WEBVTT - John Carreyrou on Breaking Open the Theranos Scandal 0:00:02.240 --> 0:00:06.439 This is Master's in Business with Barry Ridholts on Bloomberg 0:00:06.519 --> 0:00:11.039 Radio this weekend. On the podcast, I have an extra 0:00:11.080 --> 0:00:13.920 special guest. His name is John Carrie Row. He is 0:00:14.040 --> 0:00:17.439 a two time Pulitzer Prize winning investigative reporter for The 0:00:17.440 --> 0:00:21.279 Wall Street Journal and author of the book Bad Blood, 0:00:21.440 --> 0:00:24.880 Secrets and Lies in a Silicon Valley Startup. I could 0:00:24.880 --> 0:00:28.160 have spoken to John for another nine hours. I found 0:00:28.160 --> 0:00:30.960 the book absolutely fascinating. I plowed through it on Labor 0:00:31.040 --> 0:00:35.559 Day weekend and really really enjoyed it, not just because 0:00:35.680 --> 0:00:38.519 of how revealing it is of what turned out to 0:00:38.560 --> 0:00:43.199 be a giant pick pick the metaphor and Ron Bertie 0:00:43.200 --> 0:00:47.440 made off whatever, a giant fraud, but it reads like 0:00:47.479 --> 0:00:50.319 a thriller. It's a real page turner. There are some 0:00:51.159 --> 0:00:55.040 giant surprises throughout the book. Lots of people see their 0:00:55.040 --> 0:01:00.560 reputation damaged and destroyed. It's amazing, and as somebody who 0:01:00.640 --> 0:01:04.160 is also an investor, I can't help but notice how 0:01:04.160 --> 0:01:07.200 many times there's red flag after red flag after red 0:01:07.200 --> 0:01:14.760 flag that are excused, rationalized, ignored, somehow put shunted aside, 0:01:14.840 --> 0:01:17.679 instead of hey, that's a big, big red flag. Maybe 0:01:17.680 --> 0:01:22.720 we shouldn't put a billion dollars into this nonsensical company 0:01:22.720 --> 0:01:25.120 that doesn't do any of the things it promises it 0:01:25.200 --> 0:01:29.360 can do. Anyway, I highly recommend the book. Whether you've 0:01:29.400 --> 0:01:33.119 read the book or not, you're gonna find this conversation fascinating. So, 0:01:33.520 --> 0:01:37.720 with no further ado, my conversation with John carry Rout. 0:01:41.920 --> 0:01:45.880 My extra special guest this week is John Carrrew. He 0:01:45.959 --> 0:01:51.960 began his career in journalism in after he graduated from Duke, 0:01:52.040 --> 0:01:56.080 he joined the Dow Jones Newswires. Shortly after, he moved 0:01:56.080 --> 0:01:59.160 to European version of the Wall Street Journal in Brussels, 0:01:59.560 --> 0:02:03.600 event a sually going to Paris to cover French business, terrorism, 0:02:03.720 --> 0:02:07.600 and everything in between. He was appointed deputy Bureau chief 0:02:07.680 --> 0:02:11.120 for Southern Europe and OH three. Eventually he became the 0:02:11.120 --> 0:02:15.360 Wall Street Journals Health and Science Bureau chief in New York. 0:02:15.800 --> 0:02:20.000 He has won numerous awards in journalism, including the Pulitzer 0:02:20.040 --> 0:02:23.760 Prize twice. If this sounds like the perfect background for 0:02:23.800 --> 0:02:28.680 any writer curious about the blood testing start up, there no, nos, Well, 0:02:28.760 --> 0:02:32.239 it turned out that is exactly right. Uh. The Unicorn 0:02:32.320 --> 0:02:34.880 turned out to be a fraud, which was broken by 0:02:34.960 --> 0:02:37.680 Carrirew in the pages of the Wall Street Journal. He 0:02:37.760 --> 0:02:41.920 has written a best selling book, Bad Blood, Secrets and 0:02:42.000 --> 0:02:46.200 Lies in Silicon Valley about the entire Elizabeth Holmes and 0:02:46.280 --> 0:02:50.640 thearaph O saga. John Carrirew, Welcome to Bloomberg. Thank you 0:02:50.680 --> 0:02:53.320 for having me my pleasure. I have to start out 0:02:53.320 --> 0:02:55.639 by saying I love the book. It was on my 0:02:55.760 --> 0:02:58.320 list of ten to read this summer and I just 0:02:58.360 --> 0:03:01.240 plowed through it over Labor Day week. Again, there's so 0:03:01.440 --> 0:03:05.720 much material to cover. It's such a fascinating story. Let's 0:03:05.760 --> 0:03:09.160 just go back to the beginning. How does Sara nos 0:03:09.240 --> 0:03:13.240 and Elizabeth Holmes out in Silicon Valley first come on 0:03:13.360 --> 0:03:19.600 