She joined Theranos fresh out of the University of California, Berkeley, a self-described “starry-eyed’’ 22-year-old chemist and biologist who saw Elizabeth Holmes as a role model: the CEO who would revolutionize the blood testing industry.
Seven months later, Erika Cheung quit her job as a lab associate at the company and became a disillusioned whistleblower, her life now enveloped by one of the biggest business scandals in American history. She was among those who had made clear to federal regulators that she viewed Holmes as a liar who had put patients at risk. (Holmes, and her company’s former president, Ramesh Balwani, have been indicted on charges of defrauding investors out of hundreds of millions of dollars as well as deceiving hundreds of patients and doctors.)
In an interview with STAT, Cheung reflected on how she was duped by Holmes, why she believes the disgraced CEO should spend at least five years in prison and how the rifts between her fellow whistleblower Tyler Shultz, and his famous grandfather, George Shultz, went on longer than people know.
Shultz and Cheung, both close friends, have turned their attention since they left Theranos to creating an organization called Ethics in Entrepreneurship in the hope of offering advice for people in the world of technology to sniff out bad players early on. Cheung, now 28, lives in Hong Kong, but was in Boston this week to appear at the Atlantic magazine’s Pulse Summit on Health Care, which was co-sponsored by STAT.
Here is a transcript of the interview, which was edited for length and clarity.
Do you think Elizabeth Holmes should go to jail?
Yes. I’m not the type of person to want to serially punish someone for something that they’ve done. I think people can be forgiven for mistakes that they’ve made. But at the same time, to set that example, to say that you have lied to your investors, you have lied to your employees, you endangered the lives of tens of thousands of patients. And now, you’re going to just get away with that? What kind of example does that set for other people within this industry? That it’s OK to raise a whole bunch of money, put on this theatrical show and now walk away scot-free, versus the Fyre Festival guy. On a much smaller scale, all these partygoers ended up going to this festival; they were in FEMA tents and everything, he got five to six years. (She was referring to Billy McFarland, the founder of the Fyre Festival, who was recently sentenced to six years in prison for promoting a “luxury music festival’’ that bilked its backers.)
How long do you want to see her locked up? What would make you feel like she’s paying …
Her dues? For me, honestly, my only agenda in all of this was for them to stop processing patient samples. Everything beyond that I’m going to leave it up to the justice system. I just wish that she would have the common sense to come forward and apologize. In terms of number of years in prison? Definitely more, I suppose, than the Fyre Festival guy.
What do you make of her being very public these days, out with her reported fiance and her dog?
It’s just weird. It’s just a bit surreal. When you see someone have this situation and pretend that everything is normal. It’s so bizarre.
Elizabeth Holmes interviewed you to get the job. Did you think anything was off at the beginning?
Initially I came in starry-eyed. I admired Elizabeth Holmes. She was this female entrepreneur in biotech. Really what she represented to me was that you could work really hard and get to a position of running your own company. There was something very powerful about the mission she was trying to put forward: making health care accessible, affordable, allowing for price transparency when you get your blood diagnostics. It’s not until you look at her as a character in retrospect that you realize the red flags and warning signs of her behavior and her personality and the kind of act that she put on to be the front face of Theranos.
When did things turn for you?
Things started to turn for me about a month, two months in. Initially I started in research and development. When things fail in R&D, that’s fine. That’s expected. But about a month in we were starting to get patients that were rolling in from our Walgreens (WBA) center in Palo Alto. And I had run this patient sample and before I’d run the patient sample, I was running all these quality controls and they kept failing. And failing. Over and over. I was up until 3 a.m. trying to get quality controls to work and they weren’t working. Things weren’t working all the time. They were deleting data as outliers. Untrained staff were making decisions. Upper level management was saying, “Just get the results out,” at any cost. And get it out quickly.
The better-known whistleblower, your friend Tyler Shultz, knew Holmes much better through his grandfather. (George Shultz was a former secretary of state and investor and champion of Holmes, who sided with her when his grandson started raising doubts.)
Tyler was a good contact for me to have because he had direct contact with Elizabeth Holmes because of his grandfather. He was eating Thanksgiving dinner with Elizabeth Holmes.
Are things OK with Tyler and his grandfather?
Yes. It took a while. A lot longer than I think people realize. It took quite a while. Until seven months ago. I think his grandfather finally realized the truth. They’re finally getting dinner together.
