tv John Carreyrou Bad Blood CSPAN July 7, 2018 11:00pm-12:11am EDT
university. in her sophomore year because she had a vision for a technology to create a very much wanted to fall in the footsteps of steve jobs whom she admired with those needles that would draw minute amount of blood and diagnose you and simultaneously inject you with the appropriate drug to cure you. >> she called the era patch and in her early pictures to investors there was a little diagram that showed the patch and actually it was more science fiction than reality
and she and the cofounder realize that after a few months and gave into something that was more inspired by those glucose monitors that diabetes patient use except she wanted her portable device to do every blood test not from just a pinprick of life -- blood. from a laboratory test several hundred $7000. no one had been able to do that before. so it was still a wristband but it was ambitious endeavor and she proceeded to build up this company over the next decade and went through several iterations of the technology and by late 2013
through the partnership with walgreens commercialized or fingerstick test in the walgreens stores to the blood draw centers in the area and another 40 or 45 in arizona. and became a star and a celebrity here and beyond silicon valley and she had a lot of press coverage and on the cover of fortune magazine in 2014 like a job that type of lack of -- black turtleneck and was a fixture at the conference the healthcare conference circuit and invited to the white house several times and won various awards. invited to join the board of
harvard medical school which is a very prestigious body. and was headed as the world youngest health meet female billionaire because by early 2014 she had a valuation of more than $9 billion she had kept more than half of the equity she was was almost $5 billion at that point. so in a nutshell that is the story. >> so we will look back but one thing that is interesting that it wasn't that they became available but it was retail that you didn't have to go to the doctor. >> exactly. the first part of her history of that business model was different that she pitched pharmaceutical companies with the idea that they would use the user-friendly fast and
painless stick tests in a clinical trial to test drugs in the patients enrolled would have this blood testing device in their home to prick your finger several day and the results would be beamed to the trial sponsor and the pharmaceutical companies could save billions of dollars on trials. and it was only later starting in 2010 that she pivoted to the direct to consumer model. and there were two retail partners that she wound him --dash and walgreens could commercialize the technology. >> and the board of directors who were they?
>> in 2011 she met george scholz through someone at stanford medical school and you all know he is probably famous secretary of state from the reagan administration foreign policy and is credited by many with winning the cold war. and in his 90s now that we mean the roof. figure in republican circles and he lives right off the stanford campus and has always been passionate about science and when he met elizabeth he was impressed with what she told him about her technology and soon thereafter he join her board and introduced her to his studies at the hoover institute on campus and that is how she got to meet kissinger and bill. former secretary of defense
and bill clinton and sam nunn and bill frist and former military commanders and they all eventually joined the board so by the time 2013 came around she had this unbelievable board of x statement and retired military commanders with incredible resume and general matter as well secretary of defense. >> that wyatt is interesting is they are all smart successful people. but what do they know about biochemistry? >> that's right. not much. [laughter]
i think a lot of people were impressed with the board in few people stop to think what is george scholz or henry kissinger know about medicine or lab testing in particular? and they had any connection to medicine whatsoever. with no expertise in diagnostic. and that was a major red flag. >> it was a towel or a great reason to invest in there is a hedge find in inferences go that met with elizabeth and also her number two executive that was secretly her boyfriend in 2013 to do the diligence and boldface lie
including revenue projection and data that was not real and so on and so forth but by the board of directors were really impressed by the credentials of these people and it did not occur to them that a startup with the board that was that impressive could be up to no good. with the lawyer keeping watch was david boyes. and how that started originally particularly with the walgreens and situation
without anecdotal evidence so that culture was one of secrecy and paranoia and elizabeth like to compartmentalize information to keep the overall picture of the devices to herself in the communication and then hiring people and then going into overdrive when he was 18 years older and before even starting the undergraduate studies at stanford.
