Thread by @MilesGCohen

#ElizabethHolmes Trial Day 28:

Whether or not the defense is going to put on a case is a mystery to all, including the prosecutors, they told the court this morning.

New episode of #TheDropout: The Beginning of the End

open.spotify.com/episode/0oQ3s6…

#ElizabethHolmes' team is arguing a motion to reconsider the admission of "enthusiastic" Walgreens customer reports from those who had their blood tested by #Theranos tech

The defense is offering them for Holmes' state of mind, b/c the glowing reviews went "directly" to the CEO

Judge Edward J. Davila went through the surveys, and could not find many reports which actually discussed test results — an issue in the case, he told the defense attorney.

Prosecutor John Bostic characterized the reports as "a mountain of hearsay," and argued the defense may want to admit them "to balance up the scales, as it were from the negative evidence the jury has heard."

Bostic cited two timing issues with the proposed surveys:

1. They were taken by phlebotomists who conducted the tests, thus were before patients got their results

2. ambiguity around when Holmes actually saw the reports.

"[It would be] very misleading to the jury and unfairly prejudicial to our case to exclude this evidence which went to Ms. Holmes, b/c there was other evidence in the case that did not go to Ms. Holmes," Defense attorney Richard Cleary argued.

Davila "invites" Cleary to point to any reports which comment on the results of their tests.

Cleary concedes the vast majority of the reports have to do with “facets of the experience,” which also include customer’s reviews after getting venous blood draws in addition to pricing / convenience.

"This is powerful evidence of Ms. Holmes state of mind," Cleary capped off his argument.

Davila will not allow the hundreds of customer reports into evidence.

"I just don't see anything that causes me to disturb the court's previous ruling on this," Davila said. "These will continue to be excluded."

Alan Jay Eisenman will not be called back to testify, after the defense reviewed his original notes overnight.

Next witness: ex-Theranos controller So Han Spivey who also testified earlier in the trial.

She is back to authenticate one email.

#ElizabethHolmes #Theranos

It's an email Spivey sent to #ElizabethHolmes and Sunny Balwani regarding advertising funds sent to Horizon Media — the basis for count 11 of the Indictment against Holmes.

Correction — Carisa Bianchi sent the email, the head of the Theranos marketing department. The email was admitted via the business record hearsay exception, Davila said.

"Wire funds due 7/31 - $1,126,661 for:

...I will have the 3Q and 4Q buys ready for your and Elizabeth’s review next Tuesday,” Bianchi wrote Holmes and Balwani."

"September DJ and TV host on-air segments $24,920
Finalizing timing and details, targeting for September Attaching proposed DJ copy points," the email continued.

Spivey asked Holmes and Balwani for approval to send the wire in an email.

"Are you satisfied that you ultimately received approval?" Leach asked.



"Yes," Spivey replied.

Defense attorney Lance Wade is on for cross.

"It's nice to see you again," he greeted the witness.

Wade elicited at the time of the wire the details of the advertising purchase were not finalized.

"Do you know whether these ads...were ever ran?" Wade asked.

"I don't know," Spivey testified.

Spivey sent Holmes and Balwani the following info under the title: “The Theranos Experience”

-Smaller samples. Smaller needles. A better experience.

-Many of Theranos tests require only a few drops of blood.

New exhibit - a balance sheet from 1/8/2014

Sometimes at Balwani's request you would prepare balance sheets for him?

Yes

Was this one of the occasions where you did that?

Yes

Wade ends there. So Han Spivey AKA Danise Yam is excused for the second time.

"The United States calls Brian Grossman"

Likely, the final investor who will take the stand.

Grossman is the Chief Investment Manager for PFM Health Sciences.

Grossman graduated from U Penn in 1996, worked for JP Morgan for until 2001, spent 20 years covering the biotech industry as an analyst.

Today he sits on the stand in the Robert F. Peckham federal courthouse.

In December 2013, Grossman and his partner Chris James had an hour long meeting with Holmes and Balwani in the Palo Alto Theranos offices.

He was "a little surprised" when he arrived he had to sign some documents to get into the building.

Grossman was taken through the kitchen and through a demonstration meeting.

He is recounting what Holmes/Balwani told him in the meeting.

"The first thing we talked about was the technology. We knew they had a partnership with Walgreens that had been announced...Beyond that we knew nothing about #theranos. They told us they could do over 1000 CPT codes with their tech,"Grossman said which was "very" impressive

"That was a pretty profound statement... [They] explained it had taken them 10 years to get to that point."

"Over that 10 year time they described they worked with the military, the dept of defense, and Pharma companies doing research."

