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Elizabeth Holmes Day 2⧸3 FULL Deposition 2017 — Transcript

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0:07we excuse me we are on the record at the
0:10beginning of media number one volume two
0:12my name is contracted by Han and
0:16bowersock please begin
0:21at 4 00 am on July 13 2017.
0:25I'm Jessica Chan and with me are Rahul
0:27kalakar Monique Winkler Michael Foley
0:31Jason habermeyer and not yet with us is
0:35Mark Katz but we are officers of the
0:38commission for the purposes of this
0:39proceeding
0:41we are today resuming the examination of
0:43Elizabeth Holmes which was adjourned on
0:45July 11 2017 would Council please
0:48identify themselves
0:50Stephen Neal Cooley LLP on behalf of
0:54Elizabeth Holmes John Dwyer also Cooley
0:58David Taylor of theranos on behalf of
1:00the fairness Chris Davies from Walmart
1:01Bill mclinkus Wilmer Ali Liebert Cooley
1:08testimony today is pursuant to a
1:10commission subpoena which has previously
1:12been marked as exhibit 191. Ms Halls do
1:16you understand that you remain under
1:17oath I do let the record reflect that a
1:20copy of the formal order of
1:21Investigations matter as supplemented
1:24will be available for examination during
1:26the course of this proceeding
1:28so before we get started
1:30um
1:31I wanted to give to you what was
1:34previously marked as during its exhibits
1:37191 to
1:41200.
1:58let's give these all to you
2:01if you could just take a quick look and
2:03just let me know if
2:05you recall that we went through these
2:07exhibits earlier in your testimony on
2:10Tuesday
2:16just for the benefit Council we just
2:17have to remark because of that number
2:18here so
2:20good thank you
2:41foreign
3:02do those exhibits look right to you
3:05I I think so okay
3:08thank you so as Mr colic hard just
3:11explained there was a numbering issue in
3:13our exhibits so we do need to remark
3:15these specifics so I'm just going to do
3:17this you need to remark each of them yes
3:19just uh the first ten so
3:23um let the records show that I am
3:25marking what was previously marked as
3:28there is exhibit 191 as in the exhibit
3:31209 and that back to you
3:37and I'm marking what was previously
3:39marked as during this exhibit 192 as
3:42an exhibit 210.
3:48I'm marking what was previously marked
3:51as exhibit 193 as 211.
3:57I'm marking what was previously marked
3:59as exhibit 194 as exhibit 212.
4:05I'm marking what was previously marked
4:07as their next exhibit 195 as exhibit
4:10213.
4:15marketing uh what was previously marked
4:17as during this exhibit 196 as exhibit
4:21214.
4:25and marking it was previously marked as
4:27their next exhibit 197 as
4:30exit at 215
4:35and marking what was previously marked
4:37as exhibit 198 as exhibit to 16. excuse
4:42me
4:44I'm marking what was previously marked
4:45as fairness exhibit 199 as exhibit 217.
4:58and I'm marking what was previously
5:00marked as theirness exhibit 200 as
5:03exited to 18.
5:11and then
5:13um just to take back exhibit
5:19this is when you exhibit uh 209 Ms
5:23Holmes do you understand that you were
5:25appearing here today pursuant to
5:27commission centina which is now
5:28thereiness exhibit 209 I do thank you
5:32council do you have any questions
5:35all right so these will be here just in
5:37case we need to go back
5:40get off work thank you
5:43so when we left off on Tuesday we were
5:47talking about theridosis relationship
5:49with Walgreens do you recall that I do
5:51okay
5:52[Applause]
6:17I'm handing to you what was has been
6:19previously marked as the earnest is it
6:21at 50.
6:23foreign
6:2650 reports to be a June 25th 2012 email
6:31from and with a copy of his subject line
6:33is meeting with starting dates number
6:35wag-t-h-0002493
6:41and there are
6:45a number of attachments
6:47um the first attachment it has Babe's
6:50number ending two four nine four the
6:53second attachment
6:56has Base number ending 2499
6:59and the third attachment has Base number
7:01ending
7:03two five zero zero have you seen exhibit
7:05218 before I'm sorry have you seen
7:08exhibit 250 before
7:12um
7:15I I don't think the email
7:18I recognize
7:21one of the attachments as our clear
7:23certificate which I've seen before I'm
7:25not sure about the meeting minutes in
7:28this list of CPT codes
7:33so if you
7:34foreign
7:36to the email
7:40on 2493 it's an email friend do you
7:43understand what his role is at Walgreens
7:46generally yes what was his role
7:49um it began I believe as part of it and
7:52then I understand he got involved in
7:55medical Affairs and general Innovation
7:58initiatives for Walgreens
8:01and you were in discussions and was part
8:03of the Walgreens team that you were in
8:05discussions with pertaining to the their
8:08next Walgreens relationship right for a
8:10period of time yes okay
8:11so he it looks like he's sending some
8:14minutes from a meeting that took place
8:16Thursday and Friday
8:18and so if you turn to the first
8:21attachment these are the meeting minutes
8:24the attendees here appear to be
8:26Elizabeth and sunny so did you attend
8:29this meeting on June
8:32June 22nd and June 23rd of 2012.
8:36I don't remember it but I don't have
8:38reason to doubt the the document okay
8:40and if you would turn to 2495 which is
8:44the second page of the attachment
8:47you'll see in the middle of the page
8:50the second bullet point sends contract
8:52terms and timing
8:55and then there are four diligence items
8:57in 30 days do you see that
8:59they do one of those items is the test
9:03many theranos will provide Walgreens
9:05with a copy of the test menu
9:07incorporated as schedule J and
9:09operations manual at the fairness
9:12trained Walgreens technician will
9:14utilize during the PSC do you understand
9:16PSC to the patient service center I do
9:19okay and then it goes on to say they
9:21gave us a clean copy of the test menu
9:23and a hazard estimates approximately 600
9:25tests so if you then turn to the last
9:28attachment
9:30appears to be a test menu
9:37[Applause]
9:39do you see that do you recognize this
9:41Tasmanian
9:43I I generally recognize that we had
9:46files that were like this with CPT codes
9:49I don't
9:50know necessarily this one specifically
9:52and
9:53but we I've seen documents like this
9:55before did you give this testimony to
9:58the Walgreens team during that meeting
9:59or after that meeting
10:01I don't know
10:03do you know if Sonny balwani gave this
10:05test menu to the team after that meeting
10:07or during the meeting I I don't I
10:09wouldn't be surprised if we did but I
10:12don't know for sure
10:14um
10:15so they're there's appear to be pages
10:17and pages of tests here
10:21could fairness is tsp perform all of
10:24these tests at this time in June 2012.
10:31so I think there's two parts to that
10:33which we were talking a little bit about
10:35in our the day before yesterday the
10:38first is
10:40the architecture of the system and we
10:43were very focused on capability in terms
10:46of
10:47the device itself or the platform with
10:50our small sample methods being able to
10:53perform this range of tests there were
10:57additionally a number of these for which
10:59we had already developed assay
11:02development and validation reports which
11:04I can recognize on this list
11:08see so your testimony is that theranos
11:11had developed all of these tests or at
11:14least assay development are all these
11:17tests were an assay development phase at
11:19this time in June 2012. I don't know if
11:22all of them were I know that at least a
11:24subset of them were or had development
11:28reports associated with them at that
11:30time did you tell her any of the
11:32attendees at this meeting that that was
11:34the case that all of these tests were
11:36actually an assay development mode and
11:37had not actually been transferred to the
11:39tspu yet
11:41I I don't know I also note that this is
11:44now in the time of the clinical lab and
11:47based on the email you just showed me I
11:48think we were talking at that point
11:50about the lab being able to handle a
11:53whole set of tests so I I don't know
11:55that we were even specifically talking
11:57about all of these being on finger stick
12:00okay
12:07okay do you did you participate in a
12:09series of meetings in the summer and
12:11fall of 2013 to advance the Walgreens
12:13relationship
12:15I don't I can't sit here now and
12:18remember specific meetings but I'm sure
12:19I was you know at a high level engaged
12:21with Walgreens leadership during that
12:24time
12:27in the summer and fall of 2013 would
12:30that have been around the time that
12:32theranos had developed or modified its
12:35commercially available machines in order
12:36to test smaller samples
12:40so my understanding is what was the time
12:42again summer and fall of 2013. my
12:45understanding is that in the fall yeah
12:49in that period is when we we implemented
12:51our small sample volume chemistries on
12:54those platforms okay do you remember
12:56when that was what month in 2013 I don't
13:00um if I told you it was around uh in
13:03sometime in July of 2013 with that scene
13:05about right teeth
13:07I'm not sure I my memory is that the
13:10first ldts were coming up in the lab
13:12later very very close to launch but it's
13:15possible that there was work toward it
13:17ongoing at July okay
13:21yeah
13:22during sorry when do you remember the
13:25ldts coming online
13:27my memory is that it was right before we
13:30actually began serving patients that
13:33many of those validation reports were
13:35right before the first patients were
13:37coming in
13:41did you discuss
13:44the three put issues that you described
13:46earlier in your testimony during those
13:48meetings and summer and fall of 2013.