and with tiny startup human before the tech bubble pop with it was acquired $250 million walking away with more than 30 million then coming out of high score she saw him as this festival older silicon valley entrepreneur and become successful and wealthy. and the guy who teacher about business in silicon valley and eventually became couple. he divorced the artist he was married to and she moved in with him for the first five or
showed up at the office and then as i recount in the book just a constant stream of firing and those that left from their own foolish and developing long and did not want to be a party what was going on anymore. and i was at kepler's books last night at a book signing and there were quite a few ex-employees that came. [laughter] and then the book signing line is among them did not know one
another and they called themselves there are no survivors and i heard them use this term. so there was the aspect of working there largely it was not pleasant. the reason i think this is important not because of the anecdote you expect exactly the opposite of the unicorn type article please particularly that look to be disruptive that everybody talks to each other the ceo sits with everybody else because that is how ideas percolate to make at a certain
point the story of a young startup founder promising to raise money and then over the years that, got worse and worse in the gap of her technology in which he promised became enormous to the point that when they went live with the blood test and all the stores fall 2013 the gap was so huge that they had to cheat and hack commercial machine look like they created new technology and part of that secrecy and paranoia he came to hide the shenanigans. and when i finally published my first story october 2015 a lot of employees were not even
aware of what they had done in the lab are not even aware only a few of the blood tests were done but most were done with the hack commercial machine because they were not authorized to go into the lab there was a fingerprint scanner if your finger had not been and/or preapproved you cannot get in and did not know what was going on. so it was about hiding not just from the outside but also many employees on the inside. >> in a sense is another tell because if you were committed you could do with it said you operate 180 degrees different so go back in my mind what was the first encounter with the performance with novartis. >> the prologue of the book is
with the chief financial officer at the time elizabeth and her colleagues and it takes place in 2006 comeback from come back from a demonstration of the device in switzerland at novartis would've the biggest companies in the world in pharmaceutical she is excited and happy in they look like something had gone wrong so he wanders downstairs to figure out what happened and he approaches the cofounder and wasn't exactly what happened in switzerland but after talking to him for a while and believe that actually the demonstration they were doing for investors coming by the office are not me all the blood tests are
reported and not in real time so the cfo who was there eight months is done because he has been great around all of these investors and he is under the impression they are real and certainly they are under the impression they are real and he learns they are not. so he decides to confront elizabeth and goes to her office to meet with her and tells her that this is a line they cannot cross it is okay to be aspirational but you can't my and mislead investors as security by. so her switches with and then she goes to i.c.e. cold and has you are not a team player. i think should get out of here
right now and it is clear that means he's fired and i use that has the prologue because that is a good way to hook readers. [laughter] and make them turn the page. but also it is emblematic of the fact the unethical behavior of this company is a something that happened late in the game or that they cut corners it actually started very early in that scene takes a couple years she is 22 years old and it shows that unethical behavior was part of the dna of the company.
>> with this technology the micro fluid system that refers to the field that had three purpose technique by the computer chip industry in that field was just coming up when elizabeth watched her startup there was a lot of excitement about it and they made a real effort to build a microfluidic blood testing system but unfortunately it wasn't working and she was probably under pressure because she made promises to investors before she pivoted away but even as she does she is already starting a title study with pfizer whereby the system
is installed into the homes of terminal cancer patient those that are in clinical trials getting anti- tumor drug to arrest the growth of their tumors hopefully find them a few mormon of life. and back then there were some employees that were realizing it wasn't right to use that blood testing system that did not work at all and granted back then the blood test was not use to inform the treatment that validation experiment to be compared with the regular blood tests that pfizer was doing the regular way. but they were still appalled that terminal cancer patient were 41 -- being put through
the drive several times a day with the technology that absolutely did not work and in the middle of all that pivoted away from the micro platform that was a blue dispensing robot they ordered that from the company in new jersey. >> it is made to dispense blue. yes it uses a robotic arm with 3 degrees of motion forward and back and up and down. he reprograms it to mimic what a lab scientist would do while testing blood and employees will now visit to the machine but some felt let down because that was step down from the
micro fluid so they would prefer to the machine as the group bought left -- gluebot. then there was a case design and she christened it the edison and this happened with this habit will -- pivot was a different machine and much more rudimentary happened in the middle of the validation study using the cancer patients. >> you remind me actually that maybe we went past her whole model is used on capillary pain so that's a big
difference. >> it isn't just a fact to get such a small sample of blood and also that capillary blood has tissue from the cells and it is because if you are drawing blood from the tip of your finger it isn't as of the sample as with the needle from the arm. one problem into two healer will -- in particular is when you prick the finger and milking it to get the blood out, often you put stress on the red blood cells and they explode and that create potassium and more than there would be so a problem that no one has called with a finger stick with capillary blood that there have been studies
