Today, Explained - Theranope

Episode Date: January 5, 2022

A tech startup said it could start a medical revolution with a little machine and a drop of blood. It was a fraud, but research into smarter, less invasive blood testing is a reality. Today’s show was produced by Will Reid and Miles Bryan, edited by Matt Collette, engineered by Efim Shapiro, fact-checked by Laura Bullard and hosted by Haleema Shah. Transcript at vox.com/todayexplained Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

Get groceries delivered across the GTA from Real Canadian Superstore with PC Express. Shop online for super prices and super savings. Try it today and get up to $75 in PC Optimum Points. Visit superstore.ca to get started. It's Today Explained. I'm Halima Shah. For almost four months, a jury in a federal courtroom has listened to a case about one of the most notorious frauds in Silicon Valley. You might have heard about it.

A young, charismatic woman named Elizabeth Holmes said her company's technology would revolutionize healthcare. She raised millions of dollars. But there was a problem. The technology didn't work. It was a story so big that there's not one, but two Hollywood productions in the works about it. One will star Amanda Seyfried,

and the other, Jennifer Lawrence. Hollywood's telling of this story will likely be even more dramatic now, because on Monday, a jury decided that Elizabeth Holmes committed a crime. But that decision came as a surprise to a lot of people. Liz Lopato, deputy editor at The Verge, was in the courtroom and told me how Holmes went from a Silicon Valley darling to a convicted felon. Elizabeth Holmes dropped out of Stanford to found Theranos. And fundamentally, the thing that they wanted to do was to use a couple of drops of blood to do tests that ordinarily,

you know, require a venous draw. People don't even know that they have a basic human right to be able to get access to information about themselves and their own bodies. If you understand that early that you're at risk, there's a lot more that you can do about it. Its device was this thing, a box that was about the size of a printer called the Edison. A miniaturized blood analyzer that would disrupt the $60 billion lab testing industry

dominated by giants LabCorp and Quest Diagnostics. They claimed it could perform hundreds of tests on only those couple drops of blood. So anyway, with this promise, the company raised a ton of money. At its zenith, Theranos was worth nearly $10 billion. They also got a bunch of Defense Department luminaries involved. James Mattis, the former U.S. Defense Secretary. And ultimately, there was the deal in 2013 to create these testing centers and Walgreens stores,

where essentially, if you wanted to get a Theranos blood test, you could walk into your local Walgreens, and there it was. There actually were Theranos Walgreens stores that were open in Arizona, but there was an obvious problem, which was that the device didn't work very well. That was something that was known to Theranos employees at the time. And in fact, it was the lower level employees in the lab, along with the lab director, who were instrumental in exposing the fraud. They were the people who contacted the Wall Street Journal. They go to a Wall Street Journal reporter named John Kerry Roo, and they tell him everything. And he does his own reporting, and then he publishes his expose.

And just this morning, the Wall Street Journal ran a pretty scathing article about the company, alleging that the company's proprietary testing devices may be inaccurate, and basically accusing Theranos of deceptive practices. And at that point, pretty much all hell breaks loose. Not every single test is being run on the Theranos device, which is something that I think Holmes very heavily implied or let people believe. And during the trial, we see emails from board members

saying, wait, are we really not running everything on our own devices? Which, you know, not what you want to see from board members who are theoretically overseeing a young CEO. And that ultimately led to the company going, there is no more Theranos. Blood testing firm Theranos is formally dissolving. Most of the company's employees worked their last day on Friday. So in 2015, this expose about Theranos comes out. There's a lot of doubt cast on the company.

And eventually we get to last September when the trial of Elizabeth Holmes begins. After almost four years of delays, the most anticipated white-collar trial in years is finally getting underway. The criminal fraud case against Theranos founder Elizabeth Holmes. What was she being charged with? So ultimately, Holmes was facing sort of two big buckets of charges. And one was fraud against patients, and the other was fraud against investors. And there were 11 total. And she was being tried separately from her co-defendant, Sunny Balwani, who is Theranos' president and also her ex-boyfriend, because... She claims that he abused her for a decade, monitoring her calls, texts, emails, physical violence, restricting her sleep and insisting that any success she achieved was because of him.