13:52my memory is that at the time we
13:55invented the nanotainer at that time we
13:58discussed the invention of the
14:00nanotainer
14:01and its ability to work with what we
14:05talked about is high throughput testing
14:06methods for our small sample assays in
14:10phase one and then focus on the device
14:13in phase two
14:15so you developed the nanotainer in order
14:17to be used with the modified protocols
14:20on the commercially available platforms
14:24I don't know if we knew exactly at the
14:26time we developed the nanotainer what
14:28Hardware the test would run on but the
14:30concept was that then a lot of samples
14:33could be collected from a lot of
14:35different locations and sent to one
14:37place to all be run at the same time in
14:39in a high volume type of way but it
14:43sounds like you recall having developed
14:45the nanotainer around the same time that
14:47fairness was looking into potentially
14:49modifying these commercially available
14:50machines is that right no I think the
14:53nanotainer development happened much
14:55earlier when we shifted our business
14:57model with Walgreens from being focused
14:59on the tsp at the store to being focused
15:02on a phase one phase two type
15:05relationship that started with
15:07centralized Labs okay so so when did you
15:10develop the nanotanner yeah we were
15:13talking about this the day before
15:14yesterday I don't know specifically
15:16um I believe that it would have been
15:19around the time or shortly after the
15:24initial CLIA certification as a
15:27centralized lab but I I don't know okay
15:30so I asked you a question about whether
15:31you discussed the throughput issues that
15:33you'd testify to earlier with Walgreens
15:35did you discuss those issues with them
15:38my memory is that I talked about it in
15:42the context of the nanotainer invention
15:43prior to 2013 and that the nanotanner
15:47model would facilitate testing in a high
15:51volume way in a centralized lab and we
15:54then later picked what Hardware
15:55platforms to implement our chemistries
15:57on okay but did you actually talk to
16:00them about some of the issues you're
16:02experiencing with the fact that the tsp
16:04at that time could not conduct the same
16:06number of tests that you would need to
16:08conduct in order to receive a number of
16:10samples from LA from patient service
16:12centers
16:14did you discuss that point with them the
16:16the tsp could only handle one sample at
16:19a time yes
16:20um
16:22I'm not sure I I can't remember a
16:25specific conversation I don't know
16:27did you ever discuss with them the fact
16:29that theranos was in the process or had
16:31developed a solution to this throughput
16:34problem or the the fact that the tspu
16:36could only
16:37perform testing on one sample at a time
16:41my understanding that part of our
16:44ongoing Communications with them were
16:46around the fact that we were developing
16:48capacity to be able to handle large
16:50sample large numbers of samples at a
16:53time I don't know what details were
16:55discussed in that context
16:57how did you gain that understanding
16:59I have memory that one of the metrics
17:02that they were looking at for moving
17:04beyond what they had initially referred
17:06to as a pilot stage was our throughput
17:09capability how many samples we could
17:11handle in our labs and
17:14um
17:14and I know that that was important to
17:16them
17:18but you don't know I guess if I
17:20understand your testimony you don't know
17:21whether
17:23you know the theranos team communicating
17:24more directly with Walgreens
17:27disclosed theranos's solution to the
17:29throughput issue I don't
17:32so you also don't know whether you or
17:35anyone else at theranos would have
17:37disclosed to Walgreens that theranos was
17:39using
17:40commercially available machines and
17:43modifying the protocols on them
17:45I don't I mean we we generally
17:47considered that implementation of our
17:50chemistries to be trade secret and we'd
17:52filed non-public patent applications on
17:55certain parts of it and so I I wouldn't
17:58expect that we would have gotten into
17:59detail on that I thought that we had
18:03talked about it as ways we could
18:05Implement our chemistries in high
18:07throughput fashion in the lab I I don't
18:10know the extent to which anything
18:12further than that was discussed with
18:13them but why wouldn't you tell Walgreens
18:15I mean Walgreens was fairness's most
18:19important business partner at the time
18:20don't you think that Wolverines would
18:21have wanted to know what device you were
18:23using to process these samples
18:26it was my understanding that they were
18:28very interested in the tspu for phase
18:30two I am not aware that they were very
18:34focused on what Hardware that we were
18:36using in Phase One at that time we
18:40talked to them in general about how we
18:42were operating our Labs but
18:44um they were not they were not specific
18:46conversations that I'm aware of of what
18:48the hardware platform was in Phase One
18:49But at the time that you were marketing
18:51thereiness's technology to Walgreens in
18:542010 yeah weren't the two parties
18:57envisioning that the tspu would be
18:59running the tests
19:00in the stores yes and and we were
19:03through 2015 when we got our first FDA
19:07clearance on the tsp our our thought
19:09even going into that year was that we
19:10were going to start putting those tspus
19:12in the store that was the the hardware
19:14Focus right whole grains so why wouldn't
19:16it be important though to let them know
19:18just so you know the tsp is not going to
19:21be the device that's going to be
19:22performing most of the tests it's
19:23actually going to be this modified
19:24commercially available machine
19:27again my understanding is that we
19:29conveyed to them when we invented the
19:31nanotanner that we would be shifting to
19:33a model in which phase one was the
19:35nanotainer and the chemistries small
19:37sample chemistries and phase two would
19:39be the tspu we then also began adding
19:43commercial equipment for doing
19:45traditional venipuncture testing and
19:47it's my understanding they were aware
19:49that the lab in phase one was doing a
19:52lot of different things to be able to
19:54accommodate the business model of phase
19:56one which was foot traffic and low-cost
19:58testing and a better patient experience
20:01including small samples
20:04so you said a couple things I just want
20:06to follow up on the um you mentioned
20:07that it was your understanding that they
20:09understood
20:10phase one was about implementing
20:11theranos chemistries did you ever use
20:14that language with them implementing
20:15theranos chemistries in connection with
20:17phase one I think so what was the
20:19context
20:21my memory is the first time is when we
20:24were talking about how to change the
20:25business model and the creation of the
20:29idea of phase one and phase two and at
20:31that time
20:32as we discussed in our prior meeting the
20:35purpose of the nanotainer was to be able
20:37to run a lot of samples at the same time
20:39and so the point we were trying to make
20:42is if the value to the patient is that
20:44they get their collection on a finger
20:46stick they don't care whether it's
20:48processed on a device at the store or in
20:51a high throughput way in the lab and so
20:53we could develop this nanotainer product
20:55to allow the samples to be processed in
20:58a high throughput way and then use the
21:00device in phase two in the lab and and I
21:03believe that was what generally led to
21:05the establishment of phase one and phase
21:08two
21:09do you recall anyone at Walgreens that
21:11you use that language with
21:13so I I thought that all of the
21:16conversations around the invention of
21:17the nanotainer
21:19this was part of that discussion I I
21:21don't know who specifically was in those
21:23meetings because it was many years ago
21:26but I I believe that that was generally
21:29how we describe the phase one phase two
21:32model to Walgreens and to others
21:34you also answered earlier question
21:36describes sort of the the architecture
21:39of the four series mini lab as something
21:43that was capable of Performing that
21:45that test menu we just looked at yes did
21:49you ever use that language the
21:50architecture of the tspu or the mini lab
21:53in connection with any discussions with
21:55Walgreens
21:58um I don't know if I use that word I
22:00know that part of the Hopkins visit was
22:04as I understood it essentially
22:05evaluating that because they were
22:08looking at is this truly differentiated
22:10from other point of care technology
22:13and whether the word robotics or
22:16architecture or some other word was used
22:18that was I I believe what they saw as
22:22differentiating theranos and why
22:24Walgreens was interested in partnering
22:26with us
22:28so just so I understand that you you
22:29understood hopkins's valuation
22:31evaluation to focus on the whether it's
22:34we call the architecture of the robotics
22:36whatever the the the the mechanism of
22:39the point of care device as as the focus
22:42of their evaluation it's not fair I'm
22:45sure there were other things and I know
22:46Walgreens had multiple interactions with
22:49them my understanding was that one of
22:52the things they were particularly
22:53focused on was is this a platform that
22:57is capable of running any combination of
23:00tests in so many words given the way
23:03it's designed
23:04essentially
23:08do you recall performing demonstrations
23:11for a number of Walgreens Executives
23:13during this time frame summer to fall of
23:162013.
23:18I I don't have specific memory of them
23:21but I'm sure there were multiple
23:23interactions I know I mentioned that we
23:25we sent to tspu to Walgreens in Chicago
23:27for them to use at their facility as
23:30well I don't know if that was in 2013 or
23:33at a different period of time do you
23:35recall
23:36conducting these technology
23:38demonstrations in theranos's office
23:40during this time frame
23:42I again I don't have memory of specific
23:44demonstrations during that time but you
23:47do recall that there were demonstrations
23:49that were done for Walgreens correct
23:52I I don't recall specific ones I I know
23:55that Walgreens is a partner for whom we
23:58would have done demonstrations what did
24:00what was your understanding as to the
24:02purpose of those demonstrations
24:05I think as we were discussing before it
24:07varied based on the audience that was
24:09there and what they were interested in
24:11seeing I I know at certain periods of
24:13time they were interested in seeing the
24:15software we were working to build at
24:17other instances like with the tspu they
24:20were interested in seeing the tspu over
24:23time a lot of the focus became
24:25understanding the retail operation
24:27itself what collection would be like in
24:30store what the experience would be like
24:32in store and trying to replicate that
24:35wasn't uh part of the reason why they
24:38wanted to see a technology demonstration
24:40also because they wanted to just see for
24:42themselves that fairness technology
24:44worked and it could perform the blood
24:46test that theranos said it could
24:49I I don't know
24:52you don't know that Walgreens would have
24:54wanted to know whether or not your
24:56technology worked I know that that's why
24:59they had us go to Hopkins and they had
25:01Hopkins look at it and and I believe
25:03look at a number of different inputs
25:05that Walgreens was getting
25:07um on due diligence on therano site I
25:09don't I don't know what they were
25:10thinking when they they came to our site
25:12in terms of
25:14um what they were looking for in a
25:16specific instance
25:18so uh
25:19in the in the
25:22um I guess in the summer fall 2013 time
25:24frame yeah if the focus of if is it fair
25:27to say that the focus from fairness
25:29aside was on phase one with respect to
25:30Walgreens at that time yes
25:33um
25:34would there be any reason to to send
25:36Walgreens a tspu in in 2013 if if that
25:40wasn't part of phase one and not the
25:42current focus on on theranos aside
25:45so again I don't know if it was in 2013
25:47it may have been before then but as I
25:50look back on that time frame what's
25:52really important to remember is we
25:53really believed that we were going to
25:55get a large number of tests into the FDA
25:58on the tspu and cleared and moved to
26:01phase two very quickly so yes we were
26:04operating in phase one but we thought
26:06phase two is the future of the business
26:08this is where we're going this is what
26:10you know we're going to do and we
26:13thought based on the assays that we had
26:15that we were really close to it
26:17I guess did you ever explain you know
26:20whenever the machine was sent to
26:22Walgreens that
26:24um
26:25that it was more relevant to the phase
26:27two context of the relationship
26:29I I understood it was explicit that this
26:32is for phase two you're gonna process a
26:34single patient sample at a time I'm
26:37and and
26:39my I thought that had been conveyed well
26:42at that time you thought you
26:45do you think you had convey that well to
26:47Walgreens at the time
26:51so I I was only in meetings with some of
26:54their higher level decision makers I I
26:57understood from those meetings that at
27:00least I thought I had conveyed that the
27:01tspu was for phase two yes
27:04um I I know now that there's been a lot
27:07of confusion about this and I've tried
27:09to spend a lot of time thinking about
27:11you know how how could we have done this
27:12better but at those times I I thought I
27:16thought that was understood
27:19during phase two with
27:22was there going to be a Slowdown in the
27:24throughput of tests
27:28question I don't know
27:30um I think part of the concept was that