your radar? It was mid December two thousand fourteen, and 0:03:19.720 --> 0:03:24.240 I was on the subway UH commuting back from UH 0:03:24.800 --> 0:03:27.359 my office in Midtown Manhattan to Brooklyn where I live, 0:03:27.480 --> 0:03:31.280 reading the New Yorker magazine, and in that issue was 0:03:31.320 --> 0:03:34.360 a long profile of Elizabeth Holmes by Ken all Letta 0:03:35.200 --> 0:03:39.720 and um, it was a color glowing It was mostly 0:03:40.040 --> 0:03:42.760 mostly glowing, with some, I have to say, with some 0:03:42.840 --> 0:03:47.880 skeptical passages that I immediately picked up on, and UM, 0:03:47.920 --> 0:03:49.920 you know that it was. It was an entertaining read 0:03:50.160 --> 0:03:53.280 and interesting that there were, as I just said some 0:03:53.280 --> 0:03:57.720 some things that struck me as odd in that story. UM. 0:03:58.320 --> 0:04:01.680 One of the ways she she described, you know, how 0:04:01.800 --> 0:04:05.160 her blood testing technology work, or how she worked, how 0:04:05.200 --> 0:04:07.800 she summed it up, UH, sounded to me like a 0:04:07.880 --> 0:04:12.200 high school chemistry student as opposed to sophisticated you know 0:04:12.280 --> 0:04:17.040 lab scientists slash inventor um. But more than any particular thing, 0:04:17.080 --> 0:04:21.360 it was this notion that a college dropout, someone who 0:04:21.400 --> 0:04:25.599 had had two semesters of chemical engineering, had dropped out 0:04:26.000 --> 0:04:30.200 and then gone on and invented groundbreaking new science that 0:04:30.279 --> 0:04:34.000 was going to revolutionize you know, lab testing. So let 0:04:34.000 --> 0:04:37.960 me jump in right here. So she goes to Stanford, finishes, 0:04:38.160 --> 0:04:41.560 drops out after her freshman year. She's got no medical training, 0:04:41.640 --> 0:04:46.400 she's got no organic chemistry, biology, um, blood chemistry, none 0:04:46.440 --> 0:04:49.839 of the things one would normally think would go into 0:04:50.520 --> 0:04:55.839 complex medical device manufacturing. This isn't a software startup where 0:04:55.880 --> 0:04:58.440 you could just hey, anybody could code, and whether you 0:04:58.480 --> 0:05:01.680 have the academic credentials or not as irrelevant. This is 0:05:01.720 --> 0:05:06.599 a serious science, isn't it right. She she had zero qualifications. 0:05:06.640 --> 0:05:11.920 I mean she had had literally had two undergraduate UH 0:05:12.120 --> 0:05:15.640 courses with the same professor Channing Robertson, who ended up 0:05:15.720 --> 0:05:19.239 being you know, her first enabler. Uh, that's an interesting 0:05:19.320 --> 0:05:23.000 choice of words. Why did you select enabler? Well, so 0:05:23.040 --> 0:05:26.000 he was for those listening who aren't familiar with him, 0:05:26.120 --> 0:05:29.960 Channing Robertson was a star, rock star star of this 0:05:30.240 --> 0:05:34.080 of the Stanford Engineering School faculty. Had been an expert 0:05:34.200 --> 0:05:37.560 witness in the late nineties for the state of Minnesota 0:05:37.600 --> 0:05:42.120 and its tobacco litigation, and um, you know, also was 0:05:42.200 --> 0:05:44.719 really popular with students. He had a way with students, 0:05:44.720 --> 0:05:48.200 he connected with them, and um, she had taken to 0:05:48.480 --> 0:05:51.239 two courses with him, and then you know, came back 0:05:51.279 --> 0:05:56.800 with this cockamami patent in UM after her her summer 0:05:56.839 --> 0:06:00.480 in Singapore working at a lab in Singapore. Uh. So 0:06:00.680 --> 0:06:03.000 we're now in in the fall of two thousand three, 0:06:03.640 --> 0:06:07.479 and the patent was for this device that she envisioned, 0:06:07.520 --> 0:06:10.679 which was essentially a wrist band that would have micro 0:06:10.800 --> 0:06:14.719 needles that would come out and insert themselves into your 0:06:15.279 --> 0:06:20.360 wrist and draw micro amounts of blood and and then 0:06:20.600 --> 0:06:25.839 uh diagnosed whatever ailed you and cure you simultaneously. Um. 0:06:26.000 --> 0:06:28.000 And it was clear, I mean, this was science fiction 0:06:28.080 --> 0:06:32.919 to anyone involved an