As Theranos burned through cash, founder Elizabeth Holmes was apparently desperate to land a large investment from Walgreens—so desperate that she sent the drugstore’s executives two fake pharma reports, the jury in Holmes' criminal trial learned yesterday.

A few weeks ago, the court heard how Holmes had sent Walgreens executives a report that featured a prominently placed Pfizer logo. But Pfizer hadn’t authorized its use. Yesterday, the court heard that Holmes did it once more, sending reports that prominently featured the logo of Schering-Plough, the large pharmaceutical company that was acquired by Merck in 2009.

Constance Cullen was director of Schering-Plough’s bioanalytical lab in 2009 when her company tasked her with helping to evaluate medical diagnostic tests being developed by Theranos. The pharma company was interested in working with Theranos to develop custom diagnostic tests, and it had acquired two of the startup’s proprietary devices to see whether they lived up to their promise. Cullen and other Schering-Plough scientists evaluated three different tests, for which Theranos charged them $279,000 for test materials.

As part of the evaluation, Cullen and her colleagues met with Holmes and other Theranos employees at the company’s Palo Alto headquarters. The Schering-Plough scientists came prepared with technical questions but did not receive technical answers. “I was dissatisfied, quite honestly,” Cullen said. “There was insufficient technical detail for us to be able to evaluate the technology.”

“There were what I’d describe as cagey responses or attempts to redirect to other topics of discussion,” she added. Cullen said that, though there were other Theranos employees in the meeting, Holmes did nearly all of the talking. “Almost exclusively Ms. Holmes was the one answering the questions irrespective of to whom the questions were being asked,” she said.

Advertisement

Theranos later sent Cullen a report that said Theranos’ technology “has been shown to give accurate and precise results.” Cullen told the court that she had not discussed that statement with Theranos, nor did she agree with it.

In the spring of 2010, though, Holmes sent that report to Walgreens executives with some small but significant changes. The report now had the Schering-Plough logo at the top, and a key line had been tweaked. Now it said that Theranos’ diagnostic technology “has been shown to give more accurate and precise results”—note the addition of the word “more.” Cullen confirmed for the court that no one at her company approved that statement.

Missed revenue projections

Cullen’s testimony followed the defense’s cross-examination of Lisa Peterson, who led private-equity investments for the DeVos family office. In his questioning, Holmes’ attorney Lance Wade made the case that Peterson and the DeVos family were sophisticated investors. He showed the jury that the family office signed a document acknowledging that Theranos was a relatively new company and confirmed that Peterson knew that the startup was “highly speculative and involves substantial risks.”

In redirect, assistant US attorney Robert Leach raised the issue of Theranos’ rosy financial projections, which the company gave to Peterson in late 2014. The startup had forecast $140 million in revenue in 2014 and $990 million in 2015. Peterson said that if Theranos had made one-third what it had predicted for 2015, she would have been pleased since it would show signs of progress. In reality, the company made nothing in 2014 and under $500,000 in 2015. Had she expected that revenue would be zero in 2014? “No,” Peterson said.

“What they were telling us wasn’t true,” she said. (Wade later objected, pointing out that Theranos had “deferred revenue” of $169 million that year.)

Peterson also said that the DeVos family investment relied on a few documents and claims, one of which was the Theranos report featuring the unauthorized Pfizer logo, which Holmes had emailed to investors. 

“There’s a couple things that we really relied on,” Peterson said, “and one of the biggest things was that third-party pharmaceutical companies and the government were using the analyzer in the field.”