27:33I'm
27:34there would be specific
27:38I I
27:40don't I think
27:41I think we thought that
27:43if you were trying to get 10 patients A
27:45day in the store that was the Target
27:47that you would be able to handle 10
27:50patients A day in the store on the mini
27:51lab
27:52um there would be potential issues if a
27:54lot of them came at the same time but I
27:56don't think we ever thought that there
27:58was necessarily going to be a Slowdown
28:00was 10 patients a day you're targeted in
28:03the 2013-2014 time period for the
28:06it's the number that I had in my head is
28:09when we started out what they thought
28:11would be a success I I know certainly
28:14over time and as we moved toward more of
28:17a venipuncture models for phase one
28:21um that we started thinking you know how
28:24high can we get this number
28:25I guess when did that in your mind shift
28:28when you started thinking more about it
28:30being a puncture model
28:32I I don't know specifically I believe it
28:35was toured
28:37um
28:39either the end of 14 or early 15 but I
28:42could be wrong I'm speculating
28:44did you uh did you ever at any point
28:47communicate to Walgreens that you were I
28:49guess making this
28:51transition in your mind from uh thinking
28:54about the tsp to more of a vena puncture
28:56model for testing
28:58well again sorry if I didn't say this
29:00well it was my understanding that the
29:02tsp was always about phase two
29:05venipuncture was an alternative to
29:08nanotainer for phase one and
29:11I I believe that we did have
29:14conversations with Walgreens especially
29:16as we began discussing what we called a
29:19rental model with the service centers in
29:21the stores about the importance of
29:25venipuncture I know also when we moved
29:28to all theranos labor which as a startup
29:31that meant we were hiring hundreds of
29:33phlebotomists who were certified to draw
29:35blood that there was explicit discussion
29:37about venipuncture and in fact said to
29:40me at one point that maybe we could get
29:42the pharmacist to do the venipuncture
29:44because a lot of them had already been
29:45certified in doing venipuncture
29:47based on their Pharmacy training so so
29:50yes there was discussion about
29:51venipuncture
29:54sure I guess
29:55um but I I understood you earlier to say
29:57that you know sort of the value
29:58proposition earlier on was the finger
30:00you know the patient doesn't care about
30:02their experience if they go into the
30:03store and get the finger stick it
30:04doesn't matter what what device they get
30:06tested on right yes so I guess when did
30:08that consideration become I guess less
30:11important to you when analyzing the
30:14phase one Walgreens relationship
30:17um so again it's my understanding it was
30:18over time
30:20um I think
30:21um
30:23the ability to get a large number of
30:26people getting only finger stick
30:28depending on what the order was and so
30:32to get certain types of physician
30:34practices you needed insurance contracts
30:38because the insurance contract would
30:39allow the physician to send the patient
30:41to you and for the test menu we had
30:46to get those physician contracts we
30:49needed contracts with the insurance
30:50companies and the insurance companies
30:53essentially said what we care about is
30:55cost and an end-to-end menu so as we got
30:58more experience trying to get insurance
30:59contracts we understood that the most
31:02important thing in phase one was the
31:04test menu and the price and that in
31:07large part drove the move to Venom
31:09puncture
31:12so it's your testimony then today that
31:14Walgreens was aware that theranos was
31:16moving away from
31:19smaller samples and finger stick draws
31:22to venipuncture
31:25I I I can't sit here and say what
31:28Walgreens was aware of I can say what I
31:31thought we had communicated and I had
31:33communicated in the interactions that we
31:35had I thought that we'd communicated
31:39that you know first we were focused on
31:41small samples but that over time
31:44the real value to Walgreens was foot
31:46traffic and therefore venipuncture made
31:48sense
31:49I think they agreed with it based on the
31:52fact they've now partnered with LabCorp
31:54to do just that but I I don't know what
31:57they were aware of or not so you keep
31:59saying that you thought that you you
32:00would conveyed this to them do you think
32:03that you conveyed it or do you know that
32:04you conveyed it
32:06the conversations I mean this is many
32:08years ago and I I can't sit here and say
32:11I know within this meeting that I said
32:14this because I don't remember the
32:15meetings well enough but I I know
32:19what the purpose of the invention of the
32:21nanotainer was and then what the purpose
32:23of you know building for example a
32:26venipuncture based lab in Arizona was
32:29and I I really believe that Walgreens
32:31understood that at that time because we
32:35were changing our entire business model
32:37getting away from being a technology
32:39company for them and that's one of the
32:42areas in which we and I made a lot of
32:44mistakes was in doing that and it was
32:46because we were trying to make that
32:47partnership successful okay so you don't
32:50know whether you did convey that to
32:52Walgreens then I I can't sit here and
32:54recall specific conversations and
32:56specific words
32:59so you just mentioned something that I
33:01think you know is interesting to me the
33:03the um this idea that you know once once
33:06it became clear to you through the
33:07insurance contracts and and working with
33:09doctors offices that um
33:11that getting the full menu was important
33:15at that point in time essentially
33:18your company is just turning into a lab
33:20services company is that is that fair
33:23yes it is and it moved away from its
33:26model of of sort of the the drop of
33:28droplets of blood being a differentiator
33:31right
33:32in some ways again all the time we were
33:35working toward getting the tspu into the
33:37FDA and cleared for phase two right so
33:40phase one is you're trying to get market
33:41share it essentially create a channel
33:43and then come in with this technology in
33:46phase two sure I I guess I understand
33:48that but it seems like at that point in
33:50time the
33:52phase one and phase two are somewhat on
33:54Divergent paths I mean you're trying to
33:56gain market share but with the
33:57technology that is pretty different from
33:59from what you're considering in phase
34:01two in your mind what was your how are
34:04we going to bridge that Gap yeah so if
34:06you look at our mission as a company
34:08it's access to health information so
34:12access to us what we began to understand
34:13if you look at a lot of the customer
34:15feedback it was about cost people
34:17couldn't afford lab testing and we were
34:19offering low-cost lab testing and so
34:22cost convenience and the experience that
34:25was all part of what we were building in
34:27phase one
34:28still with venipuncture we were trying
34:30to do smaller samples we were using
34:32butterfly needles we were trying to
34:34invest in technology which I can talk
34:36about if it's relevant to make that
34:38total draw Still smaller and then as
34:42fast as we could get to phase two four
34:44finger stick and even smaller turnaround
34:46time ultimately was was our plan
34:52was your company making any money
34:54offering low-cost lab testing
34:57so at the volumes we were at no it was
35:01my understanding that we believed we
35:03could if we hit volume and we thought
35:05that the retail footprint and some of
35:07what we were doing on changing the law
35:08to allow consumers to order tests would
35:12create that volume but we never got to
35:14that point
35:17and so it was a decision on you know how
35:20to price theranos tests in a Walgreens
35:22purely based on capturing market share
35:27so at a high level it was going back to
35:29my example of the four dollar lab test
35:31right we we wanted to provide a
35:34technology business model in lab testing
35:37so we we believed that we would
35:38ultimately be able to make money but we
35:41tried to figure out is what is the
35:42lowest price that we could possibly
35:44charge so that we're still breaking even
35:46or getting a little bit of profit
35:48but changing access for people so it's
35:52kind of like Walmart versus Neiman
35:55Marcus in terms of the the pricing in
35:56the business model right
35:59Walmart is high volumes really low
36:01margin
36:04so going back to the demonstrations then
36:08um
36:09did you instruct anyone at theranis to
36:12to move mini lab devices or the tspu
36:16into the CLIA Lab in order to
36:20uh because you were preparing for a tour
36:22or a technology demonstration do you
36:25recall ever doing that
36:27move them into the clear lab yes I don't
36:30recall doing that I mean there were
36:32tspus in the Clio lab running some tests
36:35as we've discussed okay so you don't
36:37recall ever moving more devices into the
36:40CLIA lab for that purpose
36:43I don't
36:45I don't think so I mean I can't sit here
36:47and say that we never did but I can't
36:49sit here and recall a specific instance
36:51um
36:55I I don't I don't think so but I don't
36:58know
36:59do you recall a meeting that you had
37:00with Walgreens Executives in July 2013
37:04in which you conducted a technology
37:06demonstration
37:08I don't I don't remember
37:17let's watch against the document will
37:18there be any reason to move mini lab
37:21devices uh into either the CLIA lab or
37:24the r d lab for the purposes of a tour
37:28I mean I remember we were always really
37:30focused on protecting sort of areas
37:32where we had open devices or things we
37:34thought were trade secret so it's
37:36possible that we decided okay we're
37:38going to bring people to one place so
37:40anything we want to talk about put there
37:41I I don't have specific memory of
37:45specific instances and can try to talk
37:46about any specific instances that you
37:48want to talk about
37:50okay so I'm handing to you what's been
37:52marked as fairness visited 219.
37:57exhibit 219 reports to be a July 12 2013
38:02email from with a copy to you Elizabeth
38:05Holmes
38:07the subject line is re-demo results for
38:107 11 and the starting dates number is
38:13thp FM zero zero zero zero zero six four
38:17six one three
38:19and there are two attachments the first
38:21has a starting base number
38:23six four six one eight and the second
38:28has frame dates number six four six two
38:30zero
38:33have you seen exhibit 219 before
38:39I I don't recognize it but I don't have
38:41any reason to delt this email
38:43what is exhibit 219
38:52. it appears to be an exchange about
38:54demo results
38:56did you receive and review exhibit 219
38:59on or about July 12 2013.
39:02I I don't know
39:05if you turn to
39:07the last page or the second to last page
39:10in the email
39:11which is the first email in the chain
39:14you'll see there's an email from who's
39:15writing to you and do you see that I do
39:18and he says hi Elizabeth attached please
39:20find the six Dental reports for today
39:22all out of range values are in red font
39:25and then he goes on to say please note
39:27the following creatine has been removed
39:29for all reports as per a suggestion do
39:31you see that
39:33yes then he goes on to say vitamin D has
39:36been removed for all male Health panels
39:38as per suggestion do you see that
39:42I do because I want to say tt4 and tt3
39:45has been removed for all thyroid panels
39:47as prude suggestion do you see that I do
39:49and then she goes on to write ft4 has
39:52also been removed from the thyroid panel
39:54in F2
39:56do you see that I do
40:00did you understand this to mean that was
40:02removing certain results from test
40:04reports
40:08I I'm
40:13yes
40:14what was your understanding as to why he
40:16did this
40:19um well again the clinical lab had not
40:21gone live at this point so
40:23um
40:25I mean going back to my prior comment my
40:28understanding generally is if anyone who
40:30is reviewing the data had a concern
40:31about the data don't include it on the
40:33report and you said your understanding
40:36was that you shouldn't include it on the
40:38report where was that what was that
40:40understanding based on
40:43um
40:44my general understanding of the fact
40:47that if you have a result that you think
40:49might not be accurate it's not
40:52a good process to report the result
40:55so had the lab Gone live and you were
40:58conducting patient testing
41:00and a patient was coming to you and they
41:03were coming to you for Diagnostic
41:04testing and so their physician had
41:06ordered a number of tests including some
41:07of these like vitamin D and tt4 and tt3
41:10and you had some questions about the
41:13results that came out of those tests
41:16would it be appropriate for you to
41:18remove those tests from the report
41:19wouldn't the patient I mean the patient
41:22needs efforts for testing right why
41:24would you be removing results from
41:25reports
41:27so again I was not directly involved in
41:29this the laboratory director would make
41:31that decision based on whatever the
41:32right thing to do in the lab is he was
41:35the lab director at this time
41:37this is July 2018. I don't know
41:40um I don't know if head started or okay
41:43so you're not sure if he was the lab
41:45director but so who would have made that
41:47decision then to remove test results
41:50if not him again the lab wasn't live at
41:53this time so I I don't know that we had
41:55all those processes and nsops in place
41:57yet did you instruct and to remove
41:59results from test reports
42:02I I don't know if I specifically I told
42:06them to do that again it was my general
42:08understanding that if there was ever a
42:10concern about a result you wouldn't
42:11report it
42:12where did you gain that understanding
