I just finished John Carreyrou’s new book “Bad Blood”, about the rise and fall of Theranos. Theranos, for those of you who haven’t kept up, was a Silicon Valley startup founded by Stanford dropout Elizabeth Holmes. It exploded onto the scene with claims that it could do hundreds of blood tests from a single drop of blood, eliminating the need for painful blood draws. For a time, they were the next Big Thing, signing contracts with Walgreen’s and Safeway, being valued at $9 billion and claiming they would upend the medical industry.

And it was all a lie. Holmes had a vision — a simple finger stick allowing diagnosis of all kinds of things. But what she lacked was the expertise, the patience or the ethics to make it happen. As Carreyrou explains, there are reasons we do tests based on blood draws — the need for volume, the difference between venous and capillary blood. To do what Theranos was claiming, it would not have been enough to use existing technology in new ways. They would have had to develop entirely new methods. But that would have taken decades of hard work and still may have failed. Holmes (and her business and personal partner Ramesh “Sunny” Balwani) didn’t have the patience for that. They tried to simply package existing tech into a smaller space. And when that didn’t work, they resorted to fraud, resulting in completely unreliable test results. They then used legal threats and bullying to try to silence anyone who questioned what they were doing. But it all ended when Carreyrou and the Wall Street Journal laid bare their deceit, helped by courageous whistleblowers. And then the federal agencies came down on them. Theranos is now, effectively, a dead shell and Holmes and Balwani are facing criminal charges.

The book is appalling and utterly gripping. I finished the last 100 pages in one sitting. The book skips a bit in time and Carreyrou’s writing is a bit rough in some places, probably a result of getting the book out so quickly. But that’s an extremely minor quibble. It’s not only a good story, it’s an important one. There are several things I gleaned from the book.

• It is impossible to overstate how vile Theranos’ deceit was. Blood tests are one of our most critical diagnostic tools and inaccurate blood tests are not just a waste of money; they’re dangerous. The book details people who thought they were in serious medical trouble because of inaccurate tests produced by Theranos. It also indicates people didn’t get treated for serious problems because Theranos failed to diagnose them. Medication levels are often set based on blood tests and setting those levels too high or low can maim or kill. When Theranos fell, they had administered over a million bogus diagnostic tests. How many people would have died had they been allowed to keep going? Right before the fall, they were claiming to have a test for Ebola. Imagine falsely giving someone the all-clear on that.
• The Theranos saga is a good illustration of why I’m a small-l libertarian and often call myself a “libertarian/conservative”. The WSJ’s expose was a critical part of Theranos’ fall. But what really ended their fraud was the regulatory agencies — the FDA and CMS — waking from their slumber and coming down on them like a house of bricks. Right before their fall, Theranos had gotten Arizona to pass a law allowing patients to get diagnostic tests without a doctor’s order. Had it not been for the regulatory agency crackdown, this would have led to thousands or maybe millions of additional health scares or undiagnosed health problems. Libertarians sometimes invoke “market forces” as though market forces are a magic spell. But this is one area where “market forces” weren’t enough. Patients are not experts and Theranos has immense legal and financial firepower to try to both silence critics and to flood the internet with positive reviews of its company. You need someone with equal firepower to oppose them. Regulatory agencies are far from perfect and frequently go too far. But they are an example of why government is a necessary evil.
• That’s not to let the agencies off the hook. Theranos was able to deploy their non-existent technology through laughable deceit and convoluted legal arguments. Complaints were made to CMS and the FDA but they weren’t acted on until the WSJ expose’.
• The story is yet another reason why President Trump is wrong on “libel laws” (actually, Supreme Court precedent). The WSJ did the responsible thing and contacted Theranos about the story (although Theranos already knew because they were spying on ex-employees). And Theranos’ response was vicious legal threats and pressure through one of the most high-power law firms in the country. In some countries, the WSJ could have been successfully silenced. Thank God for our libel laws.
• It’s also, while we’re on the subject, an illustration of why Trump’s attacks on the media are so disturbing. Theranos was embedding itself with the political class, some of whom when to bat for them when the fraud was exposed. How would things have unfolded if they’d had a politician — of any stripe — proclaiming the WSJ to be fake news?
• There’s a school of though in America that being a good boss entails bullying your employees and firing lots of people. This school reached its apotheosis in Holmes and Balwani. The book is a great illustration of why this approach is a disaster. But it also shows why that approach can work for con artists like Holmes. Many people saw through the lies. Theranos was able to marginalize or silence them for a long time.
• One issue my wife kept focusing on — Holmes was not a biologist and had no expertise in the subject field (her one year at Stanford was studying chemical engineering). Almost no one on the Theranos board had expertise in the field. It was stocked with political power players.
• I can’t say enough about the courage of the Theranos whistle-blowers. The story focuses a lot on Tyler Shultz, the grandson of George Shultz and one of Carreyrou’s principle sources. Once Theranos figured out he was talking, they brought unthinkable pressure to bear on him. They spied on him, they made legal threats, they tried to get his grandfather to force him to sign an agreement to stop talking. Ultimately, his family spent a fortune on legal fees defending him. But he didn’t crack. He refused to sign over his honor. Erika Cheung didn’t crack. Rochelle Gibbons didn’t crack. Neither did many who were sources for Carreyrou or filed complaints, all of whom were threatened by a powerful Silicon Valley company and its ruthless legal team. These people are heroes. What they did literally saved lives. They should be getting medals for that.

Anyway, I highly recommend the book. This is a story worth reading. And a story worth learning from.