Principled Decision Making – A Fireside Chat with Tyler Shultz

by | Apr 27, 2023 | Education

Eight months into his job at Theranos, Tyler Shultz decided he had to speak out. “There were lots of reasons why,” he said, “But number one was that I knew for sure that people were getting hurt.” 

Why Tyler was one of the only Theranos employees to voice his concerns, the agonizing price he and his family paid for his courage, and the acceptable limits of “selling a vision,” as a healthcare startup were just a few of the topics explored in a lively conversation between Tyler and Fogarty Innovation CEO Andrew Cleeland in our recent educational event.  

Tyler’s Story

Tyler first met Elizabeth Holmes, founder and CEO of Theranos, at the home of his grandfather, four-time cabinet member George Shultz. “She laid out her vision for Theranos, which was that anything a central laboratory could do, her revolutionary technology could do using only a single drop of blood,” he described. This meant it could be used anywhere – from a battlefield to a helicopter to a patient’s home. He continued, “It sounded like a technology that had no limits and I knew I wanted to be involved.”

Tyler interned at the company for a year, then became a full-time employee after graduation. But rather than being a dream job, red flags quickly began to accumulate.

“As an intern, I realized that not a single person I worked with had ever seen the product. It was almost like the Wizard of Oz where we weren’t allowed to see behind the curtain or talk to anyone who worked there,” he described.  

When he finally did see the Theranos blood analyzer, he was dismayed by its rudimentary technology and limited capabilities. “The biggest problem was that it didn’t work,” he said. “And the second biggest problem was that, even it if did work, it couldn’t come close to doing the things that Elizabeth claimed it could do.’  

Later, Tyler helped run proficiency testing for the company. This is a quality and accuracy assessment in which the lab receives blinded samples, tests them the way it would run patient samples, and then reports the results. “When we got the samples, we split them and ran them on both Theranos and third-party equipment,” Tyler recalled. The results were wildly different, leading management to report only the third-party results. “This meant they knew the Theranos results weren’t accurate enough to pass an audit, but they were willing to use them on real patients who wouldn’t know their results were wrong,” Tyler said. 

The final straw was the lab’s attempt to validate its test for syphilis. Using the Theranos machines, Tyler’s team tested samples known to be positive and got only 65% correct. A second try bumped their success rate to 80%. Next his team tested blood samples from Theranos employees and found that 25% of the company tested positive. 

“With a diagnostic test, you can tune it to be very sensitive, or very specific,” said Tyler. “In this case, we were telling people who had syphilis that they did not, and people who did not have syphilis that they did, which means that there’s no amount of tuning you can do to fix the problem.” He continued wryly, “There was no way that anyone trained in statistics could look at this and say, ‘yeah, we definitely should be testing patients for syphilis.’”

A subsequent attempt to raise his concerns in a productive manner with Elizabeth yielded only the certainty that she was complicit in the deception. “There’s no way she thought what she was saying was even remotely true,” he said.  After a second attempt triggered a blistering email exchange with COO Sunny Balwani, Tyler resigned. 

Blowing the Whistle

The story – or Tyler’s part in it – might have ended there, until he decided to respond to an inquiry from investigative reporter John Carreyrou, then of the Wall Street Journal.  “He had won a Pulitzer prize for exposing Medicare fraud, so I thought he might finally be the guy who would ask the hard questions. Because up until this time, every interview was along the lines of, ‘Elizabeth, tell us how great you are.’”

Tyler decided to become an anonymous source for Carreyrou, motivated in part by the desire to give his grandfather, who was by then on the board of Theranos, a chance to make things right. “My grandfather was part of Nixon administration during Watergate, and part of the Regan administration during the Iran Contra scandal. And he made it out of both with his integrity intact. So there was no doubt in my mind that he would want to do the right thing in this case as well.”

Instead, Tyler spent the next two years defending himself against a relentless onslaught of legal threats, bullying, and harassment from Theranos as the company tried to force him to sign affidavits that would stop the newspaper story from publishing and expose other whistleblowers. 

A Family Divided

Instead of shielding him, Tyler’s relationship with his grandfather became a liability as the elder Shultz remained 100 percent behind Elizabeth. Looking back, Tyler attributes it to Elizabeth’s extraordinary powers of influence and persuasion. 

“I can understand why people like my grandfather had a hard time believing me – because I was actually working with this terrible product every single day and I could go have a five minute conversation with Elizabeth and completely forget about all the problems in the lab and feel like I was changing the world again,” he recounted. “The way she spoke to you – she made you feel so important and she preyed on people who were predisposed to believing her, like my grandfather and other board members and investors at the time.”

For Tyler, the stress was off the charts. He needed his parents to pay for lawyers to fight Theranos, but to protect them, he couldn’t tell them his side of the story. Elizabeth, however, was able communicate with them via Tyler’s grandfather. “Elizabeth told them that I was the only one talking to the Journal, that once the paper published Theranos would prove itself right, and that they would make sure I would never work another day in my life,” he said. 

“I just told my parents that what Theranos wants me to say in this affidavit is not true. And that I will not say I’m wrong when I know with complete certainty that I am right,” he recalled. “They said that they would sell the house to pay my legal fees but they begged me not to let that happen. My response was, ‘Be prepared to sell the house.’ And that broke their hearts. It was a really, really tough time.”

A Wasted Opportunity

While the Theranos story ended with the dissolution of the company and prosecution of its leaders, Tyler notes that there was an opportunity for a more positive outcome.

“I think one of the saddest things about this story is that, when the Wall Street Journal published their first story, Theranos still had about $400 million. They could have taken accountability – voided patient tests, compensated injured parties, settled lawsuits and then tried again. Most startups would be thrilled to have the opportunity to spend $400 million,” he said. “However, this board-level decision would have required the board not to be in love with Elizabeth,” said Tyler.  

An Alternate Ending

What would have happened if Tyler and his co-worker, Erika Cheung, had not spoken up? “I think eventually Theranos would have unraveled because people were getting false results,” said Tyler. “My step grandmother got a Theranos potassium test that came back so high that the lab called her and told her to go straight to the emergency room,” Tyler recalled. “And she went and re-did the test and her potassium was normal.” He continued, “Elizabeth told her that it was because she had been eating too many green beans and had this crazy spike in potassium. My step grandmother did not buy that excuse at all but my grandfather did.” He noted that other people had similar experiences. “Not one of them ever called a reporter, but eventually someone was going to,” he said. 

While Tyler and his grandfather continued to experience very different realities until Theranos shut down, it is worth noting that George did defend Tyler early on when Theranos lawyers were particularly deceptive. And while George never apologized to his grandson, he did admit to being wrong and the two had started to reconcile before George’s death in 2021.   

Credible Optimism vs. Fake It ‘Til You Make It

One of the lasting consequences of the Theranos saga has been the painting of medtech startups with the same broad brush as other industries with regard to a “fake it ‘til you make it” approach that can border on deceit. While Tyler sees this as a grey zone, and one in which he still struggles as a founder, Andrew and others in the audience felt differently.

 “I think this is where medtech is different,” said Andrew. “Hyperbole may be part of a financing pitch – but only to a certain degree. You can be credibly optimistic in that scenario, but not when you’re having a conversation with physicians, or with the FDA. And not when it comes to treating patients.”

Tyler credited his Theranos experience with provoking these important conversations. “I think with Theranos, success is being able to take the most negative experience of my life and turn it into a positive one,” he said. “We have had a productive conversation here about what is optimism, what is a lie, and where is the line. And I don’t know the answer, but I think that by using this story, we can have some really good discussions about the pressures we face as entrepreneurs and how we go about addressing them.”

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