42:15from
42:16did somebody tell you that
42:18um I don't know I think it was just a
42:20basic process that we wanted to make
42:22sure the results we were reporting were
42:23correct and I I don't know for demos
42:27like this that I'm
42:30there were specific test orders even
42:32coming in I think I mean this was this
42:34was in an r d environment
42:37but if some of the results came back
42:38incorrect how did you know that the
42:40results that you did report were correct
42:42I I don't know I'm not a laboratorian I
42:46didn't oversee the labs I trusted my
42:48team to make those decisions so who here
42:51were you trusting to make that decision
42:53in this case it was reviewing the data I
42:55would defer to him on his interpretation
42:57of the data you're talking about yes and
42:59what were his qualifications to do that
43:02I'm again I speculated a little bit on
43:05what I thought his training was I'm not
43:06completely sure but my understanding was
43:08that he was qualified to become
43:10ultimately a lab director but at this
43:12point in time what was your
43:13understanding of his qualifications to
43:15make this determination
43:17um his background in statistics and data
43:19analysis
43:21background
43:22Institute data analysis yeah
43:24and you hired him for this position
43:26correct
43:27no we we heard him many years before as
43:30a scientist and then promoted him up
43:32within our organization over time so you
43:34promoted him to this position
43:36we promoted him into product development
43:39and ultimately Sunny decided to make him
43:42a lab director but here as we're looking
43:44July 2013 he was in the role to make
43:48this decision because of you correct
43:51I mean again I was the CEO of the
43:53company and so I you know
43:56um take responsibility for this company
43:59I did not in this role I did not
44:03directly oversee the labs but I I tried
44:06to pick people who I trusted to do this
44:09right and so who was overseeing at this
44:11time
44:13to the extent that he was engaged in
44:14anything in the clinical lab operations
44:16was the ultimate decision maker at the
44:19time he became clinical lab director I
44:21don't know when that was and Sonny was
44:24overseeing anything associated with
44:26operations in the laboratory but I don't
44:28see sunny or on this email
44:33why why didn't you include them on the
44:35email
44:36again I I
44:38it's July of 2013 I read this as a
44:41technology demo that was done in an r d
44:43setting and prior to the lab going live
44:48and I guess
44:51what's the difference what was the
44:52difference in your mind between the
44:54importance of results in an r d setting
44:55versus the Imports and results in a
44:57clear setting
44:59I understand the results to be important
45:01across the board
45:03um I believe there was a different
45:05process in place once the lab went live
45:07for how decisions like this were made
45:09and based on the authority and
45:12discretion of the lab director
45:15did you communicate any distinction for
45:17to the the Walgreens folks receiving
45:19these uh these demonstrations that
45:23that their house didn't have those Sops
45:26in place at this time
45:28I I don't know
45:30did you tell anyone that there knows to
45:32communicate that to these folks at
45:34Walgreens
45:36I I believe that Walgreens understand
45:38the lab wasn't ready to go live yet
45:40because we hadn't gone live and they
45:42were pushing us really hard to go live
45:43as soon as possible and so they
45:47certainly knew we weren't operational at
45:49that time I I don't know what else was
45:51discussed or what the circumstance of
45:52this demo or I mean frankly I don't even
45:55know if this was for Walgreens I I defer
45:57to you if you're saying it was
45:59well why don't you take a look at the
46:01attachments
46:03so the attachments include lab reports
46:06for and does that ring a bell to you do
46:09those two names sound familiar to you
46:13I generally recognize him I don't
46:15recognize I don't know
46:18you don't know whether he's a Walgreens
46:20executive or not
46:24I'm I'm not sure I I think so but I'm
46:28not sure
46:29so instead of removing the results
46:31entirely why didn't you just instruct
46:33and to just include the results but
46:36maybe
46:37either indicate that it's out of range
46:40or just indicate that they needed to
46:42redraw for those results why not go that
46:45route
46:46again I'm not a laboratorian
46:50we thought the right thing to do I I
46:52believe if there was a result it was
46:54incorrect was not share the value we
46:56thought that was
46:57that was not proper
46:59but you you must have known that
47:01Walgreens would want to know that all of
47:03the tests that they were that were being
47:05performed would be performed correctly
47:07so why why wouldn't you want to be as
47:10transparent as possible and let them
47:12know Ashley there were some issues with
47:14it looks like at least six results
47:18so
47:20what's your answer to that
47:22again I the lab was not even live at
47:25this point I don't think they came in
47:26with specific test orders I think that
47:28the team was
47:31picking tests to do and made the
47:33decision that if test results were wrong
47:35they shouldn't be reported I
47:37I don't know anything further than that
47:40but isn't another reason why you
47:43wouldn't want to include any indication
47:44that there were questions about the
47:47results that had you put something like
47:49an out of range result or you know needs
47:52redraw that that would raise questions
47:54with Walgreens
47:56I I mean I'm speculating but my guess is
47:59that the bigger issue would be that if
48:00you potentially communicated something
48:02that there might be a medical issue with
48:04someone and there actually wasn't
48:08you said this is for an aren't for r d
48:10purposes right yes so no one was going
48:13to be relying on the results of these
48:15tests anyway for
48:17medical treatment all right correct so I
48:20guess why in an r d setting would you
48:22apply the protocols that are used for
48:25clinical lab
48:27purposes we were trying to do the right
48:29thing we were trying to report results
48:32that we believed in and not report
48:34results if we thought there was any
48:35issue and if there was an issue we would
48:37need to understand why and I I believed
48:41that our team is trained to do the right
48:43thing
48:44is it fair to say that at this time
48:46theranos was trying to demonstrate to
48:49Walgreens that it was technologically
48:51capable of running tests in a lab
48:54setting
48:56I I
48:59don't know what the circumstances of
49:01this demo were so I would be speculating
49:03on that I I know that we were very
49:06focused on showcasing the finger stick
49:08experience on training their technicians
49:10on creating the front end we certainly
49:14had gone through the CLIA certification
49:15process and we're very focused on trying
49:17to put the right infrastructure in place
49:20from the CLIA perspective on an ongoing
49:23basis as we led up to launch sure I
49:26guess just more basically I mean if
49:29was it your understanding that if
49:31Walgreens
49:32didn't think that there was good run
49:35tests it wouldn't it wouldn't allow up
49:39their owners to open its doors
49:45I
49:46don't know we would be speculating I I
49:49know that
49:51um ultimately you know we ended up with
49:54a all Vino puncture model had that
49:57you know had we talked about doing that
49:59at this point I don't know what that
50:01conversation would have been I I was it
50:04important to you in the summer and fall
50:05of 2013 to demonstrate that theranos
50:08could perform clinical lab testing on
50:10blood samples of course absolutely
50:14and so when did theranos end up rolling
50:17its services out with Walgreens
50:20so I think the first patient in
50:23California was in October of 15 and the
50:27first one in Arizona was in November I'm
50:29sorry of 13 and the first one in Arizona
50:32was in November of 13. okay so at the
50:35time of this technology demonstration
50:37you're about three months away
50:40from going live in the patient setting
50:43did it concern you that a number of
50:45tests weren't working on fairness's
50:49devices
50:51I I know that we made mistakes in our
50:55clinical lab and
50:58I picked people who I trusted and
51:02believed in to do the right thing here I
51:04believed that as issues were raised we
51:07were looking into them doing root cause
51:08analysis and solving them I believed
51:11that when our lab director signed off on
51:14validation reports it meant that we were
51:16we were in good shape and I know that we
51:20made so many mistakes on this front but
51:22we were we were trying to take this
51:24forward and at that time
51:27thought that thought that we were doing
51:29the right thing do you know if any of
51:30these issues were ever resolved
51:33that
51:35the thoroughness device was unable to
51:36test for creatine and the vitamin D and
51:41tt4 and tt3
51:44and ft4
51:45do you know I believe
51:48that question I'm sorry do you know if
51:50any of those issues were finally
51:51resolved
51:53I I believe that at least a number of
51:55these were validated in the lab as ldts
51:58later yes on the tsbu
52:01I think so some of them which ones I
52:05think vitamin D was and I think some of
52:07the thyroid markers I don't know which
52:09one specifically
52:12so you'll see that
52:14um you know we looked at a couple of the
52:16reports that are attached to this email
52:17their reports
52:20and if you look in the
52:27uh if you look on 64613 which is the
52:30first page of the email it looks like
52:31getting ready to send these reports out
52:37did you ever tell that a number of the
52:40tests that were run on their blood
52:42samples were actually removed from the
52:44reports
52:46I I don't know
52:49again I don't remember interactions
52:51around this
52:56okay you can put that one aside
53:10I'm heading to you what's been
53:12previously marked
53:14as theirness exhibit 63.
53:21is it at 63
53:24it has a letter agreement dated December
53:2831st 2013.
53:31titled amended and restated theranos
53:34Master Services agreement with beginning
53:37dates number wag-t-h-00099
53:45the scene exited 63 before
53:48I think so what is exhibit 663
53:52and I believe it's the amendment to our
53:55agreement with Walgreens
53:58did you receive and review exhibit 63 on
54:02or about December 31st 2013.
54:07um
54:07I don't know
54:09okay if you turn to 104 which is the
54:13last pace of the page of the agreement
54:15is this your signature right yes okay so
54:18do you believe that you would have
54:19received this summer about
54:20December 31st 2013 and signed it on that
54:23date as well yeah I believe I signed it
54:25on that date
54:28so if you look at
54:31the second page of the agreement which
54:32is 100
54:35under number one National Rollout
54:42says the party shall work together to
54:44develop a forecast that details the
54:46anticipated rollout dates for fairness
54:47services in an individual U.S states and
54:50territories
54:51the parties are committed to taking all
54:53reasons all steps reasonably necessary
54:54to ensure a successful National Rollout
54:56of the theranos services and you can go
54:59on and read the rest of the paragraph if
55:01you wish but nowhere in this paragraph
55:04does it say that there is a binding
55:06agreement between the two parties to
55:08roll out nationally is there
55:12yeah I'm sorry the question is does this
55:15paragraph say whether there's a binding
55:17agreement to roll out nationally yes
55:20interest rate for a second
56:06I'm
56:08no this paragraph says that they're
56:11committed to taking all steps reasonably
56:13necessary to ensure a successful
56:14National Rollout are you aware of any
56:17contracts or agreements that would bind
56:19Walgreens to roll out fairness services
56:21and wellness centers nationally
56:25my understanding was that this agreement
56:28and even going back to our initial press
56:31release that said we were going to roll
56:32out nationally that was the intent of
56:34this and both of us had
56:36ways to get out of the contract if we
56:39decided it wasn't going well
56:41yeah okay so so what's the answer to my
56:44question are you aware of any
56:46contrastual agreements between the two
56:48companies that would find Walgreens to
56:50roll out nationally with fairness
56:53honestly that was my interpretation of
56:55what this was
57:00yes this amendment was saying we're
57:03going to do this we're going to go out
57:04nationally I think they say later in
57:06here that they're going to build out a
57:08certain number of what they called
57:09gold spaces I
57:12I recognize that this language does not
57:14say this is a binding agreement to be
57:16National but that was my understanding
57:17of the purpose of this amendment
57:20so if you turn to 101
57:27there's a provision
57:28that's small d
57:31it says notwithstanding anything to the
57:34contrary there and it agrees that it
57:35shall not without Walgreens prior
57:37written consent offer services or
57:39collect samples through CVS Caremark
57:41corporations Minute Clinics or their
57:44equivalent and exclusive Walgreens
57:45markets in the event they're in a
57:47desires to utilize such clinics and
57:49non-exclusive Walgreens markets it will
57:51inform Walgreens in advance and review
57:54their rationale for doing so and
57:56consider reasonable Alternatives that
57:58Walgreens May advance so you understood
58:00from this that
58:02theranos couldn't go out and enter into
58:05a contract with CVS without giving prior
58:07notice to Walgreens right yes
58:11and fairness had to also consider
58:14reasonable Alternatives if Walgreens
58:15offer reasonable alternatives to
58:17fairness to rolling out with CVS correct
58:20yes
58:21why don't you turn the page to 102.
