Quick guide to spotting non-existent tech

I covered this earlier in a different post, but I wanted to highlight this list from an article in The Register, as a "Quick guide to spotting non-existent tech". Read the company press then go through this checklist when questioning their claims and whether there's more sizzle than steak.

• Refusing to give a launch date.
• Refusing to talk about the tech, claiming confidentiality or trade secrets.
• Using news of investments or hires as evidence of technological progress.
• Promoting itself on a big stage rather than in a small room.
• Offering a well-crafted message and vision but becoming immediately vague when pushed on actual details.
• Offering "exclusive access" – with restrictions.
• Confusing working hard with making progress.

What's interesting in this is how many of these points require a compliant press, many of whom prefer publishing hagiographies rather than investigative pieces - after all it's quicker, easier, and doesn't end up making enemies among some rich and well connected people. Look at the months and years of work it took for John Carreyrou to uncover what was happening at Theranos, all the lawsuit threats and denials by the company. Isn't it much easier to do a puff piece on Elizabeth Holmes and how she just wanted to save the world? Garrett Reim of the LA Business Journal tweeted a comment on this yesterday following an article on the Unethical Side of Silicon Valley by Erin Griffith (which I'll comment on in a separate post).

Many tech "writers" are guilty helpers. Praising unproven products & services just for a pat on the head from a big name investor or exec. https://t.co/F3JR6KyYii

— Garrett Reim (@garrettreim) December 29, 2016

This hits the nail on the head, though I think he may be being a little kind - and don't know which of the terms "enabling", "willfully ignorant", or "complicit" is more apt. That may sound harsh, but remember that the press is part of an ecosystem, and it's clear the incentives now reward them more for page views than accuracy or in depth reporting. They're supposed to be watchmen, but some are making money while choosing to look the other way.

How to improve this situation? All I can suggest is to follow the work of the good journalists, and ignore the 'work' of stenographers posing as reporters. Subscribe to the publications that do the hard work, and deny the others the benefit of claiming page views. In the end, money talks.

Edit: Here's another nice blog post on the "Anatomy of a Scam", specifically regarding Theranos.

Medical Ultrasound Systems Pt III, Where I Talk About Some of the Interesting Portable Devices That Are Now Available

I hope everyone had a great Christmas. Having taken a couple of days off, there were some questions that came in on the two previous posts I wanted to answer and give some decent answers to, mostly regarding the newer portable devices that are available. I have not personally used these devices so can only go by what I have read online and can estimate based upon images, specs etc, and am neither endorsing nor criticising. This is also not an exhaustive list.

First of all, new products testing out the new parts of the market are great, and I'm really glad to see them. For those of you who think that the "Cabal of Wicked Ultrasound Engineers" is trying to protect their vast and profitable market from cannibalisation, I can just say that there are so many imaging modalities and opportunities still to be exploited within ultrasound that as premium features migrate to lower cost systems, I have no doubt that the premium systems will add new features and still provide value at the high end. This will result in a larger market for ultrasound that is split into multiple segments and price points, which I think benefits patients as well as the entire industry and all the people in it.

So onto the products. First, Lumify. This is a handheld device from Philips for use with tablets, here's a basic review of one. They currently have three transducers, which look to be one each for cardiac, abdominal, and vascular. Both power and data use a micro-USB cable to the tablet, which seems to be Android only, I'm going to guess that Apple taking 30% of the price via the app-store is a product killer. Given they charge $199/mnth and up, I'm assuming (given a 36 month period which is usual) that purchase price is between $7000 and $10,000 but have no hard data one way or another on that. At that price, it would be cheaper to buy a tablet, pre-install the software, and sell it than pay the 30% Apple tax. As an aside, I'm surprised Apple don't have a program for hardware and larger companies to pay a smaller percentage or fixed fee in order to open up this type of market for their products.

It looks to use the standard micro-USB B connector, which means up to 480 Mbps data and depending on what they use for power can supply between 2.5 and 10W at 5 Volts from my reading of the spec. All power is supplied from the tablet/phone, which will limit the total usage time since a phone has around a 5Wh battery, and tablets maybe 30 Wh. Both tablet and phone will be using power as well for some computation, graphics, and display, all of which are big power draws. I posted a link to the Verasonics system specs in a previous thread, which noted between 8 and 100W supply, so you can imagine that use time will be severely limited between charges. Also note that the Verasonics system supplies up to 190V signals, so at 5V supply there's going to need to be some electronics to step up the drive signal.

Looking at the probe images, the handles are large, there may be not just electronics in there but perhaps also a small battery to extend use time. It would be interesting to know what a sonographer thinks using it, as I expect it to be heavy, as well as potentially awkward to hold especially if a fair amount of force has to be applied for a good acoustic window, but it does have the advantage of a very thin and light cable.

Given it's USB, there have to be ADC's in the transducer taking it to digital, and you can see with a limit of 480 Mbps, that if you assume 100 channels that's basically 5 Mbps per channel, for a multi-MHz probe. It's clear that some form of compression, early beamforming etc is going on. Where those compromises are made I can't say, as I have no images etc to evaluate it on beyond marketing.

There's more than just basic b-mode imaging (an explanation of imaging modes is here) in these probes according to the website, which is good to see and more than I expected. I can't evaluate anything on image quality, and have to expect that a lot of compromises have been made in order to create them within a very limited power and computation budget. Other reviews of similar products seem to indicate that as a basic imaging device it performs well, though certain more precise or complex imaging needs (such as needle location) are not well supported. To expect such a system to do everything that a full cart does is, of course, ridiculous, and it's a question of whether the team created a product that's useful enough to serve a function.

These products have been out on the market for over a year, nearly 2 now, and I've yet to hear a huge buzz regarding them, though I think the general consensus is an appreciation for the work that went into them and that a good job was done. Is it enough? Over time the market will tell - perhaps a further generation or two of development is needed to really have them take off.

Note that all these type of products still require FDA clearance to be sold as medical devices, so it seems that regulatory compliance is definitively not what is stopping ultrasound at a lower price point. The existence of these devices is a pretty good proof point that the regulation-as-the-bad-guy argument is not appropriate. Further, despite the claims that sub $3,000 systems surely can be made on this blog and others, note that even with all the compromises made, and the screen/computation cost externalised, the price point is still estimated to be $7,000 to $10,000.

Another similar product just out is from Vancouver based Clarius, having also just been FDA approved (go regulation). This is an entirely wireless device, though if you look at the pictures the handle is enormous and has to be held in a very non-traditional manner, as what I assume is the large battery pack and vents for air cooling (or maybe not, I just saw a picture of one underwater) take up the majority of the device. Specs say it weighs 1.2 lbs, which is pretty heavy, and claims ~45 minutes usage. I'd really like to hear a sonographer's take on using this for extended periods - though extended use may not be the target use case. Online prices seem to also be in the $7,000 to $10,000 range. It uses wireless-N so has similar bandwidth limits to the Lumify, and so most if not all the processing will have to be done in the handle. It seems to support fewer imaging modes than the Lumify, but does use iPads, so would be interesting to know how that economic model works (transducers and software sold separately, with most cost in the hardware side?). Hard to say more, but it looks like a first generation device that's made compromises to achieve some very specific goals (like all good engineering does!), I'll be interested to see how it does in the market.

Just as another point, I wonder how the support for these devices works when it's connected to a standard, general use, tablet/phone? Having supported commercial software on multiple OS's, it's a support nightmare when you have to deal with OS versions, drivers, firmware, and all the other variations that a non-dedicated hardware platform brings. I might be tempted to simply sell the tablet with the transducer as a dedicated device that's locked down and save myself the support headache.