"On D.O.D they told us the tech had been used in the battlefield on medics for example, and giving diagnostic information to medical personnel in that setting was a matter of life of death. They emphasized that there tech was able to do that in those difficult conditions."

"They described how the tech was actually better than conventional lab equipment…Ms. Holmes was very clear they could match every test on the Lab Corp and Quest menu of tests and those were the two laboratories that were very well known."

"She did highlight there was one limitation they had with the tech.”

"Cultures...the idea that you grow the microorganisms and identify them.”

"She described the tech they had dev internally to do that kind of testing on proprietary equipment."

Leach cut the witness off after what felt like several minutes of his description of the meeting with Holmes / Balwani. He asked him if pieces of the information he gave were "impressive."

Many of them were, Grossman testified.

"Who did most of the talking…?"

Leach asked.

"Ms. Holmes," Grossman testified.

#ElizabethHolmes #theranos

We are looking at a Jan. 2014 email from Grossman to Holmes and Balwani with a list of due diligence questions.

"I hope you both had an enjoyable finish to what was obviously tremendously successful year for the company," he started his email.

The exhibit lists PFM's "deal team"

Brian Grossman - Portfolio Manager
Alex Rabodzey - Biotech/Diagnostics
Vivek Khanna - Healthcare Services
Sri Babasuryan- Analyst

Their due diligence questions are listed

1. Technology

- How does your accuracy and speed stack up against traditional tests

"They told they could have results from a retail setting - they could guarantee results in 4 hours," Grossman testified.

-What are the key tests from a commercial standpoint and how does accuracy and speed compare specifically on those.


"We wanted to be crystal clear about what the technology capabilities were at that time in a retail setting," Grossman testified.

In his tour of Theranos, Grossman saw the Minilab which he described as
the “size of a PC five years ago."

Grossman said Balwani/Holmes were "emphatic" that the minilab, "
was the entire laboratory, shrunk down into a box.”

"Important profound implications for the testing business. It represented to us a tremendous disruption for an industry that hadn't changed in 30-40 years."

They also had 8 questions about category 7: Financial Model/Projections. Leach is asking Grossman about this one:

"What are GM on the analyzers, the tests?"

This is the most extensive list of questions we've seen thus far, from any investor witness.

Did Ms. Holmes ever tell you that the theranos analyzer was currently only being used for a handful of tests in the clia lab?

No

Did Ms. Holmes ever tell you that theranos was using modified third party machines to perform testing in the clia lab?

No

Did she ever describe for you the cost of acquiring Siemens machines to do testing?

Absolutely not

...Relevant to you?

Yes.

Did Ms. Holmes ever tell you the GM (Gross Margins) on analyzers included the cost of third party machines

No

Grossman and a few of his colleagues had another meeting with Holmes and Balwani on Friday Jan. 10 2014. They were shown a presentation and a financial model.

Holmes was not there for the full meeting, Leach fronted. Grossman estimated she left halfway through.

“The reason they had waited this long to launch a retail product — They wanted to make sure they had complete coverage, 100% coverage, of what Quest and Labcorp [were offering,” Grossman recalled learning in the meeting.

We're on break for 30 - Leach still has questions left.

"Did Ms. Holmes make statements to you about the comparative size of the Theranos Lab or analyzer to traditional laboratory equipment.

"Yes...that their proprietary equipment was much smaller," Grossman testified. He agreed it was "attractive," as Leach asked.

After the Jan 10 meeting, Grossman asked for access to the #Theranos financial model.

Balwani responded with a "very confidential" slide deck, which Leach had published to the jury.

We looked at the "Press" slide which includes the often referenced WSJ article: Elizabeth Holmes The Breakthrough Of Instant Diagnosis.

"Is this material that you reviewed prior to PFM's investment?"

-Yes

"Was this information relevant to [PFM's] investment decision?

-Yes

"This was critical," Grossman testified, saying it represented a powerful external validation.

"Faster results, faster answers."

“This was an important aspect of the commercial offering,”

Grossman testified.

"They described that their technology — b/c it did not have the human element — the potential for humans to produce variability and errors, by eliminating that it had dramatically less variability," Grossman testified about his first meeting with #Theranos.

Another slide: "New Possibilities in Lab,” holds the same assertion that Grossman testified to hearing earlier in a convo w/ Holmes & Balwani

“All 1000+ currently run tests/CPT codes are available through theranos,” it read.

Leach brought up Alternative Assessment for Proficiency (AAP) which played a large role in Former Theranos Lab Director Adam Rosendorff's testimony.

"We discussed how [AAP] was applied as they developed new assays for their platform," he testified.

