Main Bad Blood: Secrets and Lies in a Silicon Valley Startup

Bad Blood: Secrets and Lies in a Silicon Valley Startup

The full inside story of the breathtaking rise and shocking collapse of Theranos, the multibillion-dollar biotech startup, by the prize-winning journalist who first broke the story and pursued it to the end, despite pressure from its charismatic CEO and threats by her lawyers.

"Crime thriller authors have nothing on Carreyrou's exquisite sense of suspenseful pacing and multifaceted character development in this riveting, read-in-one-sitting tour de force....Carreyrou's commitment to unraveling Holmes' crimes was literally of life-saving value." -Booklist


In 2014, Theranos founder and CEO Elizabeth Holmes was widely seen as the female Steve Jobs: a brilliant Stanford dropout whose startup "unicorn" promised to revolutionize the medical industry with a machine that would make blood testing significantly faster and easier. Backed by investors such as Larry Ellison and Tim Draper, Theranos sold shares in a fundraising round that valued the company at more than $9 billion, putting Holmes's worth at an estimated $4.7 billion. There was just one problem: The technology didn't work.

A riveting story of the biggest corporate fraud since Enron, a tale of ambition and hubris set amid the bold promises of Silicon Valley.
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Year:
2018
Edition:
1
Publisher:
Knopf
Language:
english
Pages:
352
ISBN 13:
9781524731656
ISBN:
152473165X
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EPUB, 867 KB
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			 			THIS IS A BORZOI BOOK PUBLISHED BY ALFRED A. KNOPF

			Copyright © 2018 by John Carreyrou

			All rights reserved. Published in the United States by Alfred A. Knopf, a division of Penguin Random House LLC, New York, and distributed in Canada by Random House of Canada, a division of Penguin Random House Canada Limited, Toronto.

			www.aaknopf.com

			Knopf, Borzoi Books, and the colophon are registered trademarks of Penguin Random House LLC.

			Library of Congress Cataloging-in-Publication Data

			Names: Carreyrou, John, author.

			Title: Bad blood : secrets and lies in a Silicon Valley startup / John Carreyrou.

			Description: First Edition. | New York : Knopf, 2018.

			Identifiers: LCCN 2018000263 | ISBN 9781524731656 (hardback) | ISBN 9781524731663 (ebook)

			Subjects: LCSH: Theranos (Firm)—History. | Hematologic equipment industry—United States. | Fraud—United States. | BISAC: BUSINESS & ECONOMICS / Entrepreneurship. | BUSINESS & ECONOMICS / Finance. | TECHNOLOGY & ENGINEERING / Biomedical.

			Classification: LCC HD9995.H423 U627 2018 | DDC 338.7/681761—dc23 LC record available at https://lccn.loc.gov/​2018000263

			Ebook ISBN 9781524731663

			Cover design by Tyler Comrie

			v5.2_r1

			ep





Contents


			 				Cover

				Title Page

				Copyright

				Dedication

				Author’s Note



			 				Prologue



			 				1. A Purposeful Life



			 				2. The Gluebot



			 				3. Apple Envy



			 				4. Goodbye East Paly



			 				5. The Childhood Neighbor



			 				6. Sunny



			 				7. Dr. J



			 				8. The miniLab



			 				9. The Wellness Play



			 				10. “Who Is LTC Shoemaker?”



			 				11. Lighting a Fuisz



			 				12. Ian Gibbons



			 				13. Chiat\Day



			 				14. Going Live



			 				15. Unicorn



			 				16. The Grandson



			 				17. Fame



			 				18. The Hippocratic Oath



			 				19. The Tip



			 				20. The Ambush



			 				21. Trade Secrets



			 				22. La Mattanza



			 				23. Damage Control



			 				24. The Empress Has No Clothes

; 

			 				Epilogue



			 				Acknowledgments

				Notes

				About the Author





			 			For Molly, Sebastian, Jack, and Francesca





Author’s Note





This book is based on hundreds of interviews with more than 150 people, including more than sixty former Theranos employees. Most of the men and women who appear as characters in the narrative do so under their real names, but some asked that I shield their identities, either because they feared retribution from the company, worried that they might be swept up in the Justice Department’s ongoing criminal investigation, or wanted to guard their privacy. In the interest of getting the most complete and detailed rendering of the facts, I agreed to give these people pseudonyms. However, everything else I describe about them and their experiences is factual and true.

			Any quotes I have used from emails or documents are verbatim and based on the documents themselves. When I have attributed quotes to characters in dialogues, those quotes are reconstructed from participants’ memories. Some chapters rely on records from legal proceedings, such as deposition testimony. When that’s the case, I have identified those records at length in the notes section at the end of the narrative.

			In the process of writing this book, I reached out to all of the key figures in the Theranos saga and offered them the opportunity to comment on any allegations concerning them. Elizabeth Holmes, as is her right, declined my interview requests and chose not to cooperate with this account.





Prologue


			November 17, 2006

			Tim Kemp had good news for his team.

			The former IBM executive was in charge of bioinformatics at Theranos, a startup with a cutting-edge blood-testing system. The company had just completed its first big live demonstration for a pharmaceutical company. Elizabeth Holmes, Theranos’s twenty-two-year-old founder, had flown to Switzerland and shown off the system’s capabilities to executives at Novartis, the European drug giant.

			“Elizabeth called me this morning,” Kemp wrote in an email to his fifteen-person team. “She expressed her thanks and said that, ‘it was perfect!’ She specifically asked me to thank you and let you all know her appreciation. She additionally mentioned that Novartis was so impressed that they have asked for a proposal and have expressed interest in a financial arrangement for a project. We did what we came to do!”

			This was a pivotal moment for Theranos. The three-year-old startup had progressed from an ambitious idea Holmes had dreamed up in her Stanford dorm room to an actual product a huge multinational corporation was interested in using.

			 			Word of the demo’s success made its way upstairs to the second floor, where senior executives’ offices were located.

			One of those executives was Henry Mosley, Theranos’s chief financial officer. Mosley had joined Theranos eight months earlier, in March 2006. A rumpled dresser with piercing green eyes and a laid-back personality, he was a veteran of Silicon Valley’s technology scene. After growing up in the Washington, D.C., area and getting his MBA at the University of Utah, he’d come out to California in the late 1970s and never left. His first job was at chipmaker Intel, one of the Valley’s pioneers. He’d later gone on to run the finance departments of four different tech companies, taking two of them public. Theranos was far from his first rodeo.

			What had drawn Mosley to Theranos was the talent and experience gathered around Elizabeth. She might be young, but she was surrounded by an all-star cast. The chairman of her board was Donald L. Lucas, the venture capitalist who had groomed billionaire software entrepreneur Larry Ellison and helped him take Oracle Corporation public in the mid-1980s. Lucas and Ellison had both put some of their own money into Theranos.

			Another board member with a sterling reputation was Channing Robertson, the associate dean of Stanford’s School of Engineering. Robertson was one of the stars of the Stanford faculty. His expert testimony about the addictive properties of cigarettes had forced the tobacco industry to enter into a landmark $6.5 billion settlement with the state of Minnesota in the late 1990s. Based on the few interactions Mosley had had with him, it was clear Robertson thought the world of Elizabeth.

			Theranos also had a strong management team. Kemp had spent thirty years at IBM. Diane Parks, Theranos’s chief commercial officer, had twenty-five years of experience at pharmaceutical and biotechnology companies. John Howard, the senior vice president for products, had overseen Panasonic’s chip-making subsidiary. It wasn’t often that you found executives of that caliber at a small startup.

			It wasn’t just the board and the executive team that had sold Mosley on Theranos, though. The market it was going after was huge. Pharmaceutical companies spent tens of billions of dollars on clinical trials to test new drugs each year. If Theranos could make itself indispensable to them and capture a fraction of that spending, it could make a killing.

			 			Elizabeth had asked him to put together some financial projections she could show investors. The first set of numbers he’d come up with hadn’t been to her liking, so he’d revised them upward. He was a little uncomfortable with the revised numbers, but he figured they were in the realm of the plausible if the company executed perfectly. Besides, the venture capitalists startups courted for funding knew that startup founders overstated these forecasts. It was part of the game. VCs even had a term for it: the hockey-stick forecast. It showed revenue stagnating for a few years and then magically shooting up in a straight line.

			The one thing Mosley wasn’t sure he completely understood was how the Theranos technology worked. When prospective investors came by, he took them to see Shaunak Roy, Theranos’s cofounder. Shaunak had a Ph.D. in chemical engineering. He and Elizabeth had worked together in Robertson’s research lab at Stanford.

			Shaunak would prick his finger and milk a few drops of blood from it. Then he would transfer the blood to a white plastic cartridge the size of a credit card. The cartridge would slot into a rectangular box the size of a toaster. The box was called a reader. It extracted a data signal from the cartridge and beamed it wirelessly to a server that analyzed the data and beamed back a result. That was the gist of it.

			When Shaunak demonstrated the system to investors, he pointed them to a computer screen that showed the blood flowing through the cartridge inside the reader. Mosley didn’t really grasp the physics or chemistries at play. But that wasn’t his role. He was the finance guy. As long as the system showed a result, he was happy. And it always did.



* * *



			—

			ELIZABETH WAS BACK from Switzerland a few days later. She sauntered around with a smile on her face, more evidence that the trip had gone well, Mosley figured. Not that that was unusual. Elizabeth was often upbeat. She had an entrepreneur’s boundless optimism. She liked to use the term “extra-ordinary,” with “extra” written in italics and a hyphen for emphasis, to describe the Theranos mission in her emails to staff. It was a bit over the top, but she seemed sincere and Mosley knew that evangelizing was what successful startup founders did in Silicon Valley. You didn’t change the world by being cynical.

			 			What was odd, though, was that the handful of colleagues who’d accompanied Elizabeth on the trip didn’t seem to share her enthusiasm. Some of them looked outright downcast.

			Did someone’s puppy get run over? Mosley wondered half jokingly.

			He wandered downstairs, where most of the company’s sixty employees sat in clusters of cubicles, and looked for Shaunak. Surely Shaunak would know if there was any problem he hadn’t been told about.

			At first, Shaunak professed not to know anything. But Mosley sensed he was holding back and kept pressing him. Shaunak gradually let down his guard and allowed that the Theranos 1.0, as Elizabeth had christened the blood-testing system, didn’t always work. It was kind of a crapshoot, actually, he said. Sometimes you could coax a result from it and sometimes you couldn’t.

			This was news to Mosley. He thought the system was reliable. Didn’t it always seem to work when investors came to view it?