There are also some very low cost devices I see on Alibaba, such as here, claiming to be $200 to $1,500 for a wireless transducer. To include the transducer, the electronics, the battery, the wifi, the software at that price (esp $200!), I simply don't believe it, you just can't even buy the parts for that, let alone pay for labor or make a profit, even under the most generous assumptions. The devices covered above will meet a need and deliver performance, this no-name thing, just no. You'll get what you pay for here, but feel free to go buy one if you want to prove me wrong!

So in summary - and remembering I've not used these devices myself and am only going by what's online - they look to be interesting devices that serve a limited function, and have made compromises to meet the lower cost and portability goals. It's low cost, no frills, and great that this part of the market is being tested - and the market will respond. If they meet a need, at the right price, they'll be bought, and companies will move more resources toward it, and over time as electronics and battery tech improves, they'll get smaller, lighter, and higher performing. I don't, however, know if there is pressure for the premium systems coming down in price range, just more and better capabilities added, and the overall market growing.

Medical Ultrasound Systems Pt II, Where I Stand by My Statements That They're Actually Inexpensive

So my recent post on ultrasound systems costs got a lot of attention, more than any article in some time, mostly due I think to a thread in HackerNews dedicated to it. My original post had some good questions pop up in the comments, and same in the HN thread, along with some replies that clearly had particular assumptions about the medical ultrasound industry. I'll try to address them all in this post.

Now, for those of you who are genuinely interested to get answers, I want to provide them as best I can, and any snark in my post here is not aimed at you. For those who want to sit on the sidelines and snipe, the snark most definitely is. Each of those groups, please read what I write with that in mind.

First the more technical side of things. (When I reference a conference, I'm meaning this one the IEEE UFFC Society International Ultrasound Symposium. There are others, but this is a great example.)

1) "What about more electronics in the transducer, and GPUs for beamforming?"

Good question, and transducers are already headed in that direction. After Philips introduced the first real 2D array in around 2003 that was enabled by sub array beamforming electronics in the transducer, there have been advances in that area. However it's important to understand that development of electronics (usually an ASIC) dedicated to a single transducer application is a large investment in money, manpower, and time, then there's the integration of that in the acoustic stack, and making the whole thing work together. It typically takes a substantial team several years to develop that product, and while advances in processes available make this far easier in 2016 than it was in 2003, it's still a lot of work to do. Each of the large companies has a small number of 2D arrays available, but they have to offer substantial benefits over their 1D counterparts as, no surprise, they are a lot more expensive.

Further, make an array 2D instead of 1D and now you've got new data processing challenges - volumes instead of planes, thousands of individual signals instead of ~200. It's all the more computation, so even though the compute available today is increased over the past, the demands are growing too. At some point the computation available economically will exceed the need, but we're not there yet.

But what about the regular 1D arrays? Well, yes there can be more electronics put into there, but remember there are 10 to 20 transducer types per system (cardiac, abdominal, vascular, obstetrics etc each with their own needs), and what makes more sense - a single system with all the common hardware for sampling and beamforming that serves multiple transducers, or all the electronics replicated in each transducer and a simpler system? Economically, right now it makes sense to have all common components in the system, but if electronics get much cheaper/better, then that equation will change and it's something under observation all the time.

If you look here, you'll see the specs for Verasonics open platform which is a nice hardware package for someone to learn, test, and develop ultrasound on, though commercial premium ultrasound systems are often specced somewhat higher. Sampling is up to 62.5MHz, 14 bit, 256 channels - that's up to 224 Gb/s, or around an entire Blu-ray DVD per second. Thunderbolt will get you to 40 Gbps, so place that all in context and realise that as good as modern electronics are, the demands from high end ultrasound are still beyond it. That will change in time, but again, we're not there yet.

Also note that the voltage that system supplies is up to 190V p-p, which means you can't use the smallest process nodes and get a lot of electronics on each wafer, you have to stick with a process node capable of handling that, so larger electronics and higher cost - and that's not likely to change anytime soon, the fundamental physics limits performance per volt (again, at least for now until better materials come along). The last several years have seen an improvement with the advent of single crystal piezoelectrics, but right now there's nothing on the horizon giving such a leap again in sight.

Then there's heat. Electronics generate heat, it's just in their nature. A few watts in something as small as a handheld transducer can rise in temperature very quickly, and either burn the patient or the sonographer. There are stringent FDA rules as to how hot a transducer can get, and performance is always limited to make sure that never happens - the transducer basically performs worse than it could in order to be safe. If the electronics for each channel produces 50mW then on a 200 channel probe that's 10W, and will be too much - but if the electronics are 5mW it's 1 Watt total and now gets more interesting. If power consumption could be so low, then it's more of a size/economics argument, not practicality.

Now beamforming. To begin with, for the technically minded among you, here's a great presentation covering that topic in way more detail than most need. It's from 2005 so a little outdated on some specs, but the basics are still the same. For everyone else, beamforming is taking the raw data and creating an image from it. This involves taking that large flow of data (that 224Gbps), performing a ton of maths operations on it depending on what the imaging mode is, and displaying it, basically a lot of signal processing. The presentation ends with a summary of trends "Analog electronics into probe, digital electronics into software" and that is exactly what is happening, with GPUs now powerful enough to begin to take over from specialised hardware beamformers in some cases, and is likely to increase in speed over the next few years. It will take some time before you see it in the clinic as systems tend to last a decade or more, but it's coming.

So as far as electronics are concerned, there is progress, it is happening, but some of the intense demands of ultrasound mean that the electronics isn't quite there yet, or is only just getting there, and at the same time demands are growing as 2D devices become more prevalent. I expect in 20 years that we'll be looking at a different ecosystem for ultrasound, as cost and performance of electronics shifts workloads between system and transducer.

2) "What about micromachined devices or 3D printing of them?"

Another great question, and something that's been investigated in ultrasound over the last couple of decades. MEMS have been the subject of a lot of funding by both companies and industry for over 20 years for ultrasound. For example, in the early 1990's cMUTs (Capacitive Micromachined Ultrasound Transducers) were hailed as the next great thing in ultrasound, and today in 2016, outside certain specific applications, we're only just starting to see the first commercial devices. That's not due to a lack of effort on the industry's part, all the major players have put major investments into it, but it hasn't quite panned out. There have been issues, many of which have been dealt with, but overall at this time they simply can't outperform piezoelectrics and standard manufacturing in quality and price. There's still work to be done in them, and if they can be made a little better, a bit more consistent, and a bit lower cost, then they will grow in a number of areas, but they need to reach that level of performance that makes them viable. At that point then cost can come down as demand grows, and that virtuous cycle will push more lower cost applications out there. Check out the conference I noted above, there were multiple sessions dedicated to this topic there, and it's got a lot of people working in it. Foundries and semiconductor companies would love to have another high volume application for their fabs, but the right mix of performance, cost, and demand aren't there yet.

pMUTs (piezoelectric Micromachined Ultrasonic Transducers) are being looked at but have some additional difficulties on top of cMUTs. Piezo materials tend to be lead based for good performance, and people don't tend to like lead in their semiconductor fabs, essentially it is often 'not process friendly'. The materials that are, such as ZnO and AlN, are much lower performing so it's limited to applications like FBARs (filters in your phones). There's some promise with scandium doped AlN for better performance, and fabrication methods that allow for better performing piezos, and it's a field to watch but there are still issues. Again, the conference I mention above had a special session on exactly this topic with invited speakers, and was a big draw. Smart experienced people in this field are interested and it will grow.

