Scandal in Silicon Valley: Wall Street Journal’s John Carreyrou on the Rise and Spectacular Fall of Theranos

Scandal in Silicon Valley Wall Street Journal's John Carreyrou on the Rise and
Spectacular Fall of Theran os

[Music]

Mark Masselli: This is Conversations on Healthcare, I am Mark Masselli.

Margaret Flinter: And I am Margaret Flinter.

Mark Masselli: Well , Margaret we ’re watching a very different approach to the
most recent outbreak in Ebola in Africa , which is impacting a remote region of the
democratic repub l ic of Congo. This time around , global health officials have
quickly mobilized.

Margaret Flinter: Well doctors with our borders has deployed medical teams to
the region and the newly created Ebola vacc ine is being sent to the region as
well. This is a vaccine that was created in the wake of the Ebola epidemic just a
couple of years ago where it sick ened 30 , 000 people, killed around 11,000
people.

Mark Masselli: But it did provide one important opport unity Margaret and
accelerated push to create a workable Ebola vaccine. Recent trials have
confirmed the vaccine was highly effective in human s , so that's good news for
health workers on the ground and highlights the absolute importance of following
the p rotocol of good science when putting new tools into the marketplace.

Margaret Flinter: And I have to say , I don't think there has been enough of a
worldwide shout - out to the scientist who created that vaccine, so let's give him a
shout - out today .

Mark M asselli: Uh - huh, absolutely.

Margaret Flinter: A nd all of this brings us to our guest today , John Carreyrou
who is an award - winning investigative journalist for the W all S treet Journal who
uncovered a significant fraud in recent history , a multibillion dollar S ilicon V alley
startup called Theranos which created quite a sensation for promoting a
technique that would, as they said, revolutionized diagnostic testing.

Mark Masselli: Even while investors were pumping billions into the company,
there was ske pticism about the claims. Mr. Carreyrou pursued the story and
uncovered a high level of fraud that not only duped investors , but put hundreds of
thousands of patients at risk. He has written a book about his investigative work
called Bad Blood, really lo oking forward to hearing his story .

Margaret Flinter: And Lori Robertson will stop by, the managing editor of
f act c heck.org , but no matter what the topic , you can hear all of our shows by
going to chcradio.com or go to iTunes.

Mark Masselli: And as alw ays , if you have comments, please email us at

Scandal in Silicon Valley Wall Street Journal's John Carreyrou on the Rise and
Spectacular Fall of Theran os

[email protected] or find us on F acebook or T witter, we love hearing from you .

Margaret Flinter: We will get you our interview with John Carreyrou in just a
moment .

M ark Masselli: But first, here is our producer, Marianne O'Hare with this week's
headline news .

[Music]

Marianne O’Hare: I am Marianne O’Hare with these Healthcare Headlines.
W orld Health Assembly has recently convened to tackle some we ighty issues
imp acting global health . Representatives from member countries of the World
Health Organization addressed a wide range of topics including global
preparedness for the next pandemic since the WHO took heat for not responding
nearly quickly enough to the Ebola epidemic of 2014 and 2015 that created a
global preparedness monitoring board to ensure their readiness to respond to
outbreaks of any kind, anywhere. The assembly also welcomed the incoming
director general of the World Health Organization, Dr. Tedros G hebreyesus who
i s facing a mounting number of challenges including increased incidents of new
and recurring virus outbreak s such as Ebola , but also growing global antibiotic
resistance .

M e e ting all of these global health challenges requires money , and bud get
sho rt falls are a constant strain at the organization. One of the WHO's significant
campaign seems to be closed to achieving its 30 - year - old goal with only 5 cases
of polio reported worldwide in the past year , the 30 - year - old polio eradication
campaign appearing near completion.

Meanwhile , malaria kills some 450,000 people per year worldwide, most of them
children and affects millions. The Gates Foundation is lending some significant
support to an effort, Bill Gates an nouncing he is backing gene - editi ng
experiment s using CRISPR technology that can alter mosquito DNA to render
them infertile or to program mosquitoes to become incapable of carrying or
transmitting malaria. He says it could prove a viable weapon in the quest to
eradicate this deadly glob al illness.

