CEO Daily: Friday, December 18


One of the differences between the World of Public Companies and the World of Unicorns – and there are many differences – is that in the first, companies that sell shares to the public have to be candid and tell the truth or face potential action from the SEC. In second, the mandate to be truthful is less clear and less rigorously enforced.


Such is the case with Theranos, the private laboratory company that once promised to do comprehensive lab tests from a single prick of blood from your finger. The hype got ahead of reality.


We at Fortune did our part to contribute to that hype. We were the first magazine to put Theranos CEO Elizabeth Holmes on the cover. Subsequently, the newly minted billionaire graced the cover of virtually every business magazine. She spoke at several Fortune conferences (see the video clip here), and even made our Businessperson of the Year list in 2014.


Now, of course, we know that Theranos has suspended finger prick tests, awaiting approval from the FDA, and moreover was never offering the 200 finger prick tests that we referred to high up in our June 2014 cover story, but rather a significantly smaller number.


How did Fortune make such an error? Roger Parloff, the reporter who wrote the original story, has now gone back and painstakingly tried to recreate the conversations and communications that led to that claim in our story. He takes himself to task for not demanding more clarification to cloudy answers, but in the end also concludes that he was misled. His new story, which you can read here, provides an unusual peek behind the scenes of the sometimes messy process of journalism.


When Fortune published our original story in June 2014, Theranos never complained about our claim that it was conducting 200 laboratory tests using its proprietary finger prick technology. After Parloff’s story was posted yesterday, Theranos was quick to respond, claiming the company had never misled Fortune. We stand by the story.


I have had the opportunity to spend a fair amount time with Ms. Holmes in the last year, and to visit her facilities in Palo Alto. I also interviewed her at the Fortune Global Forum last month. She is clearly an extraordinary woman, and her vision for remaking the health care system and empowering consumers is powerful and sincere. I do not believe she ever set out with the intent to mislead – she is not Martin Shkreli (the latest below.)


But I do believe Holmes and Theranos have been less than candid with the public and with the medical community about what they can and can’t, and are and aren’t, doing. If Theranos is ever going to make it out of the Unicorn forest, it needs to hold itself to a different standard.

CORRECTION: The original version of this story misstated the name of the regulator responsible for approving Theranos’ drugs. It has now been corrected.

Top News

Shkreli: My investors made money

Martin Shkreli, CEO of Turing Pharmaceuticals, denied all the legal accusations against him some 13 hours after his arrest by the FBI in New York Thursday Morning – including that he used his hedge fund and biotech company "like a Ponzi scheme." Shkreli suggested charges of securities fraud and conspiracy were an unfair attempt to punish him for his unrelated move to hike the price of a drug 5,000% overnight, a decision met with wide derision from government officials and peers in the pharmaceuticals industry. "Ponzi victims do not make money, yet Mr. Shkreli’s investors enjoyed strong results," a spokesman for Shkreli said in a statement. Fortune

Apple appoints COO

Apple has moved to bolster its senior ranks by naming a chief operating officer, elevating Senior Vice President Jeff Williams to the position of No. 2 at the technology giant. Williams, who joined Apple in 1998, oversees Apple's massive supply chain and operations. He is often referred to as "Tim Cook's Tim Cook." Interestingly, he is the first executive to serve as COO since Cook held that title, a role he vacated in 2011 when he ascended to the CEO post. Apple also made three other personnel announcements Thursday, adjusting an executive team that has remained fairly stable since 2012. Wall Street Journal (subscription required)

VW names specialist to handle diesel cases

Volkswagen has hired Kenneth R. Feinberg – a lawyer known for his work distributing payouts after Sept. 11 and the BP gulf oil spill – to design and administer a program to address claims related to vehicles affected by the company's admitted use of deceptive software to evade emissions tests. Most recently Feinberg worked for General Motors, administering the victim compensation program tied to the company's deadly ignition defect. More than 500 civil lawsuits have been filed against Volkswagen. New York Times (subscription required)

Japan boosts stimulus

The Bank of Japan has increased its monetary stimulus program, just two days after the Federal Reserve raised interest rates in the U.S. for the first time in nearly a decade. The action by the BoJ sends a signal to financial markets that while the U.S. economy may have recovered from the financial crisis, the process to repair Japan is still ongoing. The BoJ is planning to buy an extra $2.4 billion a year in exchange-traded funds to keep the cost of capital for Japanese companies low, giving them more room to invest and hire. Fortune

 GlaxoSmithKline buys HIV assets

GlaxoSmithKline has agreed to buy Bristol-Myers Squibb's portfolio of experimental HIV treatments for as much as $1.46 billion in two transactions, a deal that is consistent with Bristol-Myers' decision earlier this year to discontinue discovery efforts in virology. For Glaxo, the deal bolsters one of the U.K. drugmaker's fastest-growing businesses. The late-stage assets acquired by Glaxo included fostemsavir, a medicine that has breakthrough therapy designation from the U.S. Food and Drug Administration and will probably be filed for regulatory approval in 2018. Bloomberg

Around the Water Cooler

The Mayo Wars Just Ended

Food startup Hampton Creek has sought to call its vegan spread Just Mayo, despite the fact that the product doesn't contain any eggs – an ingredient required in mayonnaise according to the Food and Drug Administration's legal definition of the condiment. Hampton Creek now says the FDA, which had flagged worries that the product was "misbranded," can retain the name as long as the company makes some changes to the product's label. Fortune

Return scams are costing retailers

Holiday return fraud is expected to cost retailers $2.2 billion this year, up 15% over 2014 levels, according to a National Retail Federation survey. "Return fraud remains a critical issue for retailers with the impact spanning far and wide, in-store and online," NRF warned. Retailers estimate that about 3.5% of holiday returns are fraudulent, putting additional pressure on profit margins that are already squeezed by intense competition, a slow start to the holiday season, and a warm autumn that has hurt sales of winter apparel. Fortune

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