showing that potassium test are completely unreliable when done on capillary light and as i recount in the book it is a big problem that they encountered as well. >> how do you interpret this session with jobs? >> first of all you have a history of her ancestors were some of the richest people in america at the turn of the 20th century and her father had raised her with the knowledge of their great success but also with the knowledge that the peter generation of the family has squandered the wealt wealth. his grandfather had a very hedonistic lifestyle with iming the purchase in hawaii
and wondered most of the money and his son wandered the best. she was raised with a notion once upon a time they were wealthy people. >> that they were the elite of america once upon a time and not anymore. so she had this desire creates that and also steve jobs was rei and he was her idol. she revered apple. and i think theodore mrs. take that she made it she modeled herself after jobs and basically the traditional
pewter technology industry. she should have modeled herself after the biotech cluster in san francisco said in an attack that has been doing real medical science for decades but instead the hardware and software industry and that was not the right model for this culture. with that fake it until you make it and from the early '80s to describe that hardware and software announced by fanfare with companies that never delivered that years late without features promised in people -like jobs were accused at various points of engaging in this practice. so i think if you look at it from the point of view from elizabeth she said that's okay because eventually they did
make it to become the real thing and they were juggernaut. so they are millionaires and icons. so the problem is you cannot roll off that medical arena is a different arena and that and consumer is not someone using that smart phone that is relying on the blood test results either lost sight of that are conveniently ignored it but the traditional silicon valley playbook is in applicable to medicine. >> i crashes or i get a false negative.
>> twitter wouldn't work for hours at a time beginning. >> with the general assumption with those systems in place. >> that is one of the craziest parts of the story. chapter seven of the book where i recount walgreens attempt at doing diligence and when they first approached walgreens in 2010 say they can
do hundred tests to do that chiefly they have not even started to work for that is the big lie. and walgreen should have been able to figure that out so they hire a laboratory consultant tires in check out those claims and do some verification. he met with elizabeth holmes in 2010 and started to laugh tough questions to suggest they do like 50 patient comparison study and elizabeth
did not like his suggestions at all after a couple of months they told. that walgreen we don't want this guy meeting anymore. peter had the meeting once a month or every week. they wanted him from the meetings and video conference calls. so the unspoken boys if walgreens did not exclude them from the meeting going forward then they would walk away. walgreens was terrified she would walk away then go to cvs it charge one --dash arch rival the walgreens think we are in a battle to the death with cvs and everything we do is through that prism. they were terrified and then
strike a deal with them than they would regret that the next 20 years. so what is fear --dash fair to say that fear of missing out unfortunately played a big role to drop the ball and not exclude kevin hunter remains there consultant that was kept at arms length. his role made impossible for him to do his job and as a result they never vetted that technology and they also assumed this blue-chip company that surely they have done their homework and have kicked the tires are not rolling out
the medical technology that people rely on to make health decisions without doing their homework so everybody assumed walgreen had checked this out and if it was good enough for walgreens it is good enough for me. and to test customers. by the time they started to dig into the company testing for more than a year and a half most of those in arizona they chose that because the policies are very pro-business they have a very high concentration of uninsured patients and that the patients
who are sensitive to those prices are those who had to pay for their lives they were uninsured because they have those labs covered by insurance. >> what do they do when the technology doesn't work? [laughter] and then to validate that technology so that second-generation is limited to one class of blood tests there are half a dozen classes so the many lab the other class blood test but by the time they rolled up finger stick tests now it was just a
prototype that did not work in ways years away from me could not log --dash but according to my sources i subsequently that the validation experiment was very shoddy and they cut corners and ignored data point that were very well known in science you don't eliminate any data points that a scientific fraud and they were engaging in behavior because he tried to get the validation report to look the way they should in order to put the test on mine so they did put half a dozen test on mine that were not reliable on the edison because they could only
do in united states it needed a way to pretend they had technology to do these other classes of tax so they hacked another machine a big commercial analyzer not at all me to test fingerstick blood but they had the brilliant idea to modify the machine. and one of the ways they did that is to dilute the blood of the fingerstick samples to create more blood -- volume and it was built to test create more volume they would dilute the blood. there are several problems with that there is already a dilution that so this was a double dilution and when you
offer the sample multiple times there is more room for error also diluting it so much concentration whose concentration they were trying to measure it was so -- so low that it meant they were using the machines in the way the manufacturer did not intend and the fda which also led to another series of unreliable tests. >> so now the patient were receiving that. >> faded 80 test using this hacked method with this machine. >> we could go on and on about this but i thank you have pretty much said all you can with this a.m.