Does vaping or using e - cigarettes help our hardened smoker quit ? Well, a recent
studies suggest that may not be the case , study published in the New England
Journal of Medicine looked at 6000 smokers offered cessation programs ,
p articipants w ho were given financial incentives or rewards had a much more
significant cessation rate than those participants who were given e - cigarettes. At
the end of the 6 - month period , the financial rewards group showed the only
significant achievement in remainin g smoke - free. I am Marianne O’Hare with
these Healthcare Headlines.

Scandal in Silicon Valley Wall Street Journal's John Carreyrou on the Rise and
Spectacular Fall of Theran os

[Music]

Mark Masselli: We are speaking today with John Carreyrou, two - time Pulitzer
Prize win n ing journalist at the Wall Street Journal and author of Bad Blood :
Secrets and Lies in a S ilicon Valley Startup . It ’s a detailed account of the
dramatic rise and fall of Theranos, a multibillion dollar biotech startup that had
promised a revoluti o nize d dia g nostic testing. Mr. Carreyrou joined the Wall
Street Journal in 1999 where he covered b usiness and international terrorism.
He was named bureau chief for S outhern Europe and later became the health
and science bure a u chief at the Wall Street Journal. Mr. Carreyrou has earned
numerous other awards including the George Polk award for financi al reporting.
He earned his BA in political science and government at Duke University. John,
welcome to Conversations on Healthcare.

John Carreyrou: Thank you for having me.

Mark Masselli: As I was reading your book and it is a page turner , yeah, I s tarted
to think about the American financial schemes, sort of Ponzi scheme, so I started
to think about Enron and Bernie Madoff, Lehman Brothers, and you know, I was
thinking, we hated all those people , but we loved Elizabeth Holmes and th e sort
of prospec t of Theranos and what it offered the opportunity for . And I wonder if
you could just give our readers sort of the thumbnail sketch if that's possible of
what happened here?

John Carreyrou: So, Elizabeth Holmes is a young woman who dropped out of
Stanfo rd in 2003, but she i s 19 year s old and she dropped out because she had
a vision which was to basically pioneer a blood diagnostics product . And she
had this vision for an armband that would have these little micro needles that
would draw blood and diagno se you with whatever ail ed you and then you know
simultaneously cure you by injecting the appropriate drug . It turned out that that
was pretty much science fiction, so she then pivoted to a device that s he wanted
it to be a more sophisticated and complete version of the blood glucose monitors.
She wanted it to be a machine that could do every lab test man to man and she
wanted to do it o f just a drop of blood pricked from the finger . And by 2013 - 2014
went live with the technology in Walgreens S tores , s he had a partnership with
Walgreens and the company sold shares in a fund raising round in early 2014,
that value d the company more than $ 9 billion and Elizabeth Holmes became
Silicon Valley youngest female self - made tech billionaire . And it sort of fulfill ed
this desire that people had in Silicon Valley and American society at large to see
a woman breakthrough among all these tech visionaries and billionaires, you
know, the likes of Mark Zuckerberg and the Google founders . And then I came
along and the Wal l Street Journal came o ver and we revealed that things weren ’ t
quite as they seemed.

Margaret Flinter : Well John, I think what is most surprising to me about this story
now is the number of very sophisticated high - level investors and industry leaders

Scandal in Silicon Valley Wall Street Journal's John Carreyrou on the Rise and
Spectacular Fall of Theran os

who were so quick to jump on board based on little more than claims from
Elizabeth Holmes as the company founder . And we have read about the
carefully orch es trated media events to promote the Edison m iniLab , the machine
that could allegedly conduct hundreds of diagnostic test s on just this tiny drop of
blood . But as we understand it from your work, scientists on the inside were
actually pretty well aware that the technology just wasn't there , didn't work , w hat
made it possible for so many investors to be dup ed?