58:24under three Innovation fee
58:28what did you understand as to
58:31The Innovation fee discussions that were
58:33taking place between Walgreens and
58:34theranos
58:38my understanding was that
58:40ultimately in this agreement this money
58:43was paid essentially
58:47as it says here to be better prepared
58:49for National Rollout and for essentially
58:52exclusivity to Walgreens
58:55was theranos asking uh Walgreens to
58:58accelerate the Innovation fee payment
59:00I I think we said to them that if they
59:03want us to roll out at the pace that
59:05they wanted us to roll out that we were
59:07going to need to invest a lot and we
59:09needed Capital to do that
59:18so what were what was your understanding
59:20as to the terms under which fairness
59:22would earn the Innovation fee though
59:25did you have any understanding of that
59:27um my understanding was that essentially
59:30we were earning it by being exclusive to
59:32them and by being compliant with the
59:35contract I know there was a
59:39a lot of Provisions in the agreement
59:42about
59:43um
59:44you know targets that we were both
59:46setting for for rollout
59:48did you understand that in the 2012
59:50amended Master purchase agreement that
59:54Ernest wouldn't be earning the
59:57Innovation fee unless it hit certain
59:59Revenue targets
1:00:02um
1:00:07I I know the provision that you're
1:00:10talking about I think we thought that
1:00:12when we moved to this agreement we were
1:00:15we were earning it based on exclusivity
1:00:17and where does it say that you'd be
1:00:18earning it based on exclusivity
1:00:22um I believe
1:00:29this section
1:00:31and what what I had in my head was the
1:00:34section prior that talks about
1:00:37the exclusivity commitments from
1:00:39theranos and the associated commitment
1:00:41from Walgreens
1:00:45so just I understand that
1:00:47the
1:00:48um by December 31st 2013 yeah it was
1:00:52your understanding that theranos
1:00:54theranos's retention of the Innovation
1:00:55fee from Walgreens was based on
1:00:58exclusivity and not on Revenue targets
1:01:02I I don't know
1:01:04that we focused on the revenue targets
1:01:07provision
1:01:09in the 2012 agreement after that I'm I'm
1:01:13not sure I I know to the extent I I
1:01:15talked about it internally with sunny it
1:01:18was that you know this is money that
1:01:20we're earning for exclusivity
1:01:26so we're able to identify a portion of
1:01:28the contract that
1:01:30did away with the earning event being
1:01:33tied to revenue targets
1:01:35no
1:01:37so if you turn sorry I just want to make
1:01:40sure I understand the the yeah so at the
1:01:42end of 2013
1:01:43in your mind the Innovation fee wasn't
1:01:47dependent on Revenue targets with
1:01:49Walgreens
1:01:54I I'm trying to remember whether we had
1:01:56any conversations about the revenue
1:01:57targets again after this agreement I I
1:02:02remember associating it mentally with
1:02:05exclusivity I I don't
1:02:08I don't know
1:02:11I don't know how we address that
1:02:13I guess in your mind at this time how
1:02:15did you think fairness was going to earn
1:02:17the Innovation fee as of year end 2013.
1:02:20honestly what I have in my mind is that
1:02:23we thought we would earn it based on
1:02:25exclusivity to Walgreens
1:02:27what is that exclusivity in your mind
1:02:29provide I mean how is theranos going to
1:02:31be exclusive with Walgreens working only
1:02:33with them for some agreed period of time
1:02:36until we got permission from them to
1:02:38work with other retailers what was that
1:02:40period of time
1:02:42I I don't remember it off top of my head
1:02:43I could look back at these and try to
1:02:46piece it back together
1:02:48so what was your understanding then as
1:02:50to when theranos would be able to earn
1:02:53the Innovation fee and and count that as
1:02:57revenues
1:02:58in a legal sense or an account
1:03:02do you understand what my question is
1:03:05I I'm I don't know what is your question
1:03:08so you just you just answered Mr
1:03:11kolakar's question and you said
1:03:13exclusivity means that at a certain
1:03:16point in time theranos will have worked
1:03:18with Walgreens for long enough and not
1:03:20with another retailer and at that point
1:03:22in time fairness would have earned the
1:03:24Innovation fee
1:03:26yeah I mean is that your yes sir my
1:03:29answer is that by committing to
1:03:31Walgreens that we would be exclusive to
1:03:33them we were earning this money and that
1:03:35was why it was being paid at the end of
1:03:36December as opposed to based on all
1:03:38these later targets that we had
1:03:40previously put in place okay so at what
1:03:42point in time would the parties decide
1:03:43that fairness would have earned it
1:03:45because there are no should stay true to
1:03:47the exclusivity rights that it had given
1:03:49to Walgreens
1:03:50it was my understanding based on
1:03:52conversations with sunny and he was the
1:03:55one who was looking at this that because
1:03:58we had amended this agreement we we as
1:04:01parents thought we'd earned it
1:04:02through your conversations with sunny
1:04:04yes
1:04:07do you have any and did you have any
1:04:09independent conversations with Walgreens
1:04:11no
1:04:14in other words it's fair to say that the
1:04:16by the end of 2013 you understood the
1:04:19Innovation for me to belong at their
1:04:21nose unencumbered I I did because we've
1:04:23committed to them that we would be
1:04:24exclusive to them and uh and that was
1:04:29how sunny believed that the payment
1:04:31would be reflected
1:04:36to 103.
1:04:40under seven additional Equity rights
1:04:45says the parties agree that 50 million
1:04:48of the 70 million dollar payment made by
1:04:50Walgreens pursuant to section three
1:04:52above may be converted at Walgreens
1:04:54option into equity on such terms as are
1:04:56made available to investors and
1:04:57theranis's planned Equity financing in
1:05:00the first quarter of 2014. the parties
1:05:03also agree that upon signing this
1:05:04agreement Walgreens will receive an
1:05:06option to purchase up to 50 million
1:05:08dollars in fairness equity on the terms
1:05:10made available to investors who invested
1:05:12in the prior Equity financing
1:05:15um EG at 15 per share
1:05:18did you understand this provision to
1:05:20provide that Walgreens would be given an
1:05:22option to purchase up to
1:05:25our the option to convert about 50 of
1:05:29the 75 million dollar accelerated
1:05:31Innovation fee to equity and then would
1:05:34also have an option for an additional 50
1:05:35million dollars in equity In fairness
1:05:38yes
1:05:41thank you
1:05:44you testified earlier you can put that
1:05:47one aside so let's take a breakdown and
1:05:49Dr that doctor's been a little over an
1:05:51hour okay let's take a really short
1:05:53break if you don't mind so five minutes
1:05:55that works
1:05:56off the Record at 10 10 A.M
1:06:07we are back on the record at 10 25.
1:06:10[Music]
1:06:12Holmes did you have any substantive
1:06:14conversations with the SEC staff during
1:06:16the break I did not
1:06:18so you testified earlier on Tuesday that
1:06:22you understood that venous draw
1:06:23percentage and patient traffic were
1:06:26important metrics for Walgreens in
1:06:28evaluating the relationship do you
1:06:30remember that I think so
1:06:33so
1:06:36I I don't know if I said that being a
1:06:39straw percentage was an important metric
1:06:40I I certainly know that patient traffic
1:06:42is or was
1:06:44did you understand that Venus drop
1:06:46percentage was important to Walgreens
1:06:50I understood that there was focus on it
1:06:52from certain people within Walgreens uh
1:06:55and frankly not from others who who is
1:06:58it a focus for
1:07:00I believe some of the early team that
1:07:02had been focused on the phase one I'm
1:07:04sorry the initial tspu business model
1:07:07and then over time as the boots
1:07:09leadership came in it became as I
1:07:11understand it more about foot traffic
1:07:13so I I guess
1:07:15um
1:07:17prior prior to the boots murder was was
1:07:20did you understand that that the
1:07:22venipuncture percentage was was an
1:07:24important metric for Walgreens
1:07:27I I know that I don't know if it was an
1:07:29important metric to them I know that
1:07:30some of the the lower level team members
1:07:32were interested in it and over time I
1:07:36guess just who from who from the
1:07:38Walgreens team do you remember that
1:07:39being important too I I don't know I I
1:07:41just remember Sunny talking about it
1:07:46I'm heading to you Weston Marsh fairness
1:07:48exhibit 220.
1:07:57exhibit 220 reports to be a May 6 2014
1:08:01email from Sonny balwani to Elizabeth
1:08:03Holmes subject line is forward final
1:08:06Deck with starting dates number th PSN
1:08:08zero zero zero one five five eight five
1:08:12eight three with an attachment with
1:08:14starting base number
1:08:20apparently we don't know what the base
1:08:21number is but I believe it's 155-8584
1:08:26being the next page
1:08:28have you seen exhibit
1:08:30220 before
1:08:33I'm I'm not sure
1:08:37all right is this language produced to
1:08:39you guys yeah I mean it's just
1:08:43those do we know this is the attachment
1:08:45this referred to an email yes
1:08:48how do we know that's the way we turned
1:08:51it over to you or this uh
1:08:55it could be that some of the attachments
1:08:57might have come in a different format
1:08:59maybe native they were Native files
1:09:01which is the reason why because the date
1:09:04stamp isn't on it
1:09:06um you have a problem with it we can
1:09:08always understand
1:09:10whether your shirts we'll check during
1:09:12your break okay
1:09:20I I don't know
1:09:25is this your email address at the
1:09:27topehomes at fairness.com it is do you
1:09:30have any reason to believe that you
1:09:31didn't receive this honor about May 6
1:09:332014 I do not
1:09:36so you'll see in the email there's a
1:09:40preceding email from to Sonny balwani
1:09:44and he writes attaches the final deck
1:09:47and then sunnyvale1 even forwards it on
1:09:50to you
1:09:51do you know why Sonny balwani forwarded
1:09:54it on to you
1:09:56I I don't I would assume it's an FYI
1:09:58okay so he's trying to keep you in the
1:10:00loop about the Walgreens relationship
1:10:01right
1:10:03I I think so okay so if you turn to the
1:10:05attachment
1:10:08and the title is diagnostic testing
1:10:10fairness partnership
1:10:16if you look on page four of the
1:10:19presentation
1:10:20I think you're on it already
1:10:22the tops says diagnostic testing program
1:10:26governance and there are a number of
1:10:28names
1:10:32do you know who
1:10:35was a part of the executive steering
1:10:38committee for fairness
1:10:42I I can see here that it says sunny and
1:10:44I believe that was correct or were you
1:10:46aware that there was an executive
1:10:47steering committee that was formed
1:10:49between Awards and fairness yes and did
1:10:53you understand that they were convening
1:10:54on a regular basis to discuss the
1:10:57Walgreens there in his relationship I
1:10:58did
1:11:00so why don't you turn to page six
1:11:04and the title of that slide is current
1:11:07operations metrics do you see that yes
1:11:10and there's a table uh one of the
1:11:13metrics here is average patients per
1:11:15store per day
1:11:16and you see that in February 2014 it's
1:11:19at 0.8 but in May of 2014 it went up to
1:11:223.1 do you see that I do so is that
1:11:25consistent with your understanding then
1:11:27that um in May of 2014 that there were
1:11:31about three patients per day being seen
1:11:33first in each store per day
1:11:36I I didn't remember how many there were
1:11:38in May of 14 but I I don't have reason
1:11:40to doubt this okay but it appears that
1:11:42you you would have been aware of this
1:11:45in May of 2014 right
1:11:48I mean I I probably generally okay
1:11:52okay and then if you move down to Venus
1:11:54draws it looks like the Venus draw went
1:11:57from 43 in February 2014 to 39 in May of
1:12:032014. do you see that so it looks like
1:12:06the venous draw percentage
1:12:08didn't actually change that much
1:12:11do you see that I do were you aware that
1:12:13the Venus raw percentage in May of 2014
1:12:16was 39 at the stores
1:12:20I I don't know
1:12:22I don't remember what I was aware of in
1:12:24May of 14. okay but at the time that you
1:12:26received this and
1:12:28you would have been aware from reviewing
1:12:31this that it was at 39
1:12:32honestly I don't know that I reviewed
1:12:34this at the time somebody sent me a lot
1:12:36of documents and I didn't always open
1:12:37them you didn't always open documents
1:12:39that Sonny sent to you I did not
1:12:42uh was it your general practice to
1:12:44review the documents that I sent you
1:12:46sometimes sometimes he would just tell
1:12:48me what he thought was relevant that I
1:12:50needed to know
1:12:53I I guess you're gonna
1:12:55did you ever tell him to stop you know
1:12:57forging information about the Walgreens
1:12:58relationship no not at all
1:13:03do you have any reason to believe that
1:13:04you didn't review this at the time in
1:13:05May 2014
1:13:07I I don't remember reviewing it in May
1:13:102014 so I just don't know do you
1:13:12remember the Venus drop percentage for
1:13:14patient testing at theranist Wellness
1:13:16Center is being around 40 percent during
1:13:19the entire period of the relationship
1:13:22I remember that when we responded to the
1:13:24Wall Street Journal article I asked a
1:13:26team to calculate it and they came back
1:13:29and used the number of about 60
1:13:30something percentage on finger stick so
1:13:33I I knew it from that okay so you were
1:13:36generally aware it was something like 30
1:13:37to 40 percent Venus draw correct I again
1:13:41I don't know what exactly I was aware of
1:13:43at that time I I know that in 2015 I
1:13:46asked a team to go back and do analysis
1:13:48of it and and got that number okay
1:13:50so why don't you turn to then the last
1:13:53page
1:13:54ph-14
1:13:56it's titled the path forward
1:14:00and it's under a number of bullet points
1:14:03the first being operations Improvement
1:14:12do you see that I do it says focus on
1:14:14Venus draws reduction
1:14:17and it reduced me a patient check-in
1:14:19time to less than eight minutes and
1:14:22Achieve 15 patients per day per store
1:14:25was that consistent with your
1:14:26understanding that Walgreens was looking
1:14:30at a target of about 15 patients per
1:14:32state per day per store
1:14:35I I thought prior to reading this that
1:14:37it was 10 but
1:14:39um I I don't doubt this okay
1:14:48okay you can put that one aside
1:14:52so you also testified earlier
1:14:55that fairness wellness centers were only
1:14:58ever opened in 41 stores do you remember
1:15:00that testimony
1:15:02at Walgreens at Walgreens yes
1:15:06um do you know when that last door was
1:15:08opened I don't
1:15:10uh if I told you it was September of
1:15:132014 would that seem about right
1:15:18I might I actually don't know but I
1:15:20don't doubt that
1:15:22you don't know when the last door was
1:15:23opened in Walgreens
1:15:27this was fairness's most important
1:15:29business relationship and you have no
1:15:30idea when the last door was open
1:15:33okay I genuinely don't remember it I she
1:15:36didn't say she had no idea you asked her
1:15:38was it September she said she wasn't
1:15:39sure
1:15:40I I I'm
1:15:43trying to tell you exactly what I
1:15:44remember and what I don't remember did
1:15:45you have any reason to doubt that it was
1:15:47September around September 2014. no
1:15:53weren't you aware by that time and
1:15:55certainly certainly by the end of 2014
1:15:58that Walgreens would not agree to open
1:16:01any new stores
1:16:03thereiness by the end of 14
1:16:07um
1:16:10no
1:16:11you weren't aware that Walgreens was
1:16:13having concerns over opening new new
1:16:16stores and providing fairness services
1:16:18in them
1:16:20I mean I knew we were going back and
1:16:22forth on refining the model of the
1:16:25relationship but I remember
1:16:28I don't know if it was the end of 14 or
1:16:30early 15.