And so those trials were separated and his will begin in February. And what exactly was her defense strategy here? From the jump, I think the defense tried to make her sympathetic. They emphasized how young she was. They talked about, you know, how lots of founders make mistakes. And then they moved on to basically blaming everybody around her. So, of course, they blamed Sunny Balwani. They said that she trusted him and he, you know, and that was a bad decision.

But anything that was wrong, that was him. And that she had trusted her lab directors who had the medical expertise to handle patient tests. And so she just trusted them to get things right. And that, you know, her heart was good, that she, you know, had the right intentions, basically. And then there was the sort of the actual charges because we saw a lot of their texts and a lot of their emails. And I certainly saw texts and emails where she was giving him commands. And at least in the context of their work relationship, her authority seemed to be real. I suspect, given the way that the jury found, that they agreed with me, that whatever happened in their private lives happened in their private lives, and what happened at work happened at work.

What was it like being in the courtroom when these questions were being asked? Did Holmes look scared or like she had been found out, or was she really adamant that she didn't do anything wrong? It was interesting. It sort of varied from day to day. Like her first, the first day on the stand was I think her most confident day on the stand. And then as the direct questioning by her own lawyers went on, I had the uncomfortable feeling that I was watching someone who was just now realizing the gravity of the situation she was in as the questioning continued.

Because she's really great. She's a really good speaker when she's had a chance to prepare and rehearse. And I imagine that she probably did a lot of preparing and rehearsing as CEO. But if somebody asks you something on the fly, she's not nearly as convincing and she easily becomes confused and a little less believable, certainly less confident. And then towards the end of her cross-examination, when the government was asking her questions, she started laughing. There were times where it seemed like she was either confused or angry or both, and the response was this laughter. So we now have a verdict. Holmes is guilty of four out of 11 of the counts against her. But interestingly, all the guilty counts had to do with Holmes' behavior towards her investors, not patients.

How did the jury reach that decision? Well, for a fraud charge to stick, you need to have intent, right? The jurors had to believe that Holmes intended to defraud patients, not just like give them bad results or like accidentally do something wrong. And I think that the fraud against patients was harder to prove because there are so many sort of individual people between the patients and Holmes. And so we didn't hear a lot from the patients. We heard from, I think, three. They testified for about an hour, maybe a little more. And there wasn't a lot of direct evidence linking her to them. On the other hand, we heard a lot from investors, many of whom she was actually in the room with,

some of whom had recordings. And, you know, we also had documentation that they had exchanged and emails and all of this other stuff. And so that's felt like where the prosecution was really focused, was more on the fraud against investors than the fraud against patients. So the verdict in that sense is not entirely a surprise because that's where the prosecution really focused was on the investor fraud. And what evidence did the prosecution have that she intended to defraud investors? I think that a lot of it really weirdly rested on the patients. There was a lot of stuff

that we saw that suggested she was aware that the results were inaccurate, that her lab directors were worried, that people are quitting in protest. She knew all of that. And she went to investors and told them that the tech was working and made these promises about what the tech could do, but also said things like, oh, yes, it's on medevac helicopters in Afghanistan, which was not true,

and that they had projected a certain amount of income from pharmaceutical partners when they knew perfectly well the income from pharmaceutical partners that year was going to be zero. So there were sort of more things that you could point at and say, like, this seems like an obvious lie told for a specific reason. And the specific reason is that there were certain points where Theranos was close to running out of money. So what's the penalty for defrauding your investors? So for each one of the counts, she faces a maximum of 20 years, which is that I don't think the sentence she's going to get. We haven't had sentencing yet. That's, I think, probably coming next week. It's worth keeping in mind that a lot of what I heard, the judge also heard. So when it comes to the sentencing, if the judge is feeling sympathetic towards her, it may not be a super long sentence. is taking great pains to say that Elizabeth Holmes doesn't represent us and this wasn't a typical case. But she was still a tech celebrity who could spend decades in prison now. Do you think that

this is going to make the broader tech startup world change how it does things? Absolutely not. So I do understand in a way why Silicon Valley wants to be like, look, that's not us in the same way that I understand why, like people on wall street, look at Bernie Madoff or like, look, that's not us. Right. Like you can say she's a creature of Silicon Valley in the same way that you can say Bernie Madoff is a creature of wall street without saying that they're representative of either of those things at large.