John Carreyrou: Well , she roll ed out the blood test involving stores and then
used that really at its validation , sort of confirmation that the technology existed
and worked because she ha d g one commercial with it . And so a lot of these
investors wh o came and put hundreds of millions of dollars into the company in
2014 to 2016, they did largely on the strength of the fact that the re are no
services were available to the public. You know, how that came to be is one of
the most incomprehensive parts o f the story when you think that Walgreens got
duped and didn't do really any due diligence, and there is a chapter in my book
that explains that Walgreen has actually hired a lab consultant to vet the
Theranos technology. He traveled to Palo Alto and met with Holmes and her
boyfriend , Sunny Balwani a couple of times and he started smelling a rat and
tried to alert Walgreens executives . And they basically ignored him and Sunny
and Elizabeth asked the Walgreens to exclude him from meetings and from his
week ly video conference calls and Walgreens ended up marginalizing its own
consultant . And as a result , Theranos was able to roll out involving stores and
then the investors saw that and thought, well this got to be the real thing , right?

Margaret Flinter : Uh - huh .

John Carreyrou: Because it's commercial.

Mark Masselli: You know John, I wonder if you could walk through how you
found your entry point to unraveling the story . In the backdrop, there were
threats and lawsuits, rumors, intimidation within the company , t ell us about that
journey that you followed your sort of investi gat ive instincts and how that
unfolded?

John Carreyrou: So she ha d risen to fame pretty much in June of 2014 and the
thing that really made her break out was th is cover story in F ortune Magazine ,
but she didn't come on to my own radar until that six months later when I read a
profile of her in The New York er magazine . That story left me with a strange
feelin g , there were some aspects of it that were off to me that the notion that a
19 - year - old college dropout who had just two semesters of chemical engineering
courses under her belt had dropped out and pioneered groundbreaking new
science. I was skeptical of it ’s possible for that to happen in computers, you
know, you can pretty mu ch teach yourself how to code at 10 years old on your
college computer the way Mark Zuckerberg did , but in Medicine , you really do
need real training .

Scandal in Silicon Valley Wall Street Journal's John Carreyrou on the Rise and
Spectacular Fall of Theran os

Margaret Flinter : Right.

John Carreyrou: - - a nd put in years of research to really add value. That b eing
said, I probably wouldn ’ t have done anything with it if I hadn ’ t gotten a tip about a
month later . And the tip came via a practicing pathologist in Columbia, Missouri
who moonlighted at that time as the writer of the [inaudible 00:10:30] blog called
pathology blog . And he had read The New York er s tory too and knowing
[Inaudible 00:10:36 ] about blood testing was immediately skeptical about the
claim that you could do so many tests of just a tiny capillary blood sample . A nd
he wrote a skeptical item o n his blog and was immediately contact ed by th is little
group of Theranos skeptics, one of whom had been embroiled in [inaudible
00:10:53] with Elizabeth Homes .

Margaret Flinter : Ah a .

John Carreyrou: A nd that person 's name was Richard Fuisz , and it so happened
that Richard Fuisz has just made contact with the laboratory director of Theranos
who just left the company and was alleging all manner of wrongdoing . But I felt
that if I could get through a primary source then this might be the beginning of a
s tory . And s ure enough o ver th e ensuing week s , I did make contact with him and
he was petrified because lawyers of Theranos were threatening him and so I
agreed to grant him confidentiality and then he started opening up to me.

Margaret Flinter : Well Joh n, what's really remarkable to me is how far they were
willing to go to carry out the fraud in the face of so much damning evidence about
the failure of Edison to perform on any reliable level . And I think the most
shocking part is th at patients were actu ally put at risk and one of your sources I
understand was a clinician in Arizona who was able to recount a number of
patients who received false diagnoses and even underwent medical treatment
that was not appropriate or not necessary . H elp us understand t he depth of
harm that was foisted upon the individuals who ended up being directly involved
and the threat to patient safety that was really carried out?

