Theranos - Moral Lessons for the biotech industry



    This week I have been reading Bad Blood - Secrets and Lies in a Silicon Valley Startup by John Carreyrou. I highly recommend this book to anyone working in the biotech startup world as a guide for avoiding a toxic work place. The book details the now infamous rise and fall of Theranos, the biotech startup company in Silicon Valley, once valued at $9 billion with over 800 employees, which has gone under liquidation. The former CEO of Theranos, Elizabeth Holmes, was indicted on federal wire fraud charges by the Northern District of California in mid-June and could face a sentence of 20 years in prison. The former COO and Holmes’ one-time boyfriend Ramesh “Sunny” Balwani faces similar charges.

    Theranos was once the darling of Silicon Valley startups, promising to deliver a blood testing kit using a simple skin prick that would revolutionize laboratory diagnosis. Holmes was at the helm of the company from the beginning as the charismatic young visionary who saw herself as the “Steve Jobs” or “Bill Gates” of a burgeoning medical device world. Her ability to charm people and indomitable ambition led to huge investments from top technology companies in Silicon Valley. However, the blood testing device, later named “Edison”, proved to be inconsistent at best and often failed completely to work. Later versions of the device rolled out the “miniLab” which was just as fraught with problems.

    Elizabeth Holmes at Theranos in 2015 (Photo from the NY Times):

    Diagram of the miniLab from Theranos:

    Despite repeated warnings from those working on the device the company went ahead to cover up product defects, sometimes by using existing blood testing kits sourced from other firms. The various engineering, research and finance departments within the company were often segregated so that defects in the Edison and the Minilab were kept a secret from employees. Holmes cultivated a “culture of fear”, enforced non-disclosure agreements on everyone and threatened litigation against fired employees who might reveal the truth.

    In the current climate there has been no shortage of bad behavior from Silicon Valley and the Pharma/biotech industry as a whole. We only have to look at Mark Zuckerburg being called to testify in Congress for Facebook’s illegal usage of private data or Martin Shkreli being indicted on securities fraud a year after hiking the price of Daraprim from $13.50 to $750.

    As a scientist working at a small biotech company I feel I am in a position to list some moral lessons we should learn from the blunders of failed, fraudulent tech companies.

    1. Patience is a virtue - Biotech companies are not Tech companies. It takes many more years to develop a drug or medical device than it does a computer or a piece of software. Drugs require years of clinical trials, safety data and adverse event reporting before the FDA can give the go-ahead to market. The same applies to medical devices. Theranos wanted to apply the Silicon Valley computer tech development model of high speed, straight-to-market model for its medical device and that was a fiasco. Having said this, I think tech companies like Facebook and Google could benefit from FDA-like oversight when it comes to regulating its data collection products. I would like to see clinical trials for social network usage to test for severe adverse events!

    2. Have some humility and recognize your mistakes. Elizabeth Holmes dreamed big and indeed achieved stardom when she grew her company so rapidly. However her inability to admit to mistakes in the product development compounded by her manic style of management ultimately led to the company’s downfall. By covering up failed versions of the Edison machine and then keeping this a secret from various departments who could have helped with improving the design, the company was destined to fail. At the core of Elizabeth Holmes’ failure was her ego. Her precocious talent for selling ideas to raise money and her network of wealthy investors blindsided her ability to see her mistakes. It then led to repeated cycles of employee turnover so that she could surround her company with yes-men.

    3. Focus on the cure for the patient, not on the profits. This may seem obvious but certain companies lose sight of this when they start rolling in money. There was a time at Theranos when engineers saw that the Edison device seemed to work partially on the first blood draw but failed on subsequent draws. They took the device to hospitals anyway to use it on cancer patients, claiming it would help with their blood tests. The employees agonized over seeing these people about to die but lying to them about the effectiveness of the product. Ultimately no one spoke out because of the terrifying culture at the company. The primary goal of a biotech is to find cures for diseases so to shift the aim to profits, by promoting the product before it is ready, defeats the purpose.

    4. Center yourself and ignore the hype. Pretty much all investment works on some level of hype. Theranos was built on hype when Elizabeth Holmes campaigned to get initial venture capital funding to start her company. The company then grew on the myth built around this magical diagnostic/therapeutic machine so more investors piled in. Similarly, there is currently a lot of hype in my field, in gene therapy, gene-editing and CRISPR-Cas9. Much of this hype is driving biotech investors on Wall Street into a frenzy. The science of gene therapy is more solid compared with the Edison device at Theranos - gene therapy research has been building up over many decades. However, like everything else in the world, interest will wax and wane and so will investments. Much research needs to be done before we can use gene therapy to treat a wider range of diseases. In the mean time, many companies will surely rise and fall.

    5. Listen to your community carefully. Learn from management who have more years of experience than you and learn from technicians who work for you on the minutiae. Treat people with equal respect, whether they be external stakeholders who you want to collaborate with, company scientists who have been working on the same project for years or patient communities you are working to treat. In biotech the stakes are naturally higher because people’s health is at risk. Therefore treatments must be developed with the patient in mind and communication between different people is a key. When Theranos segregated departments and made every employee sign lengthy non-disclosure agreements it ensured that essential communication would be stopped.

    In the biotech industry so many of our decisions are governed by FDA guidances. But many times in life we also need moral guidance. When the stakes are raised and we face insurmountable pressures, that is when we realize how important moral guidances are.


    Bad Blood - Secrets and Lies in a Silicon Valley Startup by John Carreyrou