All right. I just want to be clear. Like, that's, I think, what people are confused about. But she definitely was part of that world. You know, Theranos investors included Silicon Valley celebrities like Larry Ellison, Tim Draper, Don Lucas, and Marc Andreessen, who is a venture capitalist at Andreessen Horowitz. He was a vocal cheerleader for Holmes,

even calling her the next Steve Jobs, even though his firm didn't invest. So, you know, there's this sort of, I understand wanting to shy away from the parts of Holmes that are very closely tied to Silicon Valley. But I think ultimately, for everybody outside the Valley, that seems very silly. She was very clearly emulating tech culture. So you can't screen for a multitude of illnesses with a single drop of blood. But it would be nice if you could. After the break, we'll find out what the Theranos decision means for other blood testing technology. Support for Today Explained comes from Ramp. Thank you. our pocket. Ramp says they give finance teams unprecedented control and insight into company spend. With Ramp, you're able to issue cards to every employee with limits and restrictions

and automate expense reporting so you can stop wasting time at the end of every month. And now you can get $250 when you join Ramp. You can go to ramp.com slash explained, ramp.com slash explained, r-a-m-p.com slash explained. Cards issued by Sutton Bank, member FDIC, terms and conditions apply. you can only get with BetMGM. And no matter your team, your favorite player, or your style, there's something every NBA fan will love about BetMGM. Download the app today and discover why BetMGM is your basketball home for the season. Raise your game to the next level this year with BetMGM, a sportsbook worth a slam dunk,

and authorized gaming partner of the NBA. BetMGM.com for terms and conditions must be 19 years of age or older to wager ontario only please play responsibly if you have any questions or concerns about your gambling or someone close to you please contact connex ontario at 1-866-531-2600 to speak to an advisor free of charge betmgGM operates pursuant to an operating agreement with iGaming Ontario. Nicole Wetzman, health tech reporter at The Verge. Theranos' technology was a fraud, but it's very easy to see why it was so enticing. I personally hate getting my blood drawn for tests. I was supposed to do it weeks ago and I've been putting it off. How impactful could this technology have been if it worked? Creating a more streamlined

and less logistically intensive way of doing blood tests would have been really great for kind of the whole medical field, simplifying some of that process and allowing folks to have a easier time getting their blood drawn and not having to have like full needles and vials or go to centralized labs, be able to do it at your doctor's office more often, could have really been a huge step forward in blood testing if it was, you know, real. So what about Theranos' technology was so far-fetched, according to experts in this field? Yeah, so it was sort of the idea that you could combine all of these innovations and have them done on a really short time frame. So we kind of have three things that Theranos said they could do. I am counting. One. They said they could do. I am counting. One.

They said they could do testing on a very small volume of blood. Two. That they could do lots of tests at once. Three. And that they could do all of those tests on a very small device. And what are the challenges facing each of these three areas that you just mentioned? You kind of have a constellation of scientific and physical challenges here. Shrinking tests down onto smaller devices is something that people are working really hard to do. And there's definitely innovation in that area. But getting something down onto a small chip to run an equally accurate test requires like a lot of validation and a lot of advancements in kind of that technology.

Running multiple tests at the same time, you know, again, there are devices that can run lots of tests at once. Often they're pretty big. But again, that's sort of a technological challenge of putting everything that you need to run lots of different types of tests into one device. And then the volume issue, you know, it's kind of the limitations of the physical size of what you're working with. There's only so much product in a drop of blood. There's only so many kind of cells and proteins and things like that. So if you're trying to manipulate a volume of blood to run a test, you know, there's only so much you can do with that one tiny sample before you kind of aren't really left

with much and you're subdividing and subdividing. And in a small drop of blood, you might also have the issue where there just isn't a high enough concentration of some factors that you're trying to look for in that small volume in order to kind of get a clear read on kind of what you're dealing with in someone's entire body. And there is sort of the issue of, is the concentration of a bunch of factors in one drop of blood going to be the same concentration in like the next drop of blood because when you're working with small volumes