"Theranos maintains CLIA accreditation as a high complexity lab and as passed all audits without a single deficiency [finding?]," read one bullet in the slide deck.

"This was the most important part of their business," Grossman testified about Theranos' work with pharmaceutical companies.

"Did Ms. Holmes ever tell you #Theranos had zero revenue from pharmaceutical companies in 2013?" Leach asked.

"No."

After Grossman went through the slide deck, he had more questions for Balwani.

“We want to revisit the FDA approval process for assays and analyzer,” he wrote to Balwani on Jan. 20. "Will the analyzer be an FDA approved device?

“We really wanted to make sure this company could actually make these things - these Minilabs,” Grossman testified in reference to his question in the email.

The question: We want to better understand the manufacturing ramp of analyzers. Can they maket them at higher volume without sacrificing product quality?

Balwani was "very confident" that they would have no issues manufacturing the minilabs, Grossman testified.

The response is not in writing, but from Grossman's memory of their conversations.

Grossman asked Balwani if he could speak with representatives from Walgreens.

"He said he was very uncomfortable with that. He said they weren’t willing to do that... [that] it wouldn’t look good," Grossman testified.

They also wanted to speak with United Health Care - Balwani told Grossman, "He said no. We will not allow you to speak with United Health Care...It would again look badly on us."

Grossman also spoke with Stanford professor Channing Robertson — which he relied on in part (as Leach put) in his investment in Theranos.

"He did not see any technical risk at all in their core technology," Grossman said.

Grossman is testifying about all the positives about Theranos, Robertson pitched to him.

"Everything was centralized. and it was a patient centralized, patient focused business," he began.

He shook his head, as if in disbelief, as he regurgitated his convo w/ Robertson.

Grossman also toured the Theranos CLIA lab. He remembered Balwani being his guide.

“We observed a lab setting with metal racks which contained minilabs which were actively processing samples," he testified.

He didn’t however see any Siemens, or other 3rd party devices

Grossman sent an an excel revenue model to (presumably a colleague) on 1/29/2014, with a revenue model for three scenarios. Based in part on financial information he received from Theranos, Grossman said.

“1,2,3 for the bear, base, bull,” read the email.

Leach is hitting Grossman’s purported lack of knowledge about #Theranos 3rd party machines hard.

We are looking at the financial projections Theranos sent to Grossman.

Projected total revenue by end of 2014: $261 million
Projected total revenue by end of 2015: $750 million

There came a time when Grossman went into a Palo Alto Walgreens to get his blood tested by Theranos tech. He did not tell the company.

He had his blood drawn venously, and it took longer than four hours for his results to come back.

Grossman had questions for Balwani.

He asked why he didn't receive a finger stick, why it was a venous draw, and why it took longer than 4 hours to get his test results back.

"He told me that one of the tests my physician had ordered was a highly unusual test that they were not at that point in time offering on the finger stick…said there was some type of lab failure that should have been released to my physician that they investigated," he said.

In late Jan, 2014, Grossman wanted to see part of the Newark, CA CLIA lab.

"Is there a way we can see a part of the lab...This is more a perfunctory exercise to make sure there actually is a lab there.” Grossman wrote the COO.

At any point did mr balwani tell you some of your tests were run on a third party device?

No

Leach has evidence which speaks to that — he showed an internal email including Dr. Adam Rosendorff and Dr. Mark Pandori which showed that Brian Grossman's tests were run on the IMMULITE device.

We are looking at the master signature page for PFM's investment.

Eric T. Moore, the CFO signed his name three times under three PFM entities, including a hedge fund, a friends and family fund, and a fund they used to co-invest

Respectively (in millions): 38.3, 2.3, 55.5

Leach showed the Fedwire for $38.3 million, which is already in evidence and pertains to Count 6 of the indictment.

He ended his direct there.

Lance Wade on for the defense.

And he's got another calendar demonstrative. The first one added to the list: Nov 1, 2013, the day Grossman first learned about #Theranos.

-Dec. 12 first meeting with Holmes/Balwani

-Jan 10. The 1.5 hour meeting where Holmes had to go halfway through

-Feb. 4 or 5 of 2014, the day Grossman made the decision to invest in Theranos

Would you say you spent hundreds of hours collectively as a group (doing due diligence)?

Grossman didn't recall, but testified there were 5 total people in addition to a "variety of outside experts," as Wade put, in addition to a regulatory expert and regulatory lawyer.

"I don’t recall if I interacted with her after the Jan 10 [2014] meeting," Grossman testified about Holmes.

“If the question is…” Grossman began and then answered his own question.