And 3D printing? It's tough to print some of the active materials and other specialised components of a transducer, but again it's being looked at.  GE, among others, is putting huge company efforts into this, and they and others have given presentations on this effort (again, that conference mentioned - it's almost as if smart people in the industry are thinking about this kind of stuff! :) ) So again, early days, but advanced manufacturing is coming, and it will help with performance, reliability, and prices.

3) "I can buy off the shelf parts for $x, why does the system cost more than $x?"

Quite simply because it takes a lot of effort and manpower to put together a reliable, robust, validated platform upon which people's medical decisions can be based. This would be the case with or without regulation, any product takes this amount of work. If you build something poor quality, you get one sale and no repeat business, and word travels fast - in a competitive world like ultrasound, you lose your name quickly and you're done. Each transducer has to support multiple imaging modes - b-mode, harmonic, doppler etc - and each takes time to program and validate. Then you have to support it, and keep your customer happy, all while keeping your staff paid well enough to not jump ship to the latest social app, and be building the next generation of improved systems. Basically, standard business issues and costs that face any long term enterprise. Oh, and profit, that helps to keep companies going, products being made, and new advances worth funding.

In summary - this stuff is coming, but it's not as easy as you might think, and it's not a microphone on a smartphone that can fail or be disposed of in a couple of years.

Want to be a part of it and learn more? Please do, our industry is always looking for talented people to help make ultrasound better. Attend conferences, take it as a postgraduate course of study, join an ultrasound company or start one. Want to really get involved? Message me, I'm well connected in the industry and will put you in touch with anyone I can to help.

Now the more business side of things - and again, remember the snark is not aimed at those with genuine questions and interest:

4) "You didn't give detailed costs of all the components to prove it's priced low"

First of all, doing so would lead to an exceptionally bland article reading more like a parts list, where I wanted to give more of an idea of what is involved in building a system and that it's not as simple as you would think. The original piece in Medium was based on a number of statements about the simplicity of ultrasound and I wanted to make the point it's a difficult, multi-disciplinary task with a lot of trade-offs. To someone versed in the field, it basically read as "I can build a soapbox derby car for $100, if I stick a motor in it I have a car! Why do these car companies charge $50,000 for one of their cars!?!" (I exaggerate, but not by much.)

Secondly, I actually have to be careful about stating specific numbers, both in pricing and capabilities. I've done work for a number of ultrasound manufacturers, and I have to be sure I do not release any proprietary information, so I tend to err on the side of caution here and make sure to be certain that everything I talk about is already public domain. I'm happy when people not encumbered by such restrictions pitch in.

Lastly, the market is highly competitive, and the fact that it's not priced lower is indicative that something is both worth paying for and priced correctly. If you think the market isn't competitive, I'm not sure what I can say to convince you otherwise, but this next part will try.

5) "There's a conspiracy among manufacturers to keep prices high"

I have to say, hearing this surprised me. I've been in the industry for over 20 years and never once even seen the hint that this is happening in ultrasound, with massive evidence pointing instead to intense competition. It's a multi-billion dollar market (est ~$6 billion), with several large international players (this link here has some of the larger, this link here shows dozens of smaller ones, this market research report mentions 25 companies), and regulated in a way that it's hammered into everyone to be sure there's no price fixing, collusion/cartels, or other anti-competitive behaviour. Companies have moved up and down the rankings significantly over the last decades, each is always looking (ethically and legally) for a technical or price advantage over its competitors. Medical ultrasound is also a heavily regulated market, and multiple countries (esp the EU and US) will come down hard on a company in this space participating in anti-competitive behaviour.

In every company I've worked I've seen strong pressure to simultaneously raise quality and reliability while lowering costs, and if you look at systems on the market today compared to the past then there have been major improvements at the top end where prices have remained fairly constant, and this has had the knock on effect of allowing the introduction of lower cost and capability systems further down the chain that exceed the capability of yesterday's premium systems.

If someone could start a company that produced ultrasound systems at quality and consistency, with volume, but lower cost, I guarantee you they would be bought by one of the bigger players to incorporate and take advantage of that technology. So if you feel there is a conspiracy, and that ultrasound systems are in fact easy to make, then feel free to start that company yourself and take advantage of the free money everyone else is passing up. Or, even better, I'll help you - quite seriously, email me, tell me what we're doing wrong, and I'll either find a way to hire you, get you a job in the industry, or let's start that company and make our millions. Seriously, mail me and let's do that, or if you're certain there's a conspiracy then I can provide you with the contact details for various regulatory agencies in various countries who would love to see your evidence they can prosecute with.

To make it clear - few industries actually operate in a market that has such intense competition, among many large players, each trying to provide the customer with the best price and quality mix to make the sales, and leapfrog their competition. This is not an "Intel own 99% of the server market and have little competition to drive prices down", it's more like competition in the car industry where there are many players competing.

6) "Engineers don't know what they are doing and are passing up really obvious and simple things that will make the products much faster, better, and cheaper."

This industry is made up of thousands of dedicated engineers, researchers, and support staff who are smart, highly educated, very experienced, and highly capable. If they wanted to, many could move to doing things like apps, social media, or whatever the fad of the moment is and make more money with less stress. But they don't, because they love what they do, they live to make technology better, or faster, or cheaper, and because they know that the work they do in ultrasound imaging helps people and makes a difference. That they'd willingly pass up technology advances and better methods just goes against character, and given the attitude of these people and the competition in the industry, if management decided for them not to pursue such benefits, they'd leave for another company or start their own. 

There are multiple professional organisations that are dedicated solely to ultrasound, and heavily to the medical side of that. IEEE UFFC is one such organisation, I'm heavily involved in it, and there are several others. The IEEE is non-profit, solely concentrating on technology, and does not support any single company or commercial interest. They produce peer reviewed journals on state of the art in transducers, materials, electronics, systems, and imaging, and every year have a conference where a couple of thousand people attend and present, discuss, and learn about the best practices and technologies. This year I watched presentations on 3D printing of transducers, new materials, rapid imaging techniques made possible by GPUs, micromachined devices, and advanced electronics for transducers (This page has a list of talks and the abstracts if you want to see what was covered). These are things that companies are spending plenty of resources researching, universities have students doing Ph.D's on them, and over time will make their way into products as the technology matures and becomes reliable and cost effective.

If you feel that, without experience in this industry, you are already superior to those who have worked in it for years, then send me your resume. I know companies that will hire someone so skilled to give them an advantage over the competition, or will hire you as a consultant. Or I'll help you get an abstract accepted to the IEEE UFFC conference so you can get your knowledge out there. I'll work with you to get a grant from the NIH or NSF to develop your technology and patent it, or just put it out there online for the world to see - do it for the benefit of the world. Or admit it's armchair quarterbacking. Plenty of options.

Summary - The field is made up of smart, dedicated, and committed people who strive to make quality, well priced products at a variety of price points that make technical and economic sense. Please don't make statements that are predicated on them being stupid, ignorant, or greedy without some evidence to back it up.

7) "All the costs are regulatory, without the FDA we'd have safe machines at a fraction of the cost!"

This is going to be tough to disprove without giving internal costs from various companies, and I can't, and won't do that. I know that regulatory is certainly an aspect of it, but doing a headcount it's not in the top few for costs. There are engineering tests and documentation burdens, but they're really not far beyond what any engineering team concerned with good record keeping and producing a safe device would do. And importantly, having clear regulations allows all participants to compete on a level playing field, knowing that everyone is playing by the same rules.

Yes, you can buy a veterinary, unregulated ultrasound machine from AliBaba. Good luck with it giving you a quality or even useful image, not injuring you, being reliable, or getting any support on it. Or getting it to do a fraction of the things a premium ultrasound system will.

