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Ex-Theranos CEO Elizabeth Holmes Takes Witness Stand in Her Own Defense: Admits to Using Pharma Giants’ Logos on Reports to Investors, But Claims No Intent to Deceive

Former CEO also testified that she believed company’s proprietary blood-testing technology could perform ‘any’ clinical laboratory blood test

One relevant question in the federal fraud trial of ex-Theranos CEO Elizabeth Holmes was whether she would testify on her own behalf. That question was answered shortly after the government rested its criminal fraud case against the former Silicon Valley clinical laboratory testing company founder. Holmes took the stand in her own defense, a risk her defense team hopes will pay off in her favor.

During her first three days of testimony leading up to the Thanksgiving holiday break, Holmes—who faces 11 counts of fraud and conspiracy related to her tenure as founder and CEO of Theranos—made headlines by admitting she did personally put the logos of pharmaceutical giants Pfizer and Schering-Plough on reports she sent to Theranos investors and executives at Walgreens and Safeway. She expressed regret for doing so to the jury, but claimed her intent was not to deceive but to give credit to others.

“This work was done in partnership with these companies, and I was trying to convey that,” she testified, according to a trial coverage from Ars Technica.

When asked if she realized that others would assume the pharmaceutical companies—not Theranos—were the authors of the report, Holmes replied, “I’ve heard that testimony in this case, and I wish I’d done it differently.”

If found guilty, Holmes—who once claimed Theranos’ Edison proprietary blood-testing technology would to be able to complete as many as 200 clinical laboratory tests using a single finger-stick of blood—could face maximum penalties of 20 years in prison, a $2.75 million fine, and possible restitution.

Illustration depicting ex-Theranos CEO Elizabeth Holmes testifying in court

The illustration above depicts ex-Theranos CEO Elizabeth Holmes testifying on her own behalf. Former Santa Clara County prosecutor Steven Clark, JD, told The Mercury News, “(T)he best person to say what Elizabeth Holmes’ intent was is Elizabeth Holmes, and that’s why I think she’s taking the stand. … I think the jury will like her.” That remains to be seen. But there’s no doubt that Clinical Laboratory Directors should take a strong interest in the outcome of this trail. (Graphic copyright: Vicki Behringer/Reuters.)

Holmes Testifies She Believed the Edison Device Could Perform “Any” Blood Test

In its trail coverage, NPR described Holmes’ first three days of testimony “as having involved deflecting responsibility, pointing to the expertise of the Theranos board of directors, lab staff, and other company employees whom Holmes has suggested were close to how [Theranos’] blood analyzers worked.”

According to Reuters, Holmes’ defense team is arguing that Holmes’ always-rosy forecasts about her company’s technology and finances were based on her belief the proprietary Edison device worked as advertised, which, in turn, was based on feedback from pharmaceutical companies, her own employees, and the military.

During her testimony, Holmes compared a traditional blood-testing device to Theranos’ “3.0” device, which she said would reduce the human-error rate that can occur during blood sampling.

“If we had the ability to automate much of that process, we could reduce the error associated with traditional lab testing,” she told the court.

Reuters reported that Holmes told jurors her confidence in the Theranos device was in part due to how well the unit had performed in studies completed in 2008 and 2009, including those run by drug companies such as Novartis.

The Mercury News described Holmes as speaking with “confidence—and frequently a small smile”—during her opening day of testimony.

Asked by one of her lawyers, “Did you believe that Theranos had developed technology that was capable of performing any blood test?” Holmes responded, “I did.”

Holmes Testifies about Military’s Alleged Use of Edison Device

Prosecutors maintain that Holmes knew Theranos’ proprietary blood-testing technology had serious accuracy issues yet lied about its capabilities and use to lure investors. One of those false claims included allegedly stating the US military was using the Edison device on the battlefield. Earlier in the trial, CNBC reported, prosecution witness Brian Grossman, Chief Investment Officer at PFM Health Sciences, which invested $96 million into Theranos, testified he was told in a 2013 meeting with Holmes and Balwani that Theranos technology was being used in medical-evacuation helicopters.