John Carreyrou: Right. That's when the really big red line was crossed is when
they went li ve with the testing, Walgreens S tores first in Palo Alto, and then in
about in 40 Walgreens S tores in the Phoenix area , and that was in 2013. So by
th e time I came along and started investigating the company, its test had been
available at Walgreens S tores for ab out year and a half. And in reporting the
story, I went to Phoenix and I talked to several doctors and came across several
examples of patient s who had received questionable test results, one of them
was a lady who had received test results showing that s he had about 6 or 7
abnormal values . And her symptom was that she had ringing in her ears and
when her doctor put the abnormal lab values and the symptom together, became
really concerned that the patient was on the [inaudible 00:12:57] and sent her
immed iately to the emergency room . And then the patient underwent a battery of

Scandal in Silicon Valley Wall Street Journal's John Carreyrou on the Rise and
Spectacular Fall of Theran os

scans and tests and then finally at the end of her stay at the hospital they ran her
labs again and all those values came back normal . And so at that point, she was
released from t he hospital and she ha d several more MRIs over the ensuing
week . And finally , she and her doctor concluded that it was a false alarm and it's
one of the ways in which patients were affected by this giant unauthorized
medical experiment.

Mark Masselli: W e are speaking today with John Carreyrou, two - time Pulitzer
Prize win n ing journalist at the Wall Street Journal and author of Bad Blood:
Secrets and Lies in the Silicon Valley Startup. John , so many people were
duped in this , h er board of directors was a who ’s who Henry Kissinger - former
secretary of state, Bill Frist - former US senator of surgeons, Sam Nunn, George
Shultz, this is astounding that she could have amassed all of th is political capital ,
I can ’t help but think the re are investigative e n quire s going on , but one, how did
they get duped and what ’s been the fallout here.

John Carreyrou: Right . So one of Elizabeth's tricks was to gain the support and
backing of people , usually older men with prestigious reputation, the first person
in that cate gory was Channing Robertson, her engineering professor at the
Stanford School of Engineering . And he accompanied her to venture capital
meetings when she dropped out, then she wrapped Donald L. Lucas around her
finger , a pretty well known venture capitali st who help ed Larry Ellison take Oracle
P ublic in the mid 80s . She pivoted to charmi n g George Shultz, the former
secretary of state who crafted the Reagan administration's foreign policy , Shultz
is someone who, you know in his 90s has always been passiona te about science
and when he heard Elizabeth, sort of un spool [PH] her vision , he really bought
into it and joined her board . And then he introduced her to all his buddies at the
Hoover I nstitution which is the con s er v ative think tank and that's how she m et
Henry Kissinger and all these other ag eing statesmen . A nd that's how she came
to have that very powerful board of older men who by the way had zero expertise
or knowledge about laboratory science . And that gave her credibility with the
investors that she conned, she scrupulously avoided DCs who had any medical
technology experience and she targeted basically billionaires and billionaire
families, among them Rupert Murdoch who invested on $1 25 million, family of
Betsy DeVos , our current education secret ary which put in 100 million , the heirs
of Sam Walton put in 150 million, so that's how it unfolded . And then with
respect to your question , which is what's going on now, she has been charged
with fraud by the SEC and she negotiated a settlement without a dmitting
wrongdoing . But there is also criminal investigation spearheaded by the US
Attorney's office . And my sources tell me that that investigation is very advanced
and drawing to a conclusion and that criminal indictment of Elizabeth Holmes and
of her boyfriend , Sunny Balwani are a distinct possibility.

Margaret Flinter: Well, this is incredible illustration of what can happen. We
want innovation, we want solutions to some of our vaccine problems in m edicine
and how badly things can go wrong in the fast moving pace of innovation and

Scandal in Silicon Valley Wall Street Journal's John Carreyrou on the Rise and
Spectacular Fall of Theran os

healthcare and the real need, the absolute need for rigorous empirical analytics
and data . And I think we look at this and say, no peer - reviewed articles on any of
this, so what can we learn from the Theranos story that helps us better balance
the hopes of innovation in healthcare with the need for the evidenced - based
research?

