Google’s biotech venture hit by ethical concerns over deal with luxury clinic

MOUNTAIN VIEW, Calif. — Andrew Conrad, who runs Google’s ambitious biotech offshoot, successfully pushed the company to award a research contract to a luxury health clinic he largely owns that has no documented experience with this kind of work, STAT has learned. The arrangement has stirred concern inside Verily Life Sciences — and among corporate governance experts who see it as a conflict of interest.

Verily is also marketing to pharmaceutical companies a wealth of data on volunteers who participate in its major health study, called Baseline. It’s unclear whether Verily has informed volunteers of its plans to profit on their health data; the company declined to provide a copy of the consent agreement for volunteers tested at Conrad’s clinic.

Ethical questions about the Baseline study have raised further concerns within Verily about Conrad, a biologist who exercises substantial control over Verily’s big budget projects. STAT reported last month that many key leaders have left the company, in large part because of concerns about Conrad’s leadership. Former employees and contractors described his managerial style as disrespectful and demoralizing. They said Conrad exaggerates what Verily can deliver and shifts resources from prior commitments to new ideas that show little promise.

After months of refusing to talk to STAT, Conrad this week offered a tour of Verily’s labs, though the company would not allow photos. He acknowledged his role in pushing the research contract for the clinic he cofounded, and in which he continues to own a majority stake.

Asked why he promoted his own clinic, he said, “Because I think it’s cool. Because it’s super efficient to have everything in one spot.” He said the clinic has all the testing equipment needed, so volunteers don’t have to make trips to more than one facility.

Neither Conrad nor officials from his clinic — located in a sumptuous resort in southern California — will disclose what relevant experience the facility has in the complex research required for Verily’s Baseline project, which aims to collect genetic, molecular, clinical, and other data on 10,000 patients over the next five years.

The clinic, known as the California Health & Longevity Institute, offers medical services such as magnetic resonance imaging to wealthy patients, along with spa-like offerings, such as teeth whitening, wrinkle fillers, energy healing, and massage.

Duke and Stanford universities, which have decades of experience conducting clinical studies, will test most of the 10,000 volunteers for the Baseline project. Testing for the first 200, however, has nearly been completed at Conrad’s clinic as part of a feasibility study. The contract was awarded without competitive bidding, though a Verily spokeswoman said the price was “benchmarked” and found to be competitive.

Conrad would not disclose the terms.

A contract raises red flags

The arrangement “raises all kinds of red flags” for Verily’s corporate parent, Alphabet, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

If a CEO steers company funds for personal gain, Alphabet shareholders might be harmed, Elson said: “That’s why these kinds of transactions are so problematic.”

In an interview, Conrad said the contract was signed long before Verily had been spun off as an Alphabet subsidiary last August. He said he strongly recommended to Google X, the division that then housed the nascent Verily, that the contract go to his clinic.

Conrad said that he personally profits only indirectly. The physicians conducting the study operate as a separate entity, rather than as his employees, he said. They pay Conrad for rent and services.

Google X compliance and ethics officers vetted the deal, he said. Verily spokeswoman Scarlet Shore would not say who approved the contract, but said that Conrad had recused himself.

A former Verily employee who knew about that process described the Google X vetting as perfunctory, comparing the assignment of the clinic contract to placing a large order at an office supply store. That person, like other Verily employees, spoke anonymously, to protect ongoing relationships with Verily or Google.

Kirk O. Hanson, executive director of the Markkula Center for Applied Ethics at Santa Clara University, said that in general, such contracts would be approved by a company’s board or by its independent directors. Other than Conrad himself, Verily has not disclosed the names of its board members, all of whom are employees of Alphabet or Verily.

Some companies would “seek a fairness opinion from an independent evaluator” before awarding a contract to an outside company controlled by the CEO, Hanson said, depending on the size of the deal and the degree of control exerted by the CEO.

Corporations sometimes report conflicts of interest in filings to the Securities and Exchange Commission, but Alphabet has not done so in Conrad’s case.

Conrad said he was “wildly up front” about his ownership of the clinic.