But it’s not what it was. It’s hard, right? For George Shultz, this was a legacy investment in a way. This was one of those last final projects that he was investing in.
It must have been very painful for Tyler.
Oh, yeah. Can you imagine? Tyler’s dad too. Tyler’s dad had to be put between his own father and his son. Tyler’s dad supported Tyler but really wanted it to end, all the legal battles.
Are you surprised by all the sustained publicity over Theranos, the major movie projects?
Yes. It’s blown up into this big story, this big case. One, she got hyped up to this large degree. She was on Fortune, she was considered the youngest billionaire in the United States. And I think rising to the height of everyone treating her as this celebrity and realizing it was on a basis of lies, and not only that it was a company that was around health care. This was people’s lives. It wasn’t developing an app that was like janky you couldn’t get your pizza delivered on time.
What’s your sense of whether Elizabeth Holmes knowingly committed fraud or deluded herself about her actions?
It’s hard when you’re dealing with someone who was clearly delusional to really understand what is going on in their head and what they perceive as reality versus what they’ve sort of imagined. Do I think she was out to scam everybody from the very beginning? At lot of people disagree with me, but I don’t think that was the case. I think she went in, at least initially, with good intentions. But she let her ego get in the way. She was more focused on being the next Steve Jobs of health care.
People have called her a “psychopath.’’
I don’t know her well enough. But clearly there’s something not right with her. She’s never made an apology. She’s never come forward to the patients and said, “Hey, I’m sorry.”
When you say she’s “not right,’’ do you look back at any clues that you didn’t pick up on?
The secrecy. The extreme amount of paranoia of these big medical diagnostic companies going to come after her and destroy her technology. The fact that before you even go in there and interview you have to sign an NDA. Responding to questions, “Well, until you work for the company, that’s trade secrets.”
Did you see that during your interview with Holmes?
She just dodged a lot of questions. Like, “Oh, so what kind of technology are you guys using to run the blood samples?” It would always be the case, “Until you work for the company, those are trade secrets — you’ll be able to find out what we’re working on.”
What’s the most off-the-wall thing you saw Holmes do?
The lying. Watching her do an article with Fortune or with Forbes, and it would just be such a different picture, just a wildly different picture of what was going on internally in the company versus what was being portrayed in the media. It was so disparate to the reality: Sitting at your lab bench and going, “What is she talking about?”
What are you doing now?
I founded a nonprofit basically focused on preventing major scandals from happening, like Theranos.
We’re focused on three different stakeholders: providing resources and tools for entrepreneurs, so that at every stage of development they understand the ethical considerations in building a business and in running a business, from hiring to the culture you implement to building your product. We’re working with ethics departments and seasoned lawyers and compliance officers to basically build out the tools to help entrepreneurs.
How big is your staff?
We launched six weeks ago. At the moment we have six people. I’m the only full-time. Tyler is coming on board; he helps with introductions and the strategy of the organization. At this point, we’re self-funded and we’re talking to a few investors.
What are long-standing consequences of the Theranos saga?
Investors are very cautious. Is this the next Theranos? A lot of people are very discouraged by this whole scenario. What are the implications of having a strong female founder in biotech being associated with the largest and biggest scandal in Silicon Valley to date? What are the unconscious biases that may go against female founders who are very charismatic, who are very good at selling, in terms of approaching investors or selling to customers?
Do you think this could happen again?
Yeah. Maybe not in the same style. A lot of people have been very skeptical of the fireworks and show that Silicon Valley puts on about how they’re going to change the world and make an impact in this very grandiose way without necessarily having the evidence to back up how they’re going to do that.
As software in general starts to integrate more into regulated industries, we’re going to have to be on high alert of these types of scenarios happening again.
Now that Holmes is out of the picture, is there a woman founder in the sciences you admire?
I like Anne Wojcicki from 23andMe. She’s a very kind, strong female leader. She’s very pragmatic. She’s been able to confront these different challenges of building a tech company in a highly regulated space with a certain level of sensibility about her. It’s not that she gets defeated when regulatory challenges come up.
Your advice to entrepreneurs to do good in the health space?
There still is a lot of opportunity to solve a lot of problems in health care. And even though Theranos was how not to do things, there are many good ways to do things well and we’re at an exciting period in this convergence between software and computing power and biology and synthetic biology that really we’re going to start seeing a lot of innovation in the health care space.