“It wasn’t the question, but I’ll take the answer,” Wade quipped

Wade asked Grossman to explain hedge funds.

Grossman is the portfolio manager of the hedge fund — he makes the final investment decision for the portfolio, he testified.

When people put money into that fund, they are entrusting you to make that investment?

Yes

Would you say you've made 10s of thousands of investments in your career? A lot?

What's a lot?

Would you say you've made hundreds of investment decisions in your career

yes

Ok good- and sometimes you win and sometimes you lose; correct?

yes

You’re not doing this just on gut feel?

No

How much experience do you have as a healthcare investor?

I’ve been investing in the space since the late 90s.

Wade often takes off his glasses and peeks at the jury as he asks his questions.

Why dont you explain the fees [your investors] pay to PFM?

"The investors pay a management fee...anywhere between 0-2%…in addition to that they pay performance fees," Grossman testified.

The responsive Grossman we saw on direct, is not who we are seeing on cross.

He is asking Wade to break down his questions to their bare bones, before answering.

Wade asked him if one question is fair.

Grossman responded with a frank, "no."

In the first instance, #Theranos did not solicit PFM as an investor, Wade elicited from Grossman.

“Let me know ASAP if this private company is of interest to you. One of the most impressive boards I’ve ever seen,” Thomas Laffont wrote to Grossman’s partner Chris James on Nov 1, 2013. Chris James forwarded the message to Brian Grossman.


"Wowsy," James wrote.

“Pretty cool. Never heard of it," Grossman responded. "What time u picking us up? U want us to brink bevies for the drive?

"Def bevies, 5:50," James replied.

Wade appears to be trying to show Grossman's investment decision was made before he had any substantial conversation with #ElizabethHolmes

We are looking at a Nov 18, 2013 email from Grossman to his investment team, "Is this something we should work up on the private side?" he wrote, linking the company's website.

"Yes, very good feedback from WAG," His colleague Vivek Khanna wrote back

You came to learn that #theranos was going to operate commercially through a retail establishment?

Yes

And for a young company like theranos to do that…you viewed that as a positive factor that they partnered with Walgreens?

Yes

If not for Walgreens, you probably would not have even considered this [business opportuntiy]?


…Walgreens was certainly important.

"What did they say? How will it fit into WAG’s business going forward? What does it mean for LH/DGX (labcorp and Quest) longer term?" Grossman asked Khanna in response to his email that about good feedback from WAG.

Khanna responded with a cut and paste from an email from an "institutional equity sales person" at Cowen, an investment banking company.

The content: comments Walgreens was making to other investors about their partnership and the Theranos Technology, Grossman testified.

“WAG: Rhyee remains bullish post marketing with the IR (investor relations) team,” the cut and paste began.

“Wowzer, that’s quite an endorsement,” Grossman replied.

"That was quite an endorsement at the time, correct?" Wade asked.

"Yes," Grossman replied.

Khanna wrote again to Grossman on 12/9/2013 with some info from LH (LabCorp: a competitor in the space which Grossman's company PFM also had a stake in).

"LH- they think that the technology does not work. Menu very limited compared to LH and DGX," Khanna wrote.

WAG on the other hand, had a different opinion, wade pointed out.

"WAG-they think it is very exciting and will likely bundle with their existing payor contracts," Khanna wrote in the same email, as Wade showed.

All of these communications occurred prior to Grossman's first meeting with Elizabeth Holmes.

On Dec. 13, 2013 they had an "Introductory" meeting, Grossman testified.

"It was a little bit of a getting to know you meeting is that correct" Wade asked

"Yes," Grossman replied.

In this meeting, you didn't delve into a lot of the specifics?



If the question is relative to subsequent meetings with the company... then the answer is at a high level, Grossman said, adding they went over the whole company.

You hadn’t yet signed a CDA at the meeting so they were more hesitant to share the [specifics] is that right?



I don’t recall.

On January 17, 2014 Balwani wrote Grossman a follow-up to their second meeting.

Attached is a confidential disclosure agreement that Grossman signed on Jan 10. 2014.

The attachment was a response to an inq Grossman had sent directly to Balwani.

“We take compliance extremely seriously. As such we’d like to understand what we actually signed when we registered for our onsite meeting. Is it possible for our General Council…to review that doc?"

Wade elicits that Grossman also understood #Theranos was "pausing those projects" (I believe in regards to military / Pharma) as we also heard from the secretively recorded call with #ElizabethHolmes, recorded by Hall Group investor Bryan Tolbert.

In regards to the second meeting —

"As you sit here today, can you show us which slides you were shown in the meeting?" Wade asked.