1:16:32engaging with amending and expanding our
1:16:35our contract potentially around a
1:16:38a lentil a rental model
1:16:42is was your understanding that Walgreens
1:16:43wasn't gonna open up any additional
1:16:47stores at that time absent some sort of
1:16:49amendment
1:16:53um
1:16:54I I don't know I know there were a lot
1:16:57of discussions of continuing amendments
1:16:59and I know that sometimes the models
1:17:01that we were following did not reflect
1:17:03the exact contracts that we had in place
1:17:05at the time I I don't know if I knew
1:17:07that there had to be an amendment I I
1:17:09don't think that was my understanding
1:17:11what do you mean by the models you were
1:17:14following didn't reflect the exact
1:17:16contracts
1:17:17I'm for example with Safeway we moved to
1:17:21a CLIA certified lab model even though
1:17:24the contract reflected a Clio waiver
1:17:26model and we never amended the contract
1:17:28so we we had Partnerships in place where
1:17:31we
1:17:32we're operating in a way that was not
1:17:34necessarily consistent with exactly what
1:17:36was in the contract sure I guess I
1:17:38should turn specifically this time
1:17:39period of sort of the September 2014
1:17:42through the end of 2014. yep can you can
1:17:44you think of any ways in which theranos
1:17:45was
1:17:47um operating with Walgreens in a way
1:17:49that was not consistent with your
1:17:50understanding of the Walgreens contracts
1:17:58I I don't know if
1:18:01we had worked out
1:18:03exactly as we were collecting funds from
1:18:06people at retail I think Walgreens was
1:18:08collecting them we hadn't yet created a
1:18:10system where they were reimbursing
1:18:11theranos for the monies that they had
1:18:13collected we figured we'd work that out
1:18:15over time and I
1:18:20I don't know if we were following
1:18:22exactly the labor and Staffing model in
1:18:24the agreement we were doing different
1:18:26things I think there was some instances
1:18:28in which theranos was actually doing the
1:18:29labor for check-in even though we
1:18:32contemplated that that would be
1:18:33Walgreens generally I'm I'm sure there's
1:18:37probably others
1:18:42thank you
1:18:45foreign
1:18:48to you
1:18:58they're an open sit at 221
1:19:15very Unfortunately they are all in loose
1:19:17leaf and not cut maybe we can lift this
1:19:21one
1:19:29it's not possible but you can try and
1:19:32keep this together I'm handing to you
1:19:33what's been Martha's theranos Instead at
1:19:35221.
1:19:36pair of copies for what should you do
1:19:41[Music]
1:19:46exhibit 221 reports to be
1:19:57an Excel file that
1:20:00includes a number of
1:20:03rows of
1:20:05font
1:20:06the starting beats number is
1:20:10ts-1036239 have you seen exhibit 221
1:20:13before
1:20:18um
1:20:19I think I've seen some of the content in
1:20:21it I've never seen it like this
1:20:24uh does this I'll represent to you that
1:20:26these are this is the file that Theron
1:20:29is provided to the SEC pursuant to
1:20:31subpoena which is supposed to reflect
1:20:34the text messages between you and Mr
1:20:36balwani on your fairness issued cell
1:20:39phone yep
1:20:42do you have any reason to believe that
1:20:44this isn't a true collection of those
1:20:46text messages from your work cell phone
1:20:48you know
1:20:49so if you turn to
1:20:54um the page with Bates number 1036292
1:21:011 6 292
1:21:05.
1:21:12thank you
1:21:21are you there bam
1:21:25yours looks a little different from mine
1:21:27maybe um oh I'm sorry I was on the wrong
1:21:30page
1:21:35yeah got it okay so you'll see about
1:21:38five messages down from the top
1:21:42um there's an SMS message on November 19
1:21:452014 and
1:21:48it appears to be from Sunny balwani to
1:21:50yourself is this Sonny balwani's email
1:21:52address do you recognize it
1:21:54I think so okay
1:21:56okay um and he says we can't scale with
1:21:58wag
1:21:59and wag you understand is Walgreens
1:22:03yes okay and then in his next text
1:22:06message he says they are terrible and we
1:22:08need uh swi and CVS do you understand S2
1:22:12Wy to be safe way yes
1:22:15and then you respond it is time let's
1:22:18get swy done this week
1:22:21we can do it
1:22:22and then Mr valani responds they told
1:22:25her team in wag meeting that they don't
1:22:27intend to open more pscs until July
1:22:29because we missed their I.T integration
1:22:31deadline do you see that I do and psc's
1:22:34again as patient service centers yes
1:22:38so you were aware in November of 2014
1:22:41that
1:22:42Walgreens wasn't looking to expand
1:22:45fairness services to any other stores
1:22:48isn't that right I'm sitting here now
1:22:51reading this exchange I don't think I
1:22:53would have taken that as
1:22:55definitive that we wouldn't be expanding
1:22:57if we thought there was an issue I would
1:22:58have called their CEO or president and
1:23:01said we need to expand
1:23:02so you didn't think reading this that
1:23:04there was an issue
1:23:06clearly I thought there was an issue
1:23:08because we're talking about Safeway and
1:23:09CBS but I I wouldn't
1:23:11take a comment made in a wag meeting as
1:23:13indicative that we wouldn't be expanding
1:23:15with Walgreens okay did you do anything
1:23:17to contact anyone at Walgreens about
1:23:21this issue the fact that they raised in
1:23:24the meeting that they
1:23:25wouldn't be looking to roll out there
1:23:27are no services in any additional stores
1:23:30I I don't know
1:23:32I don't know
1:23:36so you don't remember to contact anyone
1:23:38at Walgreens about this issue
1:23:41issue so I I saw from the other document
1:23:44that you gave me that I believe was
1:23:46already involved at this time I know I
1:23:47had I'm fairly frequent interactions
1:23:50with him that were generally positive I
1:23:53I don't
1:23:54remember this text or remember what
1:23:57follow-up happened but certainly unless
1:23:59it was coming from a c-level executive I
1:24:01wouldn't have taken it as indication
1:24:03that we weren't going to be expanding in
1:24:04our relationship we would have tried to
1:24:05work through the issue
1:24:10so did you agree with Sonny's assessment
1:24:13in November of 2014 that that Walgreens
1:24:16was terrible
1:24:19Sunny uses very strong words to express
1:24:22things and I understood that he had been
1:24:25very frustrated with them for a long
1:24:28time there was specific frustrations
1:24:29about the stores that we had and the
1:24:32fact that the rooms hadn't been built
1:24:34out so I think I just reading this now
1:24:36interpreted as I agreed that we should
1:24:38start engaging with the other retail
1:24:40opportunities that we had
1:24:42um we always believed we were going to
1:24:45continue to work with Walgreens what
1:24:47were Sonny's other frustrations with
1:24:48Walgreens as of November 2014.