That openness didn’t filter down to everyone. A former manager at Verily who worked on Baseline knew nothing about the apparent conflict of interest, that person told STAT. But another former Verily manager said Conrad’s financial conflict has been a topic of concern for some inside the company. It’s one of several issues that has raised doubts about Conrad’s leadership.

Conrad, who keeps a sign declaring “do epic shit” on his desk, rejected those concerns as outside the mainstream at Verily. Overall, he said, morale is high.

A treasure trove of intimate data

Verily’s Baseline project is raising other concerns inside and outside the company.

STAT reviewed a presentation by a Verily contractor who made clear that the 10,000 volunteers needed for medical testing would be recruited with appeals to their altruism and lofty talk about the benefits the project could bring the public.

But Verily also stands to benefit — by selling the treasure trove of health data it plans to collect on those volunteers. The company is already in talks with pharmaceutical giants about selling access to that data. Conrad said no deals have yet been signed.

The informed consent document that all volunteers must sign would normally describe all commercial aspects of the study, including Verily’s plan to sell the data and Conrad’s financial interest in the clinic. But it is unclear what the document says.

Shore, the Verily spokeswoman, initially told STAT she would provide a copy of the consent document for volunteers participating in the Baseline feasibility study at Conrad’s clinic. Later, she said Verily would not release the document.

The consent agreement for the rest of Baseline has not been finalized, said Dr. Jessica Mega, Verily’s chief medical officer.

Selling health data, stripped of personal identifiers, is a common practice in Silicon Valley and beyond; indeed, it’s the business model for many tech startups. Scores of health and fitness apps, for instance, retain the right — in the small print of their privacy policies — to sell data generated by users.

But Verily’s data will be unusually rich in intimate details. The company aims to collect psychosocial, socioeconomic, and geospatial information about the volunteers, as well as genetic and molecular data, imaging, and even an analysis of the trillions of bacteria living in each patient’s gut. Some data will be continuously collected with proprietary wearable monitors.

Access to that information could be priced at hundreds of millions of dollars per company, according to a former employee who worked on Baseline.

Verily plans to mine the volunteers’ data itself, as well. The goal: To obtain a detailed picture of human health and learn to identify early signs of disease, especially cancer and heart disease. The company then hopes to develop personalized remedies.

The project has won some high-profile praise, including from cardiologist Dr. Robert Califf, who worked on Baseline while at Duke University and now heads the Food and Drug Administration. But other physicians warn that it could spur overtesting and overtreatment and drive up medical costs.

Verily plans a “lockout period” when only paying customers and Verily’s academic partners, Stanford and Duke, can access the volunteers’ health data, said Dr. Sam Gambhir, a cancer researcher at Stanford who has been working on Baseline.

That approach won’t affect Verily’s primary goal, to “plant a stake in the ground for changing the way we view human health,” he said.

Former employees agreed that Verily’s Baseline team believes in those noble goals. But they also said the company has placed a high priority on selling volunteers’ health data, hoping to underwrite the full cost of Baseline, plus turn a healthy profit.

Just how much Baseline will cost the company is as yet unclear, but a former Verily employee said the projected cost per patient has been rising as the effort gets underway. That person said costs ranging from $45,000 to $110,000 per patient have been discussed. Another former Baseline employee said costs were expected to rise even higher.

At the high end, that would mean Verily would have to sell corporate access to its volunteers’ data for well over $1 billion to cover its costs.

Posh clinic offers ‘energy healing’

Located next to the Four Seasons Hotel in Westlake Village, north of Los Angeles, Conrad’s clinic charges clients $4,250 for a package of tests, including metabolic ratings of calories burned at rest, “VO2 metabolic testing” to measure oxygen used during exercise, hypnotherapy, “energy healing,” “life-balance” strategies, fitness counseling, and spa treatments. Cosmetic dermatology and hair transplants cost extra.

It all takes place in a setting of opulence. The clinic’s meticulously tended gardens, sculpture-filled lounges, and graceful flower arrangements project a tranquility that’s meant to be conducive to longer, healthier lives.

Conrad cofounded the clinic in 2006 with billionaire David Murdock — his longtime patron and business partner — and WellPoint Health Networks (which was renamed Anthem after a recent merger). The facility is located on a complex with the Four Seasons Hotel and the headquarters of Dole Food, both owned by Murdock, a robust 92-year-old who shares with Conrad a passion for pushing the limits of the human lifespan.