engineer or a lab scientist clear 0:06:32.960 --> 0:06:36.440 that it was not feasible and probably ever feasible, at 0:06:36.480 --> 0:06:40.279 least not for for decades. And uh you know, he 0:06:40.279 --> 0:06:45.080 he chose to um go along with it and and 0:06:45.640 --> 0:06:48.240 encouraged her to drop out, or at least didn't discourage 0:06:48.240 --> 0:06:51.360 her to drop out, and then accompanied her on pitches 0:06:51.920 --> 0:06:54.360 to vcs and so he gave her credibility. At that point, 0:06:54.400 --> 0:06:57.400 she's nineteen years old, um, and he's the star of 0:06:57.440 --> 0:07:00.560 the Stanford faculty. And then he joins the board and 0:07:00.640 --> 0:07:03.200 he stays on there with her, accompanies her for the 0:07:03.560 --> 0:07:06.760 next twelve years. Uh you know, he is for sure 0:07:06.880 --> 0:07:10.040 her her original enabler. So one of the questions I 0:07:10.080 --> 0:07:12.160 was going to ask you, but you kind of hinted 0:07:12.200 --> 0:07:15.520 at the answer. Ready, you know, when did you first 0:07:15.520 --> 0:07:19.000 start to smell that something was amiss? But it's pretty 0:07:19.040 --> 0:07:22.080 clear you're you're saying right from the beginning, Well, this 0:07:22.120 --> 0:07:27.000 struck you as a little off, Yes, But to be honest, 0:07:27.120 --> 0:07:31.440 I probably would not have done anything with my intuition 0:07:31.640 --> 0:07:35.360 had I not gotten approached by his source, who was 0:07:35.600 --> 0:07:39.720 a pathologist in the Midwest who had gotten to know 0:07:39.800 --> 0:07:42.200 the year before he moonlighted as the writer of this 0:07:42.280 --> 0:07:46.160 obscure blog called Pathology Blog, which he spelled b L 0:07:46.280 --> 0:07:49.440 A w G. And I had gotten him a year 0:07:49.560 --> 0:07:51.960 prior to explain to me some of the complexities of 0:07:52.040 --> 0:07:55.280 lab billing for a series on Medicare Medicare fraud had 0:07:55.280 --> 0:07:57.800 been doing at the time. And he had read the 0:07:57.800 --> 0:08:02.000 New Yorker story about Elizabeth Holmes too, and had immediately 0:08:02.000 --> 0:08:05.480 been dubious even more than me. Uh in that you know, 0:08:05.560 --> 0:08:08.440 he was much more familiar with with the intricacies of 0:08:08.480 --> 0:08:13.760 lab science than I was. And he wrote a skeptical 0:08:13.960 --> 0:08:18.880 item on his block. And uh, this guy named Richard Fuse, 0:08:20.040 --> 0:08:23.240 who's a pretty big character in my book, by the way, 0:08:23.640 --> 0:08:27.040 had been a childhood neighbor of Elizabeth and her parents 0:08:27.600 --> 0:08:31.480 immediately got in touch with the Pathology blogger and told him, 0:08:31.840 --> 0:08:34.080 you're on the right track. I think the areness as 0:08:34.120 --> 0:08:37.840 a scam. You should keep digging into this. And Fuse 0:08:38.160 --> 0:08:42.360 had been involved in litigation with Elizabeth Holmes. He had 0:08:42.440 --> 0:08:47.280 patented a part of her vision that had caused her 0:08:47.400 --> 0:08:51.960 to sue him, and she had steamrolled him with David Boys. 0:08:52.520 --> 0:08:55.840 David Boys had become her attorney and thereness attorney, and 0:08:55.840 --> 0:08:59.160 and they really steamrolled Fuse in this litigation, and during 0:08:59.160 --> 0:09:01.680 the course of the lime atient, Fuse had become convinced, 0:09:02.200 --> 0:09:06.240 as a actually trained doctor and medical inventor that thereon 0:09:06.320 --> 0:09:08.520 us was a scam. Hold that thought, we're gonna come 0:09:08.559 --> 0:09:11.600 back to that. Let's talk about some of those secrets 0:09:11.760 --> 0:09:17.120 and lies. The question that I still haven't come to 0:09:17.480 --> 0:09:21.600 a solid answer was simply this with was this a 0:09:21.679 --> 0:09:26.240 scam from day one or did this eventually morph into 0:09:26.720 --> 0:09:29.679 a scam? What it was the latter it wasn't a 0:09:29.720 --> 0:09:32.480 scam from day one, and that she didn't drop out 0:09:32.480 --> 0:09:37.360 of Stanford at nineteen and late two thousand three premeditating 0:09:37.559 --> 0:09:41.720 a long con that would defraud investors and eventually put 0:09:41.800 --> 0:09:44.520 patients in harm's way. That that was not in her 0:09:44.600 --> 0:09:48.440 thoughts back then. Even though she's never spoken to me, um, 0:09:48.480 --> 0:09:52.360 I know that she dropped out wanting to become a 0:09:52.400 --> 0:09:56.120 successful Silicon Valley entrepreneur. Her idol was Steve Jobs. She 0:09:56.240 --> 0:10:00.920 worshiped Apple and she wanted to follow in his footsteps. 