			Well, there was a reason it always seemed to work, Shaunak said. The image on the computer screen showing the blood flowing through the cartridge and settling into the little wells was real. But you never knew whether you were going to get a result or not. So they’d recorded a result from one of the times it worked. It was that recorded result that was displayed at the end of each demo.

			Mosley was stunned. He thought the results were extracted in real time from the blood inside the cartridge. That was certainly what the investors he brought by were led to believe. What Shaunak had just described sounded like a sham. It was OK to be optimistic and aspirational when you pitched investors, but there was a line not to cross. And this, in Mosley’s view, crossed it.

			So, what exactly had happened with Novartis?

			Mosley couldn’t get a straight answer from anyone, but he now suspected some similar sleight of hand. And he was right. One of the two readers Elizabeth took to Switzerland had malfunctioned when they got there. The employees she brought with her had stayed up all night trying to get it to work. To mask the problem during the demo the next morning, Tim Kemp’s team in California had beamed over a fake result.



* * *



			—

			 			MOSLEY HAD a weekly meeting with Elizabeth scheduled for that afternoon. When he entered her office, he was immediately reminded of her charisma. She had the presence of someone much older than she was. The way she trained her big blue eyes on you without blinking made you feel like the center of the world. It was almost hypnotic. Her voice added to the mesmerizing effect: she spoke in an unusually deep baritone.

			Mosley decided to let the meeting run its natural course before bringing up his concerns. Theranos had just closed its third round of funding. By any measure, it was a resounding success: the company had raised another $32 million from investors, on top of the $15 million raised in its first two funding rounds. The most impressive number was its new valuation: one hundred and sixty-five million dollars. There weren’t many three-year-old startups that could say they were worth that much.

			One big reason for the rich valuation was the agreements Theranos told investors it had reached with pharmaceutical partners. A slide deck listed six deals with five companies that would generate revenues of $120 million to $300 million over the next eighteen months. It listed another fifteen deals under negotiation. If those came to fruition, revenues could eventually reach $1.5 billion, according to the PowerPoint presentation.

			The pharmaceutical companies were going to use Theranos’s blood-testing system to monitor patients’ response to new drugs. The cartridges and readers would be placed in patients’ homes during clinical trials. Patients would prick their fingers several times a day and the readers would beam their blood-test results to the trial’s sponsor. If the results indicated a bad reaction to the drug, the drug’s maker would be able to lower the dosage immediately rather than wait until the end of the trial. This would reduce pharmaceutical companies’ research costs by as much as 30 percent. Or so the slide deck said.

			 			Mosley’s unease with all these claims had grown since that morning’s discovery. For one thing, in his eight months at Theranos, he’d never laid eyes on the pharmaceutical contracts. Every time he inquired about them, he was told they were “under legal review.” More important, he’d agreed to those ambitious revenue forecasts because he thought the Theranos system worked reliably.

			If Elizabeth shared any of these misgivings, she showed no signs of it. She was the picture of a relaxed and happy leader. The new valuation, in particular, was a source of great pride. New directors might join the board to reflect the growing roster of investors, she told him.

			Mosley saw an opening to broach the trip to Switzerland and the office rumors that something had gone wrong. When he did, Elizabeth admitted that there had been a problem, but she shrugged it off. It would easily be fixed, she said.

			Mosley was dubious given what he now knew. He brought up what Shaunak had told him about the investor demos. They should stop doing them if they weren’t completely real, he said. “We’ve been fooling investors. We can’t keep doing that.”

			Elizabeth’s expression suddenly changed. Her cheerful demeanor of just moments ago vanished and gave way to a mask of hostility. It was like a switch had been flipped. She leveled a cold stare at her chief financial officer.

			“Henry, you’re not a team player,” she said in an icy tone. “I think you should leave right now.”

			There was no mistaking what had just happened. Elizabeth wasn’t merely asking him to get out of her office. She was telling him to leave the company—immediately. Mosley had just been fired.





| ONE |


			A Purposeful Life





Elizabeth Anne Holmes knew she wanted to be a successful entrepreneur from a young age.

			When she was seven, she set out to design a time machine and filled up a notebook with detailed engineering drawings.

			When she was nine or ten, one of her relatives asked her at a family gathering the question every boy and girl is asked sooner or later: “What do you want to do when you grow up?”

			Without skipping a beat, Elizabeth replied, “I want to be a billionaire.”

			“Wouldn’t you rather be president?” the relative asked.

			“No, the president will marry me because I’ll have a billion dollars.”

			These weren’t the idle words of a child. Elizabeth uttered them with the utmost seriousness and determination, according to a family member who witnessed the scene.

			Elizabeth’s ambition was nurtured by her parents. Christian and Noel Holmes had high expectations for their daughter rooted in a distinguished family history.

			On her father’s side, she was descended from Charles Louis Fleischmann, a Hungarian immigrant who founded a thriving business known as the Fleischmann Yeast Company. Its remarkable success turned the Fleischmanns into one of the wealthiest families in America at the turn of the twentieth century.

			 			Bettie Fleischmann, Charles’s daughter, married her father’s Danish physician, Dr. Christian Holmes. He was Elizabeth’s great-great-grandfather. Aided by the political and business connections of his wife’s wealthy family, Dr. Holmes established Cincinnati General Hospital and the University of Cincinnati’s medical school. So the case could be made—and it would in fact be made to the venture capitalists clustered on Sand Hill Road near the Stanford University campus—that Elizabeth didn’t just inherit entrepreneurial genes, but medical ones too.

			Elizabeth’s mother, Noel, had her own proud family background. Her father was a West Point graduate who planned and carried out the shift from a draft-based military to an all-volunteer force as a high-ranking Pentagon official in the early 1970s. The Daousts traced their ancestry all the way back to the maréchal Davout, one of Napoleon’s top field generals.

			But it was the accomplishments of Elizabeth’s father’s side of the family that burned brightest and captured the imagination. Chris Holmes made sure to school his daughter not just in the outsized success of its older generations but also in the failings of its younger ones. Both his father and grandfather had lived large but flawed lives, cycling through marriages and struggling with alcoholism. Chris blamed them for squandering the family fortune.

			“I grew up with those stories about greatness,” Elizabeth would tell The New Yorker in an interview years later, “and about people deciding not to spend their lives on something purposeful, and what happens to them when they make that choice—the impact on character and quality of life.”



* * *



			—

			ELIZABETH’S EARLY YEARS were spent in Washington, D.C., where her father held a succession of jobs at government agencies ranging from the State Department to the Agency for International Development. Her mother worked as an aide on Capitol Hill until she interrupted her career to raise Elizabeth and her younger brother, Christian.

			 			During the summers, Noel and the children headed down to Boca Raton, Florida, where Elizabeth’s aunt and uncle, Elizabeth and Ron Dietz, owned a condo with a beautiful view of the Intracoastal Waterway. Their son, David, was three and a half years younger than Elizabeth and a year and a half younger than Christian.

			The cousins slept on foam mattresses on the condo’s floor and dashed off to the beach in the mornings for a swim. The afternoons were whiled away playing Monopoly. When Elizabeth was ahead, which was most of the time, she would insist on playing on to the bitter end, piling on the houses and hotels for as long as it took for David and Christian to go broke. When she occasionally lost, she stormed off in a fury and, more than once, ran right through the screen of the condo’s front door. It was an early glimpse of her intense competitive streak.

			In high school, Elizabeth wasn’t part of the popular crowd. By then, her father had moved the family to Houston to take a job at the conglomerate Tenneco. The Holmes children attended St. John’s, Houston’s most prestigious private school. A gangly teenage girl with big blue eyes, Elizabeth bleached her hair in an attempt to fit in and struggled with an eating disorder.

			During her sophomore year, she threw herself into her schoolwork, often staying up late at night to study, and became a straight-A student. It was the start of a lifelong pattern: work hard and sleep little. As she excelled academically, she also managed to find her footing socially and dated the son of a respected Houston orthopedic surgeon. They traveled to New York together to celebrate the new millennium in Times Square.

			As college drew closer, Elizabeth set her sights on Stanford. It was the obvious choice for an accomplished student interested in science and computers who dreamed of becoming an entrepreneur. The little agricultural college founded by railroad tycoon Leland Stanford at the end of the nineteenth century had become inextricably linked with Silicon Valley. The internet boom was in full swing then and some of its biggest stars, like Yahoo, had been founded on the Stanford campus. In Elizabeth’s senior year, two Stanford Ph.D. students were beginning to attract attention with another little startup called Google.

			 			Elizabeth already knew Stanford well. Her family had lived in Woodside, California, a few miles from the Stanford campus, for several years in the late 1980s and early 1990s. While there, she had become friends with a girl who lived next door named Jesse Draper. Jesse’s father was Tim Draper, a third-generation venture capitalist who was on his way to becoming one of the Valley’s most successful startup investors.

			Elizabeth had another connection to Stanford: Chinese. Her father had traveled to China a lot for work and decided his children should learn Mandarin, so he and Noel had arranged for a tutor to come to the house in Houston on Saturday mornings. Midway through high school, Elizabeth talked her way into Stanford’s summer Mandarin program. It was only supposed to be open to college students, but she impressed the program’s director enough with her fluency that he made an exception. The first five weeks were taught on the Stanford campus in Palo Alto, followed by four weeks of instruction in Beijing.



* * *



			—

			ELIZABETH WAS ACCEPTED to Stanford in the spring of 2002 as a President’s Scholar, a distinction bestowed on top students that came with a three-thousand-dollar grant she could use to pursue any intellectual interest of her choosing.

			Her father had drilled into her the notion that she should live a purposeful life. During his career in public service, Chris Holmes had overseen humanitarian efforts like the 1980 Mariel boatlift, in which more than one hundred thousand Cubans and Haitians migrated to the United States. There were pictures around the house of him providing disaster relief in war-torn countries. The message Elizabeth took away from them is that if she wanted to truly leave her mark on the world, she would need to accomplish something that furthered the greater good, not just become rich. Biotechnology offered the prospect of achieving both. She chose to study chemical engineering, a field that provided a natural gateway to the industry.

			 			The face of Stanford’s chemical engineering department was Channing Robertson. Charismatic, handsome, and funny, Robertson had been teaching at the university since 1970 and had a rare ability to connect with his students. He was also by far the hippest member of the engineering faculty, sporting a graying blond mane and showing up to class in leather jackets that made him seem a decade younger than his fifty-nine years.

			Elizabeth took Robertson’s Introduction to Chemical Engineering class and a seminar he taught on controlled drug-delivery devices. She also lobbied him to let her help out in his research lab. Robertson agreed and farmed her out to a Ph.D. student who was working on a project to find the best enzymes to put in laundry detergent.

