Federal prosecutors moved past the testimony of the pathologist who served for a time as the CLIA laboratory director at Theranos to provide evidence of a second unauthorized use by Theranos of a pharmaceutical company’s intellectual property
Building their case against former Theranos CEO Elizabeth Holmes, federal prosecutors filled the witness stand in recent days with corporate executives, representatives of powerful government figures, and others who testified they were lured to invest in the startup by false claims and flimsy promises from the now-defunct clinical laboratory company and its founder.
Since the criminal fraud trial against Holmes began 10 weeks ago, prosecutors have alleged Holmes, 37, knowingly mislead investors, clinical laboratories, patients, and healthcare providers about the capabilities of the company’s proprietary Edison blood-testing technology. Her defense team has argued that a failed business venture does not make Holmes a criminal.
Holmes has pleaded not guilty to 10 counts of wire fraud and two counts of conspiracy to commit wire fraud.
Safeway CEO Testifies to Being Misled by Holmes
In testimony for the prosecution, former Safeway CEO Steven Burd told the jury how his company relied on Holmes’ boasts and statements about Theranos’ technology when signing nearly $400 million in contracts with Theranos. These contracts included remodeling 969 stores to create both blood collection sites and mini-clinical laboratories housing Edison blood-testing units.
Today, many of these Safeway grocery stores are leasing those patient service centers to such medical laboratory companies as Labcorp and Quest Diagnostics.
CNN reported that Burd acknowledged being impressed by Holmes’ ability to command a room. “There are very few people that I’ve met in business that I would actually say were charismatic,” testified Burd, comparing her favorably to four US presidents he had met. “She was clearly charismatic. She was very smart.”
However,CNBC noted that Burd’s frustration with Holmes and Theranos grew as delays mounted and a trail of clinical laboratory testing using the Edison devices within Safeway’s corporate headquarters proved unsuccessful.
“I think whenever you start something new you’re going to have some rough spots, but we continued to have rough spots,” Burd stated in the CNBC coverage. “We had samples that were lost, we had [clinical laboratory test] results that didn’t make any sense.”
In cross examination, defense attorneys worked to refute allegations the grocery chain was misled prior to partnering with Theranos. Burd acknowledged Safeway did “at least 100” hours of due diligence before executing its 2010 contract with the startup and knew Theranos’ medical laboratory testing technology never had been tested at scale, CNBC reported. Safeway ended its failed partnership with Theranos in 2015.
Former Walgreens CFO also Testifies to being Misled
In, “Elizabeth Holmes Trial: Retailers Vetted Theranos without Testing Devices,” The Wall Street Journal (WSJ) reported Miquelon said in court testimony, “Our common understanding was the technology worked as we were told.”
According to the WSJ, like Safeway, Walgreens had vetted Theranos without extensively examining or testing the Edison blood-testing device, which Theranos claimed could quickly and accurately run 200 clinical laboratory diagnostic tests using a finger-stick of blood.
Instead, Walgreens had relied on the opinions of staff healthcare experts and outside experts, none of whom fully tested the technology, the WSJ stated.
Other Investors Testify to Being Dupped by Holmes
Major retailers were not the only ones taken in by the Theranos hype. Jurors also heard testimony from Lisa Peterson, Managing Director, Global Private Equity at Ottawa Avenue Private Capital, a Division of RDV Corp., a holding of the billionaire family of former Education Secretary Betsy DeVos.
After meeting with Holmes, during with which a DeVos family member had her blood tested, RDV doubled the amount of its planned investment from $50 million to $100 million, The Wall Street Journal reported. Peterson testified they were not told there were issues with the Edison device.
According to CNN, Peterson testified that she had trusted the information Theranos and Holmes provided, which included a Theranos-generated report boasting a Pfizer logo that touted the Edison’s “superior performance” and “excellent accuracy.”
However, in earlier court testimony, a Pfizer scientist stated the pharmaceutical giant opted not to partner with Theranos after finding the report’s conclusions “not believable.” He also testified that Holmes did not have permission to use the Pfizer logo.
Another wealthy individual duped by the now defunct blood-testing company was former estate attorney Daniel Mosley, JD, a partner at the law firm Cravath, Swaine and Moore LLP. Mosley testified he invested $6 million in Theranos after being introduced to the startup by ex-Secretary of State Henry Kissinger, a onetime Theranos board member.
According to The Wall Street Journal, Mosley pitched the Theranos venture to several of his clients, including the Walton and DeVos families. Mosley and five of his clients invested a total of $384 million in Theranos, an amount equal to more than half of the company’s $730.1 million 2014 funding round, the WSJ stated.
In “Attorney for Henry Kissinger Tells Jurors He Invested $6 Million in Theranos after Meeting Elizabeth Holmes,” CNBC reported prosecutors showed Mosley an investors binder that include a slide claiming “Theranos has been comprehensively validated over the course of the last seven years by 10 of the 15 largest pharmaceutical companies, with hundreds of thousands of assays processed.”
Mosley told jurors he believed the claims Theranos had told investors. “Did I think I had inaccurate information? No,” he testified.
Second Pharmaceutical Company Claims Unauthorized Use of Intellectual Property
Jurors also learned about a second Theranos-produced investor document that included an unauthorized pharmaceutical company logo. In this instance, Holmes had allegedly attached to a Walgreens email a Theranos report bearing dual Schering-Plough and Theranos logos.
In “Elizabeth Holmes Trial: New Trouble for Holmes with Second Apparently Pilfered Logo,” the Mercury News reported that former Schering-Plough scientist Connie Cullen, PhD, founder and Principal Consultant with Apollo Biologics, testified she was among several colleagues who visited Theranos’ California headquarters when the pharmaceutical company was considering working with the startup.
Cullen said Holmes “almost exclusively” answered her questions, but her responses were “cagey.” Cullen testified she had no knowledge that anyone at Schering-Plough had endorsed the report’s conclusion that Theranos’ blood tests provided “accurate and precise results.”
With the Holmes defense team still awaiting its turn to present evidence in US District Court, trial testimony is expected to continue into December. This means clinical laboratory managers and pathologists will have plenty of informative Dark Daily ebriefings to look forward to on this intriguing fraud trail.
—Andrea Downing Peck