Once again, there's a reason that ultrasound is the most widely used medical imaging modality, and is incredibly safe, and part of that is the FDA and similar regulation.

8) "Are you stupid you can't make a transducer without sharp edges!"

This is to reply to one specific comment. Ultrasound is unlike MR and CT in that it is both operator and patient dependent - each image can be different and some skill is required. The acoustic window in which clinically useful images can be gained sometimes involves placing the transducer in a location, and applying sufficient force, that it can be uncomfortable for the patient. If the patient starts to move because it's uncomfortable, it makes getting a good image harder. Some transducers have a tradeoff of minimised size for access to certain locations, but maximised acoustic area for good image, which can lead to corners that are not very smoothly rounded, and while not 'sharp' as in 'cuts the patient', might lead to more discomfort than necessary if not designed correctly. Oh, and yes building a 200 wire cable with minimal crosstalk is easy, doing it and making it flexible so a sonographer can use it (like I said in the original post), and at a reasonable cost isn't. Congratulations to the person that asked that question and showed their genius in how dumb we ultrasound people are - you actually managed to annoy me with those comments! You, in particular, are an author I aimed the "Since you're so smart, why don't you clean up in our industry of charlatans and idiots?" snark at.

9) "Phones are cheap and have a ton of technology in them, why aren't you that cheap?"

>Several hundred million phones are sold every year, probably 4 orders of magnitude more than ultrasound systems. On average they last about 18 months to 2 years, compared to a decade or more for an ultrasound system. No-one's life depends on them. One of the simplest things here is there just isn't the economy of scale for ultrasound to hit those price points. Perhaps it's a chicken-and-egg thing, that the "killer app" for ultrasound isn't here because it's too expensive, but if the demand is there then the tech will come. Got that application? As some have noted, there are rumours that's what Butterfly Labs are working on, but despite being well connected in the industry, I've heard nothing on what they are really doing after several years of effort. I hope they produce something astounding, but until then, no smartphone market economies of scale for ultrasound. 

OK, I'm done for now and leave you with this, once again - If you can make a difference in this industry in price, performance, reliability, or application then get in touch, there are companies and universities that want good people to work on this. Don't armchair quarterback or cite imaginary conspiracies, get involved. 

Merry Christmas everyone.

Why Are Medical Ultrasound Systems so Inexpensive? or "It's Always Easy When It's Someone Else Doing the Work", Part 1

Hackernews linked to a Medium post on ultrasound devices today, entitled "Why are Ultrasound Machines So Expensive?" which, being my core area of expertise with over 20 years in the industry, I was interested to read. Sadly it fell into the category of posts by someone with training in one area, which leads to an overconfidence of knowledge over what happens in another area, a lack of appreciation for the complexity and difficulty of the jobs of others, and as a result misses many of the subtleties (or not so subtleties) of an intensely difficult technical field. 

The premise of the article is "Why is even a cheap ultrasound system over $30,000 when I can buy the bits and pieces for next to nothing and it's really easy to make? It's not that hard, I looked into it for a couple of hours!".  While a premium ultrasound system with transducers can be $150,000 or more (a fraction of the price of CT and MRI systems) it's the most common medical imaging modality in the world for a reason - so allow me to refute this position that it's simple and overpriced.

What's my knowledge in this area to be able to comment? My Ph.D. was in the modelling, design, construction, and testing of this type of device. For 13 years I led a consulting group that produced the industry standard modeling software for ultrasound, and participated in and led many projects that designed and built ultrasound devices for a wide variety of industries, including medical. I am the Associate Editor in Chief of the IEEE Transactions on Ultrasonics, Ferroelectrics, and Frequency Control, the leading peer-reviewed journal for this subject, and chaired the IEEE Ultrasound Technical Program Committee for Transducers. I have worked in some of the largest medical ultrasound suppliers in the world, and worked with some of the smaller ones too. I've built and delivered commercial software critical for a business, around the world, and supported it for years. There's not many people with my background to evaluate the technical from both the hardware and the software side of things.

FYI, what I'm writing here is generic information, and not tied to any one company in particular, so there's nothing proprietary in what I'm about to say. Those of you wanting to learn more yourselves, I highly recommend Tom Szabo's book "Diagnostic Ultrasound Imaging: Inside Out" for a readable, and broad, coverage of the topic.

Let me start with demolishing this argument in one really quick paragraph citing not anything technical but Economics 101. If you can really build an effective ultrasound system that people want to buy for significantly less than the currently available price when you've no expertise in the field, then why hasn't someone else with vast experience in the field gone and done exactly that? Or why hasn't one of the major companies massively dropped their prices to corner the market? If there's collusion between the companies to fix prices, why hasn't a government somewhere sued them (and believe me, from being inside these companies, they are paranoid about playing by the rules and not accepting kickbacks or doing anything seen as fraudulent).  I'll cover the FDA and regulatory later, but for now take my word that while it's a part of the cost, it's not the majority, and seriously, you don't want to use these things without strong safety regulations.

Next, let me cover that I've built hardware and software, and as difficult as software is, hardware is harder. If you make a mistake in developing hardware, you don't recompile the fix to get a new product in an hour, you rework and then rebuild taking weeks or months sometimes. With hardware you have to ship a product that works, you don't get to fix it in the field with an update, you don't get to ship with an EULA or a warranty that says "as-is", and you have to support the same product in the field sometimes for decades. With software you can develop your product in a small room with a laptop, but the tools to build hardware can be expensive and large with high running costs. Software also doesn't have suppliers who change materials, formulations, prices, or even go out of business and leaving you at a loss for components. If you want to mitigate all those risks for hardware compared to software, you need people to do so, and they cost money.

Now having said that, on to the technical. An Ultrasound System is made up of three major components - the transducer, the system, and the software. The transducer is what you hold in your hand, contacts the patient, and transmits and receives the ultrasound. There are multiple available transducers for every system, each with its own application, so a system has to support a potentially wide range of transducers.

The transducer is connected via a cable to the system, which has all the electronics to receive the signals and convert to an image to be displayed, and allow the sonographer to change settings etc. The software runs on the system, and allows for the display of the image, though these days the lines between where the hardware and software boundaries for imaging are, are getting blurred somewhat. In hospitals it's usually a cart, but there are some more compact (and more limited) systems available.

Let's take the transducer (some of these images are taken from this presentation, or here, which are good intros)

Starting from the top, you've got the lens (the bit that contacts the patient). This has to perform a certain amount of focussing of the ultrasound, and attenuate the signal enough you don't get reverberations at the skinline and obscure the image, but not so much you lose too much signal. It's got to ensure good contact with the patient, thick enough to be part of the insulation, and robust enough to be cleaned/disinfected as well as dropped and mistreated over the years of lifetime. Thickness has to be consistent across the surface, if you shift too much of a % of a wavelength over the surface then you'll distort the image. And remember ultrasound wavelengths are usually on the 100 micron order. But that's simple, right?

Then we have the matching layer, designed to ensure coupling ultrasound from the high acoustic impedance piezoelectric to the low impedance body. These days it's usually more than one, and each has to be a specific thickness, density, stiffness, and attenuation. Sometimes you need them conductive, and sometimes insulating. They also need to be machinable (diced, see below), and constant thickness, just like the lens above.

