A former investor in Theranos founder Elizabeth Holmes’ company gave dramatic and damaging testimony Tuesday that bolstered key allegations in the prosecution’s case.
Brian Grossman, chief investment officer at San Francisco investment firm PFM Health Sciences, described a meeting he and colleagues had with Holmes and former Theranos president Sunny Balwani in December 2013. Holmes did most of the talking, he said, but he was not always able to remember whether she or Balwani provided specific information. His firm ended up investing $96 million in Theranos the following year.
“They told us the technology had been used in the battlefield, on med-evacs for example, and that getting diagnostic information to medical personnel in that setting was a matter of life and death,” Grossman told the jury in U.S. District Court in San Jose. “They emphasized how their technology had been able to do that in these difficult situations.”
Asked by prosecutor Robert Leach whether that claim was impressive, Grossman said yes. “What better application for a technology like this than in a military setting under harsh conditions like one would expect in Afghanistan or Iraq?” he testified.
A former Theranos employee, Daniel Edlin, testified earlier he was not aware of Theranos technology being used clinically on soldiers in war zones or military aircraft. Prosecutors allege Holmes falsely claimed to investors that Theranos’ technology was being used on U.S. military med-evac helicopters and “saving the lives of soldiers in the field.” Jurors heard previously that Theranos worked with the Special Operations Command, including with a U.S. Army doctor assigned to Afghanistan operations, on a preliminary project that never bore fruit.
Grossman also testified that his team was told at the meeting that Theranos had brought in more than $200 million in revenue, “mostly from the Department of Defense,” which had “sustained the company.”
Theranos’ former accounting head testified earlier that 2011 revenue came in at $518,000 and that Theranos had no revenue in 2012 or 2013.
Holmes, who founded the Palo Alto blood-testing startup in 2003, is charged with allegedly bilking investors out of hundreds of millions of dollars, and defrauding patients with false claims that the company’s machines could conduct a full range of tests using just a few drops of blood. She and Balwani, who faces the same dozen felony fraud charges, have denied the allegations. Balwani is to be tried next year.
In that first of two meetings with Holmes and Balwani, Grossman said Holmes had been “very clear” that her company could “match every test” performed by competitors Labcorp and Quest, and that he and his colleagues were told Theranos could run more than 1,000 tests. “This was a company that really we’d never heard of,” Grossman testified. “To be able to match the entire menu of tests … was a really big statement about how much they had accomplished, where the technology was at that point in time.”
Prosecutors allege that Theranos machines suffered from severe accuracy problems and were never able to perform more than “a handful” of tests.
Grossman also addressed another major element of the federal government’s case against Holmes: her company’s use of third-party machines for tests her own firm’s analyzers could not run. Asked by Leach if Holmes or Balwani ever told him or his company that Theranos was using other firms’ analyzers, Grossman said no.
“That would have led to a whole series of questions around the technical limitations of the platform,” Grossman told jurors. “It also would’ve had implications for the cost structure of the business.”
The cost of third-party machines would have been relevant to a question Grossman’s firm asked Holmes and Balwani, when PFM was considering an investment in Theranos, about Theranos’ costs for analyzers, Grossman testified. But neither Holmes or Balwani mentioned the use of other companies’ machines when they answered, he testified.
Holmes faces maximum penalties of 20 years in prison and a $2.75 million fine if convicted, plus possible restitution, the Department of Justice has said.