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The Elizabeth Holmes Trial: Biotech Investor Describes Efforts to Vet Theranos


Theranos founder Elizabeth Holmes, left, with her mother, Noel Holmes, at federal court earlier this month.


David Paul Morris/Bloomberg News

SAN JOSE, Calif.—Investor

Brian Grossman

took the stand Tuesday in the criminal fraud trial of

Elizabeth Holmes

to tell jurors about his firm’s biotechnology expertise and the due diligence it undertook before investing $96 million in Theranos Inc., a contrast to other investors who said they took Ms. Holmes’s promises about the startup’s technology at face value.

Mr. Grossman recounted how he and others from his San Francisco-based hedge fund, PFM Health Sciences LP, drove to meet Ms. Holmes for the first time at Theranos headquarters in Palo Alto in December 2013. He testified that he was impressed by what they heard that day, including that Theranos’s blood-testing devices were being actively used by the military, that the company could run any major blood test on its devices and that it had partnerships with major pharmaceutical companies.

Over that initial meeting, he said, he was given the impression that, “There really were no limitations to the technology.”

Jurors have heard other investors recount similar claims by Theranos during the 11 weeks of trial, as well as evidence showing Theranos never used its tests to assist active-duty soldiers and that it had only limited contracts with pharmaceutical companies in its early years.

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Mr. Grossman’s testimony comes as prosecutors wind down their case against Ms. Holmes, whom as company founder they have charged in a 12-count indictment with lying about Theranos’s finger-stick blood testing capabilities to investors and patients.

An analyst and investor with two decades of experience in the biotechnology sector, Mr. Grossman said Theranos seemed capable of completely changing healthcare. If results could come back within hours, as he was told, that could reduce the need for multiple medical appointments, he said.

Before investing, Mr. Grossman sent Theranos a pages-long list of questions broken into seven categories, including probing the company’s technology, its partnership with pharmacy chain

Walgreens Boots Alliance Inc.,

the regulatory landscape and financial projections.

Mr. Grossman testified that he and his colleagues had so many questions because, “We wanted to be crystal clear about what the technology capabilities were.” He asked the same questions in multiple ways, he said, to make sure they got the full picture.

PFM had a follow-up meeting with Ms. Holmes and the company’s No. 2 executive, Ramesh “Sunny” Balwani. After some pushback from Mr. Balwani about intellectual property concerns, the group went on tours of Theranos’s blood-testing laboratory and the facility where it was manufacturing its proprietary devices.

The hedge fund was never told Theranos was actually using commercial analyzers to test many patients’ blood, Mr. Grossman repeatedly testified. Knowing the company was using third-party devices would have been a red flag and “raised a whole series of questions about what the technology was capable of doing,” he said.

Instead, Mr. Grossman said, he was told Theranos devices could run tests for 1,000 different diagnostic codes and match anything its competitors were doing.

PFM’s attempts to dig into Theranos’s claims hit some roadblocks, Mr. Grossman said, and they weren’t given access to all the information they requested. Mr. Balwani said he wouldn’t connect Mr. Grossman to anyone at Walgreens or at

UnitedHealth Group Inc.’s

insurance arm, UnitedHealthcare, with which Theranos said it had a partnership. In both instances, Mr. Balwani said the company was uncomfortable in that it would make Theranos look bad to have an investor asking questions of others, Mr. Grossman testified.

Mr. Grossman said his firm was very familiar with UnitedHealthcare and thought it was one of the nation’s most sophisticated health insurance companies, so hearing its view on the blood-testing technology would have been valuable.

Other elements of the diligence also gave him pause, Mr. Grossman said, including a requirement that PFM members sign confidentiality agreements during their visit to Theranos’s headquarters. Mr. Grossman also went to get his blood drawn at a Theranos center in a Walgreens pharmacy and had his blood drawn from an arm vein, not with a finger stick.

Even with the gaps in answers, PFM decided to invest $96 million in Theranos. One of its investments underpins a wire-fraud count in the indictment.

On the heels of The Wall Street Journal’s reporting in 2015 on Theranos’s problems with its technology, PFM hired a private investigator to look into the claims, according to people with knowledge of the matter, and sued Theranos in 2016. PFM reached a $43 million settlement with the company that didn’t include any admission of wrongdoing, the Journal reported at the time.

Jurors didn’t hear about the lawsuit during Mr. Grossman’s testimony.

Write to Sara Randazzo at

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