Then we come to the piezoelectrically active material - this is what converts electricity to vibration, and vice versa. Again it has to be a specific thickness, and consistent across the surface to a level you measure in microns. Which material you use is important, the cheap stuff is variable and lower performing, the stuff that's specced tightly and performs well is expensive. It has to not depole (lose its piezoelectric effect) at temperatures you run the probe, and withstand high electric fields across it. Piezoceramic like PZT has been the staple for years, but these days, to support the advanced imaging modes demanded, it can be single crystal piezoelectrics, which are more expensive, higher performing, but harder to work with. PVDF, sputtered materials, and the cheap  PZT you make buzzers with are essentially useless for this type of work, despite being 'piezoelectric'.

Then there's the backer, a material that absorbs just the right amount of acoustic energy, so that you get a short pulse coming out the front that can image, but not so much that it reduces the signal to an amplitude too small to work. It's also in the thermal path, usually can't be electrically conductive, and not so large that the sonographer notices the weight.

Next you have to bond them all together, make sure they stick. The bondline has to be thin enough that it does not disturb the acoustic path, but not so thin that there is delamination and it's not a robust device. That means micron bonds, consistently across the surface. Easy, right?

Now you've got your acoustic stack. OK, now you can dice it - cut it into the elements that generate the image. Yes, you have to make many elements to make an image - in most transducers there are around 100 to 200 elements, left to right, across. A device with 20 elements, as the Medium article posited, are useless for any serious imaging application. You have to cut through all those matching layers and piezoelectric, electrically and mechanically isolating each from the neighbour, but not breaking the thin sections you leave, while making them thin enough that grating lobes and other artifacts don't spoil your image.

Then you have the flex circuit, to take the signal to and from each element, and it's got to be precisely aligned with the elements, that's on the 100 micron order to position (yes, each element is around the width of a human hair or two), and then it's got to connect to the cables off to the system - all 100 to 200 wires down a cable that's a couple meters long, and thin/light enough for someone to use 8 hours a day without getting repetitive strain injuries. Do you know how thin that makes each wire? Try calling a few cable vendors and ask for a small diameter cable with 200+ connectors that will actually conduct a signal without significant crosstalk and let's see where you end up on price.

Finally, you have to put it into a housing that's ergonomic for the sonographer to use, large enough to hold the acoustics, small enough not to be heavy, and not sharp to hurt the patient. On top of that it also has to be designed so that it doesn't get so hot it burns the patient or the medic.

Simple!

Right. And that's the most basic version. I haven't gone into multi-row probes, those on a curved backer, exotic materials, those with electronics in the handle, what the dimensions of each section have to be to give the right acoustics, steering, spectral response, thermal characteristics, electrical impedance to match to the system, or all the other difficult things that in reality you have to deal with if you build and sell these devices.

Oh, and I forgot about consistency, reliability and cost. These devices have to last for years, be close enough in consistency from device to device the system can image with them and the user doesn't know the difference, and be low enough cost that the user will buy them and the company makes a profit. Ever made a protoype? Ever made 2 of them? 4? 100? 10,000? And made them all the same? Yep, it's a different world when you have to start selling and supporting products.

Ooops, I forgot, and testing to meet your own internal specs as well as those of the FDA and other regulatory agencies, to make sure that these devices don't electrocute or burn you, and give the right medical data so that you aren't misdiagnosed and receive the right treatment. 

And I haven't even got to the system or software yet (I'll try to get to a part II on that). Just the transducer requires people with knowledge of acoustics, imaging, clinical need, materials, mechanical design, electronics, thermal, processing, regulatory, safety, chemical compatibility, user experience, reliability, QA, business, and a whole host of things I just don't have room to list. Then you need the support staff, the building, HR, admin.

This takes a huge amount of expertise and effort - almost as if some people's lives depend on it.

I've got a lot of experience designing and building these things. Could I setup a company to do it, and do it well? Yes. Could I do it significantly cheaper than others do it right now? Nope.

Put that all together, and you have an incredibly complex electromechanical product with components on the micron scale, that has to work reliably in the field for years, reproducible across all that are made without the benefit of mass volumes (no millions of devices here), upon which medical decisions that lives can depend are made - and that's just the transducer - so you need to ask "Why are medical ultrasound systems so inexpensive?"

If it walks like a duck, and quacks like a duck...

Hot on the heels on Theranos, Hampton Creek, and other companies reputed to be vastly exaggerating (or downright lying) about the capabilities of their technology, Magic Leap is now under scrutiny. This company promises Virtual/Augmented reality and is a darling of VCs, with technology described as far ahead of the competitors, fawning pieces in international tech publications, big name investors, and a monster multi-billion dollar valuation (based on the $1.4 billion of funding so far) - all without an actual product or public demonstration. That, if you've been reading this blog, is the start of a familiar story.

There have been questions over the actual state of Magic Leap's technology for some time, but this week saw an article by The Information which details not just these questions over technology, but that the videos of the technology in action are not truly representative of the reality, despite claims by the company to the contrary. It's one thing to raise significant money based on an audacious goal of where you can take technology - hardware is *hard* and needs a lot of time and work to bring to fruition - but if you pass off fabricated demonstrations as the state of the actual tech (rather than as examples of what could be) in your fundraising, then that's fraud, and at least one federal agency will be taking a keen interest in knowing more.

As I've noted before in blogs, there's a tremendous amount of pressure on startup founders to cast their company in the best possible light, and it's easy to let that slip from "best possible" to "exaggerate" to "downright lie". Investors encourage this behaviour by repeatedly funding the more egregious cases, and ignoring those who are more honest and conservative in their goals.

I simply don't know enough about Magic Leap to say, one way or another, if they have what they claim - it's not an Energous or similar company where you can prove with maths and physics that their claims are not realizable - but if what they showed investors was the same as they claim publicly, a lot of that $1.4 billion is going to end up spent on legal fees. 

Since release of this article by The Information, the company seems to have done everything except provide actual proof that their claims are real. They've fallen back on talking about how hard they are working, and that great things are coming, but nothing solid (sound familiar?). I'm just waiting for the seemingly obligatory "Haters gonna hate", "Disgruntled ex-employee", and "It's just the sexist press and they wouldn't be doing that if the CEO was a man" (ooops, sorry, wrong company). The Register details the company response here, in a very entertaining article I encourage you to read.

Now you might comment that the funding for Magic Leap comes from private sources, that VCs and investors like Google are capable of looking after themselves, and it's not our business what they do with it. To an extent, that's true, however it covers a major problem we face in the misallocation of resources. $1.4 billion is not a trivial sum, and represents not only resources that could be applied to something of real and actual value (roughly 500 good engineers and support staff working for 10 years), but creates the standard by which all other companies now must be compared. Imagine you've a small company with solid VR technology that actually works and can be delivered as a product, but when you present it to a VC you're told "Magic Leap already beats that - I won't invest, there's no market". Because you are honest, you don't get funding and your company never takes off, we as the public don't get the benefit of that technology, and the VC's investors (like pension funds) don't get the benefit of the profits. Worse, it encourages the less-than-honest founder to "exaggerate" capabilities and exacerbates the problem. As a society we all lose from this.

We'll have to see how this one turns out, I had hoped Magic Leap were onto something, but the reaction of the company does not encourage me. Now I had been looking to write a blog on "Guide to Tech Companies with Exaggerated/Nonexistent Tech" but The Register beat me to it in their Magic Leap article, with a checklist I just can't improve on.

• Refusing to give a launch date.
• Refusing to talk about the tech, claiming confidentiality or trade secrets.
• Using news of investments or hires as evidence of technological progress.
• Promoting itself on a big stage rather than in a small room.
• Offering a well-crafted message and vision but becoming immediately vague when pushed on actual details.
• Offering "exclusive access" – with restrictions.
• Confusing working hard with making progress.

Can anyone think of other companies that tick off everything on this list?

