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Theranos device failed pharma evaluation, while lab director cleared it for seven tests

Theranos founder Elizabeth Holmes.
Enlarge / Theranos founder Elizabeth Holmes.

A scientist who worked at a Theranos partner said that her company did not “comprehensively validate” the diagnostic startup’s proprietary devices, undermining a claim that founder Elizabeth Holmes allegedly made to investors.

Victoria Sung had been tasked with evaluating Theranos’ Edison device for her employer, Celgene, which had a small contract with the startup. What she saw suggested that the device was not ready for use with patients.

Initially, Celgene and another pharmaceutical company, GlaxoSmithKline, were intrigued by the promise of Theranos’ devices. QPS, the gold-standard of diagnostic testing, needs 2 ml of blood. But Theranos promised to do it with 0.25 ml, and the company claimed it was able to get good results with whole blood, which Sung described as “very nice.” The problem was, just over 14 percent of Theranos samples failed to produce usable results compared with less than 2 percent for QPS. Was that good or bad, the prosecution asked her? “Bad,” Sung replied.

Those results, along with other data, did not constitute a comprehensive look at Theranos’ device, she said. “Did you ever validate Theranos’ technology?” US Attorney Robert Leach asked her. “No,” she said. Still, what Sung did see told her that Theranos’ devices still needed work.

Sung emailed Holmes and other Theranos executives telling them that Celgene would wait for the next version of the Edison device. “We had decided we would rather stick with the less variability in the results,” Sung told the court. She said that was the last time she worked with Theranos.

Lab director cross-examination continues

Sung was the second witness called in yesterday’s installment of the Holmes’ criminal trial, in which the startup founder is facing 10 counts of wire fraud and two counts of conspiracy to commit wire fraud. The first witness was Dr. Adam Rosendorff, who continued in his third day of testimony to the court. 

In cross-examination by defense attorney Lance Wade, Rosendorff confirmed that, despite broader reservations, he had signed off on validation reports for the Edison devices for seven tests. “You would not have kept signing the validation reports for the Edison if you thought the Edison device was inherently unreliable?” Wade asked. “I would not,” Rosendorff said.

Rosendorff also said that Holmes and Balwani were upset when an inspection revealed “minor deficiencies” in a Theranos lab. Before that inspection, Holmes had instructed employees to set a path for auditors to “avoid areas that cannot be accessed.” Balwani had told employees working in the lab containing the Edison devices to not enter or exit while inspectors were on site. Rosendorff said he didn’t recall seeing some emails on the chain and that he wouldn’t have actively concealed the lab from inspectors. He did confirm for Wade that in a typical lab inspection, employees don’t volunteer information to inspectors but instead wait to be asked questions.

In anticipation of another inspection, a Theranos employee told Holmes that they covered bulletin boards “from the lobby to HR” with paper “so the inspector could not view any of the drawings or items on the boards.” Wade asked Rosendorff if that was to protect trade secrets, and Rosendorff in turn asked him who would pin trade secrets to a bulletin board.

Some emails also reveal that Rosendorff wasn’t always quick to air his concerns. On November 11, 2013, Rosendorff emailed Balwani with problems that needed addressing in advance of the important Walgreens launch in Arizona. Balwani replied, “As we know, we take these issues with seriousness. Why didn’t you raise these before to me when I was asking for any issues for months?” Rosendorff wrote back, “My apologies for the late feedback regarding our readiness …”

Personalities revealed

The ensuing exchange led to Rosendorff bickering with Wade about salaries, a back and forth that apparently led to chuckles in the courtroom. Rosendorff said that he was concerned with the results of quality-control tests. Wade countered, “That’s why you get paid the big bucks.” Rosendorff apparently wasn’t amused: “Not as big bucks as you get paid.” Cue laughter.

Rosendorff was paid $240,000 while at Theranos, and The Wall Street Journal notes that partners at Wade’s law firm, Williams & Connolly LLP, made an average of about $1.5 million last year. Rosendorff mused in court that his salary, while comparable with other lab directors in the San Francisco Bay Area, wasn’t enough given the headaches he dealt with at work and subsequent legal expenses. “I think I should have been paid much, much more,” he said. Judge Edward Davila struck that comment from the record.

Out of court, CNBC has obtained a series of notes written by Holmes to herself during her time running Theranos. Many are related to running a startup, and others show her close study of Steve Jobs, her self-proclaimed idol. But one stands out for its apparent reference to Bernie Madoff, the financier whose Ponzi scheme allowed him to steal billions from investors. Holmes wrote: “Really smart people picked off mado Not you.”

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