John Carreyrou: Right. Well, I would say th ere is reverence for
ent re preneuralism and innovating, creating startups that within 10 or 15 years
become, you know the next Google s . And I would say that we shouldn ’ t let this
reverence excuse wrongdoing , t his is -- Elizabeth is someone w ho idolized Steve
Jobs and id olized Apple and she wanted to be the second coming of Steve Jobs
and she was going to do anything and everything to get there . And on her way
she committed wrongdoing, they basically committed fraud and they put patients
in harm's way . And our reverence for entrepreneurialism shouldn ’ t mean that we
let these people get away with playing by different rules , t hey have to play by the
same rules we all play by , t hat's one of the big lessons to me of th is story. The
other thing t o bear in mind is that there is a convergence right now between
traditional tech Silicon Valley which is the descen dent of the microprocessor
industry and medicine and the two a re quickly converging . And the Theranos
story is a lesson that as this convergence happens , we can't forget that we are
talking about patients and we are talking about patient s’ lives. And the refore you
have to do things r igorously and scrupulously , and you have to abide by
regulations . And it's not by any chance that the healthcare myster y is the most
regulated in the country because ultimately , you know it's patient s’ lives that are
at stake .

Mark Masselli: So John, why did you do it , you've sort of got under her skin or
psyche in some ways, what was the motivator here?

John Carreyrou: She is just someone with voracious ambition, you know I have
an anecdote in the book where she is 9 or 1 0 years old and a relative ask s her ,
“W hat do you want to do when you grow up ?” And her answer was , “ I want to be
a billionaire . ” And the relative said, “ You don't want to be President? ” And she
said “N o, the President will marry me because I have a bil lion dollar. ” S o that's
really, it's no exaggeration to say that she wanted to be rich and famous.

Mark Masselli: Yeah.

John Carreyrou: And it's a story of someone who pursued that ambition at all
cost.

Mar garet Flinter : We have been spea king today with John Carreyrou two - time
Pulitzer Prize win n ing journalist at the Wall Street Journal and the author of Bad
Blood: Secrets and Lies in the Silicon Valley Startup. The book is available on
Amazon and in book stores and you can also follow Mr. Carreyro u's work at the
Wall Street Journal or follow him on Twitter @JohnCarreyrou , and I am going to

Scandal in Silicon Valley Wall Street Journal's John Carreyrou on the Rise and
Spectacular Fall of Theran os

spell that C - A - R - R - E - Y - R - O - U. John , t hank you so much for your tenacity , for
your investigative journalism , for your reporting , and for joining us on
Conversati ons on Healthcare today.

John Carreyrou: Thanks very much for having me.

[Music]

Mark Masselli: At Conversations on Healthcare, we want our audience to be
truly in the know when it comes to the facts about Healthcare reform and policy.
Lori Robertson is an award - winning journalist and managing editor of
FactCheck.org, a nonpartisan, nonprofit consumer advocate for voters that aim to
reduce the level of deception in US politics. Lori, what have you got for us this
week?

Lori Robertson : We find heate d rhetoric on both sides of the aisle when House
Republicans pursued a bill that would expand work requirements for the food
stamp program.

In February , the most recent month for which we have figures , 40 million people
received food stamp benefits. The GOP proposed work requirements would
cause 1.2 million fewer people amongst to access the benefit s by 2028 according
to the nonpartisan C ongressional B udget O ffice . U nder current SNAP rules
implemented in 1996, a ble - b odied a dults between the ages of 18 an d 49 and
without dependents are required to work at least 20 hours a week or participate
in a qualified job training or volunteer program in order to be eligible for more
than three months of benefit over a three - year period.