0:10:01.440 --> 0:10:04.480 And she also had this, you know, this notion that 0:10:04.520 --> 0:10:08.240 she should do good for society because her her father 0:10:08.400 --> 0:10:12.080 had worked at the State Department and various other government 0:10:12.120 --> 0:10:16.280 agencies and and uh provided um, you know, help and 0:10:16.280 --> 0:10:19.160 and disaster torn areas, and there were photos of him 0:10:19.200 --> 0:10:22.040 and and he had raised her, uh with this notion 0:10:22.080 --> 0:10:25.079 that she should live a life of purpose and and 0:10:25.600 --> 0:10:28.720 that she should make her mark and not just by 0:10:28.760 --> 0:10:32.840 getting rich. And so biotechnology, in her mind, was was 0:10:32.880 --> 0:10:37.040 the gateway to achieving both becoming rich like her ancestors, 0:10:37.040 --> 0:10:40.400 the Fleishman's had once been, and also doing good. And 0:10:40.440 --> 0:10:42.160 so that's the way in which she was different from 0:10:42.200 --> 0:10:45.120 Steve's jobs. She wanted a product that would that would 0:10:45.160 --> 0:10:49.520 do good for society. Um. And uh, you know, so 0:10:49.559 --> 0:10:52.360 it wasn't it wasn't a fraud. From the beginning she 0:10:52.480 --> 0:10:56.800 had she had good intentions. It became a fraud with 0:10:56.920 --> 0:11:03.280 the years as she confronted uh, you know, failures and difficulties. 0:11:03.320 --> 0:11:06.480 Because science is hard. Medicine is hard. Science is hard. 0:11:06.600 --> 0:11:09.720 So let let me ask you about that. A number 0:11:09.720 --> 0:11:12.040 of people that you write about in the book point 0:11:12.080 --> 0:11:15.760 out that the reason we do venus drawing, the reason 0:11:15.840 --> 0:11:18.160 we take blood from your arm and fill three big 0:11:18.280 --> 0:11:21.960 vials is that's a clean sample of blood. When you 0:11:22.000 --> 0:11:25.200 do a pin prick, you're damaging tissue. Even if you 0:11:25.280 --> 0:11:28.880 clean the surface of the skin. It's not as clean 0:11:28.920 --> 0:11:32.280 a sample of of blood. So it makes makes me 0:11:32.400 --> 0:11:35.280 raise the question, isn't it kind of reckless to say, oh, 0:11:35.320 --> 0:11:38.000 I could you know, I could run into medicine and 0:11:38.000 --> 0:11:42.880 figure this out despite lacking a background. I mean, it's 0:11:42.920 --> 0:11:47.600 hubris and arrogance. It's incredibly naive to think that people 0:11:47.640 --> 0:11:52.040 hadn't tried capillary blood draws. They had, and and one 0:11:52.080 --> 0:11:54.960 of the problems with them, The biggest problem is is 0:11:55.000 --> 0:11:57.960 what you say, which is that the risk UH that 0:11:58.440 --> 0:12:02.120 basically capillary drop capillary blood is not as pure as 0:12:02.200 --> 0:12:07.679 venus blood. It's polluted by tissue from cells and and 0:12:07.760 --> 0:12:12.640 from skin, and UH that that stuff interferes with the 0:12:12.679 --> 0:12:17.120 blood tests and so UH one of the biggest problems 0:12:17.320 --> 0:12:20.560 when you try to do a blood test. UH, the 0:12:20.559 --> 0:12:23.560 biggest problem is the potassium blood test, because what happens 0:12:23.600 --> 0:12:28.680 is when you milk blood from the finger, you cause 0:12:29.400 --> 0:12:32.959 the red blood cells in the blood to burst, and 0:12:33.080 --> 0:12:36.520 the bursting UH causes a release of potassium, and so 0:12:36.600 --> 0:12:41.920 it increases the concentration of potassium in your sample. And 0:12:41.920 --> 0:12:45.560 and the concentration of potassium becomes artificially high, and that 0:12:45.600 --> 0:12:48.440 little blood sample and In fact, that is one of 0:12:48.640 --> 0:12:52.000 the problems that UH the ants ran into when it 0:12:52.080 --> 0:12:54.880 started going live with its blood tests and Walgreen stores 0:12:54.920 --> 0:12:58.280 in late two thou thirteen, was this hemolysis problem. And 0:12:58.360 --> 0:13:01.720 this is in hindsight bias that was well known for decades. 