https://www.wsj.com/articles/theranos-inc-s-partners-in-blood-1526662047
Theranos Inc.’s Partners in Blood
Much of the attention to the medical diagnostics firm accused of fraud has focused on CEO Elizabeth Holmes. But behind the scenes, another character played a central role.
John CarreyrouMay 18, 2018 12:47 p.m. ET
Theranos Inc.’s 15-year quest to revolutionize the blood-testing industry met with the latest in a series of crippling blows in March when
the Securities and Exchange Commission charged the Silicon Valley diagnostics firm with conducting an “elaborate, years-long fraud.” The SEC accused the firm of deceiving investors into believing that its portable device could perform a broad range of laboratory tests on drops of blood pricked from a finger, when in fact it was doing most of its tests on commercial analyzers made by others.
Much of the attention
has focused on Theranos founder Elizabeth Holmes. But another character played a central role behind the scenes in the alleged fraud: Ms. Holmes’s boyfriend, Ramesh “Sunny” Balwani, according to more than three dozen former Theranos employees who interacted with Mr. Balwani extensively over a number of years. Mr. Balwani, who met Ms. Holmes when she was a teenager, jointly ran the company with her for seven years as president and chief operating officer and enforced a corporate culture of secrecy and fear until
his departure in the spring of 2016, the former employees say.
Unlike Ms. Holmes and Theranos, who reached a settlement with the SEC to resolve the agency’s civil charges in March without admitting or denying wrongdoing, Mr. Balwani has denied separate charges the SEC filed against him in a parallel action and is fighting them in a California federal court. Ms. Holmes didn’t respond to requests for comment. A spokeswoman for Mr. Balwani provided a statement from his lawyer, Jeffrey B. Coopersmith, saying Mr. Balwani accurately represented Theranos to investors to the best of his ability, worked hard to maximize shareholder value and took on significant risk investing in the company while never benefiting financially from his work.
‘In the 37-year-old Mr. Balwani, the 18-year-old Ms. Holmes saw what she wanted to become: a successful and wealthy entrepreneur. He became her mentor.’
When Mr. Balwani met Ms. Holmes, he already had made a fortune from his role in a technology startup. Born and raised in India, Mr. Balwani first came to the U.S. in 1986 for his undergraduate studies and later worked as a software engineer for Lotus and Microsoft. In 1999, he joined CommerceBid.com as its president and No. 2 executive; it was developing a software program for companies to pit their suppliers against one another for contracts in live online auctions. Business-to-business e-commerce had become hot, and in November 1999, the sector leader—the similarly named Commerce One—acquired the startup for $232 million in cash and stock, though it had just three clients testing its software.
Mr. Balwani received Commerce One shares that he sold for more than $40 million, based on a lawsuit he later filed against an adviser over tax-shelter advice. The deal’s timing couldn’t have been better for the startup’s executives. Within five months, the dot-com bubble had popped and the stock market had swooned. Commerce One eventually filed for bankruptcy.
Not long after cashing in, Mr. Balwani crossed paths with Ms. Holmes in Beijing. In the summer of 2002, both were enrolled in Stanford University’s Mandarin program, which featured several weeks of instruction in China. Ms. Holmes, a month away from starting her undergraduate studies at Stanford, struggled to make friends on the trip and got bullied by some of the other students, according to a description a friend of Ms. Holmes’s mother gave in a legal proceeding. Mr. Balwani, the lone adult among a group of college kids, stepped in and came to her aid, according to this account.
Mr. Balwani, rarely seen in photos, and Ms. Holmes speak to the staff on July 2, 2015, in the cafeteria of Theranos's then-headquarters in Palo Alto. The FDA had just approved one of the company’s fingerstick tests.
In the 37-year-old Mr. Balwani, the 18-year-old Ms. Holmes saw what she wanted to become: a successful and wealthy entrepreneur, according to a friend of Ms. Holmes. He became her mentor, the person who would teach her about business in Silicon Valley. They became romantically involved not long after Ms. Holmes dropped out of Stanford in the fall of 2003, according to the friend and early Theranos employees. When they’d first met in China, Mr. Balwani was married to a Japanese artist and living in San Francisco. By October 2004, he was listed as single on the deed to a condominium he purchased in Palo Alto. Other public records show Ms. Holmes moved into that apartment in July 2005.