Dark Daily covered court testimony on the military’s alleged use of the Theranos blood-testing device in “Prosecutors in Elizabeth Holmes’ Federal Fraud Trial Question Witnesses about Theranos’ Edison Technology and the Inaccurate Medical Laboratory Test Results It Produced.”

However, on the witness stand, Holmes described Theranos’ projects with the US military as much more limited in scope than the descriptions outlined by investors testifying for the prosecution.

According to The Wall Street Journal (WSJ), Holmes told jurors a 2010 partnership between Theranos and a US Army Institute of Surgical Research doctor in Texas looked into using the Theranos device to measure blood markers to detect kidney performance. A second project involved the military’s Africa Command, which was determining whether the device could withstand high temperatures. Holmes testified the devices used in Africa “held up well,” though some modifications were needed, and some issues were revealed with the touchscreen.

Should Holmes Have Testified on Her Own Behalf?

Trial experts maintain Holmes’ decision to testify in her own defense could backfire.

“It’s always a risk to put your client on because if they make a mistake they can sink the whole case,” former Santa Clara County prosecutor Steven Clark, JD, told The Mercury News. He added, “what’s at issue here is Elizabeth Holmes’ intent. And the best person to say what Elizabeth Holmes’ intent was is Elizabeth Holmes, and that’s why I think she’s taking the stand. She’s very charismatic. She’s really good on her feet. And I think the jury will like her.

“This is the pitch meeting of her life,” Clark added. “She’s going to be explaining herself to 12 people as to what was in her mind.”

Judge Drops One Count Due to Prosecution Error, Government Rests Its Case

Holmes is now charged with nine counts of wire fraud and two counts of conspiracy to commit wire fraud after the government dropped one count of fraud from the indictment. According to WSJ coverage of the trial, US District Judge Edward Davila blocked a patient named in the indictment as “B.B.” from testifying because of a filing error by the prosecution. The judge’s decision resulted in the government dropping one count.

The government rested its case against Holmes on November 19 following testimony from independent journalist Roger Parloff, who wrote a flattering 2014 Fortune magazine story on Holmes. He later redacted his earlier writing in another Fortune article, titled, “How Theranos Misled Me.”

The government alleged Holmes used media publicity as part of her scheme to defraud investors, patients, and physicians. All totaled, 29 witnesses appeared for the prosecution, the WSJ reported

Former Theranos Chief Operating Officer Ramesh “Sunny” Balwani—Holmes’ one-time boyfriend—faces similar charges of defrauding patients, investors, and physicians. His trial is expected to begin in January 2022.

Clinical laboratory managers and pathologists who have watched the federal court proceedings with keen interest should expect the trial to wrap up at the conclusion of Holmes’ testimony, just in time for the Balwani fraud trial to begin. 

—Andrea Downing Peck

Related Information:

Elizabeth Holmes Claims She Forged Pharma Reports—for All the Right Reasons

Elizabeth Holmes Describes Limited Military Research Partnerships

Government Rest Its Case Against Elizabeth Holmes

Elizabeth Holmes Takes Witness Stand in Theranos Trial after Prosecution Rests its Case

Holmes Defends Belief in Theranos Technology at Her Fraud Trial

Elizabeth Holmes Testifies That Theranos Had ‘Successes’ with Pharmaceutical Companies

Hedge Fund Investor Tells Jurors in Holmes Trial That Theranos Lied about Finger-Prick Tech and Military Use

This CEO Is Out for Blood

How Theranos Misled Me

Another Former Theranos Clinical Laboratory Director Testifies in Holmes’ Fraud Trial about Irregularities with Proprietary Edison Blood-Testing Technology

Corporate Executives and Mega-Rich Investors Testify in Elizabeth Holmes’ Federal Fraud Trial That They Were Misled by Theranos’ Claims about the Edison Blood-Testing Device

Prosecutors in Elizabeth Holmes’ Federal Fraud Trial Question Witnesses about Theranos’ Edison Technology and the Inaccurate Medical Laboratory Test Results It Produced

New CMS Proposed Rule Encourages Value-Based Reimbursement Based on Patient Outcomes When Payers and Drug Manufacturers Negotiate Payment for Pricey Therapies

Clinical laboratories and anatomic pathology groups should consider this another example of how CMS is taking forward steps to encourage value-based payment arrangements throughout the health system

With the sky-high cost of many prescription drugs and gene therapies, it was only a matter of time before the Centers for Medicare and Medicaid Services (CMS) would seek to link reimbursement for them to patient outcomes.