Edit: The CEO did respond in a blog post on the company website and indicates that they are in the process of building building product equivalent devices, which is more positive than what had been written before. Still the question arises, will their product deliver what's been shown in the videos, or will it merely match what their competitors, like the Hololens or Oculus Rift, already ship?

For a slightly more technical analysis, this blog has some good info. Summary: What they show in the videos needs large equipment/computation that is too expensive for consumer products, so the actual released product will likely not match the videos, but be closer to that of the competitors.

Further update: Just keeping everything together in one post, rather than adding to a new one. I've had discussion with a few people over the last few days who've better knowledge than me on this, and from what I can piece together, ML do have some solid AR tech, however what you see in the videos is from larger scale equipment with powerful computers running it. The wearable consumer gear is highly unlikely to be doing this, yet, and don't be surprised if a first product isn't so amazing. There's no reason to think they won't deliver a product, but nothing to indicate they are massively ahead of their competition either. I expect this field will see the 'lead' pass back and forth between companies over the next few years, and also some market differentiation - which is a great thing for encouraging better performance and prices.

Update: Sept 5th 2018, Magic Leap did release a product, my post on that is here.

More Things That Just Shouldn't Be

A few weeks ago I wrote about Juicero, the "Keurig for Juice", and how despite it being a $700 juicer that required $120 million in funding to realise, there were reasons that an investor would put money into it (dumb reasons, but justifiable dumb reasons). Now it's the turn of "June", the toaster oven. To quote the company:

June is a modern appliance company dedicated to bringing intelligence to the tools you use in the kitchen. Our first product, the June Intelligent Oven, allows everyone to discover the joy of cooking at home by enabling precision cooking and restaurant quality performance on your countertop. The June Intelligent Oven's unique features and brilliant design put an end to guesswork and pave the way for faster, better cooking. Our team of designers, hardware and software engineers is committed to transforming the kitchen experience.

Now, apart from the fact that the joy of cooking is the constant improvement and learning through experience to produce tasty food from imperfect ingredients and tools through skill, it's a nice idea. Maybe they can help the average Joe who doesn't have time to learn to cook prepare quick and nutritious food at home rather than dining out or eating salt and sugar laden pre-packaged meals. Looking at Target and Amazon, the price ranges for most toaster ovens are in the the $50 to $150 range, with the highest rated top-of-the-line ovens going for about $225, so a superior oven may go for $300 to be competitive. 

What does the "June" retail for? $1495 (yes, one thousand four hundred and ninety five dollars).

So what do you get for this $1250, or 500%, premium over the best of the rest? Well it comes with a camera that recognizes your food, and then uses its "intelligence" to cook it to perfection, all the while sending you updates via your phone, letting you know it's ready. Of course, it's got that "Apple look" so that's worth a premium too, but that's about as far as the innovation goes. 

And what did it take to produce this masterpiece oven? According to Crunchbase, near $30 million (yes, thirty million dollars), and from their own website, it looks like June has near 50 people working for them. Interestingly, of those 50, I only count around 6 who are potentially involved in hardware design. It's no surprise, then, to hear that the actual hardware design was outsourced to Ammunition (who designed the Lyft logo). Yes, June didn't even design the hardware, and likely just gave Ammunition a list of key features needed without remembering to include "and a Bill of Materials of no more than $100". That, combined with the founders who are software and not hardware people, is probably why nobody said "Um. This is going to be way more expensive than the competition and not deliver substantially improved performance in any area, maybe we should rethink this."

Even the company itself is really struggling to push its virtues - the website uses this as one of the leading quotes from a review in the Wall Street Journal:

The June Intelligent Oven is an Internet-connected countertop system that can recognize foods and automatically cook them for you.

Wow, I have to get myself one of those! An oven that cooks! Amazing! The co-founder then goes on to really sell it well in a Techcrunch article:

“It’s always surrounding your food with hot air,” Bhogal said. “What’s cooked in the corner will always taste like what’s cooked the middle. We spent a lot of time adding precise temperature controls, and that’s not usually seen in this space. We spent a lot of time fine-tuning the cavity. We used a cavity which helps with heat, we fine tuned our insulation, and even the door itself.”

So basically it acts like every other convection oven, but - and here's the real key differentiator - there was a team of Silicon Valley startup engineers who spent lots of time fine tuning components. Yep, that'll make your food taste better and your wallet hurt less. (BTW, the engineers who make ovens actually do spend time working on things like that, they just know they're on a budget)

And this is both why this product is ridiculous, and why a large portion of the world looks at Silicon Valley with contempt. This product is not about the customer, or serving an unmet need. It's about serving the egos and notion of self-worth of a couple of people in the top % of education and income. The customer doesn't care how much time you spent fine tuning things, what the technology is, or how much you need to believe you're changing the world - what they care about is a product that solves their problem, makes their life easier, gets things done faster, all at a reasonable price. That's it. While the privileged few can worry about their feelings of self-worth, most people just need to pay the bills and get through the day as best they can.

It's why the likes of Uber succeed and despite their sometimes dubious business practices remain popular. They take a useful and needed service like on-demand transportation, that is currently underserved, and then make it frictionless and easy to use, all at a price point that's highly competitive. They tapped into a need of the customer, and met it. It's why in the traditional layout of a pitch deck that is presented to VCs by a startup, there are a couple of slides on things like "Customer Need" and "Pain Points".

So what would June have presented to VCs in this regard, to show the market need, huge potential for growth, and ongoing revenue? Well, I've sat here for a few hours trying to come up with the pitch that, like with Juicero, would make this product make sense, and I've failed. Here's the only thing I could come up with: One of the co-founders was the co-founder of Lyft. That's it. He previously co-founded a successful startup and even though it is not even in the vaguely same space, software/service rather than hardware, that's all that's needed. Everyone knows the hardware part is easy, and you just outsource that anyway.

Now, to be fair, they may have been pitching the larger play, in getting into "the connected home", and becoming a brand name like Nest, and therefore willing to pay an upfront cost of an expensive first product to gain the skills needed to iterate and improve - the long game, as it were. Even there I just couldn't see where the money comes in. However even if that's the play they've made a basic mistake, and that's in the outsourcing of the hardware.

In not building the hardware themselves, they clearly fail to appreciate the interaction of hardware and software, the necessary back and forth between the engineering teams. The adjustments, the compromises, the understanding of how things work together, are all key to building a product that meets a need in a cost effective manner. It's a common mistake from people with a software only background, when leading a hardware project, to "black box" everything like modules and view it as a Gantt Chart rather than as an interconnected system where feedback between the components is an integral part of the design and development phases. Now, even after $30 million in funding, they don't have the skills to do their next product themselves, it's going to have to be outsourced again. 

I can't blame the outsourcing company for taking the gig, after all, payment is not based upon the product actually selling, but rather satisfying the ego of a startup founder with millions of dollars of other people's money. I can't even blame the founders for taking $30 million, if it's offered. That VCs funded this without someone really looking at their business model is just stunning, but hey, hardware is hard, and the guy did co-found Lyft, so what more do you need?

All the actors in this play are just acting in line with the incentives. Put the money out there, and they'll play whatever part allows them to get a share of it. Without that money, or with different metrics for award of it, the world of $1500 toaster ovens might actually become one where there are products made that customers need.

And how well does the product work? To answer that I'll leave with this quote from a product review entitled "This $1500 Toaster Oven is Everything That Is Wrong with Silicon Valley Design".

Cooking has always been a highly personal, multi-sensory experience, where trial and error is the only way to become the all-star cook most of us know as grandma. But as I put the salmon on the table 40 minutes later than projected, I had no idea what I should have done differently, other than to never have used June in the first place.