0:13:01.800 --> 0:13:04.800 This is not a new discovery, right, I mean, the 0:13:06.000 --> 0:13:09.680 problems with capillary blood draws were well known among lab 0:13:09.760 --> 0:13:13.320 scientists for sure. And then there's another problem that you 0:13:13.320 --> 0:13:15.680 haven't talked about, which doesn't have to do necessarily with 0:13:15.720 --> 0:13:17.800 the fact that it was blood pricked from the finger 0:13:18.440 --> 0:13:21.720 that her vision revolved around. It's it's the how small 0:13:21.760 --> 0:13:24.760 the sample was. She she wanted, you know, to be 0:13:24.800 --> 0:13:26.960 able to do hundreds of tests from a drop or 0:13:26.960 --> 0:13:30.640 two of blood, and no one had figured out how 0:13:30.679 --> 0:13:34.200 to do that many tests from that small sample. The 0:13:34.360 --> 0:13:37.280 basic reason is that there are about half half a 0:13:37.320 --> 0:13:41.360 dozen big classes of blood tests, and each one of 0:13:41.400 --> 0:13:46.280 these classes blood tests requires completely different laboratory techniques and 0:13:46.360 --> 0:13:49.640 laboratory instruments. And so once you've done a couple of 0:13:49.679 --> 0:13:54.200 blood tests that are saying immuno assays, and you try 0:13:54.360 --> 0:13:58.280 to do blood tests from a different category, such as 0:13:58.520 --> 0:14:01.520 general assays or hematasergy tests. You no longer have any 0:14:01.520 --> 0:14:05.480 blood left because you've used your small sample to do 0:14:06.120 --> 0:14:08.719 the test, and then you need more blood because the 0:14:09.240 --> 0:14:12.480 other tests required completely different methods and completely different instruments. 0:14:12.559 --> 0:14:15.080 And so no one had been able to crack that nut. 0:14:15.120 --> 0:14:17.040 They've been trying to do so for more than two 0:14:17.040 --> 0:14:21.840 decades an industry and uh in universities, and she came 0:14:21.880 --> 0:14:24.200 along and claimed that she had solved all these problems, 0:14:24.240 --> 0:14:26.960 even though she hadn't solved a single one of these problems. 0:14:27.000 --> 0:14:30.160 She just stated her intention to solve them, and money 0:14:30.160 --> 0:14:33.440 flowed in. Is that is that a fair? Well? She not, 0:14:33.800 --> 0:14:35.760 I mean it's not quite. I mean that that would 0:14:36.000 --> 0:14:38.640 that would be more accurate than what she did. Had 0:14:38.760 --> 0:14:43.040 had she stated her intention to solve them, she asserted 0:14:43.080 --> 0:14:46.400 that she had solved them. She said, I have solved 0:14:46.920 --> 0:14:50.080 this nut that no one on earth has solved until now. 0:14:50.120 --> 0:14:54.640 I have cracked it. And it was it was completely untrue. 0:14:54.960 --> 0:14:58.920 So back to the question about not a fraud From 0:14:58.920 --> 0:15:03.120 the beginning, when did it become clear that none of 0:15:03.160 --> 0:15:09.120 their products worked? And they started lying to partners, potential investors, 0:15:09.440 --> 0:15:13.080 even employees that hey, we we got a dead parrot 0:15:13.120 --> 0:15:16.240 on our hands here right, So the lying actually started 0:15:16.320 --> 0:15:20.040 very early on. I mean the book opens the prologue 0:15:20.080 --> 0:15:22.160 is a scene that takes place in late two thousand 0:15:22.160 --> 0:15:25.720 and six, and it's the CFO, the chief financial officer 0:15:25.720 --> 0:15:27.800 if there on us at the time, learning that these 0:15:27.840 --> 0:15:32.200 demos that he's bringing, he's been bringing perspective investors around 0:15:32.360 --> 0:15:37.800 four for about eight months, are not really real. There's 0:15:37.840 --> 0:15:40.520 a fake machine, it spits out a fake piece of paper. Right. 