A recent CMS proposed rule (CMS-2842-P) concerning value-based purchasing (VBP) for prescription drugs covered by Medicaid encourages payers to engage in Medicaid state value-based purchasing (aka, pay-for-performance) arrangements for expensive prescription drugs. This rule may have implications for medical laboratories and anatomic pathology groups if it were extended to cover companion diagnostics linked to expensive therapeutic drugs and gene therapies.

CMS also intents the proposed rule to help drug manufacturers ease roadblocks to contracting with payers—including Medicaid—a CMS fact sheet explained.

Federal officials are looking to reimburse healthcare providers for prescribing drugs that are shown to work best on patients that truly need them, while also incentivizing pharmaceutical manufacturers to created drugs “of high patient value,” stated Laffer Healthcare Intelligence, a Nashville, Tenn. healthcare investment firm, in an email to its intelligence service subscribers. 

In a press release announcing the proposed rule, Seema Verma, CMS Administrator, said “We are creating opportunities for drug manufacturers to have skin in the game through payment arrangements that challenge them to put their money where their mouth is.”

Old Regulations Don’t Address Value, Expensive Gene Therapies

According to CMS, for 30 years federal regulations have favored the “volume of drugs” sold over the “quality of drugs.” Simultaneously, during the past three years the US Food and Drug Administration (FDA) has approved four gene therapies with many more “in the development pipeline,” Verma wrote in the journal Health Affairs. “While the lifesaving impact of these often-curative therapies are profound, their costs are unprecedented,” she stated.

CMS’ new rule proposes to define value-based purchasing as “an arrangement or agreement intended to align pricing and/or payments to evidence-based measures and outcomes-based measures,” Verma added.

Companion Diagnostic: Molecular and Genetic Testing

For clinical laboratories, the case CMS makes for therapeutic drugs could be applied to expensive molecular diagnostics and genetic testing. CMS may base reimbursement on how accurately and how fast a lab test can enable a diagnosis. Also, payment could be linked to a lab’s report and guidance to the ordering provider in selecting a therapy that makes a difference in the patient’s outcome.

“This is exactly the concept of the companion diagnostic,” said Robert Michel, editor-in-chief of Dark Daily and its sister publication, The Dark Report. “Take, for example, a $5,000 genetic cancer test that that stages a $500,000 cancer prescription drug. Patients who will not benefit from the drug will not get it. And the $5,000 lab test may keep, say, 10 people from getting a drug that wouldn’t work for them. Thus, the $50,000 in lab tests could save $5 million in prescription drug costs,” he explained.

Deals That Focus on Gene Therapies

One gene therapy recently approved by the FDA is Zolgensma (trade name for Onasemnogene abeparvovec), a treatment for children with spinal muscular atrophy. It costs about $2 million for a one-time use, FDA Review reported.

For its part, Novartis, the Basel, Switzerland-based creator of Zolgensma, said the proposed CMS changes are “an important first step,” and helpful to the company’s “access strategy” in the US, BioPharma Dive reported.

Healthcare experts envision that deals struck under the new proposed CMS rule will focus on gene therapies and expensive drugs, MedPage Today reported.

Alexander Dworkowitz, Partner, Manatt Health
“Measuring outcomes is costly; it takes time, and everyone has to come up with a way to do it. So, if a drug costs $50, it’s not worth going to every single patient (in research). If the drug costs $500,000, maybe it’s worth it … figuring out if the drug worked. That’s why people talk about it in the context of gene therapies,” Alexander Dworkowitz (above), Partner, Manatt Health, New York, told MedPage Today. (Photo copyright: Manatt, Phelps and Phillips, LLP.)