Shore, the Verily spokeswoman, said Dr. Terry Schaack, who heads the Baseline feasibility study and is a medical director of Conrad’s clinic, has “strong credentials and years of clinical research experience” relevant to the study. The clinic “has conducted one to four studies per year over the past 12 years” as a contractor, she said, although it opened less than 10 years ago. Verily would not disclose anything about those studies.

In a written statement, Schaack said all of his prior research was protected by nondisclosure agreements with clients, and that he had not authored any scholarly papers about the work.

The clinic’s website lists among Schaack’s accomplishments a “Senior Rheumatology Scholar Award by the American College of Rheumatology.” That medical society told STAT that it had no such award, and could find no record of Schaack receiving any other award. Asked about the discrepancy, Schaak replied by email that he believed he received the award in 1988. He declined to clarify further.

Concerns about overtesting

When Conrad talks about Verily, he uses language that echoes his clinic’s website, which touts a “proactive model of medicine.”

“A new car has up to 400 different sensors. You know the oil pressure. You know how much air’s in your tires. But we don’t do that for people,” Conrad says on a promotional video for Verily. “Instead of episodic, reactive health care, we should provide preventative and proactive health care,” personalized to the individual.

Some experts said such an approach can foster medical overkill.

Dr. H. Gilbert Welch, a professor of medicine at Dartmouth and the author of books on overtesting and overtreatment, said Conrad’s clinic “seems to reinforce the idea that you test yourself to health,” a message often contradicted by medical science and experience.

“The general population should be wary of this stuff,” he said. “It’s just really hard to make well people better.”

When highly profitable screening and rescreening come to be seen as medically necessary, Welch said, false-positive results — finding problems where none exists — often lead to interventions that boost medical costs and make matters worse for patients. That’s been seen over and over in cardiac and cancer treatments — the primary targets for Baseline.

Gambhir, the Stanford researcher who has been working closely with Verily, said he believes Baseline will avoid such pitfalls.

For example, the study might identify a molecule in urine that appears to predict the emergence of prostate cancer five years later. No conclusions would be reached unless intensive clinical study validates the finding, he said.

Mega, Verily’s chief medical officer, said she foresees “a whole world of unknown signals that we are just at the cusp of understanding.”

But Dr. Michael Joyner, a professor at the Mayo Clinic and a leading skeptic of precision medicine, said healthy people have many mutations and other oddities that don’t necessarily cause adverse effects. He said correlations like those Baseline hopes to unearth rarely would lead to clear and practical advice for patients.

Joyner said he worries that Conrad’s “messianic comments” about the promise of unknown and unproven futuristic cures crowd out well-understood paths to a longer, healthier life — such as moderate habits, nutritious food, and fitness.

An appeal to altruism

Baseline was announced with fanfare nearly two years ago, but has yet to begin in earnest. Dr. Mark Lee, one of Baseline’s architects, and Maria Ferrari, its clinical operations manager, recently quit. Both joined Grail, a local competitor.

The company has described Baseline in broad strokes, but has not shared any details in a public forum — adopting the guarded posture of many Silicon Valley tech firms.

Former employees said that Verily’s practices — including compartmentalized information shared among staff on a need-to-know basis — sharply limit their ability to publish academic articles about Baseline or other research. That secretive approach, they said, contributed to the departure of Verily scientists who wanted to advance their careers through publications and receive standard peer reviews of their work.

Losing two Baseline leaders poses one challenge for Verily. The daunting task of recruiting 10,000 volunteers poses another. A former Verily employee who worked on Baseline said that challenge is enormous: The research subjects have to be willing to face a large burden of tests over five years in return for token payments for their time.

A 2014 presentation by Dr. Kristin Newby, head of Baseline at Duke, offers a peek at how patients will be recruited: By appealing to their sense of public service.

Newby declined an interview request. But Gambhir described the presentation as an accurate reflection of the Baseline project.

In it, Newby described volunteers as “participants and partners — not research subjects.”

And she said that fostering a sense of “community ownership of the study” would promote “pride in participation and in turn altruism” among the volunteers.

The presentation didn’t mention that Verily and its CEO could profit.