			Outside of the long hours she put in at the lab, Elizabeth led an active social life. She attended campus parties and dated a sophomore named JT Batson. Batson was from a small town in Georgia and was struck by how polished and worldly Elizabeth was, though he also found her guarded. “She wasn’t the biggest sharer in the world,” he recalls. “She played things close to the vest.”

			Over winter break of her freshman year, Elizabeth returned to Houston to celebrate the holidays with her parents and the Dietzes, who flew down from Indianapolis. She’d only been in college for a few months, but she was already entertaining thoughts of dropping out. During Christmas dinner, her father floated a paper airplane toward her end of the table with the letters “P.H.D.” written on its wings.

			Elizabeth’s response was blunt, according to a family member in attendance: “No, Dad, I’m not interested in getting a Ph.D., I want to make money.”

			That spring, she showed up one day at the door of Batson’s dorm room and told him she couldn’t see him anymore because she was starting a company and would have to devote all her time to it. Batson, who had never been dumped before, was stunned but remembers that the unusual reason she gave took some of the sting out of the rejection.

			Elizabeth didn’t actually drop out of Stanford until the following fall after returning from a summer internship at the Genome Institute of Singapore. Asia had been ravaged earlier in 2003 by the spread of a previously unknown illness called severe acute respiratory syndrome, or SARS, and Elizabeth had spent the summer testing patient specimens obtained with old low-tech methods like syringes and nasal swabs. The experience left her convinced there must be a better way.

			 			When she got back home to Houston, she sat down at her computer for five straight days, sleeping one or two hours a night and eating from trays of food her mother brought her. Drawing from new technologies she had learned about during her internship and in Robertson’s classes, she wrote a patent application for an arm patch that would simultaneously diagnose medical conditions and treat them.

			Elizabeth caught up on sleep in the family car while her mother drove her from Texas to California to start her sophomore year. As soon as she was back on campus, she showed Robertson and Shaunak Roy, the Ph.D. student she was assisting in his lab, her proposed patent.

			In court testimony years later, Robertson recalled being impressed by her inventiveness: “She had somehow been able to take and synthesize these pieces of science and engineering and technology in ways that I had never thought of.” He was also struck by how motivated and determined she was to see her idea through. “I never encountered a student like this before of the then thousands of students that I had talked” to, he said. “I encouraged her to go out and pursue her dream.”

			Shaunak was more skeptical. Raised by Indian immigrant parents in Chicago, far from the razzle-dazzle of Silicon Valley, he considered himself very pragmatic and grounded. Elizabeth’s concept seemed to him a bit far-fetched. But he got swept up in Robertson’s enthusiasm and in the notion of launching a startup.

			While Elizabeth filed the paperwork to start a company, Shaunak completed the last semester of work he needed to get his degree. In May 2004, he joined the startup as its first employee and was granted a minority stake in the business. Robertson, for his part, joined the company’s board as an adviser.



* * *



			—

			 			AT FIRST, Elizabeth and Shaunak holed up in a tiny office in Burlingame for a few months until they found a bigger space. The new location was far from glamorous. While its address was technically in Menlo Park, it was in a gritty industrial zone on the edge of East Palo Alto, where shootings remained frequent. One morning, Elizabeth showed up at work with shards of glass in her hair. Someone had shot at her car and shattered the driver’s-side window, missing her head by inches.

			Elizabeth incorporated the company as Real-Time Cures, which an unfortunate typo turned into “Real-Time Curses” on early employees’ paychecks. She later changed the name to Theranos, a combination of the words “therapy” and “diagnosis.”

			To raise the money she needed, she leveraged her family connections. She convinced Tim Draper, the father of her childhood friend and former neighbor Jesse Draper, to invest $1 million. The Draper name carried a lot of weight and helped give Elizabeth some credibility: Tim’s grandfather had founded Silicon Valley’s first venture capital firm in the late 1950s, and Tim’s own firm, DFJ, was known for lucrative early investments in companies like the web-based email service Hotmail.

			Another family connection she tapped for a large investment, the retired corporate turnaround specialist Victor Palmieri, was a longtime friend of her father’s. The two had met in the late 1970s during the Carter administration when Chris Holmes worked at the State Department and Palmieri served as its ambassador at large for refugee affairs.

			Elizabeth impressed Draper and Palmieri with her bubbly energy and her vision of applying principles of nano- and microtechnology to the field of diagnostics. In a twenty-six-page document she used to recruit investors, she described an adhesive patch that would draw blood painlessly through the skin using microneedles. The TheraPatch, as the document called it, would contain a microchip sensing system that would analyze the blood and make “a process control decision” about how much of a drug to deliver. It would also communicate its readings wirelessly to a patient’s doctor. The document included a colored diagram of the patch and its various components.

			 			Not everyone bought the pitch. One morning in July 2004, Elizabeth met with MedVenture Associates, a venture capital firm that specialized in medical technology investments. Sitting across a conference room table from the firm’s five partners, she spoke quickly and in grand terms about the potential her technology had to change mankind. But when the MedVenture partners asked for more specifics about her microchip system and how it would differ from one that had already been developed and commercialized by a company called Abaxis, she got visibly flustered and the meeting grew tense. Unable to answer the partners’ probing technical questions, she got up after about an hour and left in a huff.

			MedVenture Associates wasn’t the only venture capital firm to turn down the nineteen-year-old college dropout. But that didn’t stop Elizabeth from raising a total of nearly $6 million by the end of 2004 from a grab bag of investors. In addition to Draper and Palmieri, she secured investments from an aging venture capitalist named John Bryan and from Stephen L. Feinberg, a real estate and private equity investor who was on the board of Houston’s MD Anderson Cancer Center. She also persuaded a fellow Stanford student named Michael Chang, whose family controlled a multibillion-dollar distributor of high-tech devices in Taiwan, to invest. Several members of the extended Holmes family, including Noel Holmes’s sister, Elizabeth Dietz, chipped in too.

			As the money flowed in, it became apparent to Shaunak that a little patch that could do all the things Elizabeth wanted it to do bordered on science fiction. It might be theoretically possible, just like manned flights to Mars were theoretically possible. But the devil was in the details. In an attempt to make the patch concept more feasible, they pared it down to just the diagnostic part, but even that was incredibly challenging.

			Eventually they jettisoned the patch altogether in favor of something akin to the handheld devices used to monitor blood-glucose levels in diabetes patients. Elizabeth wanted the Theranos device to be portable like those glucose monitors, but she wanted it to measure many more substances in the blood than just sugar, which would make it a lot more complex and therefore bulkier.

			 			The compromise was a cartridge-and-reader system that blended the fields of microfluidics and biochemistry. The patient would prick her finger to draw a small sample of blood and place it in a cartridge that looked like a thick credit card. The cartridge would slot into a bigger machine called a reader. Pumps inside the reader would push the blood through tiny channels in the cartridge and into little wells coated with proteins known as antibodies. On its way to the wells, a filter would separate the blood’s solid elements, its red and white blood cells, from the plasma and let only the plasma through. When the plasma came into contact with the antibodies, a chemical reaction would produce a signal that would be “read” by the reader and translated into a result.

			Elizabeth envisioned placing the cartridges and readers in patients’ homes so that they could test their blood regularly. A cellular antenna on the reader would send the test results to the computer of a patient’s doctor by way of a central server. This would allow the doctor to make adjustments to the patient’s medication quickly, rather than waiting for the patient to go get his blood tested at a blood-draw center or during his next office visit.

			By late 2005, eighteen months after he’d come on board, Shaunak was beginning to feel like they were making progress. The company had a prototype, dubbed the Theranos 1.0, and had grown to two dozen employees. It also had a business model it hoped would quickly generate revenues: it planned to license its blood-testing technology to pharmaceutical companies to help them catch adverse drug reactions during clinical trials.

			Their little enterprise was even beginning to attract some buzz. On Christmas Day, Elizabeth sent employees an email with the subject line “Happy Happy Holidays.” It wished them well and referred them to an interview she had given to the technology magazine Red Herring. The email ended with, “And Heres to ‘the hottest start-up in the valley’!!!”





| TWO |


			The Gluebot





Edmond Ku interviewed with Elizabeth Holmes in early 2006 and was instantly captivated by the vision she unspooled before him.

			She described a world in which drugs would be minutely tailored to individuals thanks to Theranos’s blood-monitoring technology. To illustrate her point, she cited Celebrex, a painkiller that was under a cloud because it was thought to increase the risk of heart attacks and strokes. There was talk that its maker, Pfizer, would have to pull it from the market. With the Theranos system, Celebrex’s side effects could be eliminated, allowing millions of arthritis sufferers to keep taking the drug to alleviate their aches and pains, she explained. Elizabeth cited the fact that an estimated one hundred thousand Americans died each year from adverse drug reactions. Theranos would eliminate all those deaths, she said. It would quite literally save lives.

			Edmond, who went by Ed, felt himself drawn in by the young woman sitting across from him who was staring at him intently without blinking. The mission she was describing was admirable, he thought.

			Ed was a quiet engineer who had gained a reputation in the Valley as a fix-it man. Tech startups stymied by a complex engineering problem called him and, more often than not, he found a solution. Born in Hong Kong, he had emigrated to Canada with his family in his early teens and had the habit common among native Chinese speakers who learn English as a second language of always speaking in the present tense.

			 			A member of Theranos’s board had recently approached him about taking over engineering at the startup. If he accepted the job, his task would be to turn the Theranos 1.0 prototype into a viable product the company could commercialize. After hearing Elizabeth’s inspiring pitch, he decided to sign on.

			It didn’t take Ed long to realize that Theranos was the toughest engineering challenge he’d ever tackled. His experience was in electronics, not medical devices. And the prototype he’d inherited didn’t really work. It was more like a mock-up of what Elizabeth had in mind. He had to turn the mock-up into a functioning device.

			The main difficulty stemmed from Elizabeth’s insistence that they use very little blood. She’d inherited from her mother a phobia of needles; Noel Holmes fainted at the mere sight of a syringe. Elizabeth wanted the Theranos technology to work with just a drop of blood pricked from the tip of a finger. She was so fixated on the idea that she got upset when an employee bought red Hershey’s Kisses and put the Theranos logo on them for a company display at a job fair. The Hershey’s Kisses were meant to represent drops of blood, but Elizabeth felt they were much too big to convey the tiny volumes she had in mind.

			Her obsession with miniaturization extended to the cartridge. She wanted it to fit in the palm of a hand, further complicating Ed’s task. He and his team spent months reengineering it, but they never reached a point where they could reliably reproduce the same test results from the same blood samples.

			The quantity of blood they were allowed to work with was so small that it had to be diluted with a saline solution to create more volume. That made what would otherwise have been relatively routine chemistry work a lot more challenging.