0:15:40.600 --> 0:15:42.760 Part of the demo is real, the micro fluid ix 0:15:42.800 --> 0:15:44.640 part of the demo is real, but then the result 0:15:44.680 --> 0:15:47.320 at the end as a prerecorded results, so it's essentially 0:15:47.360 --> 0:15:49.560 not the result from the blood that you see flowing 0:15:49.560 --> 0:15:51.680 through the cartridge. And so he goes to her and 0:15:51.680 --> 0:15:53.640 he says, you know, we can't keep doing this. The 0:15:54.000 --> 0:15:56.520 investors I'm bringing around are under the impression that this 0:15:56.600 --> 0:15:59.440 is totally real, and it's not. It's half fake. So 0:16:00.120 --> 0:16:02.760 you know, that's essentially securities fraud. That's lying to investors. 0:16:02.840 --> 0:16:05.800 We have to stop. And she turns ice cold and 0:16:05.840 --> 0:16:08.560 says to him, you know you're not a team player. 0:16:08.960 --> 0:16:12.160 I think you should leave right now. And it's very 0:16:12.200 --> 0:16:14.400 clear from her demeanor and from her tone of voice 0:16:14.440 --> 0:16:16.640 that she doesn't just mean leave leave her office, she 0:16:16.720 --> 0:16:19.960 means leave the company. And he's just been fired, and 0:16:19.960 --> 0:16:23.560 and so the the the unethical behavior, and the line 0:16:24.040 --> 0:16:27.640 goes back as far as easily two thousand six, meaning 0:16:28.400 --> 0:16:30.080 you know, less than two years into the life of 0:16:30.080 --> 0:16:33.320 the company. And just to to elaborate a little bit 0:16:33.560 --> 0:16:37.000 the technology, there were three iterations of the technology. There 0:16:37.040 --> 0:16:40.080 was a real attempt at micro using micro fluid ix, 0:16:40.640 --> 0:16:44.640 which is uh the repurposing of the micro fabrication techniques 0:16:44.680 --> 0:16:49.800 that the computer computer chip industry pioneered. Lab scientists realized 0:16:49.800 --> 0:16:53.320 they could use those microfabrication techniques to create tiny channels 0:16:53.520 --> 0:16:56.640 through which you could put minute amounts of liquids. She 0:16:56.640 --> 0:16:58.640 she made a real effort in the early years of 0:16:58.640 --> 0:17:02.320 her company at doing a my micro fluidic device and 0:17:02.480 --> 0:17:05.000 hit a wall. They just needed many more years, and 0:17:05.040 --> 0:17:07.080 she didn't have the patients, and she was probably under 0:17:07.119 --> 0:17:11.160 pressure from investors, and so they stopped that effort about 0:17:11.200 --> 0:17:13.760 a year after that scene where she fires the CFO 0:17:14.119 --> 0:17:17.400 and pivoted to the second iteration of the technology, which 0:17:17.480 --> 0:17:21.040 was a converted glue dispensing robot. It was it was 0:17:21.080 --> 0:17:23.960 a glue dispensing robot that a Theranos engineer had had 0:17:24.000 --> 0:17:26.479 purchased from a company called piston Or in New Jersey 0:17:26.880 --> 0:17:30.320 and essentially repurposed to be a blood testing machine. He 0:17:30.400 --> 0:17:33.960 affixed a pipette to the robotic arm which had three 0:17:33.960 --> 0:17:37.760 degrees of motion, and then he reprogrammed it to to 0:17:38.520 --> 0:17:41.080 mimic what a lab scientist would do to test blood 0:17:41.080 --> 0:17:44.560 at the bench. And she disguised it with the sleek 0:17:44.800 --> 0:17:47.800 black and white case that she got a well known 0:17:48.320 --> 0:17:51.480 industrial engineer to design, and that was called She called 0:17:51.520 --> 0:17:55.520 it the Edison, named it after Thomas Edison, and um 0:17:55.640 --> 0:18:00.440 the instrumentation basically the techniques of the editor and were 0:18:00.760 --> 0:18:03.760 there was nothing new. It was something you know, uh 0:18:04.080 --> 0:18:09.200 kemmy Luminescent immuno essays was a lab testing technique that 0:18:09.240 --> 0:18:11.359 had been pioneered in the early eighties and that was 0:18:11.600 --> 0:18:15.439 what the Edison did. And the third generation so the 0:18:15.560 --> 0:18:17.719 Edison could only do immuno essays, which are this one 0:18:17.760 --> 0:18:21.080 class of blood test. And of course, you know, she 0:18:21.119 --> 0:18:23.359 wanted something because she was beginning to claim that she 0:18:23.480 --> 0:18:26.080 had something that could do all the blood tests, so 