Elizabeth Holmes testified for roughly six hours on Tuesday before court adjourned for the Thanksgiving holiday. It was her third day on the witness stand and by far her longest testimony so far.
During her testimony, Holmes touched on a number of allegations pertinent to the government’s case. She acknowledged the company decided not to disclose its use of modified third-party blood analyzer devices to a key retail partner. Holmes also admitted that she herself added Pfizer and Schering-Plough logos on Theranos reports, which witnesses have said misled them into thinking the pharmaceutical companies had endorsed the startup’s technology and the findings in the reports.
Holmes is set to continue her testimony on Monday, with court beginning at around 10 or 10:30 am PT.
Before jurors were excused, Judge Edward Davila reminded them that they are not to discuss the trial. The judge said that while family members may ask, “Gee, what have you been up to,” he urged them to “pass the mashed potatoes and not engage in any conversation with anyone [about the trial].”
He also cited the ongoing pandemic, and flu season. “Make good choices,” he said. “Be safe.”
Earlier in the trial, former Safeway CEO Steve Burd testified that he had been frustrated by Theranos’ delays in moving forward with a partnership that the retailer hoped would let customers get their blood tests done while shopping. But Holmes offered up a different take on Tuesday.
She testified that once the Walgreens partnership shifted, at the retailer’s request, to have tests analyzed in a central lab until its proprietary devices had received regulatory approval to deploy in its stores, that altered the timeline for Safeway as well. The reason: Theranos couldn’t be inconsistent, putting its devices in Safeway stores and not Walgreens.
Holmes testified that Walgreens was devoting more resources towards launch, which ultimately happened in fall of 2013. (Burd previously testified: “We always tried to help them in any way we could,” noting “we’re a big company with lots of resources.”)
Despite the regulatory questions, Burd “really wanted to push forward with launch,” Holmes testified, speaking to a time frame in late 2012. She said Burd “really wanted to launch before his retirement.” (Safeway announced Burd’s retirement in January 2013.) There was also another reason communicated, she testified: Safeway’s stock was suffering and Burd thought this announcement could help.
Holmes testified about her high-profile board, which included former Secretaries of State George Shultz and Henry Kissinger, and former Defense Secretary James Mattis, among others.
In particular, she discussed an October 2013 board meeting, which jurors previously heard about when Mattis took the stand as a government witness. She testified that trade secrets — including the use of modified third-party machines to test small samples — were discussed at that meeting.
When Mattis was asked during his testimony whether he recalled discussion or disclosure about the use of third-party machines to run “a significant portion” of tests on a list of offerings, he said: “I don’t recall that. Our point was that we were better than them. We were faster, we were cheaper. We were more accurate than others. So I don’t recall that ever coming up.”
Asked by the prosecution whether Mattis was ever told by Holmes that there were some trade secrets he was not allowed to know, he testified: “No.”
Holmes testified that board members received $150,000 salaries and that Kissinger was paid a $500,000 consulting fee as well.
Confirming one of the government’s allegations, Elizabeth Holmes testified Tuesday that she did have the opportunity to review a glowing opinion piece in the Wall Street Journal about Theranos. The article coincided with the startup’s 2013 Walgreens partnership announcement and the broader unveiling of the startup after years of operating in stealth mode.
Holmes testified that she wasn’t the only person at Theranos who reviewed the draft of his piece, as jurors have previously heard. Holmes also said that while she was interviewed for the piece, so were other employees and board members.
She also testified that Grow Marketing, a public relations firm that advised on media relations and with which Theranos worked, liaised with the author as well.
The government had alleged that, prior to its publication, Holmes approved the piece, which contained misleading claims about the company’s capabilities at the time. The piece has frequently been brought up in the courtroom, as the company included it in materials such as investor presentations with several witnesses.
In a statement to CNN Business in September, Journal spokesperson Steve Severinghaus said: “Editors make publishing decisions based on their independent judgment.”