			Adding another level of complexity, blood and saline weren’t the only fluids that had to flow through the cartridge. The reactions that occurred when the blood reached the little wells required chemicals known as reagents. Those were stored in separate chambers.

			 			All these fluids needed to flow through the cartridge in a meticulously choreographed sequence, so the cartridge contained little valves that opened and shut at precise intervals. Ed and his engineers tinkered with the design and the timing of the valves and the speed at which the various fluids were pumped through the cartridge.

			Another problem was preventing all those fluids from leaking and contaminating one another. They tried changing the shape, length, and orientation of the tiny channels in the cartridge to minimize the contamination. They ran countless tests with food coloring to see where the different colors went and where the contamination occurred.

			It was a complicated, interconnected system compressed into a small space. One of Ed’s engineers had an analogy for it: it was like a web of rubber bands. Pulling on one would inevitably stretch several of the others.

			Each cartridge cost upward of two hundred dollars to make and could only be used once. They were testing hundreds of them a week. Elizabeth had purchased a $2 million automated packaging line in anticipation of the day they could start shipping them, but that day seemed far off. Having already blown through its first $6 million, Theranos had raised another $9 million in a second funding round to replenish its coffers.

			The chemistry work was handled by a separate group made up of biochemists. The collaboration between that group and Ed’s group was far from optimal. Both reported up to Elizabeth but weren’t encouraged to communicate with each other. Elizabeth liked to keep information compartmentalized so that only she had the full picture of the system’s development.

			As a result, Ed wasn’t sure if the problems they were encountering were due to the microfluidics he was responsible for or the chemistry work he had nothing to do with. He knew one thing, though: they’d have a much better chance of success if Elizabeth allowed them to use more blood. But she wouldn’t hear of it.



* * *



			—

			 			ED WAS WORKING late one evening when Elizabeth came by his workspace. She was frustrated with the pace of their progress and wanted to run the engineering department twenty-four hours a day, seven days a week, to accelerate development. Ed thought that was a terrible idea. His team was working long hours as it was.

			He had noticed that employee turnover at the company was already high and that it wasn’t confined to the rank and file. Top executives didn’t seem to last long either. Henry Mosley, the chief financial officer, had disappeared one day. There was a rumor circulating around the office that he’d been caught embezzling funds. No one knew if there was any truth to it because his departure, like all the others, wasn’t announced or explained. It made for an unnerving work environment: a colleague might be there one day and gone the next and you had no idea why.

			Ed pushed back against Elizabeth’s proposal. Even if he instituted shifts, a round-the-clock schedule would make his engineers burn out, he told her.

			“I don’t care. We can change people in and out,” she responded. “The company is all that matters.”

			Ed didn’t think she meant it to sound as callous as it did. But she was so laser focused on achieving her goals that she seemed oblivious to the practical implications of her decisions. Ed had noticed a quote on her desk cut out from a recent press article about Theranos. It was from Channing Robertson, the Stanford professor who was on the company’s board.

			The quote read, “You start to realize you are looking in the eyes of another Bill Gates, or Steve Jobs.”

			That was a high bar to set for herself, Ed thought. Then again, if there was anyone who could clear it, it might just be this young woman. Ed had never encountered anyone as driven and relentless. She slept four hours a night and popped chocolate-coated coffee beans throughout the day to inject herself with caffeine. He tried to tell her to get more sleep and to live a healthier lifestyle, but she brushed him off.

			 			As obstinate as Elizabeth was, Ed knew there was one person who had her ear: a mysterious man named Sunny. Elizabeth had dropped his name enough times that Ed had gleaned some basic facts about him: he was Indian, he was older than Elizabeth, and they were a couple. The story was that Sunny had made a fortune from the sale of an internet company he’d cofounded in the late 1990s.

			Sunny wasn’t a visible presence at Theranos but he seemed to loom large in Elizabeth’s life. At the company Christmas party in a Palo Alto restaurant in late 2006, Elizabeth got too tipsy to go home on her own, so she called Sunny and asked him to come pick her up. That’s when Ed learned that they were living together in a condo a few blocks away.

			Sunny wasn’t the only older man giving Elizabeth advice. She had brunch with Don Lucas every Sunday at his home in Atherton, the ultrawealthy enclave north of Palo Alto. Larry Ellison, whom she’d met through Lucas, was also an influence. Lucas and Ellison had both invested in Theranos’s second funding round, which in Silicon Valley parlance was known as a “Series B” round. Ellison sometimes dropped by in his red Porsche to check on his investment. It wasn’t uncommon to hear Elizabeth start a sentence with “Larry says.”

			Ellison might be one of the richest people in the world, with a net worth of some $25 billion, but he wasn’t necessarily the ideal role model. In Oracle’s early years, he had famously exaggerated his database software’s capabilities and shipped versions of it crawling with bugs. That’s not something you could do with a medical device.

			It was hard to know how much Elizabeth’s approach to running Theranos was her own and how much she was channeling Ellison, Lucas, or Sunny, but one thing was clear: she wasn’t happy when Ed refused to make his engineering group run 24/7. From that moment on, their relationship cooled.

			Before long, Ed noticed that Elizabeth was making new engineering hires, but she wasn’t having them report to him. They formed a separate group. A rival group. It dawned on him that she was pitting his engineering team and the new team against each other in some corporate version of survival of the fittest.

			Ed didn’t have time to dwell on it too much because there was something else he had to deal with: Elizabeth had convinced Pfizer to try out the Theranos system in a pilot project in Tennessee. Under the agreement, Theranos 1.0 units were going to be placed in people’s homes and patients were going to test their blood with them every day. The results would be sent wirelessly to Theranos’s office in California, where they would be analyzed and then forwarded to Pfizer. They had to somehow fix all the problems before the study started. She’d already scheduled a trip to Tennessee to begin training some of the patients and doctors in how to use the system.

			 			In early August 2007, Ed accompanied Elizabeth to Nashville. Sunny picked them up from the office in his Porsche and drove them to the airport. It was the first time Ed met him in person. The extent of their age gap suddenly became apparent. Sunny looked to be in his early forties, nearly twenty years older than Elizabeth. There was also a cold, businesslike dynamic to their relationship. When they parted at the airport, Sunny didn’t say “Goodbye” or “Have a nice trip.” Instead, he barked, “Now go make some money!”

			When they got to Tennessee, the cartridges and the readers they’d brought weren’t functioning properly, so Ed had to spend the night disassembling and reassembling them on his bed in his hotel room. He managed to get them working well enough by morning that they were able to draw blood samples from two patients and a half dozen doctors and nurses at a local oncology clinic.

			The patients looked very sick. Ed learned that they were dying of cancer. They were taking drugs designed to slow the growth of their tumors, which might buy them a few more months to live.

			On their return to California, Elizabeth pronounced the trip a success and sent one of her cheerful emails to the staff.

			“It was truly awesome,” she wrote. “The patients grasped onto the system immediately. The minute you meet them you sense their fear, their hope, and their pain.”

			Theranos employees, she added, should “take a victory lap.”

			Ed didn’t feel as upbeat. Using the Theranos 1.0 in a patient study seemed premature, especially now that he knew the study involved terminal cancer patients.



* * *



			—

			 			TO BLOW OFF STEAM, Ed went out for beers with Shaunak on Friday evenings at a raucous sports bar called the Old Pro in Palo Alto. Often, Gary Frenzel, the head of the chemistry team, would join them.

			Gary was a good old boy from Texas. He liked to tell war stories about his days as a rodeo rider. He’d given up riding and pursued a career as a chemist after breaking too many bones. Gary loved to gossip and crack jokes, causing Shaunak to burst into a loud, high-pitched giggle that was the most ridiculous laugh Ed had ever heard. The three bonded during these outings and became good friends.

			Then one day, Gary stopped coming to the Old Pro. Ed and Shaunak weren’t sure why at first but they soon had their answer.

			In late August 2007, an email went out to Theranos employees to gather upstairs for a meeting. The company had grown to more than seventy people. Everyone stopped what he or she was doing and assembled in front of Elizabeth’s office on the second floor.

			The mood was serious. Elizabeth had a frown on her face. She looked angry. Standing next to her was Michael Esquivel, a sharply dressed, fast-talking lawyer who had joined Theranos a few months earlier as its general counsel from Wilson Sonsini Goodrich & Rosati, Silicon Valley’s premier law firm.

			Esquivel did most of the talking. He said Theranos was suing three former employees for stealing its intellectual property. Their names were Michael O’Connell, Chris Todd, and John Howard. Howard had overseen all research and development and interviewed Ed before he was hired. Todd was Ed’s predecessor and had led the design of the 1.0 prototype. And O’Connell was an employee who had worked on the 1.0 cartridge until he left the previous summer.

			No one was to have any contact with them going forward and all emails and documents must be preserved, Esquivel instructed. He would be conducting a thorough investigation to gather evidence with the assistance of Wilson Sonsini. Then he added something that sent a jolt through the room.

			 			“We’ve called the FBI to assist us with the case.”

			Ed and Shaunak figured Gary Frenzel was probably freaked out by this turn of events. He was good friends with Chris Todd, Ed’s predecessor. Gary had worked with Todd for five years at two previous companies before following him to Theranos. After Todd had left Theranos in July 2006, he and Gary had remained in frequent contact, talking often on the phone and exchanging emails. Elizabeth and Esquivel must have found out and read Gary the riot act. He looked spooked.

			Shaunak had been friendly with Todd too and was able to quietly piece together what had happened.

			O’Connell, who had a postdoctorate in nanotechnology from Stanford, thought he had solved the microfluidic problems that hampered the Theranos system and had talked Todd into forming a company with him. They’d called it Avidnostics. O’Connell also held discussions with Howard, who’d provided some help and advice but declined to join their venture. Avidnostics was very similar to Theranos, except they planned on marketing their machine to veterinarians on the theory that regulatory approvals would be easier to obtain for a device that performed blood tests on animals rather than humans.

			They’d pitched a few VCs, unsuccessfully, at which point O’Connell had lost patience and emailed Elizabeth to ask her if she wanted to license their technology.

			Big mistake.

			Elizabeth had always worried about proprietary company information leaking out, to an extent that sometimes felt overblown. She required not just employees to sign nondisclosure agreements, but anyone else who entered Theranos’s offices or did business with it. Even within the company, she kept tight control over the flow of information.

			O’Connell’s actions confirmed her worst suspicions. Within days, she was laying the groundwork for a lawsuit. Theranos filed its fourteen-page complaint in California Superior Court on August 27, 2007. It requested that the court issue a temporary restraining order against the three former employees, appoint a special master “to ensure that they do not use or disclose Plaintiff’s trade secrets,” and award Theranos five different types of monetary damages.