0:18:26.119 --> 0:18:27.959 she needed a machine that could do more than just 0:18:28.000 --> 0:18:30.439 one class of blood tests. So the work on what 0:18:30.600 --> 0:18:33.280 she called the Mini Lab, began in late two thousand ten, 0:18:33.840 --> 0:18:37.880 and that work, you know, continued until recently. Um and 0:18:38.080 --> 0:18:40.479 they've never gotten the mini lab to work. It's it's 0:18:40.520 --> 0:18:43.240 a bigger machine than the Edison, and it's an attempt 0:18:43.560 --> 0:18:46.800 to miniaturize all these laboratory instruments that are used to 0:18:46.800 --> 0:18:49.760 do these different classes of blood tests. And they've not 0:18:49.920 --> 0:18:52.800 never gotten it to work. What about the commercial stuff? 0:18:52.840 --> 0:18:56.000 They were buying the commercial machines and then deluding the 0:18:56.200 --> 0:19:00.280 full blood samp And so that became necessary because think 0:19:00.320 --> 0:19:04.480 normal people if they haven't gotten their device to work 0:19:04.560 --> 0:19:07.399 yet or will wait until they get it to work 0:19:07.440 --> 0:19:10.640 to commercialize it. Right when you agree that that most 0:19:10.720 --> 0:19:13.760 most people would do that, especially especially in the realm 0:19:13.760 --> 0:19:16.400 of medicine where where your product actually you know, has 0:19:16.440 --> 0:19:19.040 an impact on people's lives. Well, she didn't do that. 0:19:19.160 --> 0:19:24.720 She went live with her vaunted fingerstick blood tests in 0:19:24.880 --> 0:19:28.000 the fall of two thirteen in Walgreen stores in northern 0:19:28.040 --> 0:19:31.359 California and Arizona. And because the mini Lab was just 0:19:31.400 --> 0:19:34.720 a prototype that didn't work at the time, what she did, 0:19:34.840 --> 0:19:38.000 what she and her boyfriend ordered Thereness employees to do, 0:19:38.119 --> 0:19:45.080 was her boyfriend, her number two executives. They ordered people 0:19:45.119 --> 0:19:48.280 in the lab to to hack machines made by the 0:19:48.320 --> 0:19:52.800 German company siemens Um and UH to adapt them to 0:19:53.040 --> 0:19:56.399 small fingerstick samples. And one of the steps that was 0:19:56.480 --> 0:19:59.800 needed to to do this hacking was to dilute the 0:20:00.040 --> 0:20:03.080 tiny fingerstick samples to create more volume in the cup. 0:20:03.600 --> 0:20:07.440 Because these regular machines from from good old Seamans could 0:20:07.600 --> 0:20:12.119 only test a normal sized sample of blood, and so 0:20:12.160 --> 0:20:15.040 you need a lot more sample for the machine to work. 0:20:15.160 --> 0:20:19.080 And so they diluted the fingerstick blood to create more volume, 0:20:19.400 --> 0:20:23.199 which itself caused all sorts of problems. Let's talk a 0:20:23.240 --> 0:20:26.360 little bit about the process that it took to get 0:20:26.400 --> 0:20:29.080 people to speak to you, and the threats of litigation 0:20:29.200 --> 0:20:34.040 and everything against the journal. Um. How challenging was it 0:20:34.119 --> 0:20:37.840 to bring this story to light and ultimately to get 0:20:37.840 --> 0:20:40.840 it in print at the Wall Street Journal? By far 0:20:41.000 --> 0:20:43.760 the toughest story that I've ever done in twenty years, 0:20:43.880 --> 0:20:48.480 twenty plus years of reporting. Um that the challenge was twofold. 0:20:48.520 --> 0:20:52.240 It was getting sources to trust me and to talk 0:20:52.280 --> 0:20:57.480 to me, Um, which was was very hard because uh, 0:20:57.119 --> 0:21:01.040 uh Elizabeth Holmes. Uh, they knew that Elizabeth Holmes and 0:21:01.040 --> 0:21:03.840 her company were very litigious, and they knew that the 0:21:04.119 --> 0:21:09.040 company's outside council was was David Boys, America's premier litigated. 0:21:09.560 --> 0:21:13.040 And and when you say litigious, not just you know, 0:21:13.200 --> 0:21:16.199 everybody knows people who litigious. These people were seemed to 0:21:16.240 --> 0:21:23.520 be extremely aggressive and used all sorts of questionable approaches. Right. 