is that fair? that now i want to go when you become part of the story if i can put it that way where you first lift out something was different. >> right. so she first came on my radar when i read a profile in the new yorker magazine and at that point he was a celebrity for over a year since she had risen to fame and had graced the cover of fortune magazine six months prior for me that was the first time i discovered this company existed in the shown woman had founded it and i learned of the company valuation and her great wealth.
there were a couple of things that one in particular that struck me as odd as i was reading the new yorker profile , was the notion that this 19-year-old college dropout was just to ministers of chemical engineering under her belt just dropped out to pioneer groundbreaking science. this has happened before in silicon valley like mc one --dash mark zuckerberg they taught themselves how to code in program on a computer when they were young. and that was believable you can do that with a computer manual if you spend hours and hours at the keyboard you can teach yourself. but you can't really do that in medicine you have to have
formal training and go to medical school do a fellowship, get your phd, postdoctoral studies, years of research for decades before you start to add value. as a say in the book at his local incident that most nobel laureate medicine learn their prizes in their 60s it takes a lifetime of training and work to add value and i knew that. so i smelled a rat. but to be fair i might not have done anything if i did not get it to three or four weeks later coming from the clinical pathologist who is based in the midwest who wrote and obscure blog called the pathology blog and i don't know how many readers he had
but i would speculate not much more than ten. [laughter] and i had come across him the previous year doing a series of stories of medicare fraud and abuse and sought his assistance to understand laboratory billing and he had patiently explained the arcane art of billing and a use that knowledge to expose the can add a network of cancer centers but i hadn't spoken to him in seven treatments at that point and he called me because he had read the new yorker story also and knowing a thing or two about blood testing he was dubious of the claims and quickly posted a short item on his blog and was contacted almost immediately
by a little band of fairness skeptics one named richard hughes who was a childhood neighbor elizabeth and her parents in the 80s when they lived in washington was the medical inventor and entrepreneur and this is a crazy plot twist that went with the best dropped out of stanford he and his wife were still friends with her parents and her dad is very proud and vein in his pride was hurt that the form did not seek his advice even though they knew very well he had decades of experience to patent medical inventions to build and sell companies and so forth. so he thought her vision had merit and check it out into an interview she had given him
2005 and had figured out there was one part of her vision that she had not patented which was the alert mechanism to alert the doctors when blood test results were abnormal so he went ahead and filed a patent to pack into that. [laughter] which is not very nice thing to do they did not immediately know had done that but eventually they did because patent applications are made public in the database 18 months after they are filed but then elizabeth had come to develop the theory he had used his son john were at the same law firm she had used briefly for the patent work and developed a theory that john had stolen information from her own provisional patent and
had given it to his father. i looked at those allegations very closely and the litigation that arose from that and came to the conclusion that it wasn't very nicely he had not still running in -- any information that she did to him in 2011 in that lawsuit medication went on for three years. he hired david boys to litigate that case and throughout that who had a background in medicin medicine. so he told the blogger of his suspicion and it helped that he also just made contact with an employee who i just left that was the outgoing laboratory director.
