Several years ago, when the failed blood diagnostics company Theranos was soaring high, a golden Silicon Valley start-up seemingly positioned at the forefront of the hybrid med-tech space, a medical-expert friend contacted me.
What did I think about Theranos? The company promised that a simple blood prick test, done conveniently at a local chemists, could screen accurately for numerous medical conditions, even some of the the most serious and hardest to detect. If true, this was astonishing.
My friend wondered how to tell if companies in such highly specialised intersections of technology and medicine could do what they claimed. How did an outsider weigh up the technology’s abilities? How did venture firms, clients, and journalists examine and verify such assertions?
My friend had an interesting reason for asking, having been approached by valley companies with offers of board positions. The companies claimed to have revolutionary diagnostic technologies or therapeutics in development. The elevator pitch and investor slide decks were impressive. The remuneration promised was more than my friend’s current salary. There were stock options.
Despite possessing international expertise, my friend found it impossible to determine the basis in reality for these products. First, there was the secrecy around the intellectual property. Then, there were the questions about the procedures and the algorithms. How did these companies actually do what they said they could do?
My friend, rightly, worried about personal reputation. Did the companies want people like them on the board for the gloss of professional medical validation it provided for investors and sales, rather than to make use of their knowledge or network of contacts?
Allow me step back even further, to the turn of the millennium, when I met a recent addition to a major American law firm with a large technology-focused arm. He had a law degree, but had also just completed a PhD in medicine. Why was he working for a law firm, I wondered, and not in medicine?
Because, he said, if law firms – or venture capital (VC) companies, for that matter – were getting involved in the med-tech and pharma space, with a significant level of risk and exposure, a very high level of medical expertise was needed. He liked the crossover career opportunity. But he noted how tough the work was, to delve into the claims by companies in some very esoteric and complex niches.
So, what happened in the case of Theranos, whose chief executive Elizabeth Holmes recently was convicted on several counts of fraud? How did the company flourish on its empty claims? How was it not exposed years earlier? Wall Street Journal reporter John Carreyrou goes into the whole sorry story in his highly recommended 2018 book Bad Blood: Secrets and Lies in a Silicon Valley Startup.
The big fall involved insider whistleblowers. But of course, there were warning signs – for example, many pathologists, the people who best know the capabilities and limitations of testing, long argued the company seemed too good to be true . Others also questioned the claims. But Theranos was riding a formidably high hype wave.
Glamour girl
And it’s also true that the valley has produced many companies that have subverted old limitations with new capabilities, and outwardly Theranos in its claims, dramatic rise, and glamorous chief executive, seemed to be a made-for-Hollywood success story in waiting.
Even as it began to spiral downward, and questions increased, some big VC backers tweeted in support of Holmes and the company. Maybe the VCs, with their inside knowledge of a company in which they’d invested millions, had a clearer view.
Well, no. As numerous analysis pieces have noted since Holmes’s convictions, Theranos was part and parcel of the valley hype apparatus. The valley loves the story of a plucky, innovative winner. Venture capitalists love big returns for themselves and their investors, so much so that the investment system is built to disguise failures and losses (for example, one company in a VC portfolio buying a weak one in the portfolio, allowing the demise to be trumpeted instead as an acquisition).
Stories of valley daring sell, to investors, readers, public funds, customers. Unfulfilled promises of big-wow products are such a tech industry norm that the term “vapourware” – signifying promised hardware or software products that never gel into reality – emerged into the tech lexicon as the sector mushroomed in the early 1980s.
But my friend’s story, and that of the medical and law graduate, offer additional, sobering cautions, beyond the current finger pointing.
Ferreting out the truth about claims in these highly specialised tech sub-sectors isn’t as simple as just asking someone with this or that level of professional expertise. Even the pros can be baffled by the opaque claims, the impregnability of proprietary algorithms, and the closed circle of VCs, unsure where the truth lies.
Still, the rise and fall of Theranos must give the valley, its founders and financiers, pause for thought. In a sector where overstatement and overpromise is a norm, when does hype tip into prosecutable fraud? And who is culpable?