			 			In the ensuing weeks and months, the atmosphere at the office became oppressive. Document retention emails landed in employees’ in-boxes with regularity and Theranos went into lockdown. The head of IT, a computer technician named Matt Bissel, deployed security features that made everyone feel under surveillance. You couldn’t put a USB drive into an office computer without Bissel knowing about it. One employee got caught doing just that and was fired.



* * *



			—

			AMID THE DRAMA, the competition between engineering teams intensified. The new group competing with Ed’s was headed by Tony Nugent. Tony was a gruff, no-nonsense Irishman who’d spent eleven years at Logitech, the maker of computer accessories, followed by a stint at a company called Cholestech that made a simpler version of what Theranos was trying to build. Its handheld product, the Cholestech LDX, could perform three cholesterol tests and a glucose test on small samples of blood drawn from a finger.

			Tony had initially been brought to Theranos as a consultant by Gary Hewett, Cholestech’s founder. He’d had to step into Hewett’s shoes when Hewett was fired after just five months as Theranos’s vice president of research and development.

			Hewett’s conviction when he’d arrived at Theranos was that microfluidics didn’t work in blood diagnostics because the volumes were too small to allow for accurate measurements. But he hadn’t had time to come up with much of an alternative. That job now fell to Tony.

			Tony decided that part of the Theranos value proposition should be to automate all the steps that bench chemists followed when they tested blood in a laboratory. In order to automate, Tony needed a robot. But he didn’t want to waste time building one from scratch, so he ordered a three-thousand-dollar glue-dispensing robot from a company in New Jersey called Fisnar. It became the heart of the new Theranos system.

			 			The Fisnar robot was a pretty rudimentary piece of machinery. It was a mechanical arm fixed to a gantry that had three degrees of motion: right and left; forward and back; and up and down. Tony fastened a pipette—a slender translucent tube used to transfer or measure out small quantities of liquid—to the robot and programmed it to make the movements that a chemist would make in the lab.

			With the help of another recently hired engineer named Dave Nelson, he eventually built a smaller version of the glue robot that fit inside an aluminum box a little wider and a little shorter than a desktop computer tower. Tony and Dave borrowed some components from the 1.0, like the electronics and the software, and added them to their box, which became the new reader.

			The new cartridge was a tray containing little plastic tubes and two pipette tips. Like its microfluidic predecessor, it could only be used once. You placed the blood sample in one of the tubes and pushed the cartridge into the reader through a little door that swung upward. The reader’s robotic arm then went to work, replicating the human chemist’s steps.

			First, it grabbed one of the two pipette tips and used it to aspirate the blood and mix it with diluents contained in the cartridge’s other tubes. Then it grabbed the other pipette tip and aspirated the diluted blood with it. This second tip was coated with antibodies, which attached themselves to the molecule of interest, creating a microscopic sandwich.

			The robot’s last step was to aspirate reagents from yet another tube in the cartridge. When the reagents came into contact with the microscopic sandwiches, a chemical reaction occurred that emitted a light signal. An instrument inside the reader called a photomultiplier tube then translated the light signal into an electrical current.

			The molecule’s concentration in the blood—what the test sought to measure—could be inferred from the power of the electrical current, which was proportional to the intensity of the light.

			This blood-testing technique was known as a chemiluminescent immunoassay. (In laboratory speak, the word “assay” is synonymous with “blood test.”) The technique was not new: it had been pioneered in the early 1980s by a professor at Cardiff University. But Tony had automated it inside a machine that, though bigger than the toaster-size Theranos 1.0, was still small enough to make Elizabeth’s vision of placing it in patients’ homes possible. And it only required about 50 microliters of blood. That was more than the 10 microliters Elizabeth initially insisted upon, but it still amounted to just a drop.

			 			By September 2007, four months after he’d started building it, Tony had a functioning prototype. One that performed far more reliably than the balky system Ed Ku was still laboring on in another part of the office.

			Tony asked Elizabeth what she wanted to call it.

			“We tried everything else and it failed, so let’s call it the Edison,” she said.

			What some employees had taken to derisively calling the “gluebot” was suddenly the new way forward. And it now had a far more respectable name, inspired by the man widely considered to be America’s greatest inventor.

			The decision to abandon the microfluidic system in favor of the Edison was ironic given that Theranos had just filed a lawsuit to protect the intellectual property underpinning the former. It was also bad news for Ed Ku.

			One morning a few weeks before Thanksgiving, Ed and his engineers were called into a conference room one after the other. When it was Ed’s turn, Tony, a human resources manager named Tara Lencioni, and the lawyer Michael Esquivel informed him that he was being let go. The company was heading in a new direction and it didn’t involve what he was working on, they said. Ed would have to sign a new nondisclosure and nondisparagement agreement if he wanted to get his severance. Lencioni and Esquivel walked him to his workspace to retrieve a few personal belongings and then escorted him out of the building.

			About an hour later, Tony glanced out the window and noticed that Ed was still standing outside, his jacket slung over his arm, looking lost. It turned out he hadn’t driven his car to the office that morning and was stranded. This was before the days of Uber, so Tony went to find Shaunak and, knowing that they were friends, asked him to drive Ed home.

			 			Shaunak followed Ed out the door two weeks later, albeit on friendlier terms. The Edison was at its core a converted glue robot and that was a pretty big step down from the lofty vision Elizabeth had originally sold him on. He was also unsettled by the constant staff turnover and the lawsuit hysteria. After about three and a half years, it felt like time to move on. Shaunak told Elizabeth he was thinking of going back to school and they agreed to part ways. She organized an office party to see him off.

			Theranos’s product might no longer be the groundbreaking, futuristic technology she’d envisioned, but Elizabeth remained as committed as ever to her company. In fact, she was so excited about the Edison that she started taking it out of the office almost immediately to show it off. Tony quipped to Dave that they should have built two before telling her about it.

			Jokes aside, Tony was a bit uncomfortable with her haste. He’d had a basic safety review done to make sure it wouldn’t electrocute anyone, but that was about the extent of it. He wasn’t even sure what sort of label to put on it. The lawyers weren’t of much help when he asked them, so he looked up Food and Drug Administration regulations on his own and decided that a “for research use only” sticker was probably the most appropriate.

			This was not a finished product and no one should be under the impression that it was, Tony thought.





| THREE |


			Apple Envy





For a young entrepreneur building a business in the heart of Silicon Valley, it was hard to escape the shadow of Steve Jobs. By 2007, Apple’s founder had cemented his legend in the technology world and in American society at large by bringing the computer maker back from the ashes with the iMac, the iPod, and the iTunes music store. In January of that year, he unveiled his latest and biggest stroke of genius, the iPhone, before a rapturous audience at the Macworld conference in San Francisco.

			To anyone who spent time with Elizabeth, it was clear that she worshipped Jobs and Apple. She liked to call Theranos’s blood-testing system “the iPod of health care” and predicted that, like Apple’s ubiquitous products, it would someday be in every household in the country.

			In the summer of 2007, she took her admiration for Apple a step further by recruiting several of its employees to Theranos. One of them was Ana Arriola, a product designer who’d worked on the iPhone.

			Ana’s first meeting with Elizabeth was at Coupa Café, a hip coffee and sandwich place in Palo Alto that had become her favorite haunt outside the office. After filling her in on her background and her travels to Asia, Elizabeth told Ana she envisioned building a disease map of each person through Theranos’s blood tests. The company would then be able to reverse engineer illnesses like cancer with mathematical models that would crunch the blood data and predict the evolution of tumors.

			 			It sounded impressive and world changing to a medical neophyte like Ana, and Elizabeth seemed brilliant. But given that Ana would be leaving behind fifteen thousand Apple shares if she joined Theranos, she wanted to get her wife Corrine’s opinion. She arranged to meet Elizabeth again in Palo Alto, this time with Corrine present. Any hesitations she had were put to rest when Elizabeth made a big impression on Corrine too.

			Ana joined Theranos as its chief design architect. This mostly meant she was responsible for the overall look and feel of the Edison. Elizabeth wanted a software touchscreen similar to the iPhone’s and a sleek outer case for the machine. The case, she decreed, should have two colors separated by a diagonal cut, like the original iMac. But unlike that first iMac, it couldn’t be translucent. It had to hide the robotic arm and the rest of the Edison’s innards.

			She’d contracted out the case’s design to Yves Béhar, the Swiss-born industrial designer whose reputation in the Valley was second only to Apple’s Jony Ive. Béhar came up with an elegant black-and-white design that proved difficult to build. Tony Nugent and Dave Nelson spent countless hours molding sheet metal in an attempt to get it right.

			The case wouldn’t conceal the loud noises the robotic arm made, but Ana was satisfied that it would at least make the device presentable when Elizabeth took it out on demos.

			Ana felt that Elizabeth could use a makeover herself. The way she dressed was decidedly unfashionable. She wore wide gray pantsuits and Christmas sweaters that made her look like a frumpy accountant. People in her entourage like Channing Robertson and Don Lucas were beginning to compare her to Steve Jobs. If so, she should dress the part, she told her. Elizabeth took the suggestion to heart. From that point on, she came to work in a black turtleneck and black slacks most days.

			 			Ana was soon joined at Theranos by Justin Maxwell and Mike Bauerly, two other recruits hired to work on the design of the Edison’s software and other parts of the system that patients would interact with, like the packaging for the cartridges. Ana and Justin had worked together at Apple and knew Mike through his girlfriend, who had been a colleague of theirs there. It wasn’t long before the Apple transplants began noticing that Elizabeth and Theranos had their quirks. Ana would arrive early every morning for a daily seven-thirty meeting with Elizabeth to update her on design issues. When she pulled her car into the parking lot, Ana would find her jamming to loud hip-hop music in her black Infiniti SUV, the blond streaks in her hair bouncing wildly.

			One day, as Justin walked into her office to update her on a project, Elizabeth motioned him over excitedly, saying she wanted to show him something. She pointed to a nine-inch-long metal paperweight on her desk. Etched on it was the phrase, “What would you attempt to do if you knew you could not fail?” She’d positioned it so the words were facing her and clearly found it inspiring.

			Having an idealistic boss wasn’t a bad thing, but there were other aspects of working at Theranos that were less pleasant. One of them was having to do daily battle with Matt Bissel, the head of IT, and his sidekick, Nathan Lortz. Bissel and Lortz had the company’s computer network set up in such a way that information was split into silos, hampering communication between employees and departments. You couldn’t even exchange instant messages with a coworker. The chat ports were blocked. It was all in the name of protecting proprietary information and trade secrets, but the end result was hours of lost productivity.