i was very conscious three times removed that was a secondhand source and a primary source that just left the company and the lab director and then my mission was to get them on the phone and then after a couple of weeks he was terrified he was being hounded and sent a bunch of e-mails to himself pressuring him he had hired a lawyer. she definitely was not
confident to take his case and she was intimidated. and was under stress it would only speak to me with confidentiality so i did. all i had were rumors and innuendo and i promised i would treat as an anonymous source and regard his anonymity which i do to this day he has identified today under a pseudonym. and with that first phone call i learned about those blood tests were done on technology the edison machines were faulty the test were done on commercial instruments and to
see that they were a couple and hiding it from the board of directors and employees. kissinger was quoted in the new yorker i saying his wife had tried to set elizabeth up on date. it was clear she was lying about the relationship. i knew it was a big story gambling with patients lives in the journal wouldn't let me go to print with just one source if they were anonymous. so it was a game of corroboration over the ensuing months. i was corroborated what alan was telling me and that is how i came across other employees and one was tyler schultz who
was george schultz is grandson he had worked there eight months and had come to the conclusion it was a fraud scam at the tail and try to alert his grandfather and opened his eyes to what was going on and george did not believe him. so he had to leave he follows his bottle back for over a year but then when i started to poke around and call his ex- colleagues he heard this journal reporter was poking around he will be up and at that point alan had told me about tyler and said you can try again as well and i thought that connection was interesting as you know there is a feature you can see who is checking out your profile
so i immediately noticed tyler schultz checked out my profile so i sent him an e-mail i did not hear back for over a month and was making headway with the story in other ways and then when i lost hope he would get back to me my phone brings one afternoon in the journal newsroom and it is tyler. also terrified and very nervous because he was worried that somehow they retrace communication and i had to grant him confidentiality for him to talk to me that once i did he gradually got comfortable he wanted to unburden himself and his story came pouring out. and that had the unbelievable twist to the story to that tyler and george axis.
[laughter] so the last part of this is you finally decide to publish 2015. >> tyler had good reason to be paranoid as did alan because they figured out they were among my confidential sources and threatened them and there was a surreal incident that was recounted in the book that tyler was ambushed at his grandfather's house and had to withstand my legal threat they wanted him to sign documents basically we canteen and
naming my sources. but i never cave in a large part thanks to him i could go to press with the story octobe october 2015. >> my want to get to audience questions but tell about how you were treated once you publish the story. >> the story was published october 15, 2015 which i think was a thursday and elizabeth was in boston for her first meeting for the harvard medical school board fellows so she went on cnbc ended boston and spoke to jim cramer
and let it be known that she was rebutting the article i was already working on the second day story because i had gotten when the four we went to bed with the first story the fda had inspected the company that i had not gotten confirmation so i could get confirmation today the first story was published why immediately was on deadline with the second. she came on cramer at five or six in the afternoon your time , that is the mad money program. >> i was standing over the editor. we were doing and turned up the volume to see what she would sa say. he played the role of the aggrieved startup entrepreneur who is being attacked by a reporter with her competitors
with this entrenched duopoly pulling my stream. and then although it is a funny interview he does ask her about the allegations in the article she begins to dodge and bob and we and then that night he flies back to palo alto to address what is a growing crisis because in my second story comes out to reveal the fda did an infection that has taken away the ability to use that they could no longer do fingerstick testing and that evening in the afternoon california time they gather employees in the cafeteria headquarters in palo alto and gave a speech how i
am a despised reporter out to get her and it is speeded by a competitors and disgruntled employees she will take on the wall street journal that is a tabloid she said. [laughter] and then sunny give a defiant speech as well and three months earlier the fda had approved one of their fingerstick tests. the big element of victory they celebrated there and he led the employees i know if i'm allowed to say this word but in the f you chant.
so now we are back to after my story and toward the end of his speech one of the senior hardware engineers asked him he could leave them in another chance everybody understands what he means and of course he is happy to indulge him so they start chanting and then one week after that he came to our technology conference in june of each. a lot of people were wondering if she would come. and she came with her big security detail and she sat on stage through half an hour interview with our technology editor and there was so much interested in the story eternal life stream donna's
website i watched it from the newsroom in new york. she told one boldfaced lie after another over the course of that half-hour. i suspected she would come out swinging and denied but her willingness to live in public in front of an audience with things that were verifiably false i thought was stunning. so yes the early weeks after the story the response was the wall street journal is wrong and we are fighting this. and john carreyrou is a robe reporter.