Advancing Precision Medicine, Improving Patient Access

The CMS news release summarized potential benefits of the proposed rule (comments period ends July 20):

  • Support paying providers on improved patient outcomes instead of fees for services and volume.
  • Insurers could be in a better position to negotiate based on a drug’s effectiveness.
  • More clinical evidence about therapies may become available.
  • Providers and payers may see opportunities to use and offer medications and treatments in a precision medicine manner.
  • Patients may have greater access to new therapies.

Proposed Rule Names Pharmacy Benefit Managers, Opioids

According to the Laffer Healthcare Intelligence analysis email, CMS’ 137-page proposed rule is “very broad,” but focuses on three themes:

  •  “First, CMS wants to establish an official definition for VBP models to accelerate development of drug pay-per-value programs.
  • “Second, CMS want to restrict the amount of opioids doctors can prescribe.
  • “Third, very subtle changes are proposed that negatively affect the PBM (pharmacy benefit management) industry.”

CMS’ proposal also includes standards aimed at fighting opioid prescription fraud and misuse in Medicaid drug programs, noted Fierce Healthcare.

Transparent Drug Prices

Medical laboratory leaders may want to monitor the progress of this proposed rule. In addition to value-based payment, the rule advances price transparency by clearing the way to sharing prices of therapeutic drugs and how they improve patient care, while also lowering costs.

Meanwhile, a refresh of lab information technology to enable authorization of genetic and molecular tests by payer also may prove worthwhile.

—Donna Marie Pocius

Related Information:

Fact Sheet: Establishing Minimum Standards in Medicaid State Drug Utilization and Supporting Value-based Purchasing for Drugs in Medicaid, Revising Medicaid Drug Rebate and Third-Party Liability Requirements (CMS 2482-P)

CMS Issues Proposed Rule Empowering Commercial Plans and States to Negotiate Payment for Innovative New Therapies Based on Patient Outcomes

Federal Registry: Establishing Minimum Standards in Medicaid State Drug Utilization Review and Supporting Value-based Purchasing for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and Third-Party Liability Requirements (CMS 2482-P)

CMS’ Proposed Rule on Value-based Purchasing for Prescription Drugs: New Tools for Negotiating Prices for the Next Generation of Therapies

FDA Approves $2 Million Drug; Blame the Price on Excessive Regulation

With New Proposal, Trump Administration Tries to Encourage ‘Value-based’ Drug Deals

CMS Proposes Rule to Encourage ‘Value-based’ Drug Payments in Medicaid—Could Ease Access to Expensive Therapies, Experts Say

CMS Proposed Rule Aims to Foster More Medicaid Value-based Drug Agreements

FDA Approves Digital Therapeutics Technologies to Treat Patient Behavioral Conditions That Interfere with Positive Healthcare Outcomes

Clinical laboratories with strong digital and information technology capabilities may find opportunities in this growing field of healthcare

Digital therapeutics (DTx), a growing trend in life sciences technology, is emerging as a popular form of connected healthcare physicians can use to transform patient behavior and improve clinical outcomes. This development may create opportunities for IT-savvy clinical laboratories.

The software applications (apps) and hardware monitoring devices involved in digital therapeutics enable physicians and patients to target and alter specific behaviors that affect certain medical conditions, such as substance abuse or depression. Combined with or without drugs, digital therapeutics are achieving positive results, according to the United Kingdom’s PwC (PricewaterhouseCoopers) Health Research Institute (PwC HRI).

Clinical laboratory leaders engaged in precision medicine and pharmacogenomic initiatives will be intrigued by potential opportunities to support digital therapeutics. The FDA’s Digital Software Precertification Program has already begun awarding approvals for digital therapeutics that address diabetes and central nervous system disorders, in addition to substance abuse and birth control.

And more FDA approvals for digital therapeutics are expected in 2020, PwC HRI predicted.