			The situation got so frustrating that Justin stayed up late one night and wrote a long email screed to Ana about it.

			“We have lost sight of our business objective. Did this company set out to ‘put a bunch of people in a room and prevent them from doing illegal things,’ or did it set out to ‘do something amazing with the best people, as quickly as possible’?” he fumed.

			Justin and Mike also got the distinct impression that Bissel and Lortz were spying on them and reporting their findings back to Elizabeth. The IT team always wanted to know what programs they were running on their computers and at times turned suspiciously friendly in what felt like transparent attempts to elicit seditious gossip. The snooping wasn’t confined to the IT guys. Elizabeth’s administrative assistants would friend employees on Facebook and tell her what they were posting there.

			 			One of the assistants kept track of when employees arrived and when they left so that Elizabeth knew exactly how many hours everyone put in. To entice people into working longer days, she had dinner catered every evening. The food often didn’t arrive until eight or eight thirty, which meant that the earliest you got out of the office was ten.

			The strange atmosphere got even stranger when the Theranos board convened once a quarter. Employees were instructed to appear busy and not to make eye contact with the board members when they walked through the office. Elizabeth ushered them into a big glass conference room and pulled down the shades. It felt like CIA agents conducting secret debriefings with an undercover operative.



* * *



			—

			ONE EVENING, Ana gave Justin and Aaron Moore, one of the engineers, a ride back to San Francisco. Aaron had dropped out of a Ph.D. program in microfluidics at MIT and come to work at Theranos in September 2006 after spotting a small job ad in a trade publication. He’d worked at the company nearly a year by the time Ana and Justin came on board. Aaron was smart enough to have gone to college at Stanford and grad school at MIT, but he didn’t take himself too seriously. He was originally from Portland, Oregon, and had the Portlandian hipster’s look: shaggy hair, a three-day beard, and earrings. He was also witty, all of which made him the one person at Theranos the Apple transplants could relate to.

			Ana, Justin, and Aaron all lived in San Francisco and commuted by car or train to the office. During their drive home that evening, Aaron shared some gripes he had with his new colleagues as they sat in traffic in Ana’s Prius. In case they hadn’t noticed yet, people were constantly getting fired at Theranos, Aaron told them. Ana and Justin had definitely noticed. The Ed Ku layoffs had just taken place. In addition to Ed, twenty other people had lost their jobs. It happened so fast that Ed had left a bunch of work tools behind, including a nice set of X-Acto precision cutting knives that Justin had fished out of a wastebasket and claimed as his own.

			 			Aaron mentioned that he was also troubled by the study with cancer patients in Tennessee. They’d never gotten the microfluidic system anywhere close to working properly and certainly not well enough to use on live patients, and yet Elizabeth had pushed ahead with the study. The shift to the new machine Tony built was an improvement, but Aaron felt they still didn’t have a good read on its performance. The engineering and chemistry groups weren’t communicating. Each was running tests on the parts of the system it was responsible for, but no one was conducting overall system tests.

			Ana listened with rising unease. She’d assumed Theranos had perfected its blood-testing technology if it was going to be used on patients. Now Aaron was telling her it was still very much a work in progress. Ana knew the Tennessee study involved people dying of cancer. It bothered her to think they might be used as guinea pigs to test a faulty medical device.

			What Ana and Aaron didn’t know and what might have allayed their concerns somewhat is that the test results Theranos generated from the cancer patients’ blood would not be used to make any changes to their treatments. They were to be used only for research purposes, to help Pfizer assess the effectiveness of Theranos’s technology. But that was never clear to most Theranos employees because Elizabeth never explained the terms of the study.

			The next morning, Ana reached out to the person who’d introduced her to Theranos: her former Apple colleague Avie Tevanian. Avie was on Theranos’s board of directors. He was the one who’d put out feelers to Ana several months earlier and arranged for her to meet Elizabeth. Ana met Avie at a Peet’s Coffee in Los Altos and mentioned what she’d learned from Aaron Moore. She worried that Theranos was crossing an ethical line with the Tennessee study. Avie listened intently and told Ana he was beginning to have doubts of his own about the company.



* * *



			—

			 			AVIE WAS ONE of Steve Jobs’s oldest and closest friends. They’d worked together at NeXT, the software company Jobs created after being ousted from Apple in the mid-1980s. When Jobs returned to Apple in 1997 he’d brought Avie over with him and made him the head of software engineering. A grueling decade later, Avie had called it quits. He’d made more money than he knew what to do with and wanted to enjoy more time with his wife and two kids. A few months into his retirement, a headhunter recruiting new directors for Theranos had approached him.

			Like Ana, Avie’s first meeting with Elizabeth had been at Coupa Café. She’d come across as a bright young lady who was passionate about what she was doing, exactly the qualities you looked for in an entrepreneur. Her eyes had lit up when he volunteered some pieces of management wisdom he’d learned at Apple. His long association with Jobs seemed an object of fascination to her. After their encounter, Avie had agreed to join the Theranos board and bought $1.5 million of company stock in its late 2006 offering.

			The first couple of board meetings Avie attended had been relatively uneventful, but, by the third one, he’d begun to notice a pattern. Elizabeth would present increasingly rosy revenue projections based on the deals she said Theranos was negotiating with pharmaceutical companies, but the revenues wouldn’t materialize. It didn’t help that Henry Mosley, the chief financial officer, had been fired soon after Avie became a director. At the last board meeting he’d attended, Avie had asked more pointed questions about the pharmaceutical deals and been told they were held up in legal review. When he’d asked to see the contracts, Elizabeth had said she didn’t have any copies readily available.

			There were also repeated delays with the product’s rollout and the explanation for what needed to be fixed kept changing. Avie didn’t pretend to understand the science of blood testing; his expertise was software. But if the Theranos system was in the final stages of fine-tuning as he’d been told, how could a completely different technical issue be the new holdup every quarter? That didn’t sound to him like a product that was on the cusp of commercialization.

			 			In late October 2007, he attended a meeting of the board’s compensation committee. Don Lucas, the board’s chairman, told the committee members that Elizabeth planned to create a foundation for tax-planning purposes and wanted the committee to approve a special grant of stock to it. Avie had noticed how much Don doted on Elizabeth. The old man treated her like a granddaughter. A portly gentleman with white hair who liked to wear broad-brim hats, Don was in his late seventies and was part of an older generation of venture capitalists who approached venture investing as if it were a private club. He’d mentored one famous entrepreneur in Larry Ellison. In Elizabeth, he clearly thought he’d found another.

			Except Avie didn’t think it was good corporate governance to do what Elizabeth wanted. Since she would control the foundation, she would also control the voting rights associated with the new stock, which would increase her overall voting stake. Avie didn’t think it was in other shareholders’ interest to give the founder more power. He objected.

			Two weeks later, he received a call from Don asking if they could meet. Avie drove to the old man’s office on Sand Hill Road. Elizabeth was really upset, Don informed him when he got there. She felt he was behaving unpleasantly during board meetings and didn’t think he should be on the board anymore. Don asked if he wanted to resign. Avie expressed surprise. He was just fulfilling his duties as a director; asking questions was one of them. Don agreed and said he thought Avie was doing an excellent job. Avie told Don he wanted to take a few days to think things over.

			When he got back to his house in Palo Alto, he decided to go back and look at all the documents he’d been given over the previous year as a board member, including the investment materials he’d received before he bought his shares. As he read them over, he realized that everything about the company had changed in the space of a year, including Elizabeth’s entire executive team. Don needed to see these, he thought.



* * *



			—

			 			IN THE MEANTIME, Ana Arriola was getting antsy. Ana was by nature excitable. She spoke quickly and was a constant whirlwind of activity. Most of the time, it was positive energy that she channeled into her work to great effect. But at times it could also turn into stress, anxiety, and drama.

			After their coffee, she’d stayed in contact with Avie and had learned from her former Apple colleague that Elizabeth wanted him off the board. She didn’t know what had prompted their rift, but it was an ominous development.

			Ana’s own relationship with Elizabeth was deteriorating. Elizabeth didn’t like being told no, and Ana had done so on several occasions when she’d found a demand Elizabeth made unreasonable. She was also getting put off by her secrecy. A designer might not be as crucial to this little enterprise as an engineer or a chemist, but she still needed to be in the information loop about the product’s development to do her job properly. Yet Elizabeth kept Ana on a need-to-know basis.

			During one of their early morning meetings, Ana confronted Elizabeth with what she’d heard from Aaron Moore about problems with the Theranos system. If they were still working out kinks in the technology, wasn’t it preferable to put the Tennessee study on pause and concentrate on fixing the problems first? They could always restart it once they got the machine working reliably, she told her.

			Elizabeth flatly rejected the idea. Pfizer and every other big drugmaker wanted her blood-testing system and Theranos was going to be a great company, she said. If Ana wasn’t happy, then perhaps she should reflect on whether this was the right place for her.

			“Think about it and then tell me what you want to do,” she said.

			Ana went back to her desk and stewed for several hours. She couldn’t shake the thought that forging on with the Tennessee study wasn’t the right thing to do. The fact that Elizabeth wanted Avie to leave the board was also unsettling. Ana trusted Avie and considered him a friend. If Avie and Elizabeth had a beef, she was inclined to side with Avie.

			 			By midafternoon, Ana had made up her mind. She wrote up a brief resignation letter and printed out two copies, one for Elizabeth and one for HR. Elizabeth was out of the office by then, so she slipped the letter under her door. On her way out, she typed out a quick email to let her know where to find it.

			Elizabeth emailed her back thirty minutes later, asking her to please call her on her cell phone. Ana ignored her request. She was done with Theranos.



* * *



			—

			DON LUCAS DIDN’T USE EMAIL. He’d seen his share of litigation over the years, including a wave of class-action lawsuits targeting Oracle in the early 1990s, and didn’t like the idea of leaving behind an electronic paper trail that might one day be used against him in court. If Avie wanted Don to see what he’d found, he’d have to show it to him in person. He reached out to Don’s two assistants and set up another meeting.

			On the appointed day, Avie showed up at Don’s office with hard copies of all the documents he had been given as a Theranos director. It amounted to hundreds of pages. Taken together, they betrayed a series of irreconcilable discrepancies, he told Don. The board had a problem on its hands, he said. It was possible Theranos could be fixed, but it wasn’t going to happen the way Elizabeth was managing things. He suggested they bring in some adult supervision.

			“Well, I think you should resign,” Don replied. He quickly added, “What are you planning to do with that stack of papers?”