Support Real Journalism: Subscribe

If you're concerned about real news, quality journalism, and supporting people who are dedicated to getting the truth out there, then support it with money and subscribe to a newspaper or other outlet whose work you've admired. People like me who blog do so based off the primary work of real journalists - without them, there's nothing.

This year, John Carreyrou has been a standout journalist for his work on Theranos. He broke the story of a company that was risking the lives and health of all of us, deceiving customers and investors, and intimidating those within the company who tried to speak out - and his paper, the Wall Street Journal, supported him against the heavy handed legal threats made. This will make a real difference in people's lives, and the effects of Theranos' actions will be felt in the VC community for many years to come. This takes not just a journalist with skill and real determination to build and break a story, but an organisation that maintains standards and supports their reporters even when it gets tough.

If you want this type of journalism to continue, then support them with money - subscribe to their publication. This year, I've subscribed to the Wall Street Journal in large part due to Carreyrou's work, and also to the New York Times. The NYT is having a sale on subscriptions here, WSJ is having their Black Friday sale here.

I've also found myself reading Business Insider (Biz Carson did great work on Hampton Creek), Bloomberg, and Garrett Reim got me reading the LA Business Journal.

Whichever publication or journalist you've admired the work of - support them in whatever way lets them keep working and stay independent!

And to all those reading in the USA, Happy Thanksgiving!

Theranos News

Just a brief update on the ongoing Theranos story. Hopefully in a week or so I'll actually have the time to write something substantial on this again. 

First, Walgreens is suing Theranos for $140 million. Walgreens was the company that had the deal with Theranos to use their Edison blood testing for patients in their stores, and this deal was one of the key reasons Theranos were taken seriously. This is a major blow, and along with the investor lawsuit for near $100 million, and the eight class action lawsuits they have, puts them at good odds of all the money in the bank disappearing in settlements and legal fees. 

Then, Tim Draper, one of the original VCs to invest in Theranos, continues to defend Elizabeth Holmes and starts playing both the victim and sexism cards on her behalf. It's somewhat ridiculous at this stage, and I don't know if it signifies desperation, denial, or delusion.

Finally, another fantastic piece by John Carryrou on the whistleblower on Theranos - the 26 year old grandson of former Secretary of State (and Theranos Board Member) George Schultz. To summarise, he worked at the company and began to question the effectiveness, legality, and safety of what they were doing, reported his concerns up the chain within Theranos, got a beatdown from the COO, left, went to the authorities to inform them, and met with intense intimidation from the Theranos legal team. 

And what was his reward for his good behaviour? $400,000 of legal bills and lost contact with his grandfather. It makes clear that any excuses that the youth of a founder/CEO excuses them from understanding the ethical and legal consequences of their actions are nonsense, and that whether the person in charge is 19, 39, or 99, they are capable of knowing right from wrong. More importantly, though, is that this article should make clear the answer the question "Why are so few people whistleblowers?"

Still busy

"Millstones of Justice turn exceedingly slow, but grind exceedingly fine."

~John Bannister Gibson (1780-1853), American jurist, Pennsylvania Supreme Court

Still ridiculously busy, making it hard to really write anything well - or at all for that matter. I'm going to try and do a few shorter posts just so I at least mention things that are going on in the startup world, and try to get back to them later if they merit it.

One of the big things was the Wall Street Journal story on the patients actually affected by Theranos, "Agony, Alarm and Anger for People Hurt by Theranos’s Botched Blood Tests". Check back in my previous posts to cover the history of Theranos, but the main story this comes from is here, where they admit their results were wrong and withdraw them. It was clear when that story came out this was going to be a major issue, but now we actually have accounts of healthcare and lives actually impacted by the company failure.

In summary of the above - Theranos claimed to be able to do a large number of tests on small amounts of blood, effectively much cheaper than conventional methods, with their "Edison" machine. It turns out that they were mostly using industry standard machines from other vendors, but not even using them correctly, which ultimately results in sanctions from Federal agencies. Their own Edison machines were used for a small number of tests (allowing them to say "less than 1% of tests" were affected, because they rarely used their unreliable proprietary technology - yet they were likely telling investors that is what was regularly used). 

These tests were used in the diagnosis of patient's conditions, and informed and changed treatments. In the WSJ story, one patient changed his blood thinner medication based on these false results, potentially increasing his chance for strokes. Another was led to believe that she potentially had a new tumor having just gone through major cancer treatments - it turns out, after many other tests and worry, that she did not. Theranos's test was wrong by a factor of over 150 (yes, 150 times too high). There will be many more out there.

While things can go wrong with any tests, Theranos simply didn't follow basic procedure and are absolutely liable for missing the basics. As the WSJ says:

While inaccurate tests can occur at any laboratory, Theranos failed to maintain basic safeguards to ensure consistent results, according to regulators, independent lab directors and quality-control experts.

If you have a culture that not just enables but encourages breaking the rules, when it moves into fields that cover our health and safety, you can be sure that there are disasters like this going to occur. The regulatory agencies like the FDA are there for a reason, and this type of thinking is going to be stamped out. I'll bet that it's going to be made clear that this behaviour will not be tolerated, and company officers will be held accountable.

It seems Theranos thought the rules didn't apply to them, that they could mislead investors, customers, and the FDA that they had technology they didn't, raise $700 million dollars, affect people's health, and that no-one would notice. It may have taken years, but right now I can imagine various Law Enforcement Agencies working their way up the hierarchy of Theranos, as each layer points to the one above, until it gets to the very top. As I've said before - In my opinion, someone's going to jail over this, and this time it's not going to be one of the minions.

All of this has happened before, and will happen again

I've been snowed under the last week or so and have had no time to write anything, so my various articles-in-process are just on hold for the time being. In the meantime, let me point you to another blog well worth reading - The Silicon Valley Way. It's an oldie but a goodie. Start at that link which is the first post, then read back through it chronologically, for another account of an engineer dealing with an insane startup and chronically bad management. It's told in a blow-by-blow manner as he experiences it, rather than remembered after the fact, which is a novel approach. Maybe for my next startup I'll keep a diary and then publish it starting a couple of years later...

Quick Updates: Theranos and Energous

Annoyingly busy and unable to post in detail until later, however two key stories in the press in the last 24 hours. First up, Theranos, where a current investor is now suing the company. Partner Fund Management LP (PFM), who invested $96 million in Theranos in Feb 2014 claim that:

“Through a series of lies, material misstatements, and omissions, the defendants engaged in securities fraud and other violations by fraudulently inducing PFM to invest and maintain its investment in the company,”

Further

Elizabeth Holmes and a former executive deceived the hedge fund by claiming it had developed “proprietary technologies that worked,” and was close to getting regulatory approvals.

Who could have imagined a startup where the founder claims working proprietary technology, and vastly exaggerate its capabilities, when they have no such thing? Theranos, of course, plan to vigorously defend against the lawsuit.

Finally it seems someone in the VC community is acting on the best interests of their Limited Partners and looking to get their money out. It seems PFM, like me, don't believe Theranos' recent redirection has a chance of producing results and that they have better odds of recovering their investment through a lawsuit. It's a damning indictment of Theranos' plans, as looked at in purely monetary terms, PFM view the value they could ever gain as significantly less than the initial investment - lawsuits cost money and there's a less than certain chance of recovery. Essentially, they've calculated the costs of suing and chance of proving fraud are sufficient that compared to the expected value of the company it's better to sue.

Of course there's a potential cost to not suing too - it could be that the LP's are questioning PFM and there's a chance they'll sue PFM itself for not doing their due diligence in selecting the companies in which to invest. Better to prove that they were defrauded than bamboozled perhaps?

