Brian Grossman had 20 years of experience in the healthcare space — but his firm, PFM Health Sciences, invested $96 million in Theranos anyway. On the stand, he explained that his firm had relied on Elizabeth Holmes’ information about Theranos, as well as financial models provided by the company, to make the call.
Taken as a whole, Grossman’s testimony in US v Elizabeth Holmes was damning. Unlike the investors from family offices, he’d visited Theranos’ facilities, had his blood drawn, and sent emails with extensive due diligence questions. He had previous experience in healthcare. He’d checked out Walgreens’ public statements about the company. But because he’d relied on Theranos’ representations of its technology, he was misled — and he singled out Holmes as being the source of much of the misleading information.
Holmes said that Theranos could match the performance of its larger competitors, Quest Diagnostics, and Labcorp. That was “a really big statement” about how much the company had accomplished, Grossman said.
Grossman, like other investors testifying before him, had been impressed by Theranos’ work with the military; he was told that Theranos’ tech was used on the battlefield and in medivacs. And when he heard that Theranos’ tests were used by drug companies to validate experimental products, that dazzled him too. He knew that getting drugs through the pipeline into approval was crucial to pharma companies’ businesses — so for Theranos’ tech to be used for that was a high mark of approval. Theranos projected that $30 million would come from pharma companies in 2014, according to financial projections.
These statements are false. Theranos devices weren’t used on medivacs or on the battlefield. Theranos were also not used on battlefields or medivacs. HadWhile I had the opportunity to work with pharma companies, none of them chose the tests to validate experimental drugs. This was due in large part to the fact that preliminary studies had shown the tests to be useless. Theranos had a strange revenue projection. NoIn 2012 or 2013, revenue from pharma companies or other sources was $28 billion
Grossman claims that Holmes, the former CEO of Theranos and Sunny Balwani (who is being tried separately), told Grossman that Theranos tests took four hours to produce a result. In a slide deck, a graphic specifically pointed out the consistency of Theranos’ vitamin D tests — which was one of the tests whistleblower Erika Cheung had worried wasn’t accurate.
Grossman testified that Holmes did most the talking during their meetings. This was consistent with other investor testimony. That’s bad news for Holmes’ defense, which has been trying to argue that Holmes naively trusted Balwani and that he was the real villain at Theranos.
Grossman kept following up with a long list questions regarding due diligence. Grossman wanted to know about the limitations of the technology. Holmes and Balwani were “emphatic” that their devices were labs shrunk down to the size of a box, he said. Holmes was “very clear that this technology was not a point-of-care test, not a point-of-care testing platform, it was a miniaturized lab,” he said.
That was very exciting — a hugely disruptive technology. Grossman was told that the entire Phoenix market for Theranos could be supported in a lab of 200 square feet; a competitor lab at Quest Diagnostics, which he’d toured, was hundreds of thousands of square feet.
During the meetings and email exchanges, Holmes and Balwani didn’t mention that Theranos technology was only used for a handful of tests. Nobody mentioned that they used third party equipment.
The Walgreens deal also bolstered Grossman’s confidence, though Balwani was squirrely when Grossman wanted to speak to representatives from Walgreens. He told Grossman that it wouldn’t look good and he was “uncomfortable with that,” Grossman testified.
Grossman was also informed that there was a deal between UnitedHealthcare and him. He wanted to speak with them about Theranos’ partnership. “We highly value their ability to vet technology and new companies,” Grossman said. Balwani also rejected the idea.
Those denials “forced us to rely on the representations they made to us,” Grossman said.
Grossman went and talked to Channing Robertson, a Stanford professor who’d helped Holmes start Theranos. Robertson told Grossman there was no technical risk associated with the company — the only risk was making sure consumers had a good experience. Robertson stated that even if the technology fell into the hands competitors, it would take years for them to catch up.
Grossman toured the headquarters. Grossman visited the HQ and the clinical lab. There he saw only Theranos analysis machines and no third-party modified devices. He visited the manufacturing plant. He even went to a Palo Alto Walgreens to get his blood drawn — a venous draw, one that took more than a day to get results. Grossman was told that Balwani said this because his doctor had ordered an unusual test.
Grossman’s blood test gave us a peek behind the curtain at Theranos. The prosecution showed an email to Theranos whistleblower Adam Rosendorff and some other workers in Theranos’ lab, asking them to speed up work on a “VIP” test — Grossman’s. “This is on the Immulite, right?” an employee replied, referencing a competitor’s machine. Another employee confirmed this. (Grossman said in court that if he’d known competitors’ devices were being used, he would have asked even more questions of Theranos.)
Grossman decided to make an investment. Sure, Theranos had been weirdly secretive and security-focused when he’d visited, but Grossman shrugged that off. Yes, it was odd that he’d been discouraged from talking to Theranos’ partners, but he shrugged that off too — hadn’t a Stanford professor told him the tech was amazing? Wasn’t Walgreens touting it in their quarterly earnings calls?
Now, it is clear that one of his investments supports a charge of wire fraud against Holmes.
Source: The Verge