The proposed GOP log would ra ise the age of those subject to the work
requirement from 49 to 59 and extend the work requirements to adults with
children ages six and older. The minimum work required would rise to 25 hours
per week in 2026 , 62% of those who would lose benefits would b e a ble - b odied
a dults caring for children 6 or older . Another 27% would be a ble - b odied a dults
between the ages of 50 and 59 .

Another proposed change in the bills would cut off SNAP eligibility for those
whose gross income exceeds 130% of poverty instead o f the 200% threshold for
SNAP recipients in some states t hat would c ause another 400,000 household per
year to lose eligibility. The bill failed in the house in May , but Congress is
expected to take up such legislation again , and that ’s my f act c heck for this
week. I am Lori Robertson, Managing Editor of FactCheck.org.

[Music]

Margaret Flinter: FactCheck.org is committed to factual accuracy from the
country’s major political players and is a project of the Annenberg Public Policy

Scandal in Silicon Valley Wall Street Journal's John Carreyrou on the Rise and
Spectacular Fall of Theran os

Center at the Universi ty of Pennsylvania. If you have a fact that you would like
checked, email us at chcradio.com, we’ll have FactCheck.org’s Lori Robertson
check it out for you here on Conversations on Healthcare.

[Music]

Margaret Flinter: Each week, Conversations highlig hts a bright idea about how
to make wellness a part of our communities and everyday lives. Louisville ,
Kentucky has consistently been on a top 20 list of US cities you don't want to live
in , if you have a lung disorder surrounded by the nation's leading r ubber
manufacturing entities and nestled in Ohio River Valley , t his is the city that has
grappled with pollution. Several years ago, the city's newly hired chief of
innovation made a decision to tackle the issue , and through his work in public
health rese arch , Ted Smith had learned of a tech - enabled smart inhaler that
when s ynched to a person's phone act ing like a GPS for whenever that person
needed to use the rescue inhalers.

Ted Smith: Essentially to put a GPS transponder on top of your inhaled
medicat ion so that when you took a puff of your medication, it would take a
snapshot of what time it was and where you are . And that kind of real - t ime
monitoring of asthma event is really h igh value signal , and you are capturing it in
real time.

Margaret Flinte r: Smith d ubbed the program , AIR Louisville and tracked 1100
participants over the course of a year. He said they were able to chart
environmental triggers in any given area where an asthma attack occur r ed and
chart real - time data on the conditions and t he location giving them some great
public health epidemiology data.

Ted Sm i th: We ended up with a very high , special resolution map of the burden
of asthma in Louisville , Kentucky . And then that led us to explore, you know
where those little micro areas are that are problematic and what we might be
able to do about it.

Margaret Flinter: More importantly , the smart inhalers gave users a feedback
loop of information which allowed them to better manage their exposure to known
asthma triggers.

Ted Smith: One part of the use of the technology is the surveillance , but another
part of the technology is the feedback moved to the user who learns how poorly
controlled or not their asthma is or how adherent they are with the medication
they are supposed to be ta king daily . And there is an immediate effect , p eople
end up getting better control of their respiratory disease.

Margaret Flinter: Reliance on emergency inhalers dropped 78% among
participants and the city was now armed with data that could help them de vise

Scandal in Silicon Valley Wall Street Journal's John Carreyrou on the Rise and
Spectacular Fall of Theran os

pollution mitigation strategies.

Ted Smith: The harder problem that I think the rest of the country has which is
our ambient air quality standards are still not low enough and people are
exposed to levels of pollution that we are going to have work hard to figure out
how to remove.

Margaret Flinter: A tech - enabled smart inhaler that gathers meaningful data that
informs public health officials how they might reduce the burden of asthma,
health cause, while teaching asthma suffer er s to better control their disease and
stay healthier , now that's a bright idea.

Margaret Flinter: This is Conversations on Healthcare, I am Margaret Flinter.

Mark Masselli: And I am Mark Masselli, peace and health.

Conversations on Healthcare broadcast from WESU at Wesl eyan University,
streaming live at www.wesufm.org and brought to you by the Community Health
Center.