>> so just like don't read your computer before you want to go to sleep don't be the end part of the book before you go to sleep it is a page turner. i want to go to the audience questions because there are good ones i cannot get to all of them but i will try to consolidate something. one of them suggests a lot of scams out off as pms but this did not. it was bona fide. >> right. i fully believe she did not drop out of stanford at 19 with a premeditated plan to defraud investors implant patients in harms way. she dropped out as an idealistic young entrepreneur
i think a large part of that is genuine. >> that's the point. many people are curious about what has happened to the company now. >> elizabeth holmes laid off another hundred employees a month and a half ago so the headcount is now down to about 20 people. the shell of what was when i started digging into the company it had 800 employees and have this beautiful new headquarters. they have long since abandoned that précis real estate and now the 20 employees left.
they have charged her and the company with fraud. they settled the charges without admitting wrongdoing. she was find a half million dollars and her controlling interest in the company and agreed to a tenure officer director ban in a public company. a lot of people feel that slight punishment. i'm told it's pretty advanced and in terms of the company
they probably have those two months before they run out of money and then they will be liquidated. all expected to cease to exist by august. what did we learn from this. in recent years we've come to these entrepreneurs who create these companies and become fabulously rich and whose creation do impact our lives when you think about facebook and twitter, i know these are products we use everyday. we tend to forget these are young people, barely adults.
she was 19 years old when she dropped out, basically a kid. with the amount of money that's gushed into silicon valley in large part because the fed has kept interest rates at rock bottom after the great recession so people were no longer able to get returns from traditional investments like bonds. i think that contributed in a big way to this enormous flow of money into silicon valley and people were able to dictate the terms and do whatever they wanted and keep more than 99% of the voting rights. the board of directors couldn't even reach a quorum without her. that was not a real board of directors. had no power whatsoever. it's also given rise to the situation where these companies, because they have access too so much money in the private markets, they put off going public for long time
and are able to continue operating not in a transparent way, at least not as transparent as they would have to if the ipo suddenly had to put our earnings a recorder and put out annual reports and answer analyst questions and. review. >> yes, and i would say another big lesson here is that she modeled herself after the traditional silicon valley , the silicon valley that started with the microprocessor industry in the 50s and 60s and it became the personal computer industry that became the internet industry in the late '90s and is now essentially smart phone apps and companies like uber, but that's not medicine. increasingly there is a convergence between traditional tech and health.
>> particularly with ai. >> yes. increasingly there will be this convergence. i think the story is really a cautionary tale to tech founders and everyone involved in this help tech space that you crewmember when you're building a device that's ultimately a medical device used for medical decision that your end customers the patient should always have the patient in mind. paperwork doesn't fly. >> it's the blue screen of death. the last question, because one of the lingering, one of the lingering thought that she had which was really a paradigm shift in medicine was the rei
the retail change of protest too. we could go to walgreens and find out what our blood cholesterol levels were. is that going to occur. >> does not necessarily a bad idea. one of the ironies of that tobacco is that safeway invested $350 million in remodeling the pharmacy section of its supermarkets and for years these areas, these little clinics have been empty, but in the past couple years the request in arizona has reached partnership with safeway and is offering blood tests to retail consumers, hopefully the salts are more reliable, but one thing to bear in mind about fairness is that, is elizabeth like to advertise how low the prices
were, but that was a fiction too. it wasn't a fiction that they were offering the prices, it was, but what was a fiction was that that was a business model that can work and that the company could actually make money that way. there really was no secret way they were going to make low prices profitable. it had the same cost as other labs and lab testing, there's an enormous cost of equipment, cost of personnel, cost of shipping, the blood shipping is enormous. >> and regulatory costs. they had made none of those costs really go away so, that was a mirage, the low prices were not something that was sustainable. >> we are out of time, but there's two ways free to follow up on this.
number one is to get this book and read it, and the second is wait for the movie to come and tell us. [inaudible] >> thank you very much. >> thank you. thank you very much. >> here's a look at books being published this week. in the case against in teaching trump, harvard law professor looks at the constitutionality of impeaching the president. lynn and sarah describe the sinking of the uss
indianapolis, one of the worst disasters in u.s. label history. in the prison letters of nelson mandela they look at the 255 letters mandela wrote during his 27 years in prison under south africa's apartheid regime. in the brain, mark recalls one of the most tense periods of the cold war and the nuclear brinksmanship between the u.s. and the former soviet union. in the fall of wisconsin, dan kaufman reports on the republican takeover of wisconsin and the democrats working to reclaim the seats in the state house and senate. also being published this week, anna clark looks at the flint michigan water crisis in the poison city. in give people money, annie lowery makes a case for universal basic income. look for these titles in bookstores this coming week. watch for many of the authors in the near future on booktv on c-span2. >> thank you. i thank you all for coming