Genetic Engineering & Biotechnology News

JUL 2018

Genetic Engineering & Biotechnology News (GEN) is the world's most widely read biotech publication. It provides the R&D community with critical information on the tools, technologies, and trends that drive the biotech industry.

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22 | JULY 2018 | Genetic Engineering & Biotechnology News | GENengnews.com Bad Blood Has the Goods on Theranos Continued from page 1 impacts the world of biotechnology. The story begins with Elizabeth Holmes. She managed to convince many power- ful people that she had created a way to run hundreds of laboratory tests on a finger prick's amount of blood. She was so persua- sive that the Theranos blood-testing technol- ogy was used on blood samples collected in a consumer setting. And Theranos attained a market valuation in excess of $9 billion. But the technology she claimed to possess never existed. So how did she do it? How did she convince so many people into believing her claims? To answer that question, Carreyrou interviewed more than 150 people, including more than 60 former Theranos employees. Lies, Damned Lies, and Business Development Like any entrepreneur, Holmes was op- timistic about her technology. But while bot- tomless optimism may serve well in the Silicon Valley world of software tech startups, such optimism in the biotech universe can cause the most profound harm if it is backed by lies. "All entrepreneurs are optimists," Ro- drigo Martinez, chief marketing and design officer at Veritas Genetics, tells GEN after reading Bad Blood. "Otherwise, why would they think they would be able to do some- thing that is very difficult to do?" Nonetheless, he stresses that there is a line between projecting a positive image (also known as putting your best foot forward) and spreading lies. As Carreyrou shows throughout Bad Blood, Holmes did more than indulge in op- timism, she also projected a positive image that depended on secrecy. She never revealed the true state of her company's technology. When she flew to Switzerland in 2006 to demonstrate her blood-testing system for pharmaceutical manufacturer Novartis, the test result was obtained by rigging the sys- tem to display a previously recorded result. She pulled this sham demonstration on more than one occasion. At one point, prospective investors came to believe that the Theranos blood-testing system was being used by the U.S. military, which was not the case. The investors saw the relation- ship as proof that the Theranos technology worked, so they bought in. While courting a major drug store chain for a business deal, Theranos stated in an email that the company had a commercially ready laboratory and a blood-testing system that could perform nearly 200 blood tests, nei- ther of which was true. Even when the phar- macy chain began offering Theranos blood tests to patients in 2013, it was unaware that no device existed that could perform hundreds of blood tests on a drop of blood. In truth, the blood samples were being shipped back to the Theranos lab in Palo Alto, CA, and analyzed on either the company's faulty, proprietary blood-testing system or modified commercial blood analyzers. Holmes also skirted regulations by enlist- ing the help of Sunny Balwani, her top senior executive. For example, during a lab inspec- tion, Balwani made sure the state inspector never saw the area of the lab that held the proprietary blood-testing devices. Theranos also played loose with proficiency tests, which regulators use to verify the accuracy and reli- ability of a lab's testing. "If you lie about an app that people down- load to play on your phone, or lie about an app that allows you to order pizza three minutes faster than the other one, fine. The Elizabeth Holmes Translational Medicine John Carreyrou, a two-time Pulitzer Prize-winning investigative reporter at The Wall Street Journal, is the author of Bad Blood: Secrets and Lies in a Silicon Valley Startup, published in May by Alfred A. Knopf. GEN's editor-in-chief, John Sterling, recently interviewed him to gain some additional insights on the Theranos story. GEN: As the Theranos debacle began to unfold, the image of Enron came to mind. Amazingly, in reading your book, I learned that Elizabeth Holmes' father once worked at Enron. How does the downfall of Theranos compare to that of Enron? Mr. Carreyrou: One thing I'll clarify is that in my reporting, I found no evidence that he had anything to do with the she- nanigans at Enron. He was there only for a couple of years be- fore Enron blew up, and I don't think he was anywhere close to the inner circle of those people involved in the bad stuff. But it is a kind of a colorful coincidence that he worked there. How does it compare to Enron? That's a good question. Knopf in some publicity material has called it the biggest corporate fraud since Enron, and that's not an exaggeration in the sense that Enron was bigger. At the time, it was the seventh largest company in the United States, either by market cap or revenues. Obviously, the market cap was larger. Theranos' biggest market cap was in early 2015 at $10 billion. So more money was at stake with Enron. Investors lost more money and more investors lost money. What puts Theranos on the same plane, if not on a higher plane, is that it wasn't just a corporate fraud. It's also a corpo- rate fraud where the two perpetrators, Elizabeth Holmes and Sunny Balwani, were totally cavalier about the public's health and basically didn't hesitate to put patients in harm's way and lives in the balance. That's a dimension that Enron didn't have. Aside from losing people's money, Enron's biggest impact on people's lives was contributing to some power disruptions in California. To me, in some ways, Theranos is an even bigger scandal than Enron. GEN: I've been reporting on biotech since 1983, and I've always been struck by the hype and the hoopla and (paradoxically) the secrecy involving startups. What role did this hype culture play in helping to get Theranos as far as it did? Mr. Carreyrou: On the jacket of my book, Theranos is re- ferred to as a biotech. But was it really a biotech? It was a blood diagnostics company. When I think of biotech, I think of companies working on biopharma drugs, which are no- toriously hit-and-miss. So biotech has always been a risky game. Theranos is different in that it's not about a company developing a biopharma drug. It was a company that was developing a blood testing device. This is a long way of saying I'm not sure that Theranos falls into the biotech category. At the same time, I do think that Elizabeth made a fatal mistake in modeling herself after Steve Jobs, Apple, and traditional Silicon Valley. That Silicon Valley is a descendent of the microprocessor industry from the '50s and '60s, which then became the personal computer indus- try and then the internet industry and now the smartphone revolution. To me, the traditional Silicon Valley has not involved medi- cine. Elizabeth modeled herself after traditional Silicon Valley and the fake-it-'til-you-make it approach and the secrecy around Steve Jobs' Apple. But even though Theranos wasn't a traditional biotech, she would have done better to emulate, for example, some of the biotechs clustered in South San Francisco, like Genentech, because they've been doing real medical science. She picked the wrong industry. Everyone accepted the way she framed herself as a traditional Silicon Valley tech founder. And that was her downfall because she either lost sight of (or didn't care about) the fact that when you're work- ing on a medical product, the end consumer is the patient. GEN: Was there anyone, for example, a scientist or a business executive, who raised an early red flag about Theranos and its claims? Mr. Carreyrou: I have had people come to me before and since the book was published saying that they had suspicions from afar. Two biotech venture capitalists came to my book signing at Kepler's Books in Menlo Park last week and said that they knocked on Theranos' door back in 2014 and were going to have a meeting with Elizabeth, but first they were meeting with lower-ranking people. When they started ask- ing a lot of technical questions and drilling down, they were told that the meeting with Elizabeth was cancelled. Suddenly, she couldn't fit them in her schedule. Bad Blood Author Says Theranos Put Patients' Lives in Harm's Way

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