The statement continued, “Our writer asked Elizabeth Holmes to confirm complicated facts on a technical subject, not to approve publication. Our writer visited Theranos, spoke with numerous sources in and outside the company about its technology, and had his blood tested on a Theranos machine that appeared to offer credible results. If that was all a deception, then the responsibility lies with Ms. Holmes and Theranos.”
The opinion writer has since passed away.
Elizabeth Holmes acknowledged in her testimony Tuesday that she did not tell Walgreens, one of her startup’s key retail partners, that Theranos used third-party devices to test patient samples.
In what she called an “invention,” Holmes said the company modified commercial blood analyzers to test small samples, something intended to accommodate a large volume of tests after the initial plan to have Theranos’ proprietary devices in Walgreens stores was delayed.
Holmes said the decision not to disclose its use of third-party machines came at the advice of the company’s lawyers to avoid losing trade secret protection for its devices.
“The advice was to keep it confidential so Theranos had a chance to profit off that invention,” she said. (The government has alleged that one of the ways Theranos misled investors was by representing that patients tests were conducted on Theranos-manufactured devices.)
Holmes testified that she disclosed to the US Food and Drug Administration its use of commercial machines because the government agency assured it would have trade secret protection and wouldn’t be shared publicly. Holmes testified that Theranos submitted a nonpublic patent application for its modified invention to protect it as a trade secret and was ultimately granted the patent.
Walgreens and Theranos entered an agreement in 2010. Sometime thereafter, an issue arose and Theranos ultimately agreed to do what Walgreens wanted: the retailer had determined that Theranos’ blood analyzer devices should not go into its stores until they had received regulatory approval. Instead, Theranos set up a central lab where tests results from Walgreens Wellness Centers would be processed until it got to the next phase of its partnership.
Striking a partnership with Walgreens lent significant credibility to the startup. Together, the two built “wellness centers” within some Walgreens locations. It was the company’s only active direct-to-consumer partner before things came crashing down for Theranos.
Before the start of the trial, Elizabeth Holmes’ attorneys indicated in court documents that she was likely to take the stand to testify herself about her alleged decade-long psychologically, emotionally and sexually abusive relationship with her ex-boyfriend and former Theranos COO, Ramesh “Sunny” Balwani. These allegations, which Balwani’s attorneys have denied, are intended to speak to her state of mind at the time of the alleged fraud.
During her first two brief days on the stand, Balwani’s name did not come up. But early Tuesday, Holmes mentioned his name for the first time, testifying that Balwani was involved in negotiations with Walgreens.
Holmes attorneys had indicated in pre-court documents that she may speak to the “reasons why she believed, relied on, and deferred to Mr. Balwani.” Put simply: She may claim she lacked the intent to deceive because, due to the nature of their relationship, she believed what she was being told about the company’s technology and its business dealings.
Holmes and Balwani are both accused of engaging in a multi-million dollar scheme to defraud investors from 2010 to 2015, and of defrauding doctors and patients who paid for the company’s blood testing services from 2013 to 2016. The two face multiple federal fraud and conspiracy charges. Both have pleaded not guilty and could face up to 20 years in prison and a fine of $250,000, plus restitution for each count of wire fraud and conspiracy.
While indicted together more than three years ago, their trials were separated due to the tensions of the anticipated defense by Holmes. Balwani’s attorneys acknowledged in a separate filing that Holmes’ plans to introduce evidence that Balwani verbally disparaged her and controlled what she ate, how she dressed, and who she interacted with, “essentially dominating her and erasing her capacity to make decisions.” The filing calls the allegations “deeply offensive to Mr. Balwani” and “devastating personally to him.”
Balwani’s trial is set to begin next year.
Balwani’s name came up repeatedly during the government’s case. Jurors heard witnesses recite text messages between Holmes and Balwani to illustrate how the two were privately corresponding about key moments in the company’s history. Several former employees were also asked about the nature of their relationship.
Daniel Edlin, a college friend of Holmes’ brother who served as a senior product manager at Theranos for several years, said he was aware the two were dating and living together. The prosecution probed him for information about the power dynamic between the two. In terms of who was in charge at Theranos, Edlin said Balwani would defer to Holmes on certain things.