1:24:52um so the ones I remember are
1:24:56we talked a little bit the other day
1:24:58about the store footprint
1:25:00um being in locations where not a lot of
1:25:02people would come into the stores so
1:25:04they weren't ideally suited for Success
1:25:06in terms of foot traffic and we were
1:25:08supposed to have bathrooms in our
1:25:10locations and there was a commitment
1:25:12around what was in the amendment around
1:25:14gold quote unquote stores and I don't
1:25:16know if any of them had been built out
1:25:18and there was also a commitment in that
1:25:21amendment to proceed I think with at
1:25:23least three geographies and they hadn't
1:25:25proceeded with retail Construction in
1:25:28those three geographies which we had
1:25:30understood to be a commitment so
1:25:32but I think that was the basis of the
1:25:34the frustration so by this time did you
1:25:37have an understanding of why Walgreens
1:25:38hadn't expanded at least three
1:25:40geographies
1:25:41my memory is that boots had had come in
1:25:45and that they were looking at this again
1:25:47and I I think boots had different
1:25:49thoughts about the contract and the
1:25:51relationship than Walgreens did and that
1:25:53that was driving a sort of re-review of
1:25:57this which ultimately led to some of the
1:25:59discussions about formally amending the
1:26:01contract again
1:26:03and do you call when Boots the boots
1:26:05came in I don't
1:26:07know the um is is your understanding
1:26:10that the
1:26:12the boots team wanted to sort of rear
1:26:14review the Walgreens theranos
1:26:15relationship to I guess reconsider how
1:26:18to roll out the source
1:26:21I don't know whether they wanted to
1:26:23reconsider uh rolling out I I understand
1:26:26that they did re-reviewed the
1:26:28relationship and I I don't know what
1:26:30they were particularly thinking in it I
1:26:32think they were
1:26:33to reevaluating everything that the old
1:26:35Walgreens leadership had done
1:26:38and so that reevaluation did you
1:26:40understand that that was happening
1:26:41around this time in late 2014
1:26:45I I don't know when it happened
1:26:48so if you look back at that page
1:26:53there's a text from
1:26:57Mr balwani several lines down that says
1:27:00need CTN fixed our root cause of issues
1:27:04do you see that
1:27:07it's on the same date at 5 12. yes
1:27:11what did you understand them to mean by
1:27:13that
1:27:18um
1:27:22I I don't know
1:27:25and CTN is that capillary tube and Nana
1:27:27Tanner yes
1:27:29um so you respond he says I know this
1:27:32seems like they are a mess and you
1:27:34respond yes
1:27:36so it sounds like at that time you
1:27:37understood what he was talking about we
1:27:39have no recollection of what he was
1:27:41talking about then
1:27:46um I I don't and I'm not quite sure
1:27:48whether those are those two texts right
1:27:50back
1:27:51and back are referring to the same thing
1:27:54they may be referring to some of the
1:27:55earlier
1:27:56texts okay do you recall any issues with
1:27:59the capillary tube in the Entertainer
1:28:03at this time
1:28:04at this time period
1:28:06um
1:28:07I I don't know specifically at this time
1:28:09period I know we were you know an
1:28:11ongoing basis particularly focused on
1:28:14training of phlebotomists and trying to
1:28:17minimize the number of Collections and
1:28:18redraws and
1:28:20if you don't do it right the sample gets
1:28:24um what's called hemolized which is
1:28:25messed up and so there's a huge ongoing
1:28:29focus on that
1:28:31okay you can set that aside which I
1:28:34understand might be difficult but
1:28:37just need any rubber bands or something
1:28:39[Music]
1:28:52so earlier in your testimony we also
1:28:55discussed that there was a time when
1:28:56theranos and Walgreens started
1:28:58discussing the possibility of a rental
1:28:59model yes
1:29:03do you recall those discussions taking
1:29:04place around December 2014
1:29:07I don't I don't know when they I I
1:29:10remember it as being on a sort of a
1:29:12period of time but I don't know when it
1:29:14started
1:29:23[Music]
1:29:32I'm handing to you what's been marked
1:29:34during this was it at 222
1:29:37copies there thank you
1:29:44foreign exhibit 222 purports to be
1:29:48handwritten notes from December 1st uh
1:29:51excuse me December 10th 2014.
1:29:56uh
1:29:58with starting base number
1:30:02ts-0480486 have you seen exhibit 222
1:30:05before
1:30:07not like this but it looks like these
1:30:10are my notes
1:30:11Mr handwriting it is
1:30:14okay and uh up on the upper right corner
1:30:17there's a date of December 10th 2014
1:30:19there's a time of it looks like 8 A.M to
1:30:2210 p.m and then there's a conference
1:30:25room and a number of people are listed
1:30:28under there do you think this was a
1:30:29meeting with Walgreens
1:30:32I I do think it was a meeting with
1:30:33Walgreens I don't think that is correct
1:30:35which which is not correct well at least
1:30:38the time and maybe not even the
1:30:40conference room and the date I'm not
1:30:42completely
1:30:45sure whether this was at theranos or
1:30:47somewhere else
1:30:48I I briefly you can just walk us through
1:30:50how your handwritten notes were created
1:30:52by your by your assistance
1:30:56um yes uh
1:30:58so
1:31:00um
1:31:01sometimes they would prepare letterhead
1:31:05for a meeting that had the date and the
1:31:07names and the time on it sometimes if we
1:31:09didn't have litter head we would use
1:31:10letterhead that had been previously
1:31:12produced for something else and I would
1:31:14write on that I would take notes and I
1:31:17would give it to them and they were to
1:31:19scan those notes and put them on the CEO
1:31:21drive that we discussed
1:31:25Okay so
1:31:30why don't I just Mark another
1:31:40I'm going to hand to you also
1:31:45a document that's been
1:31:47previously marked as
1:31:50fairness of zip 186.
1:31:54so that 186 reports to be at December
1:31:569th 2014 email to a number of
1:32:00individuals
1:32:04including yourself
1:32:05with a copy two again a number of
1:32:08individuals uh subject line is copy
1:32:11eight o'clock ampt Walgreens theranos
1:32:15meeting
1:32:17and
1:32:18um
1:32:19the debates number is wae Dash
1:32:24th-00037045 have you seen exhibit 186
1:32:27before
1:32:29I I don't recognize it okay and you'll
1:32:32see in the two line
1:32:34it was sent to e-womes at fairness.com
1:32:37that's your email address correct it is
1:32:39do you have any reason to believe that
1:32:40you didn't receive this email or it
1:32:42looks like a calendar invitation on or
1:32:44about December 9th 2014. no I mean
1:32:48calendar invitations automatically went
1:32:50to my assistant so I never saw them
1:32:52coming in but I don't doubt with the
1:32:54email okay so when you would receive
1:32:58calendar invites you would it wouldn't
1:32:59go to your inbox correct it would go
1:33:01directly to your assistance yes okay who
1:33:04is your assistant on the CC line
1:33:08um
1:33:10is she on there she's not
1:33:12so where would this have gone to
1:33:15as I understand it my Outlook is
1:33:17configured in such a way in which if a
1:33:19calendar invite comes into e-homes it
1:33:21shows up uh in the mailbox of my
1:33:24assistance which is the age office okay
1:33:26do you know who your assistant was at
1:33:28that time
1:33:31no
1:33:33um I I think it started by this point
1:33:34but I'm not sure okay so in any case in
1:33:37the body of the calendar invitation it
1:33:39says 8 A.M to um 10 a.m PT is for a
1:33:43meeting on December 10th 2014. do you
1:33:45see that I do okay and then your meeting
1:33:48notes um have roughly the same
1:33:50information except that it says 10 pm
1:33:52instead of 10 a.m do you have any reason
1:33:54to doubt that these news were from the
1:33:55December 10th 2014 meeting no okay so if
1:33:59you turn the page to page two of your
1:34:02notes
1:34:09that's 487 you see at the top it says
1:34:13lab data and then I can't read the word
1:34:16next to it
1:34:18what is that
1:34:27I don't know
1:34:29I'm guessing it might be phase but I'm
1:34:31not sure okay and then underneath it
1:34:33says services and Clinic is that correct
1:34:37yes okay and then underneath again in
1:34:39bullet points it says Vienna puncher and
1:34:41five per day do you see that yes
1:34:45did you
1:34:47um does this refresh your recollection
1:34:48that you would have been talking about
1:34:50venipuncture and
1:34:52um
1:34:52five patients per day in Walgreens
1:34:56stores servicing providing fairness
1:35:01Services during this time
1:35:05it doesn't refresh my recollection but I
1:35:08I recognize the the words of the page
1:35:12so halfway down the page
1:35:16um it says there's a bullet point and it
1:35:19says rental
1:35:21agmt model I assume agmt is agreement is
1:35:26that right I'm sorry where were you
1:35:27halfway down the page
1:35:32yes
1:35:33you see that yes it's agmt agreement yes
1:35:36so does it look like you were discussing
1:35:39with Walgreens Executives the
1:35:41possibility of a rental agreement model
1:35:42during this meeting
1:35:46and then it goes on to say incentive
1:35:48early years rental aging agreement
1:35:51incentives
1:35:53both winning what what were you
1:35:56referring to there when you wrote that
1:35:58I I don't know
1:36:02did you view the rental agreement as
1:36:03with Walgreens as something that can be
1:36:05beneficial to both parties absolutely
1:36:07why
1:36:08because we understood ultimately from
1:36:11The Experience we'd had by then that
1:36:13foot traffic was the most important
1:36:15metric to Walgreens and that for
1:36:18theranos we could have control over the
1:36:20space and ensure a good experience so
1:36:22some of the frustrations that had
1:36:24existed in the store model we could
1:36:27resolve because we'd be owning the space
1:36:29completely
1:36:40did you tell prospective investors at
1:36:43this time so this was December 2014 that
1:36:46Walgreens and theranos were considering
1:36:48modifying the contract to enter into
1:36:51more of a rental agreement model
1:36:54I don't I remember specific
1:36:56conversations but I I wouldn't be
1:36:58surprised if we did we were excited and
1:37:01proud of this we thought this was going
1:37:03to be the way that we would scale and
1:37:06ultimately okay so but you don't
1:37:08remember having any conversations with
1:37:10prospective investors I don't I don't
1:37:13you mentioned a minute ago that that
1:37:15Sunny had had some some frustrations
1:37:17around the walking relationship around
1:37:18that late 2014 time period did you ever
1:37:20share any of those frustrations with
1:37:22prospective investors
1:37:24I I don't know because I don't remember
1:37:26specific discussions I I wouldn't be
1:37:28surprised if
1:37:30um if we did because people would ask
1:37:32you know what's limiting I'm assuming
1:37:34people would want to know why we were in
1:37:36the store footprint that we were and
1:37:38what was going to drive growth and
1:37:40therefore that would have been a likely
1:37:42thing to discuss but I I don't have
1:37:43memory of specific discussions dude do
1:37:46you recall Sonny ever sharing his
1:37:47frustrations with Walgreens to any
1:37:48prospective investors in any meetings
1:37:50you attended again I can't remember
1:37:52specific conversations but I wouldn't be
1:37:54surprised if if he did
1:37:57so
1:37:59just to restructure the relationships so
1:38:01it was more of a rental model would that
1:38:03have
1:38:04had any impact on the timing of the
1:38:06rollout if they're in a services to
1:38:08Walgreens stores
1:38:10I'm sure it would have impacted but I I
1:38:13don't know whether it would have made it
1:38:14better or worse
1:38:17way
1:38:20I I don't understand what was
1:38:22controlling the
1:38:24um the rollout Pace on the wall grain
1:38:26side and I don't know exactly how fast
1:38:29we thought we could build out these
1:38:31locations if we were building them out
1:38:32ourselves okay but certainly it would
1:38:34have taken a few months to get things
1:38:37rolling and to open another Wellness
1:38:39Center and Walgreens stores
1:38:42I I don't know it depends on whether we
1:38:43were using for example their Clinic
1:38:45spaces that had already been built out
1:38:47or not
1:38:57thank you
1:39:01so I want to change gears and now let's
1:39:04start talking about theirness's
1:39:05relationship with Safeway
1:39:08why was theranos interested in entering
1:39:10into a contract with Safeway
1:39:16high level it was another vehicle for
1:39:20building a retail footprint and with our
1:39:23focus on people's access to health
1:39:26information we thought it could be
1:39:28really meaningful to help people start
1:39:30linking diet to their Health Data with
1:39:34the software applications that we wanted
1:39:35to build
1:39:36okay and did you have any understanding
1:39:38as to why Safeway wanted to enter into a
1:39:42relationship with fairness
1:39:44my understanding is that they shared
1:39:46that vision and
1:39:49um also were interested in ways to
1:39:51expand their and differentiate their
1:39:53Pharmacy
1:39:54okay and in what way would they be able
1:39:56to differentiate their Pharmacy if they
1:39:57partnered with you
1:39:59if people were able to access
1:40:01information about their health it could
1:40:03inform the decisions about what foods
1:40:05they bought and that data could be
1:40:08powerful for people who were dealing
1:40:10with things like pre-diabetes or
1:40:12diabetes that are diet related
1:40:15so it was what the parties were
1:40:17discussing and by parties I named
1:40:19fairness in Safeway of course
1:40:21at the time that you started the
1:40:23discussions were you contemplating sort
1:40:26of a similar model to what theranos have
1:40:28been discussing with Walgreens which is
1:40:30to roll out with fairness's tspus in
1:40:34Safeway stores
1:40:36at the time we started yes
1:40:41who were your primary contacts with from
1:40:44Safeway
1:40:45my primary contract contact was with
1:40:48Steve bird
1:40:50and were any others involved besides
1:40:52Steve bird
1:40:54he had a team that worked for him I
1:40:57almost entirely interacted directly with
1:41:00him
1:41:01okay what about after Steve bird left
1:41:03Safeway who did you interact with then
1:41:05and he was supported by
1:41:08and who was responsible for the Safeway
1:41:11relationship from fairness was that you
1:41:14until Steve bird left yes and then Sonny
1:41:16wants to have left so Sunny balwani was
1:41:18responsible for the Safeway relationship
1:41:20after Steve Birdland yes
1:41:24would he keep you apprised of how the
1:41:26relationship was going and his
1:41:27discussions with Safeway once he took
1:41:29over responsibility
1:41:31in general yes but after Steve left we
1:41:33didn't have
1:41:35the same kind of frequency of
1:41:37interactions with them
1:41:38so what happened after Steve left
1:41:43um
1:41:46I I believe that
1:41:50there was a fund that acquired them and
1:41:54and I think he was working with that
1:41:58fund
1:41:59to get their thinking about
1:42:03what and whether they wanted to proceed
1:42:06with this vision of the services in the
1:42:09pharmacy space and it's my memory that
1:42:13the fund
1:42:15really wanted to restart the
1:42:16relationship and we had a lot of
1:42:19disagreements about that because we'd
1:42:21spent so much time working with
1:42:24Steve over the past years and investing
1:42:26in Technologies at sort of his request
1:42:30that we didn't want to restart it from
1:42:32scratch
1:42:33so then what happened after those
1:42:35discussions did fairness ever end up
1:42:37rolling out its services and Safeway
1:42:39stores no
1:42:41why not
1:42:42we couldn't agree on a Model to do that
1:42:49and ultimately by the time we we did
1:42:53agree
1:42:54it was after the Wall Street Journal
1:42:57articles and we were dealing with the
1:42:59issues in our clinical lab with CMS
1:43:10thank you
1:43:18foreign
1:43:30ERS Exhibit 2 23.