Grossman could not remember.

"This was a rapport building exercise as well?" Wade continued.

"That was part of the meeting," Grossman said.

On 12/20/2013 a member of Grossman's investment team sent what appear to be his notes of a WAG earnings call that day.

Grossman's colleague's notes:

-we are very positive on Theranos, it is half the cost of medicare reimbursement
-disruptive tech
-we have assets
-better patient experience
-highest standard of care
-better, faster and cheaper

We are now looking at a transcript of that earnings call. Then CFO Wade Miquelon — who testified earlier in trial — is quoted giving a "very very positive" (Miquelon's words) review of #theranos.

Wade asked if Grossman learned this when he was considering his investment.

Yes.

His quote is nearly bullet for bullet what Grossman's colleague had sent over.

"we’re very very positive on theranos. I mean it’s really a - one of the disruptive plays, its a better patient experience with a prick of blood. Its the highest standard of quality in lab..."

“Elizabeth, I just checking in to see if we can move this process forward,” Chris James, Grossman’s colleague, wrote to the CEO on Dec. 19. 2013.

"We're interested int taking the next steps," Holmes replied on Dec. 22, 2013.

“What do you think for size and I can go to outside investors on this too.” Chris James wrote to Grossman on 12/22/2013.

"20 [million dollars] at least," Brian Grossman replied.

The pair then discuss a "formal list of questions" to send over to #Theranos — part of the "standard due diligence process," Wade put, and Grossman agreed.

Part of the thinking behind sending the list of Q's, was so #Theranos could start thinking about the questions, and thus would afford Grossman and crew a "productive" meeting.

"We had to rely on what they told us," Grossman said.

Wade asked if he went and gathered other information, he agreed.

Did you ever specifically ask the question if venous draws were performed on commercial analyzers?

I don’t recall

(Grossman testified on direct he was aware Theranos conducted some venous tests)

Do you recall having discussions with [Theranos] about how they did their venous tests at all

I don’t recall specifically

But you knew they were doing venous testing

Yes.

"Lab testing from a blood sample as small as a few drops," wade read from a WAG press release.

It doesn’t say only a few drops… correct ?

Going back to his line about due diligence questions — Wade shows the list.

"[These are] risks you wanted to assess in considering your investment?" he asked.

"Some of them relate to risks," Grossman replied.

You asked all the members of your team to provide input into all of these questions, correct?

Thats correct

This was the amalgamation fo all of those inputs correct?

Right

"Pharma parternships are not mentioned there"

Correct

"And the DoD partnerships are not mentioned there"

Correct

"This is what you were focused on going into the meeting"

"Bring you’re A game. If you are the technical expert, need u to really be skeptical (but not a hole)," Grossman wrote a PFM doc on his investment team.


"That was the mission you sent him on…did he fulfill the mission? Wade asked.

Yes and yes.

"I didnt mention that. Ms Holmes mentioned that," Grossman testified, when asked a question about 1000+ CPT codes.

Did you know what retail experience theranos management had at [the time of the Jan 10 meeting]?

I did not

Did you know whether any of theranos management had any experience?

I did not

Grossman is still asking for specificity but he no longer appears to be battling Wade.

Learning process, sometimes they change [companies] approach to things?



Yes

Natural part of business?


Yes

As an investor who invests in the company, you understand sometimes a company changes an approach to something, but ultimately thats not your call?

Yes

Wade moved to the financial model, shown to Grossman during a meeting w/ holmes and Balwani, and admitted on direct.

"You understand that a model is a projection of future growth of a company"

"Yes"

"And sometimes models are accurate and sometimes they are inaccurate"

"Yes"

"One of the reasons Dr. Rebodzey (PFM tech expert) wanted [150 pages of data], is because he wanted to assess the accuracy of the theranos assays," Wade asked.

"We wanted —" Grossman interrupted.

"Maybe he didn't want to do it, but you made him do it."

"Yes," (laughs)

That's it for today — Grossman will be back on cross when we return Wednesday.

Downey wants to talk about something relating to a "Sealed matter" that was dealt with "in camera (private)"

Prosecution asked when defense will finish their cross of Grossman.

"There are many questions that have been asked and answered on direct.....There are two binders here that are three inches thick with materials," Judge said. "Will you finish with this witness this week?"

"We should easily be able to finish the witness," Wade said.

"is that the royal we?" Davila asked

"By the royal we, I'll refer to myself and Mr. Leach," Wade replied.

The gov will have additional witnesses ready, Leach added.

So at least one, or perhaps two more witnesses from the gov?

#ElizabethHolmes