The heart of the problem, Carreyrou writes, was that “Holmes and her company overpromised and then cut corners when they couldn’t deliver.” To hide those shortcuts, they lied. Theranos invented revenue estimates “from whole cloth.” It boasted of mysterious contracts with pharmaceutical companies that never seemed to be available for viewing. It spread the story that the United States Army was using its devices on the battlefield and in Afghanistan — a fabrication.
Even for a private company like Theranos, disclosure is the bedrock of American capitalism — the “disinfectant” that allows investors to gauge a company’s prospects. Based on Carreyrou’s dogged reporting, not even Enron lied so freely.
Carreyrou’s presentation has a few minor flaws. He introduces scores of characters and, after a while, it becomes hard to keep track of them. In describing these many players he sometimes relies on stereotypes. Of an employee “built like an N.F.L. lineman” the author writes, “his physique belied a sharp intellect.” Actually, it didn’t; big people can also have sharp intellects.
Such blemishes in no way detract from the power of “Bad Blood.” In the second part of the book the author compellingly relates how he got involved, following a tip from a suspicious reader. His recounting of his efforts to track down sources — many of whom were being intimidated by Theranos’s bullying lawyer, David Boies — reads like a West Coast version of “All the President’s Men.” The author is admirably frank about his craft. He feels a “familiar rush” when he hears that patient false negatives could be life threatening — i.e., that he’s onto a big story.
In the end, Carreyrou got the Boies treatment — angry (but ultimately hollow) threats of a lawsuit. Holmes also pleaded with Rupert Murdoch — the power behind The Wall Street Journal and, as it happened, her biggest investor — to kill the story. It’s a good moment in American journalism when Murdoch says he’ll leave it to the editors.
After Carreyrou’s front-page exposé was published in 2015, Theranos’s business prospects collapsed, directors resigned and the S.E.C. sued Holmes for fraud (she settled). The company also settled private suits. Federal regulators, already on the trail, found numerous violations, including sloppy lab procedures and unreliable equipment. Theranos, they determined, put patient health in “immediate jeopardy.” Several of the labs have been shuttered. Carreyrou has reported that Theranos is under criminal investigation and probably headed for liquidation.
The question of how it got so far — more than 800 employees and a paper valuation of $9 billion — will fascinate business school classes for years. The first line of defense should have been the board, and its failure was shocking. Some of the directors displayed a fawning devotion to Holmes — in effect becoming cheerleaders rather than overseers. Shultz helped his grandson land a job; when the kid reported back that the place was rotten, Grandpa didn’t believe him. There is a larger moral here: The people in the trenches know best. The V.I.P. directors were nectar for investor bees, but they had no relevant expertise.