out of your whole body, you could be like capturing different things with different drops of blood. Do we see any other scientists trying to pick up where Theranos failed? I wouldn't necessarily call it picking up where Theranos failed, but I think that there have been research teams and realistic scientists pursuing kind of these different

various category of innovation around blood testing, you know, smaller volumes, smaller device size, lots of tests at once. Scythe is a blood diagnostic company behind Olo, a complete blood count analyzer that takes just two drops of blood to provide accurate CBC results in minutes. is more in line with what you'd expect from medical innovation. So that's sort of likely why you don't hear as much about them because it's science that's slow and the incremental progress is not, you know, necessarily flashy. You know, even though COVID testing works very differently from Theranos' tests, it seems like a very bad time to lose faith in medical technology. What kind of impact will the rise and fall of Theranos have on this area of medical research? Yeah, so folks that I've spoken with who are researchers who study blood testing and who

work on development in that area kind of noticed a little bit of a chilling effect at the beginning when Theranos first announced in terms of their ability to access funding for their projects because funders would say, oh, well, you know, doesn't Theranos already do that? They've already solved that problem. Why should we give you money? And then when the scandal broke, it was sort of the opposite problem of, well, why should we give you money because this isn't real? But, you know, actually with the pandemic and with the increased importance of easy testing, there seems to be kind of a resurgence in interest in kind of that area. People are sort of saying, oh, like we actually need better tests. testing is nasal or saliva samples, which is different from blood testing, but the general kind of interest in testing generally might see a pickup as a result of the pandemic.

And could the Theranos saga have an impact on how regulatory bodies like the FDA go about approving medical tests? Yeah, so that hasn't happened so far. So Theranos and its tests did not have to get FDA clearance in order to be marketed and sold because they fell under this category called lab-developed tests. So if there's a lab that has a certain level of certification and that lab develops tests in-house, they are able to run those tests without sign-off from the FDA. So that is the sort of tests that Theranos ran. Some people call it a loophole in kind of the medical testing oversight world. And this lab-developed test kind of category is

very broad and encompasses a lot of things. It's not kind of, oh, we should eliminate this entirely and then everything will be better. Like, I think it's more complicated than that. Part of the reason that COVID testing actually was really slow to take off early on in the pandemic, March, April 2020, was because of the public health emergency. Labs had to go through the FDA process, which did slow things down a little bit. So it's not kind of a black and white, this is bad, this is good. But Theranos sort of took advantage of that in sort

of the worst case scenario way where they were using the lab developed test process and therefore skirted a lot of oversight and were able to bring products and testing to the market and market them commercially without having kind of an additional layer of scrutiny that you would have from an FDA approval process. Do you think after a scandal like this, Silicon Valley will continue investing in health tech so heavily? Yeah, I mean, we've seen a huge kind of surge of interest from technology companies in healthcare generally, you know, from big tech giants getting into healthcare to kind of smaller startup companies trying to address medical challenges. That's a trend that we'd seen prior to 2020 and something that only accelerated during the pandemic. I think that there's a lot of tension there

in terms of the Silicon Valley startup approach to issues typically and the way that the healthcare industry typically approaches issues, which is like much more incremental, much less flashy. And I think there are lessons to kind of be learned from the tech that the healthcare industry typically approaches issues, which is like much more incremental, much less flashy. And I think there are lessons to kind of be learned from the tech approach for healthcare. But you have to be really careful because kind of the burden of care

is much higher when you're dealing with someone's health versus like an app. So this is not something that's going away, but I think it's something that we're going to have to kind of be careful with and watch closely to kind of ensure that the products that are being pushed out kind of on the tech side of things are actually meeting the standards that we'd want to see in healthcare. Nicole Wetzman is a reporter at The Verge, and Liz Lopato is a deputy editor there. You can follow their work on the Theranos saga at theverge.com. Today's show was produced by Will Reed with help from Miles Bryan. It was edited by Matt Collette, fact-checked by Laura Bullard, and engineered by Afim Shapiro. I'm Halima Shah. It's Today Explained. Thank you.