Pharmaceutical and Tech Companies Collaborate on Digital Therapeutics

A PwC report, titled, “Top Health Industry Issues of 2019: The New Health Economy Comes of Age,” describes digital therapeutics is “an emerging health discipline that uses technology to augment or even replace active drugs in disease treatment.”

The report goes on to state that digital therapeutics “is reshaping the landscape for new medicines, product reimbursement and regulatory oversight … [and that] new data sharing processes and payment models will be established to integrate these products into the broader treatment arsenal and regulatory structure for drug and device approvals.

“Connected health services,” the report continues, “enabled by devices that transmit data or connect to the Internet, give additional visibility into care delivery and new ways to improve patient outcomes.”

Digital therapeutics combine apps and monitoring devices for the management and treatment of medical conditions. While similar to customer wellness apps, digital therapeutics focus on specific clinical outcomes. 

The non-profit Digital Therapeutics Alliance says that, unlike common “wellness” apps, digital therapeutics “possess the unique ability to incorporate additional functionalities into a comprehensive portfolio of synchronous products and services. This includes potential integration with mobile health platforms; the provision of complementary diagnostic or adherence interventions; the ability to pair with devices, sensors, or wearables; the delivery of interventions remotely; and integration into electronic prescribing, dispensing, and medical record platforms.”

“Digital therapeutics are the next frontier,” Sai Jasti, Chief Data and Analytics Officer, GlaxoSmithKline (NYSE:GSK), told PwC HRI. “I think we will see a lot more collaboration between pharmaceutical and technology companies to drive this forward, ultimately to the benefit of patients.”

Digital Therapeutics That Already Have FDA Approval

Digital therapeutics and their connected devices are subject to the approval process of the federal Food and Drug Administration (FDA), and some have already received that coveted clearance:

“Digital technologies and data science have incredible potential to unlock the next chapter of medical innovation and to help individuals finally take control of their own health in a meaningful way,” said Richard Francis, Division Head and CEO, Sandoz, in a press release. “New digital therapeutics such as reSET-O also have the potential to fundamentally change how patients interact with their therapies and thus improve patient outcomes.”

Both reSET and reSET-O are software mobile apps that use cognitive behavioral therapy (CBT) to help individuals struggling with addictions. 

“Nearly 50,000 drug overdose deaths involving opioids, including prescription pain medications and heroin, took place in the U.S. in 2017,” said Corey McCann, MD, PhD, President and CEO of Pear Therapeutics, in the press release following receiving FDA approval. “There is an urgent need for new and innovative therapeutics to address this public health epidemic. This groundbreaking decision by the FDA ushers in a new standard for treating patients with Opioid Use Disorder and it signals a new path for therapeutic software to be used in conjunction with pharmacotherapy to improve efficacy.”

  • Natural Cycles is a birth control app created by a Sweden-based company of the same name. It was approved by the FDA in 2018. This mobile app helps women track their fertility to prevent unwanted pregnancies via the rhythm method. The app analyzes data from past menstrual cycles and body temperature readings to determine when the user is most fertile. On the days the user is most likely to be ovulating, the app displays “Use Protection” on the mobile device’s screen. 

“We know that women are more likely to use contraceptive methods when they have a variety of methods available to them, and the reality is that not every method is going to work for every woman,” Rebecca Simmons, PhD, Research Assistant Professor, Department of Obstetrics and Gynecology, University of Utah, told Health. “This is really exciting, in the sense that the more methods we have, the more likely it is that people can find something that works for them—and then can avoid unwanted pregnancy.”

  • Apple, headquartered in Cupertino, Calif., received FDA clearance in 2018 for an electrocardiogram (ECG) app for its Apple Watch Series 4 that allows users to take an ECG from their wrist to detect irregular heart rhythms and atrial fibrillation (AFIB).

“The role that technology plays in allowing patients to capture meaningful data about what’s happening with their heart—at the moment when it’s happening, like the functionality of an on-demand ECG—could be significant in new clinical care models and shared decision-making between people and their healthcare providers,” said Nancy Brown, CEO of the American Heart Association, in a press release.

