Theranos: A CIA Bioweapons Lab With a Killer Board of Directors … To Do What?

Theranos: A CIA Bioweapons Lab With a Killer Board of Directors … To Do What?

Theranos Board Of Directors A Dead Giveaway

Just who is Theranos Founder Elizabeth Holmes?

Photo of Theranos Founder Elizabeth Holmes

Holmes was born in February 1984 in Washington, D.C. Her father, Christian Holmes IV, worked in the United States, Africa, and China as part of government agencies such as USAID.[1] Her mother, Noel Anne,[3] worked as a Congressional committee staffer. She has a brother, Christian Holmes V, who is the director of product management at Theranos. One of her ancestors was a founder of the Fleischmann’s Yeast company.[4]

Her parents’ work in disaster relief encouraged Elizabeth to pursue science and service early on.[5] When she was nine years old, Elizabeth wrote in a letter to her father saying, “What I really want out of life is to discover something new, something that mankind didn’t know was possible to do.”[6]When Holmes was 9, her family moved to Houston and then China, where she claims to have started a business selling C++ compilers to Chinese universities.[4][7] 

At first, Elizabeth was drawn to a career in medicine, but needles and the sight of blood repelled her. She decided to find another way to channel her interest in science.[8].  After graduating from St. John’s School in Houston in 2002, Holmes enrolled at Stanford University to study chemical engineering, but she left Stanford prior to completing her undergraduate degree.[9]
(Source: Elizabeth Holmes)

In a letter dated March 18, the Centers for Medicare and Medicaid Services said it plans to revoke the California lab’s federal license and prohibit its owners, including Ms. Holmes and Theranos’s president, Sunny Balwani, from owning or running any other lab for at least two years. 

That would include the company’s only other lab, located in Arizona.
The two labs generate most of Theranos’s revenue and are at the core of its strategy to revolutionize the blood-testing industry with new technology, user-friendliness and quick results.

The letter hasn’t been released to the public, but a copy was reviewed by The Wall Street Journal.

If the sanctions are imposed, some would take effect within eight days. Others would take longer, including revoking the California lab’s license, which could occur in 60 days.

Theranos could appeal to an administrative law judge and then a departmental appeals board, which could delay the effective date of some of the sanctions. If Theranos were to appeal, the lab would keep its license pending the outcome of the appeals process. The proposed ban on Ms. Holmes and Mr. Balwani would take effect at the same time as the lab’s license revocation and would be subject to the same appeals process.

The appeals process could take months, and such appeals have rarely succeeded in the past. A list of appeals decisions on the agency’s website shows that the agency didn’t lose a single such case from 2001 to the end of 2010.

1. The Runaway Story: If Aaron Sorkin were writing a movie about a young start up, it would be almost impossible for him to come up with one as gripping as the Theranos story: a nineteen-year old woman (that already makes it different from the typical start up founder), drops out of Stanford (the new Harvard) and disrupts a business that makes us go through a health ritual that we all dislike. 

Who amongst us has not sat for hours at a lab for a blood test, subjected ourselves to multiple syringe shots as the technician draw large vials of blood, waited for days to get the test back and then blanched at the bill for $1,500 for the tests? To add to its allure, the story had a missionary component to it, of a product that would change health care around the world by bringing cheap and speedy blood testing to the vast multitudes that cannot afford the status quo.

The mix of exuberance, passion and missionary zeal that animated the company comes through in this interview that Ms. Holmes gave Wired magazine before the dam broke a few weeks ago. As you read the interview, you can perhaps see why there was so little questioning and skepticism along the way. With a story this good and a heroine this likeable, would you want to be the Grinch raising mundane questions about whether the product actually works?

2. The Black Turtleneck: I must confess that the one aspect of this story that has always bothered me (and I am probably being petty) is the black turtleneck that has become Ms. Holmes’s uniform. She has boasted of having dozens of black turtlenecks in her closet and while there is mention that her original model for the outfit was Sharon Stone, and that Ms. Holmes does this because it saves her time, she has never tamped down the predictable comparisons that people made to Steve Jobs.

If a central ingredient of a credible narrative is authenticity, and I think it is, trying to dress like someone else (Steve Jobs, Warren Buffett or the Dalai Lama) undercuts that quality.

3. Governance matters (even at private businesses): I have always been surprised by the absence of attention paid to corporate governance at young, start ups and private businesses, but I have attributed that to two factors. One is that these businesses are often run by their founders, who have their wealth (both financial and human capital) vested in these businesses, and are therefore as less likely to act like “managers” do in publicly traded companies where there is separation of ownership and management.

The other is that the venture capitalists who invest in these firms often have a much more direct role to play in how they are run, and thus should be able to protect themselves. Theranos illustrates the limitations of these built in governance mechanisms, with a board of directors in August 2015 had twelve members:

I apologize if I am hurting anyone’s feelings, but my first reaction as I was reading through the list was “Really? He is still alive?”, followed by the suspicion that Theranos was in the process of developing a biological weapon of some sort. This is a board that may have made sense (twenty years ago) for a defense contractor, but not for a company whose primary task is working through the FDA approval process and getting customers in the health care business. (Theranos does some work for the US Military, though like almost everything else about the company, the work is so secret that no one seems to know what it involves.)

The only two outside members that may have had the remotest link to the health care business were Bill Frist, a doctor and lead stockholder in Hospital Corporation of America, and William Foege, worthy for honor because of his role in eradicating small pox. 

My cynical reaction is that if you were Ms. Holmes and wanted to create a board of directors that had little idea what you were doing as a business and had no interest in asking, you could not have done much better than this group of septuagenarians.