the same.
(I'm not a biologist, I wrote the software and did the stat research).
The "dress like Steve Jobs" thing is starting to feel kind of messed up, am I right?
(I read somewhere that she claimed that she hadn't considered that Steve Jobs used to wear black turtlenecks, that she was more inspired by Sharon Stone... which is really hard to believe)
I feel like we've seen this before. Young startup, visionary founder, boat loads of money, then after lots of money burned, outright lies, false claims, or at the very least vaporware.
The funny thing is, this startup isn't that young. It's 12 years old. Someone basically gave a completely inexperienced founder tens of millions of dollars and over a decade to run an R&D lab.
Oh wow good point, that's never happened before... /sarcasm To your point, longevity does not equal success. Twelve would make it 2003.. Before Facebook. Before the huge boom. Twelve years is a long time to be a "startup".
I just wonder instead of going back and forth and create more controversy - why don't they just show which tests are working right now - and which don't. Demonstrating with data is the best defense they can put forth.
its ok - if only small portion of tests are valid at this point but if they show progress with data - this validates they are on the right track.
If their tests work, why not just show the world? Invite the press. Invite doctors. Livestream it. Whoever it takes to validate what they say. What's the downside?
I wonder what the real story is. A lot of questions, that if true make it look bad, but if those are just random guesses with no basis in fact? Then its just a hit piece.
Since there's so much interest in unicorn valuations today, and Theranos is a prominent unicorn, anyone wondering about the potential implications of all this news on Theranos' valuation might find it useful to look at Valeant Pharmaceuticals, a publicly-traded company (ticker: VRX).
It is facing a number of issues, a few of which have led some to speculate that it could become pharma's version of Enron[1]. In July, VRX hit a high above $260. Today it's trading at less than $110.
Valeant is especially pernicious case of credulous investors looking at a rising stock price and skipping their due diligence. There's a lot of amazing blog posts from John Hempton and others outlining the problems with their story.
VRX really seems like it's much more smoke than actual fire; at least on recent specialty pharmacy news. It's definitely a complicated and shady-looking structure but it seems like they have shielded themselves from any fallout from fraud. That's not to say the stock won't take a hit in the meantime but Enron comparisons are really overblown right now. Management definitely screwed up by not clarifying things earlier.
Theranos is in a completely different situation. They could easily lose Wallgreens among others over the current fallout and not get the FDA to go the way they want. Company would take a huge hit and given that their signature technology is not really usable right now, I don't know how much more leeway they would really have after this.
Accounting rules changed after Enron; it's a lot harder to do what they did. The biggest recent drop was after a very negative piece from someone who publishes negative pieces while short-selling. I don't have much information, but I'm not all that convinced Valeant has real fraud issues.
Also, Theranos and Valeant seem like entirely different businesses.
> Theranos and Valeant seem like entirely different businesses.
I think you're missing the point I was making: Valeant is a timely and interesting example of what can happen to the valuation of a company under fire.
> I don't have much information, but I'm not all that convinced Valeant has real fraud issues.
If you don't have much information, how can you be convinced of anything one way or the other?
I seem to detect the familiar odor of negative PR wafting over this entire series of articles. The New Yorker has one of the most famously rigorous fact checking policies in journalism. Things rarely ever slip past them. Companies like Quest Diagnostics and Labcorp have immense amounts of revenue to lose to a new, more efficient entrant like Theranos. No surprise they would go negative to undermine a new competitor. As far as the company ferreting out journalistic mistakes and correcting them, the onus should be on the media to get the story right.
Yes, agreed, except that micro-assay isn't new, and is actually used on newborns all the time. It isn't used in adults because it tends to be wildly inaccurate/variable, even under the best of circumstances.