When she first incorporated her startup in early 2004, Ms. Holmes wanted to develop a wristband that would simultaneously detect people’s ailments by drawing their blood with microneedles and cure them by injecting them with the appropriate drug. But the TheraPatch, as she called it, proved too futuristic, so she pivoted to a different vision: a portable machine that would perform dozens of laboratory tests from a drop of blood pricked from a patient’s finger.
In Theranos’s early years, Mr. Balwani advised Ms. Holmes but didn’t work at the company, according to early employees. They nonetheless felt his presence behind the scenes, saying it wasn’t unusual for Ms. Holmes to start sentences with “Sunny says.” In September 2009, he joined the company as its second-in-command. Theranos by that time had burned through $47 million it had raised from investors in its first three funding rounds and was on the cusp of bankruptcy. To keep it afloat, Mr. Balwani agreed to personally guarantee a $12 million credit line it took out.
‘Mr. Balwani took to firing people so often that it gave rise to a new expression at the company: to “disappear” someone.’
With some of his own money now at stake, Mr. Balwani wasted no time asserting himself. He frequently barked orders and dressed people down, former employees say. They remember him cutting a brash figure among the scientists and engineers, wearing white designer shirts with puffy sleeves and the top three buttons open, acid-washed jeans and blue Gucci loafers, along with pungent cologne.
He flashed his wealth through his cars, driving a black Lamborghini Gallardo and a black Porsche 911. Both had vanity license plates: The one on the Porsche read “DAZKPTL” in mock reference to Karl Marx’s treatise on capitalism. The Lamborghini’s plate was “VDIVICI,” a play on the phrase “Veni, vidi, vici” (“I came, I saw, I conquered”), which Julius Caesar used to describe his quick victory at the Battle of Zela.
Mr. Balwani took to firing people so often that it gave rise to a new expression at the company: to “disappear” someone. That’s how Theranos employees used the normally intransitive verb when someone was dismissed. “Sunny disappeared him,” they would say.
Wall Street Journal investigative reporter John Carreyrou recounts some of the more unusual experiences he had while uncovering the story of Theranos's business practices.
By the summer of 2013, the Theranos machine had gone through three iterations. The first, a microfluidic device, had been abandoned in 2007. The second, a converted glue-dispensing robot called
the Edison, had been shelved in 2010. The third, which Ms. Holmes had christened the miniLab, was supposed to be the one that finally turned her vision into reality. But while she and Mr. Balwani were telling Theranos’s retail partner, Walgreens, that the miniLab could perform the full range of lab tests on tiny finger-stick samples, the truth was that it remained a work in progress, according to the SEC. The list of its problems was lengthy.
The biggest problem of all was the dysfunctional corporate culture in which it was being developed. Ms. Holmes and Mr. Balwani brushed off
those who raised concerns or objections as cynics and naysayers. Employees who persisted in doing so were usually marginalized or fired.
While Ms. Holmes was fast to catch on to engineering concepts, Mr. Balwani often appeared out of his depth during those discussions, according to several former Theranos engineers. He had a habit of repeating technical terms he heard others using. During one meeting, he latched onto the term “end effector,” which signifies the claw at the end of a robotic arm. Except Mr. Balwani didn’t hear “end effector”—he heard “endofactor.” For the rest of the meeting, he kept referring to the fictional endofactors. Mr. Balwani’s knowledge of chemistry also was spotty: For instance, he mixed up the chemical symbols for potassium (K) and phosphorus (P), a mistake most high-school chemistry students learn to avoid.
Left, Theranos manufacturing employees at the Newark, Ca., facility making miniLab blood analyzers, which didn’t work as advertised. Right, the company’s proprietary sample collection device. Photo: Theranos, Inc.