0:21:23.520 --> 0:21:26.680 Elizabeth Holmes had sued former employees early on in two 0:21:26.880 --> 0:21:30.000 as far back as two thousand seven for supposedly stealing 0:21:30.040 --> 0:21:34.159 trade secrets. And then she had sued her childhood neighbor, 0:21:34.560 --> 0:21:38.119 Richard Fuse, who had patented a part of her vision 0:21:38.800 --> 0:21:41.639 um that and that infuriated her, so she came up 0:21:41.720 --> 0:21:44.840 with a story that he and his son had had 0:21:44.840 --> 0:21:49.960 basically colluded to steal proprietary thereinos patent information from a 0:21:50.040 --> 0:21:53.600 law firm where where the Sun was working. But there 0:21:53.680 --> 0:21:57.959 was never any proof whatsoever uh that that that ever happened. 0:21:57.960 --> 0:22:00.440 And and personally, based on all my report, I believe 0:22:00.480 --> 0:22:03.240 that it never did happen and that those were false accusations. 0:22:03.359 --> 0:22:07.440 When you mentioned trade secrets, what trade secrets that they 0:22:07.440 --> 0:22:10.680 had nothing? No, technically was what were there any trade secrets? 0:22:10.840 --> 0:22:13.760 And by the way, I'm relying primarily on your book. 0:22:13.800 --> 0:22:16.720 When I say I don't see any trade secrets here, 0:22:16.760 --> 0:22:20.280 am I rong? No? There were There weren't really any 0:22:20.280 --> 0:22:24.560 trade trade secrets. Was is a technical definition of that 0:22:24.680 --> 0:22:28.840 is it was basically a way to to say, you know, a, 0:22:29.080 --> 0:22:31.679 we can't tell you what we have because if we 0:22:31.760 --> 0:22:35.040 tell you about it, our big competitors, Quest and lap 0:22:35.080 --> 0:22:39.680 Corps are going to copy us um and and be uh, 0:22:39.760 --> 0:22:42.399 you know, you all of your reporting. You have to 0:22:42.840 --> 0:22:46.960 either destroy it or or return it to us. Uh, 0:22:47.280 --> 0:22:49.280 you know, because it's sensitive and it could do us 0:22:49.359 --> 0:22:52.280 great harm. These were the arguments that that Saronis and 0:22:52.359 --> 0:22:55.560 David Boys used to try to get us to kill 0:22:55.720 --> 0:22:58.840 my reporting and to not publish the story. Well, they 0:22:58.840 --> 0:23:00.960 were right, it was sense of and it could do 0:23:01.040 --> 0:23:05.159 them great harm. However, there were no It doesn't seem 0:23:05.200 --> 0:23:08.439 like there was anything other than the bad behavior and 0:23:08.600 --> 0:23:12.200 fraud in the company that you revealed, right, And so 0:23:12.240 --> 0:23:15.640 it gave rise to a surreal five hour showdown at 0:23:15.640 --> 0:23:18.720 one point in in June of two fifteen at the 0:23:18.800 --> 0:23:22.919 journal's offices in a conference room, uh pitting me and 0:23:23.040 --> 0:23:25.919 my editor of mix A Canolfi and and our lawyer 0:23:26.040 --> 0:23:28.760 Jake Conty on one side of the table, and David 0:23:28.800 --> 0:23:31.639 Boys and two of his associates, and and his former 0:23:32.359 --> 0:23:34.600 boys Schiller partner Heather King, who had become the General 0:23:34.640 --> 0:23:38.520 council of Theonis, And we went around in circles for 0:23:38.600 --> 0:23:41.520 hours because um, you know, I had sent them a 0:23:41.520 --> 0:23:43.280 list of questions ahead of time, and I was trying 0:23:43.320 --> 0:23:45.720 to get answers to these questions, and they would say, well, 0:23:46.160 --> 0:23:48.760 we can't answer that question because it's a trade secret, 0:23:48.960 --> 0:23:53.639 covers trade secrets, and and of course, uh, my questions 0:23:54.160 --> 0:23:57.480 went to the essence of weather THEONIS really had technology 0:23:57.480 --> 0:24:00.560 and really was using proprietary technology to do it's blood 0:24:00.600 --> 0:24:04.240 tests based on my sources, my confidential sources, it wasn't. 0:24:04.440 --> 0:24:07.439 So I would ask things like, how many of the 0:24:08.520 --> 0:24:12.480 blood tests on your menu are you doing right now 0:24:12.680 --> 0:24:16.800 with para nos proprietary technology? And they would say, we 0:24:16.840 --> 0:24:20.080 can't answer that. That's a trade secret. And I said, well, 0:24:20.119 --> 0:24:23.760 are you and using any third party machines by the 0:24:23.840 --> 0:24:26.679