I'm trying to think of when this has ever happened before in this manner, certainly I'll be looking to see if PFM is just the first to rush for the exit to beat the stampede.

I'm hoping this is the beginning of a change where VCs take more responsibility for the companies they invest in, and as I've written in the past, they act to end the incentive for startups to act in unethical and illegal ways. Perhaps Boards of Directors will begin to take notice too?

Secondly, Energous. An interesting article on Seeking Alpha, where the author has looked through SEC documents detailing the CTO's share sales and found some interesting activity that they claim shows he's divesting his stock as much as possible. I've only read through it briefly, but will give some more commentary later on this, very damning if they are what they're reported to be.

Theranos Admit Critics Were Right, Closes Blood Testing Service

One week shy of the year anniversary of John Carreyrou's article on Theranos that began to raise the awareness of what was going on at the company, Theranos have finally admitted that their lab testing business is not viable and are shutting it down. I've covered Theranos' history in the past, not just their shameless attempt to ignore the historical failings of the company, but to pull a 'bait and switch' and pivot to a product that has none of the amazing features claimed that enabled the company to raise $700 million. Ordinarily the failings of a tech startup would not have received this level of attention, however when that company's product affects medical diagnoses and they have to withdraw years of tests due to errors (and some say fraud), then it falls into a new category and cannot be ignored. The SEC, FDA, and FBI are all said to be investigating Holmes and Theranos, and the company is facing multiple lawsuits for its actions.

Theranos followed the time-honoured tradition of denying any problems, threatening lawsuits against those who speak out, until the weight of evidence became so strong that it could not be denied any longer. As recently as April, members of the board were continuing the Big Lie approach, and claiming Holmes would lead them to success. It seems however that the ban handed to Holmes by the CMS, preventing her from running a company that carried out lab tests for the next 2 years, is a blow they can't recover from, and the lab testing components of the company are being shut down.

In a sane world, when the CEO of a company is subject to a legal ban that prevents the company performing the only service which results in revenue, that CEO is removed from their position, or has the good grace to resign knowing they are unfit for the role. Not so in the case of Theranos - despite having raised $700 million, Holmes personally was reported to hold over 50% of the stock and had full control of the board, effectively making her immune to Board action. In an act of hubris that only in the closeted world of Silicon Valley elite startups could be considered rational or ethical, Holmes chose not to resign, but instead to shut down the lab testing services and put 340 Theranos employees out of work.

In her open letter, Holmes makes a brief statement which I'll selectively highlight and translate:

"we have moved to structure our company around the model best aligned with our core values and mission. We have decided to close our clinical labs and Theranos Wellness Centers, which will impact approximately 340 employees... We are profoundly grateful to these team members, many of whom have devoted years to Theranos and our mission..."

Translation: Our core values and mission are to protect the CEO regardless of the cost to the company bottom line or its employees. You were all led to believe this would change the world, and worked incredibly hard and well at an impossible task, but we really don't care, and thanks for all the uncompensated hours you put in. One CEO under investigation by the SEC, FDA, and FBI is more valuable than the 340 of you, so you're all fired.

"We are fortunate to have supporters and investors who believe deeply in our mission of affordable, less invasive lab testing, and to have the runway to realize our vision."

Translation: Since we have raised $700 million and the investors can't take it back, we have years of runway to continue to try to make the founder's dream a reality, despite no peer reviewed scientific evidence known to exist to support it. And now that we've fired half of you, we can keep things going for twice as long.

"I look forward to sharing more with you as we progress along the way."

Translation: We'll go on a press blackout from here, you won't be hearing much from us beyond the minimum, and certainly no uninhibited access to our miniLab system to run independent tests. (It's a bit of a staple for companies with no released product to "peek their heads out" with an open letter from the founder that end with promises of more to come, such as with uBeam's latest announcement)

The letter is par-for-the-course these days, full of doubletalk to hide the fact it's a massive climb down from the past claims, no ability to point to a product or market even approaching the scale of the original company goal, and the firing (I'm sorry, they weren't fired, but "impacted") of near half the staff who until yesterday thought that they were part of the "core mission". As with many company press releases it's not what is said but what is not said - in this case it's an admission that the capability of Theranos to run hundreds of tests on a few drops of blood is a fiction, and that they have no expectation of that changing. The claims of Carreyrou and others, derided for so long as "bitter" or "disgruntled", or threatened with lawsuits for speaking the truth, are vindicated.

Now to be fair, the company is in a very tricky position - anyone brought in to save the them at this point has a Herculean task. The blood analysis side of the company is now simply one of many in a low margin market, coming from behind stronger incumbents with a tarnished reputation - a difficult task with minor rewards at best - and not one that the numbers can likely justify continuing in.

One could imagine spinning them off into their own low margin business, with a new CEO not encumbered with a federal ban, however that not even that is happening shows they have nothing. This, however, is likely the elephant in the room at any Theranos board meeting - that the Founder and CEO is the single biggest liability to the company, and any hope of salvaging anything involves her removal - yet it is the only option not on the table.

The promise of simple and ubiquitous blood testing was really what drove the monster valuation of Theranos until earlier this year. What is left is the gamble that the company can produce a table top blood testing system superior to those already in existence, and providing enough of a business to justify a $700 million investment, which means a multi-billion dollar valuation. If anyone knows of a comparable blood testing equipment company with a single product and that kind of market cap, please point me to it.

This isn't to say there is not likely to be useful technology somewhere in the company - there are no doubt talented engineers and scientists at the company who have developed useful techniques and equipment, but in isolation and nothing for a product that is world changing. This smacks more of a situation where that IP could be licensed to other companies to recoup some money.

Without the lab testing, or a new system that massively outperforms the existing methods, Theranos are unlikely to ever show a profit and on a financial basis may simply be better off closing down and returning the money to investors. While Michael Dell said that of Apple in 1997 and was proven slightly wrong, Apple had actual products and weren't facing multiple federal investigations. Given the lawsuit ridden future of the company, this may be the simplest of many complex options.

This is a victory for a variety of groups - patients, investigative journalism, and government regulation - but a black eye for the tech press, venture capital, and boards of directors. John Carreyrou in particular can feel great pride in what he did in breaking this story at the WSJ, as not only did his work save patients from bad bloodtests, he's lifted the lid on some of the dubious practices in Silicon Valley and the billions of dollars invested there. The work he did does not come easy or cheap, and is a reminder to support those journalists who do so - I've made a point of subscribing to outlets such as the WSJ because of this. Without their work, we'd never see this type of story, and (selfishly) bloggers like myself would have no primary material with which to work.

There are now many journalists looking for "the next Theranos", and 'unicorns' are under more scrutiny to validate their claims and ensure their products are safe and effective before moving into truly important fields such as healthcare. Without doubt, there are other Theranos-like companies out there, and perhaps now they'll take the chance to pivot and moderate their claims in the hope they'll not receive the same attention - but if the founders are anything like Holmes, you can expect the "true believers" to continue to the bitter end despite reality.

The story of Theranos is far from over, there are no doubt years of stories to come - however its legacy may ultimately be in helping "clean up" tech investment now it is such a huge part of our economy. Boards of Directors may now actually scrutinise the companies they oversee, and perhaps may be inclined to resign when they cannot make an impact on poor behaviour. The federal government has made it clear that all its regulatory agencies that once turned a blind eye to private tech startups will not be doing so any longer. The FDA, SEC, FCC, and other agencies are not just unnecessary red tape but a real safety check necessary for our health and financial wellbeing - and despite their issues, we're much better off with them than without.