			Avie was taken aback. Don didn’t even seem interested in hearing him out. The older man seemed concerned only with whether he was going to escalate the matter to the full board. After turning the situation over in his mind for a few moments, Avie decided to stand down. He’d retired from Apple for a reason. He didn’t need the aggravation.

			“OK, I’ll resign and I’ll leave these papers with you,” he said.

			As Avie got up to leave, Don said there was something else they needed to discuss. Shaunak Roy, Theranos’s first employee and de facto cofounder, was leaving the company and selling most of his founder’s shares back to Elizabeth. She needed the board to waive the company’s rights to repurchase the stock. Avie didn’t think that was a good idea but told Don to have the board vote the motion without him since he was resigning.

			 			“One more thing, Avie,” Don said. “I need you to waive your own rights to buy the shares.”

			Avie was starting to get ticked off. He was being asked to put up with a lot. He told Don to have Michael Esquivel, Theranos’s general counsel, send over the requisite documents. He would review them but made no promises.

			When the documents arrived, Avie read them carefully and concluded that, once the company itself waived its rights to repurchase Shaunak’s shares, it was entirely within his and other shareholders’ rights to buy some of them. He also noticed that Elizabeth had negotiated a sweetheart deal: Shaunak was willing to part with his 1.13 million shares for $565,000. That translated to 50 cents a share, an 82 percent discount to what he and other investors had paid more than a year earlier in Theranos’s last funding round. Some discount was warranted because Avie’s shares were preferred shares with higher claims on the company’s assets and earnings while Shaunak’s shares were common ones, but a discount that big was unheard of.

			Avie decided to exercise his rights and told Esquivel he wanted to acquire the pro-rata portion of Shaunak’s stock he was entitled to. The request did not go down well. A tense email exchange ensued between the two men that stretched into the Christmas holiday.

			At 11:17 p.m. on Christmas Eve, Esquivel sent Avie an email accusing him of acting in “bad faith” and warned him that Theranos was giving serious consideration to suing him for breach of his fiduciary duties as a board member and for public disparagement of the company.

			Avie was astonished. Not only had he done no such things, in all his years in Silicon Valley he had never come close to being threatened with a lawsuit. All over the Valley, he was known as a nice guy. A teddy bear. He didn’t have any enemies. What was going on here? He tried getting in touch with other members of the board, but none would respond to his calls.

			 			Unsure what to do, Avie consulted a friend who was a lawyer. Thanks to his Apple wealth, his personal balance sheet was bigger than Theranos’s, so the prospect of costly litigation didn’t really scare him. But after he filled his friend in on everything that had happened, the friend asked a question that helped him put the situation in perspective: “Given everything you now know about this company, do you really want to own more of it?”

			When Avie thought about it, the answer was no. Besides, it was the season of giving and rejoicing. He decided to let the matter rest and to put Theranos behind him. But before doing so, he wrote a parting letter to Don and emailed it to his assistants, along with a copy of the waiver the company had pressured him to sign.

			The brutal tactics used to get him to sign the waiver, he wrote, had confirmed “some of the worse concerns” he’d raised with Don about the way the company was being run. He didn’t blame Michael Esquivel, he added, because it was clear the attorney was just acting on orders from above. He closed the letter with

			 				I do hope you will fully inform the rest of the Board as to what happened here. They deserve to know that by not going along 100% “with the program” they risk retribution from the Company/Elizabeth.

				…

				Warmly,

				Avie Tevanian





| FOUR |


			Goodbye East Paly





In early 2008, Theranos moved to a new building on Hillview Avenue in Palo Alto. It was the Silicon Valley equivalent of moving from the South Bronx to Midtown Manhattan.

			Appearances in the Valley are paramount and for three years Theranos had been operating on the wrong side of the tracks. The “tracks” in this case were Route 101, otherwise known as the Bayshore Freeway. It separates Palo Alto, one of the most affluent towns in America, from its poorer sibling East Palo Alto, which once held the dubious distinction of being the country’s murder capital.

			The company’s old office was on the East Palo Alto side of the four-lane highway, next to a machine shop and across the street from a roofing contractor. It wasn’t the type of neighborhood wealthy venture capitalists liked to be seen in. The new address, by contrast, was right next to the Stanford campus and around the corner from Hewlett-Packard’s plush headquarters. It was pricey real estate that signaled Theranos was graduating to the big leagues.

			Don Lucas was pleased with the move. During a conversation with Tony Nugent, he made clear his disdain for the old location. “It’s nice to finally get Elizabeth out of East Paly,” he told Tony.

			The move was not fun for the person who had to make it happen, however. That job fell to Matt Bissel, the head of IT. Bissel was one of Elizabeth’s most trusted lieutenants. He’d joined Theranos in 2005 as employee number 17 and took his duties seriously. In addition to being responsible for the company’s IT infrastructure, his role also included security. He was the one who’d done the forensic analysis of the computer evidence for the Michael O’Connell lawsuit.

			 			Planning the move had taken up a big chunk of Matt’s time over the past several months. On Thursday, January 31, 2008, everything finally seemed ready. The movers were scheduled to arrive first thing the next morning to haul everything away.

			But at four that afternoon, Matt got pulled into a conference room with Michael Esquivel and Gary Frenzel. Elizabeth was conferenced in by phone from Switzerland, where she was conducting a second demonstration for Novartis some fourteen months after the faked one that had led to Henry Mosley’s departure. She’d just learned that the landlord would charge them rent for the month of February if they didn’t clear the premises by midnight. There was no way she was going to let that happen, she said.

			She instructed Matt to call the moving company and have the movers come immediately. Matt thought the odds that would happen were very low but agreed to try. He stepped out of the conference room and made the call. The moving company’s dispatcher laughed at him. No sir, rescheduling a corporate move at the eleventh hour wasn’t possible, he was told.

			Elizabeth was undeterred. She told Matt to call another moving company she had once used and to give them the job. Unlike the first company, this one wasn’t unionized. She was sure it would be more flexible. But when Matt called the second moving company and explained the situation, a person there strongly advised him to drop the idea. Unionized moving companies were all mob controlled, the person said. What Theranos was proposing to do risked devolving into violence.

			Even after hearing that sobering answer, Elizabeth wouldn’t let it go. Matt and Gary tried to reason with her by citing other obstacles. Gary raised the issue of their stockpile of blood samples. Supposing they managed to get a crew to come that day; the movers wouldn’t unload everything at the new address until tomorrow, he pointed out. How would they keep the blood at the proper temperature in the meantime? Elizabeth said they could use refrigerated trucks and keep them running in the parking lot overnight.

			 			After several crazed hours, Matt was finally able to talk some sense into her by pointing out that even if they somehow cleared the building by 11:59 p.m. that night, they would still have to conduct walkthroughs with state officials to demonstrate that they had properly disposed of any hazardous materials. Theranos was a biotech company, after all. Those walkthroughs would take weeks to schedule and no new tenant would be able to move in until they had occurred.

			In the end, the move took place the next day as originally planned, but the episode was the final straw for Matt. Part of him admired Elizabeth. She was one of the smartest people he’d ever met and she could be a really inspiring and energizing leader. He often joked that she could sell ice cream to Eskimos. But another part of him was tiring of her unpredictability and the constant chaos at the company.

			One aspect of Matt’s job had become increasingly distasteful to him. Elizabeth demanded absolute loyalty from her employees and if she sensed that she no longer had it from someone, she could turn on them in a flash. In Matt’s two and a half years at Theranos, he had seen her fire some thirty people, not counting the twenty or so employees who lost their jobs at the same time as Ed Ku when the microfluidic platform was abandoned.

			Every time Elizabeth fired someone, Matt had to assist with terminating the employee. Sometimes, that meant more than just revoking the departing employee’s access to the corporate network and escorting him or her out of the building. In some instances, she asked him to build a dossier on the person that she could use for leverage.

			There was one case in particular that Matt regretted helping her with: that of Henry Mosley, the former chief financial officer. After Elizabeth fired Mosley, Matt had stumbled across inappropriate sexual material on his work laptop as he was transferring its files to a central server for safekeeping. When Elizabeth found out about it, she used it to claim it was the cause of Mosley’s termination and to deny him stock options.

			 			Matt had reported to Mosley until he left and thought he’d done an excellent job of helping Elizabeth raise money for Theranos. He clearly shouldn’t have browsed porn on a work-issued laptop, but Matt didn’t think it was a capital offense that merited blackmailing him. And besides, it had been found after the fact. Saying it was the reason Mosley was fired simply wasn’t true.

			The way John Howard was treated also bothered him. When Matt reviewed all the evidence assembled for the Michael O’Connell lawsuit, he didn’t see anything proving that Howard had done anything wrong. He’d had contact with O’Connell but he’d declined to join his company. Yet Elizabeth insisted on connecting the dots a certain way and suing him too, even though Howard had been one of the first people to help her when she dropped out of Stanford, letting her use the basement of his house in Saratoga for experiments in the company’s early days. (Theranos later dropped the case against its three ex-employees when O’Connell agreed to sign his patent over to the company.)

			Matt had long wanted to start his own IT consulting firm and he decided this was the time to walk away and do it. When he informed Elizabeth of his decision, she looked at him in utter disbelief. She couldn’t comprehend how he could possibly trade in a job at a company that was going to revolutionize health care and change the world for that. She tried to entice him to stay with a raise and a promotion, but he turned her down.

			During his last couple of weeks at Theranos, what Matt had seen happen to numerous other employees started happening to him. Elizabeth wouldn’t speak to him anymore or even look at him. She offered one of his IT colleagues, Ed Ruiz, his position if Ed agreed to dig through Matt’s files and emails. But Ed was good friends with Matt and refused. In any case, there was nothing to find. Matt was squeaky-clean. Unlike Henry Mosley, he was able to keep his stock options and to exercise them. He left Theranos in February 2008 and started his own firm. Ed Ruiz joined him a few months later.



* * *



			—

			 			THERANOS’S NEW OFFICE in Palo Alto was nice, but it was actually too big for a startup that had just shrunk back down to fifty people after the Ed Ku layoffs. The main floor was a long rectangular expanse. Elizabeth insisted on clustering employees on one side of it, leaving a big empty stretch of space on the other. Once or twice, Aaron Moore tried to put it to use by coaxing several colleagues into a game of indoor soccer.

			Aaron grew closer to Justin Maxwell and Mike Bauerly after Ana Arriola’s sudden departure. Ana hadn’t given any of them a heads-up that she planned on quitting. She’d just marched out one day and hadn’t come back. It unsettled Justin the most because Ana was the one who’d talked him into leaving Apple to come to Theranos, but he tried to maintain a positive attitude. He told himself that if the company was moving to prime Palo Alto office space, then it must be doing something right.

