Why Theranos Is My
Favorite Story Since the Moonshot and IACS: The Power of Hype

By

Leonard Zwelling

http://www.nytimes.com/2016/07/09/business/theranos-elizabeth-holmes-ban.html?ref=business&_r=0

http://www.wsj.com/articles/when-startups-put-the-fab-in-fabricate-1468015329

         I have been following this one for a while.

         Theranos is a 2003 start-up company headed by a Stanford
University drop-out named Elizabeth Holmes with a penchant for long blonde hair
and black turtlenecks. She had the secret for developing lab tests for patients
using a finger stick’s worth of blood instead of the usual Vacutainer tubes
with which most of us are familiar. It would be economical, quick and portable.
And less painful. It sounded too good to be true. And it was.

         That didn’t prevent Ms. Holmes from developing a company
with a $9 billion market valuation and people such as Henry Kissinger, Sam
Nunn, George Schultz, Larry Ellison and Bill Frist as board members and
investors.

         Why anyone would think a young woman of 19 with no
experience and no credentials could start a company based on sophisticated
technology is beyond me. Why anyone would predict success is even harder to
believe.

I
first read about Theranos about a year or two ago when the scales were
beginning to fall from the eyes of many on Wall Street. The eyes are clear now.
Ms. Holmes has just been barred from running a laboratory company for two years
by federal regulators and her company and its deal with Walgreen’s have
collapsed.

Again,
I am shocked that anyone could think that someone that young with no background
in lab analysis could develop technology upon which a company could be built.
But obviously some people most of us consider bright (although not necessarily
in science), were fooled by the hype.

         Let’s go forward to 2011 when the Board of Regents of the
University of Texas was sold an equally ridiculous bill of goods that one
Ronald DePinho could augment the revenue stream of MD Anderson through a drug
development process that he uniquely possessed, despite the fact that
commercial pharmaceutical companies were not privileged to his insight. Is that
even possible? Of course not. Any ninnie would know that, but not the ninnies
in Austin, obviously.

Ken
Shine bought this nonsense and here we are. (Not Shine of course who got out of
town before the storm.)

         My understanding is that Dr. Laurence Cooper has become a
multi-millionaire and the Division of Pediatrics is enjoying some of the
largesse from his company as well now that the shares of the stock gifted to
him and to MD Anderson have been liquidated. Good for him and good for the institution. Maybe the Regents’ plan will work after all. First, everyone likes money. As Danny DeVito said in Heist, “Everybody needs money, That’s why they call it money.” Second,
at least if MD Anderson does the testing of the company’s drugs and technology,
it, and its faculty, will not be conflicted. Now the stuff just has to work.
Ooops! Yes, that’s right. The investors cash in before the product is proved
useful. You buy on the rumor and sell on the fact.

         Does this make new technology commercialization and
development sound like a Ponzi scheme? Of course, it does. That’s because it
is.

         New companies raise money from venture capitalists and
people get rich long before anyone knows if the actual technology will work. As
the Wall Street Journal article above
points out, a company named eToys.com had an initial market valuation of $7.8
billion and was bankrupt 22 months later.

         I am afraid the Cancer Moonshots, whether Richard Nixon’s,
Joe Biden’s or Ron DePinho’s are pretty much the same. There’s a ton of money
up front and there is likely to be little to show for the expenses long term.
That’s because the progress against cancer is not subject to supply and demand
or even the rules (are there any?) of Wall Street.

The
Moonshot of Jack Kennedy was a technology problem soluble with money and other
resources. The cancer problem is not a technology problem. It is a science
problem about which we do not yet know enough to predict what the payoff is
likely to be or when.

         Theranos was a scam from the beginning. I never thought it
made any sense when I first read about it and I invested no money in the
company. It always looked preposterous to me. I had wished I had done the same
with CPRIT (something I testified in favor of) which was another bad idea
because no one decided what it was before it came to be and that is a formula
for disaster. IACS is another scam as far as I can see. If it weren’t, there
would be a successful product by now and I am unaware of it. Perhaps there is
one. If so, what is it?

         The Moonshot (DePinho version) is a scam as well. There is
no amount of money that will guarantee progress in the War on Cancer. We have
to try to invest the limited amount wisely and fund the best science—basic and
clinical—in the nation, not at just one institution.

Much
as I hate the intramural NIH program, I believe the extramural program of grant
funding is as good a system as one can devise for funding research. It just
needs a lot more money.

         So I suggest we be a lot more careful about our investments
in things that sound too good to be true. Because they usually are and so are
the people who purport to gather our cash. If a chemistry panel derived from a
drop of blood sounds too good to be true, maybe it is. Ask Ms. Holmes.

Leonard Zwelling