Theranos whistleblower discusses firm’s downfall
When employees tested positive for syphilis, Tyler Schultz knew device was flawed
SANTACLARA » Whistleblower Tyler Shultz already knew something was terribly wrong with now- disgraced health technology startup Theranos’ new blood test after working there for just a few months. That’s what he told a packed room Thursday at an event sponsored by Santa Clara Uni- versity’s Markkula Center for Applied Ethics.
But it was when he and other employees got their own blood tested that it became even more plain that the new method promoted by the Palo Alto company’s charismatic CEO Elizabeth Holmes was not living up to the national hype.
Twenty percent of the employees had syphilis, or so the tests showed.
But while that sexually transmitted disease is on the rise in the U. S., new cases affect only about 30,000 people a year, or 0.009 percent of the
population.
“No one took those results seriously enough to go get tested,” said Shultz, a lab worker who went to Holmes with his concerns before the now- defunct company once valued at $9 billion was branded a fraud.
The privately held health technology startup claimed it had devised a way to test blood via a simple prick of a finger rather than a needle inserted into a vein. Had the test been successful, it would have revolutionized blood testing and disrupted the existing industry.
Shultz, the grandson of former Secretary of State George Shultz, is widely credited with being one of the first whistleblowers at Theranos — initially as an anonymous tipster to New York state health authorities and toWall Street Journal reporter John Carreyrou, and later publicly.
His grandfather, one of several prominent board members who initially defended the company despite revelations by his grandson and others, demanded his grandson stop airing his concerns.
Theranos also went after Tyler Shultz in court, claiming he was revealing trade secrets and forcing the young man’s parents to spend $400,000 on his defense. Tyler Shultz said Thursday that he and his grandfather have reconciled.
Earlier this year, Holmes agreed to a $500,000 penalty and a 10-year ban on serving as an officer or director of a public company to settle civil charges filed by the Securities and Exchange Commission, alleging she committed an “elaborate, years- long fraud” that “deceived investors into believing that its key product — a portable blood analyzer — could conduct comprehensive blood tests from finger drops of blood.” Holmes appeared in court this week in San Jose, where she faces criminal charges of federal wire fraud.
The 27-year- old Shultz was interviewed before an audience of about 250 people Thursday by Ann Skeet, senior director of leadership ethics at Santa Clara University’s Markkula Center for Applied Ethics.
Many audience members had read Carreyrou’s book about the downfall of Theranos called “Bad Blood: Secrets and Lies in a Silicon Valley Startup.” Shultz is currently the CEO and co- founder of Flux Biosciences, a San Francisco startup that aims to bring medical grade diag- nostics into consumers’ homes.
“He’s a hero,” said San Jose resident Trish New-farmer, whose book club read “Bad Blood” and loved it. “He was very brave to stand up to his grandfather.”
Tyler Shultz said he wasn’t the only one at the company to raise concerns about the quality of the test.
“A lot of people knew this,” he said. “It was an inside joke.”
Holmes would walk around the lab with “old men” who had either invested in the company or were considering it, Shultz said. A senior scientist once even quietly muttered as one of the men passed by, “Someone is about to lose their inheritance.”
Asked how problems with the test were concealed for so long, Shultz said the firm of 800 work- ers was made up of two separate worlds — the “carpeted world,” with executives, software engineers and marketers, and the “tiled world,” referring to the labs where the research was being done.
Holmes also had the gift of making “every single person feel important.”
“I have no idea what was going on in her head,” he said. “She is definitely not taking responsibility. Does she realize she is lying? I don’t know.”
Another factor was ”the board didn’t have any power.”’ Shultz suggested how board members could keep a handle on what is really going on in their companies.
“Talk to the person who is pipetting,” he said. “If a board member came to me, I would have said, this is not working.”