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Y Combinator2h 56m

Inside Theranos with ex-Employee Tyler Shultz

Tyler Shultz, Jessica Livingston, Carolynn Levy, Elizabeth Holmes, George Shultz, Erika Cheung

Interview, Fireside Chat
  • Tyler Schultz anticipates that Theranos's technology will fail to achieve its projected capability of performing complex central laboratory tests from a single drop of blood in diverse environments like battlefields or medevac helicopters, noting the device could only process one test at a time and lacked standalone functionality.
  • The speaker expects that while the company aimed to validate 300 tests, only seven tests, including the easily performed HBA1C, were actually validated before his departure, and that regulators would be misled by locked doors in the "Normandy" lab and a lack of genuine inspection activity.
  • Theranos is predicted to have cheated on New York State Department of Health audits by reporting third-party equipment results even when Theranos results differed by over 300%, and the company is expected to knowingly distribute incorrect medical information to patients at Walgreens when quality controls failed.
  • Specific test failures are anticipated, such as a syphilis test exhibiting only 65% sensitivity on known positive samples, and the speaker expects employees to remain only due to financial pressures like mortgages and visas rather than stock options, with some too afraid to resign even after securing housing elsewhere.
  • The internal culture is described as one where Elizabeth Holmes maintains a public angelic persona while Sonny Balwani runs the company internally through bullying and threats, with employees who disagree facing termination, lawsuits, and company-wide emails warning they will be "destroyed."
  • Elizabeth Holmes is expected to avoid an IPO to maintain secrecy, claiming progress was due to exceeding FDA regulatory requirements, while Silicon Valley investors like Sequoia and Google Ventures reportedly rejected the investment due to poor fit.
  • The speaker expects to spend $400,000 to $500,000 on legal fees following his whistleblower actions, during which time he will face private investigators following him 80% to 90% of the time, intimidation tactics, and fears of FBI involvement.
  • Legal threats included temporary restraining orders, demands to name other sources under penalty of perjury, and "ambush" attempts at the speaker's grandfather's house, leading to a "war of attrition" where court dates were threatened and then withdrawn to force negotiation.
  • Despite evidence from CMS and FDA inspections that placed patient health in immediate jeopardy and recommended Elizabeth Holmes be barred from operating a lab for two years, the board is expected to continue issuing statements of 100% support for her almost a year after the initial exposure.
  • The speaker anticipates that the SEC whistleblower program will allow for a recovery of 10% to 30% of settlements, creating a precedent for contingency-based legal work, and that his future book aims to teach companies to build cultures of openness over fear to prevent such fraud.