			Shortly after the move, Aaron and Mike decided to conduct some informal “human factors” research with two of the Edison prototypes Tony Nugent and Dave Nelson had built. It was engineering-speak for putting them in people’s hands and seeing how they interacted with them. Aaron was curious to know how people handled pricking their fingers and the subsequent steps required to get the blood into the cartridge. He’d pricked his own finger so much while running internal tests that he no longer had any feeling in it.

			With Tony’s permission, they put the Edisons in the trunk of Aaron’s Mazda and drove up to San Francisco. Their plan was to take them around to friends’ startups in the city. First, they stopped at Aaron’s apartment in San Francisco’s Mission District to do some staging. They placed the machines on the wooden coffee table in Aaron’s living room and made sure they had everything else they needed: the cartridges, the lancets to draw the blood, and the small syringes called “transfer pens” used to put the blood in the cartridge.

			Aaron took photos with his digital camera to document what they were doing. The Yves Béhar cases weren’t ready yet, so the devices had a primitive look. Their temporary cases were made from gray aluminum plates bolted together. The front plate tilted upward like a cat door to let the cartridge in. A rudimentary software interface sat atop the cat door at an angle. Inside, the robotic arm made loud, grinding sounds. Sometimes, it would crash against the cartridge and the pipette tips would snap off. The overall impression was that of an eighth-grade science project.

			 			When Aaron and Mike arrived at their friends’ offices, they were greeted with chuckles and cups of coffee. Everyone was a good sport, though, and agreed to go along with their little experiment. One of the stops was at Bebo, a social networking startup that was acquired by AOL a few weeks later for $850 million.

			As the day progressed, it became apparent that one pinprick often wasn’t enough to get the job done. Transferring the blood to the cartridge wasn’t the easiest of procedures. The person had to swab his finger with alcohol, prick it with the lancet, apply the transfer pen to the blood that bubbled up from the finger to aspirate it, and then press on the transfer pen’s plunger to expel the blood into the cartridge. Few people got it right on their first try. Aaron and Mike kept having to ask their test subjects to prick themselves multiple times. It got messy. There was blood everywhere.

			These difficulties confirmed what Aaron already suspected: the company was underestimating this part of the process. To assume that a fifty-five-year-old patient in his or her home was going to immediately master it was wishful thinking. And if you didn’t get this part right, it didn’t matter how well the rest of the system functioned; you weren’t going to get good results. When they got back to the office, Aaron passed on his findings to Tony and Elizabeth, but he could tell they didn’t think they were a priority.

			Aaron was getting frustrated and disillusioned. He’d initially bought into Elizabeth’s vision and found work at Theranos exciting. But after nearly two years, he was getting burned out. Among other issues, he didn’t get along with Tony, who’d become his boss. To get out from under him, he had asked to transfer from engineering to sales. He’d even spent a recent Saturday driving around shopping for a suit in the hope that Elizabeth would let him tag along on her trip to Switzerland. She didn’t, but she seemed to at least be taking his transfer request under advisement.

			 			A few days after the San Francisco excursion, Aaron was sipping a beer at home and downloading the pictures he’d taken when an idea for a joke came to him. Using Photoshop software, he took one of the pictures—it showed the twin Edison prototypes sitting side by side on dinner mats on his coffee table—and made a fake Craigslist ad. Above the photo and under a headline that read, “Theranos Edison 1.0 ‘readers’—mostly functional—$10,000 OBO,” he wrote:

			 				Up for grabs is a rare matching set of Theranos point-of-care diagnostic “Edison” devices. Billed as the “iPod of healthcare,” the Edison is a semi-portable immunochemistry platform capable of performing multiplexed protein assays on a fingerstick sample of human or animal whole blood…

				I bought these units recently when I thought I was at risk of succumbing to septic shock. Now that I’ve tested my protein C and realized that I’m safely in the 4 ug/mL range, I no longer need a pre-production blood analytic device. My loss is your gain!

				$10k for the pair, $6000 apiece, OBO—would also be willing to consider trade for a comparable pre-clinical diagnostic device (i.e., Roche, Becton-Coulter [sic], Abaxis, Biosite, etc.). Comes with a supply of single use cartridges, pelican shipping cases, AC adapter, EU power adapters, and assorted blood collection accessories, leeches, etc.



			Aaron printed out the mock ad and took it with him to work the next day. When Justin and Mike spotted it on his desk, they thought it was hilarious. Mike decided it deserved a bigger audience and posted it on the wall in the men’s room.

			Then all hell broke loose. Someone took the ad down and brought it to Elizabeth, who thought it was real. She convened an emergency meeting of the senior managers and the lawyers. She was treating it as a full-blown case of industrial espionage and wanted an immediate investigation to find the culprit.

			 			Aaron decided he better fess up before things got further out of control. He sheepishly came forward and confessed to Tony. It was meant as an innocent prank, he explained. He thought people would find it amusing. Tony seemed understanding. He’d taken part in a few pranks of his own at Logitech when he worked there. But he warned Aaron that Elizabeth was furious.

			Later in the day, she called Aaron into her office and stared at him with dagger eyes. She was deeply disappointed in him, she told him. She didn’t find his little stunt funny at all, and neither did other employees. It was disrespectful to the people who’d worked so hard to make the product. He could forget about joining the sales team. She couldn’t put him in front of customers. This showed he represented the company poorly. Aaron went back to his cubicle with the knowledge that he was now squarely in Elizabeth’s doghouse.



* * *



			—

			A MOVE TO SALES would probably have been ill-advised anyway. Unbeknownst to Aaron, trouble was brewing in that corner of the company. A new employee named Todd Surdey had come on board to head up sales and marketing, a role previously played by Elizabeth herself.

			Todd was the consummate sales executive. Before joining Theranos, he had worked at several established companies, including most recently the German enterprise software juggernaut SAP. He was fit and good-looking, wore nice suits, and rolled up every day in a fancy BMW. During lunchtime, he pulled a carbon fiber road bike out of his trunk and went on rides in the nearby hills. Aaron liked to cycle too and accompanied Todd a few times in an attempt to buddy up to him before his prank put him in the penalty box with Elizabeth.

			Todd’s two sales subordinates were based on the East Coast, where all the big pharmaceutical companies were headquartered. One of them was Susan DiGiaimo, an employee who operated out of her home in New Jersey and had worked for Theranos for nearly two years. Susan had accompanied Elizabeth on numerous sales pitches to drugmakers and had listened uncomfortably as she promised them the moon. When the drugmakers’ executives asked if the Theranos system could be customized to suit their needs, Elizabeth would always answer, “Absolutely.”

			 			Soon after he started, Todd began asking Susan a lot of questions about the revenues Elizabeth was projecting from her deals with the drugmakers. She kept a spreadsheet with detailed revenue forecasts. The numbers were big, in the tens of millions of dollars for each deal. Susan told Todd that, based on what she knew, they were vastly overinflated.

			Moreover, no significant revenues would materialize unless Theranos proved to each partner that its blood system worked. To that effect, each deal provided for an initial tryout, a so-called validation phase. Some companies, like the British drugmaker AstraZeneca, weren’t willing to pay more than $100,000 for the validation phase, and all could walk away if they weren’t happy with the results.

			The 2007 study in Tennessee was the validation phase of the Pfizer contract. Its objective was to prove that Theranos could help Pfizer gauge cancer patients’ response to drugs by measuring the blood concentration of three proteins the body produces in excess when tumors grow. If Theranos failed to establish any correlation between the patients’ protein levels and the drugs, Pfizer could end their partnership and any revenue forecast Elizabeth had extrapolated from the deal would turn out to be fiction.

			Susan also shared with Todd that she had never seen any validation data. And when she went on demonstrations with Elizabeth, the devices often malfunctioned. A case in point was the one they’d just conducted at Novartis. After the first Novartis demo in late 2006 during which Tim Kemp had beamed a fabricated result from California to Switzerland, Elizabeth had continued to court the drugmaker and had arranged a second visit to its headquarters in January 2008.

			The night before that second meeting, Susan and Elizabeth had pricked their fingers for two hours in a hotel in Zurich to try to establish some consistency in the test results they were getting, to no avail. When they showed up at Novartis’s Basel offices the next morning, it got worse: all three Edison readers produced error messages in front of a room full of Swiss executives. Susan was mortified, but Elizabeth kept her composure and blamed a minor technical glitch.

			 			Based on the intel he was getting from Susan and from other employees in Palo Alto, Todd became convinced that Theranos’s board was being misled about the company’s finances and the state of its technology. He took his concerns to Michael Esquivel, the general counsel with whom he had established good rapport.

			Michael, it turned out, was developing his own suspicions. During a lunchtime run with a colleague from the new office to the Stanford Dish and back, he mentioned not feeling too good about Theranos’s pharmaceutical partnerships. He wouldn’t say more, but the colleague could tell something was bothering him.

			In March 2008, Todd and Michael approached Tom Brodeen, one of Theranos’s board members, and told him the revenue projections Elizabeth was touting to the board weren’t grounded in reality. They were hugely exaggerated and impossible to reconcile with the unfinished state of the product, they said.

			Brodeen was a seasoned businessman in his mid-sixties who had headed one of the big consulting firms as well as several technology companies. He hadn’t been on the Theranos board long, having joined at the request of Don Lucas in the fall of 2007. Given how new he was as a director, he advised Todd and Michael to take their account directly to Lucas, the board’s chairman.

			Coming just months after Avie Tevanian had raised similar concerns, Lucas took the matter seriously this time. In a way, he couldn’t afford not to: Todd was the son-in-law of one of Theranos’s investors, the venture capitalist B. J. Cassin. Cassin and Lucas were longtime friends. They had both invested in Theranos at the same time, during the startup’s Series B round in early 2006.

			Lucas convened an emergency meeting of the board in his office on Sand Hill Road. Elizabeth was asked to wait outside the door while the other directors—Lucas, Brodeen, Channing Robertson, and Peter Thomas, the founder of an early stage venture capital firm called ATA Ventures—conferred inside.

			 			After some discussion, the four men reached a consensus: they would remove Elizabeth as CEO. She had proven herself too young and inexperienced for the job. Tom Brodeen would step in to lead the company for a temporary period until a more permanent replacement could be found. They called in Elizabeth to confront her with what they had learned and inform her of their decision.

			But then something extraordinary happened.

			Over the course of the next two hours, Elizabeth convinced them to change their minds. She told them she recognized there were issues with her management and promised to change. She would be more transparent and responsive going forward. It wouldn’t happen again.

			Brodeen wasn’t exactly dying to come out of retirement to run a startup in a field in which he had no expertise, so he took a neutral stance and watched as Elizabeth used just the right mix of contrition and charm