“Generally, Elizabeth was the CEO and she had, kind of, the final decision-making authority,” he testified. When asked if Edlin ever saw Balwani overrule a decision Holmes made at Theranos, Edlin testified: “I can’t recall a specific moment.”
Elizabeth Holmes admitted on the stand Tuesday that she added Pfizer and Schering-Plough logos to reports prepared by Theranos before sending them to Walgreens as her startup pursued a partnership with the retailer in 2010.
Numerous witnesses, including investors and retail executives, have testified that they believed the reports were prepared by the pharmaceutical companies and indicated they had endorsed the startup’s technology and the findings in the reports.
Holmes testified she added the logos “because this work was done in partnership with those companies and I was trying to convey that.”
The government alleged that Theranos doctored reports appearing to validate its technology from the two major pharmaceutical companies and then sent those to investors and retail partners as it sought their money.
In her testimony Tuesday, Holmes acknowledged some regret, saying that she heard witness testimony during this case. “I wish I had done it differently.”
On the Pfizer report specifically, Holmes testified that Theranos had worked with pharmaceutical company for years on the study that the report focused on. “The devices worked and I thought the data was really good,” she said. “And I wanted to share it with them.”
Holmes also testified about a central claim that has been repeatedly shown during the government’s case: That Theranos systems had been comprehensively validated by 10 of the 15 largest pharmaceutical companies.
Walking through a presentation made to Walgreens in 2010 as Theranos sought a partnership with the retailer, Holmes testified to what that statement meant: “That our systems … had been tested against standards by these companies.”
Elizabeth Holmes’ third day on the stand kicked off with questions focusing on how she relied on her scientists — namely Ian Gibbons, a biochemist who joined Theranos in 2005 and who died by suicide in 2013 — to provide her with updates on what would be possible with the next iteration of the company’s technology, 4.0.
Holmes testified that the 4.0 system was significant because it would allow Theranos to run “any test.”
In an email ahead of a meeting with GlaxoSmithKline in 2010, Holmes asked scientists at Theranos for information on three points she wants to “highlight and quantify as numerically as possible.” Those included central claims, such as why and how it would make tests cheaper, how they’d achieve cost savings, and how it will be capable of the full range of tests.
Gibbons replied: “I think we have demonstration capabilities fully equivalent to lab methods in areas where we have done assay development.” He also provided some benchmarks for how the company is faster, as well as that cost savings will accrue from small sample size and no blood draw requirement.
Press and members of the public once again began lining up in the early morning hours outside the Robert F. Peckham Federal Building in San Jose to try to secure a ticket for a seat inside the courtroom where Elizabeth Holmes is set to resume her testimony for the third day.
By 5 am local time Tuesday, there was already a small crowd of around 40 people. Holmes’ testimony on Monday drew what appeared to be largest crowd to the trial to date.
Adding to the courthouse spectacle: Danielle Baskin, a 33-year-old artist, was outside selling items associated with the Theranos founder, including black turtlenecks and “blood energy drink.”
Baskin told reporters she came to the courthouse because she wanted to see Holmes in person and discover “what it was like experiencing her energy.”
She was warned once by security about not being allowed to sell on federal property. Once the courthouse gates opened, she resumed displaying her products, only to be warned again. She said she told the security person it was “performance art,” though she was actually selling the items.
It’s unclear if anyone purchased her products — and there were only limited supplies available. Baskin had just two blonde wigs for sale.
The main courtroom where the trial has been underway for months is first-come, first-served and has just 34 open seats available. (A number of other seats are reserved for Holmes’ family and friends, as well as the prosecution.) There’s also an overflow room, with live audio and a video feed, which has another roughly 45 seats. Otherwise, there is no way to view Holmes’ testimony because the court does not permit any audio or video recording of the trial.
After an unexplained nearly two hour delay Monday, Holmes testified for less than two hours before court recessed at 1pm local time. Court is expected to go from 9 am PT to 4 pm PT Tuesday, which would mark Holmes’ longest time on the stand so far.