Holmes says she forged pharma reports—for all the right reasons

 Elizabeth Holmes spent over six hours on the stand yesterday, trying to make the case that, while mistakes were made, she never meant to defraud anyone.

It’s an argument that appears to rely heavily on nuance and emotion. When Holmes handed investors forged reports, did she mean to deceive them? When she shared overly optimistic financial projections, was she merely relying on the work of others? When she declined to tell investors that Theranos was using third-party devices to run blood tests—contrary to her company’s carefully cultivated public image—was she being duplicitous or merely protecting her company’s hard-won trade secrets?

How the jury interprets Holmes’ answers will likely depend on her performance under cross-examination, which has yet to begin. But her testimony yesterday attempted to paint an image of a conscientious executive who was misguided at key decision points. She and her attorneys dropped hints that, at each of those points, her intentions were noble, ranging from selflessness to trust, respect, and even motherly protectiveness.

Doctored reports

Perhaps the biggest revelation yesterday came when Holmes admitted to placing pharmaceutical company logos atop a Theranos report without their permission. She claims she didn’t think that investors or executives at Walgreens and Safeway would think that other companies had produced the reports. Rather, by placing Pfizer and Schering-Plough logos on the reports—on every page, in the case of the Pfizer report—she said she was merely giving credit to her partners.

“This work was done in partnership with these companies and I was trying to convey that,” she testified.

Did she realize that other people would believe that the pharmaceutical companies, not Theranos, were the authors of the report, Downey asked her. “No,” she said. “I’ve heard that testimony in this case, and I wish I’d done it differently.”

Balwani’s projections

Another bombshell came when she placed the blame for rosy financial projections squarely with Ramesh “Sunny” Balwani, Theranos’ COO and her boyfriend at the time. The projections came from financial models he created, Holmes said, which were heavily influenced by assumptions about how quickly Theranos could roll out its testing services in Walgreens stores. The startup had a deal with the drug store to put its proprietary devices at some 3,000 locations.

While she trusted Balwani with the financial projections, Holmes said that she put Vice President Daniel Young in charge of the Walgreens rollout. “He had skillsets in modeling and data, and we wanted to apply them,” she told the court.

When that rollout faltered, it wasn’t because Theranos' technology wasn’t up to snuff, she said, but because Walgreens' new management got cold feet, thinking they would run into regulatory trouble if they put a Theranos device in every store. “Our lawyers had different opinions, but we agreed to do what Walgreens wanted,” she said.

Modified machines

While Holmes apparently trusted Walgreens on regulatory matters, that trust didn’t extend to other aspects of the deal. For example, she didn’t tell them that Theranos was using third-party devices to run many blood tests. Why? Because that was a trade secret, she claimed.

The decision to use third-party devices was a practical one, not a malicious one, Holmes said. Theranos' own devices could only run one sample at a time, she told the court, and with the volume of samples the startup was receiving, they had to find another way to process them. So the company’s scientists modified existing Siemens equipment to run tests on smaller samples of blood. Holmes said she was worried that if Siemens got wind of their modifications, they might reproduce it because “they had way more engineers than we did.” 

Holmes discussed the matter with Theranos attorneys, who, she said, told her to protect that information as a trade secret. The well-compensated board apparently agreed. (They received $150,000 per year along with consulting fees, the court heard.) Holmes even had a discussion with board member and former Sen. Sam Nunn about the measures Coca Cola took to protect its secret recipe. (Nunn was a Coca Cola board member, too.)

Holmes also trusted the government with knowledge of their modified machines. Theranos filed for a patent on the Siemens machine modifications and requested that the filing be kept confidential, and she told the FDA about the equipment and procedures in Theranos' labs. She said she felt the government would protect Theranos’ trade secrets.

Despite trusting dozens, perhaps hundreds, of people with information about modified third-party devices, Holmes apparently did not trust her investors or other partners like Safeway. Why? “Trade secrets.”

That argument tries to paint Holmes as a protective executive just looking out for her company. But it ignores a key point—she could have easily required anyone who knew about the modified equipment to sign a nondisclosure agreement. She reportedly required it of some investors who set foot inside Theranos’ headquarters. Why not include the modified machines under that NDA?

https://arstechnica.com/tech-policy/2021/11/elizabeth-holmes-says-she-forged-pharma-reports-for-all-the-right-reasons/