Patients, Providers, and Big Pharma All Like Digital Therapeutics

There is some evidence that patients and healthcare providers are intrigued and willing to try digital therapeutics. In a PwC HRI survey, more than 50% of respondents said they “would be somewhat or very likely to try an FDA-approved app or online tool for treatment of a medical condition.”

The graphic above is taken from the PwC HRI 2019 annual report on digital therapeutics and connected care. It shows that “a majority of consumers surveyed are interested in FDA approved digital apps or online tools to treat their medical conditions.” (Graphic copyright: PwC HRI.)

Pharmaceutical companies also are interested in digital therapeutics. A 2018 PwC HRI survey found that 80% of pharmaceutical executives had plans to invest in digital therapeutics in the near future.

A 2019 PwC article, titled, “Digital Health Products Need Evidence and Buy-In to Succeed,” states that drug companies see the following opportunities for DTx to improve the patient experience: 

  • Digital product support and educational tools,
  • Patient adherence and compliance programs,
  • Remote patient monitoring,
  • Data sharing with healthcare providers, and
  • Caregiver tools and support.

With precision medicine and pharmacogenetics, clinical laboratories could play an essential role in supporting digital therapeutics in the future. But to truly be competitive in this space and take advantage of the opportunity, medical laboratories will need to increase their information technology and digital capabilities.

—JP Schlingman

Related Information:

Digital Therapeutics and Connected Care Reshape the Life Sciences Industry

The Emerging World of Digital Therapeutics

Top Health Industry Issues of 2019: The New Health Economy Comes of Age

Digital Therapeutics: Combining Technology and Evidence-based Medicine to Transform Personalized Patient Care

Everything You Need to Know About the Controversial New Birth Control App

Digital Health Software Precertification (Pre-Cert) Program

Sandoz Inc. and Pear Therapeutics Obtain FDA Clearance for Reset-O to Treat Opioid Use Disorder

Everything You Need to Know About the Controversial New Birth Control App

More than Half of Patients Willing to Use Digital Therapeutic, Study Says

ECG App and Irregular Heart Rhythm Notification Available Today on Apple Watch

Digital Health Products Need Evidence and Buy-in to Succeed

Life Sciences May See Accelerated Digital Health Pathway as Soon as 2020

New Miniature Continuous Glucose Monitoring Devices from DexCom and Verily (Google Life Sciences) Promise to Make Glucose Monitoring Wearable and Affordable

Such a small, non-invasive glucose monitor would capture and transmit data to the Cloud, making it feasible for clinical laboratories to collect those tests results, and keep a record of each patient’s glucose results

Probably no single area of medical laboratory testing has the greatest potential to help the largest number of patients with a chronic disease—and make a lot of money for the in vitro (IVD) manufacturer who is first to market with the right diagnostic product—than glucose testing and continuous glucose monitoring (CGM). Pathologists and clinical laboratory managers know why this is true.

Reports from the Centers for Disease Control and Prevention (CDC) and the American Diabetes Association, state that more than 29 million Americans (about 9% of the U.S. population) have diabetes. Nearly 28% of these (about eight million) are undiagnosed. The reports also stipulate that fasting glucose or A1C levels have shown that more than 80 million people over the age of 20 were prediabetic in 2012. Based on trends since then, we can safely assume that the number of prediabetics in America has grown. And what is true in the United States is general true in most developed nations throughout the world. (more…)

Breakthrough DNA Editing Tool May Help Pathologists Develop New Diagnostic Approaches to Identify and Treat the Underlying Causes of Diseases at the Genetic Level

The advent of the CRISPR/Cas9 genetic editing tool is already generating novel therapies for diseases and will create new opportunities for pathologists and medical laboratories

In just 24 months, a new gene-editing tool has become the hot topic worldwide among researchers working to understand DNA and develop ways to manipulate it for therapeutic purposes. It goes by the acronym CRISPR and it may soon become quite familiar to most pathologists and medical laboratory scientists.

CRISPR stands for clustered regularly interspaced short palindromic repeats. The gene editing platform is known as CRISPR/CAS9. (more…)

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