1:43:41is it at 223 reports to be
1:44:01oh I'm no that was previously March of
1:44:052086.
1:44:06I'm sorry okay so I'm handing to you
1:44:10what's been marked as theranos exhibit
1:44:11223 and he was at a 223 purports to be a
1:44:16June 28 2013 email out to Elizabeth
1:44:20Holmes and Sunnyvale lying setup line is
1:44:23Safeway fairness meeting 6 26 13 with
1:44:28Beats number
1:44:32ts-0034026 there's an attachment that
1:44:35starts at base ending three four zero
1:44:38one six have you seen exhibit 223 before
1:44:44um
1:44:45I I don't know
1:44:52uh and again this is your email address
1:44:54do you have any reason to believe that
1:44:56you didn't receive this email
1:45:00so you can see in the current email uh
1:45:04is sending
1:45:07is attaching some notes from a meeting
1:45:09that you had
1:45:11and he's asking you to make any
1:45:13suggestive revisions that are necessary
1:45:15to make this an accurate summary of our
1:45:16discussions you see that
1:45:19I do and then he's attaching some uh
1:45:24notes that he took or a summary of the
1:45:27meeting that took place on June 26 2013.
1:45:30do you recall this meeting
1:45:32I don't specifically but I know we were
1:45:34engaging with him around this time
1:45:39so
1:45:40under Central lab model in the summary
1:45:43he says he writes contrary to
1:45:46Impressions that some safely people have
1:45:47there is no technological problem with
1:45:50the devices and no plan to go without
1:45:51the devices in the stores thereiness has
1:45:54determined that the use of the central
1:45:55lab model provides the quickest and
1:45:57easiest way to expand geographically
1:45:59the central lab contains the advice in
1:46:01fact the device is the only way of
1:46:03obtaining results from the nanotainers
1:46:05do you see that I do
1:46:09did you make this comment during the
1:46:10meeting
1:46:11I don't know
1:46:13do you know if Sunny made this comment
1:46:15during the meeting I don't
1:46:18so when writing and referring to devices
1:46:21do you understand him to be referring to
1:46:23the tsp
1:46:27certainly in the context of the
1:46:29statement devices in the stores yes
1:46:32well he uses devices throughout so
1:46:35you understand that devices here would
1:46:38be if he's talking about placing devices
1:46:41in the stores he could only be talking
1:46:42about the tsp right so as we discussed
1:46:45previously there was a version of the
1:46:47tspu that could process six samples at
1:46:49the time that we were designing for
1:46:53Safeway so I'm assuming
1:46:55that's what he's talking about in the
1:46:57context of the device in store okay
1:47:01um
1:47:08so when you said that fairness is
1:47:11determined that the use of the central
1:47:12lab model provides the quickest and
1:47:14easiest way to expand geographically was
1:47:16this the reason why theranos
1:47:18was looking to change the model so that
1:47:21devices wouldn't be put in stores but
1:47:23that
1:47:24samples would be sent to theranos's lab
1:47:27can't repeat that question for me
1:47:29was this the reason why theranos was
1:47:32proposing to change the business model
1:47:34from putting the devices in store to
1:47:36having samples taken at stores and sent
1:47:39to theranis's lab what was what the
1:47:42reason
1:47:43the reason that it's writing in these
1:47:45notes
1:47:46which is that it provides the quickest
1:47:49and easiest way to expand geographically
1:47:52at this point in time it might have been
1:47:54it wasn't what I guess in a way it was
1:47:57what
1:47:58drove the original decisions with
1:48:01Walgreens that had happened earlier
1:48:03um
1:48:04I I'm not sure I'm
1:48:08whether that's how we were thinking of
1:48:10it by mid-2013 but but it might have
1:48:12been did you say that it was or was not
1:48:15the reason why you switched to a central
1:48:17lab model for Walgreens
1:48:19was we discussed it was the result of a
1:48:22lot of Engagement with both of our
1:48:25Regulatory councils and sort of
1:48:28decisions about business model in a way
1:48:30it was because it was the quickest and
1:48:33easiest way to expand but there were a
1:48:34lot of other factors that went into that
1:48:36okay so um why don't we look at the next
1:48:39paragraph then it says the reasons for
1:48:41starting with essential lab model are as
1:48:43follows and you can read it for yourself
1:48:45but it essentially describes a courier
1:48:48model and the fact that because fairness
1:48:52would need to be offering a full array
1:48:54of lab tests including esoteric tests
1:48:56you would need a courier to come pick up
1:48:58samples anyway and so if that's the case
1:49:01why not start with a career model do you
1:49:04see that
1:49:09I do
1:49:11okay so why didn't you tell during this
1:49:15meeting that it was the regulatory
1:49:17issues
1:49:18that were prompting this move to a
1:49:21central lab model
1:49:23I I believe we've had that conversation
1:49:26with them previously when we sent them
1:49:28our complete certificate and became the
1:49:30Clio certified lab
1:49:32you believe that that was your
1:49:34conversation yes that's why we moved
1:49:37away from what was written in our
1:49:38contract and to being a central Korea
1:49:41lab
1:49:41so then why are you telling him a
1:49:44different story in the in the during
1:49:46this meeting
1:49:47I I don't read this as being different
1:49:50we had become a Clio lab and we were
1:49:53talking here about the fact that
1:49:55from a business perspective this was the
1:49:58fastest way to operationalize now
1:50:00this is now mid 2013.
1:50:10okay
1:50:11um so when you say that the device is
1:50:14currently capable of Performing the
1:50:15routine blood tests 90 or more of the
1:50:18demand is that a true statement so you
1:50:21keep preferencing these by saying when
1:50:22she says it and I'm just not clear that
1:50:24you've established whether she's saying
1:50:26it's sunny saying or somebody else sure
1:50:29so
1:50:30do you recall making a statement to that
1:50:32the tsp is currently capable of
1:50:35Performing the routine blood test 90 or
1:50:37more of the demand I don't
1:50:40was that was that true could the tsp
1:50:43perform 90 or more of demand
1:50:46of the demand for tests we believed it
1:50:49it could at that time yes what do you
1:50:51mean by we believe they could
1:50:53this is a few months before we sent in a
1:50:56number of pre-submissions to the FDA
1:50:58trying to get a really broad range of
1:51:01tests into the pre-submission process so
1:51:05we we thought we had
1:51:07designed a system that was capable of
1:51:09doing that
1:51:13hell that the tspu
1:51:16that theranos had only validated 12
1:51:19tests on the TST
1:51:22as we previously discussed at this time
1:51:24no tests were live in the Cleo lab the
1:51:26clear lab was not yet operational okay
1:51:30this is June 2013 so Uranus would have
1:51:33been preparing for the launch in
1:51:34Walgreens correct yes so you were
1:51:37preparing to or either had or were in
1:51:39the process of validating those tests
1:51:41correct
1:51:43you know I actually don't know if we'd
1:51:45started our LGT validations by then my
1:51:48memory is that they started after this
1:51:49so did you tell or anyone at Safeway
1:51:52that theranos had not validated any of
1:51:55its tests on the tsp at this time frame
1:51:58June 2013.
1:52:00I don't know if we said those words I
1:52:03believe he was aware at that point that
1:52:04the queer Live Lab was not live and that
1:52:07no tests were live in the Clio lab yet
1:52:09but that's a that's a different question
1:52:11right I was asking whether he was aware
1:52:13that theranos had not yet validated any
1:52:15tests on the tsp
1:52:18I I don't know exactly what he was
1:52:22thinking I know that we were very clear
1:52:24that the lab was not yet operational it
1:52:26was my assumption that it would
1:52:27therefore be clear that no tests were
1:52:29live
1:52:31so you never told him that theranos had
1:52:34not validated tests on the tspu yet by
1:52:37this time frame I I don't know
1:52:40what what is currently capable Maybe
1:52:46um
1:52:51I'm just reading the rest of the
1:52:52paragraph to try to get the context
1:52:54I think that
1:52:58this is in reference to the fact that
1:53:01was still focused and Safeway was still
1:53:03focused on taking the devices through
1:53:05the FDA to get the Clio waiver to be
1:53:09able to place them in the stores and
1:53:11that we were saying that the technology
1:53:13that we had we believed was capable of
1:53:16going through that process of getting
1:53:18the FDA clearance in Clio waiver for
1:53:21these tests that would cover the
1:53:22majority of the testing pattern which
1:53:25would have been a subset of the the
1:53:27tests we ultimately operationalized in
1:53:29the the Clio lab based on our
1:53:31understanding of ordering at the time
1:53:34that that's your understanding of what
1:53:36currently capable refers to in this
1:53:37paragraph Yes
1:53:42why aren't we um change tapes
1:53:45this concludes media number one of
1:53:47Elizabeth Holmes were off the Record at
1:53:4911 13.
1:53:58we are back on the record at the
1:54:00beginning of media number two of
1:54:02Elizabeth Holmes the time is 11 15.
1:54:06very brief break did we have any
1:54:09substantive conversations with you and I
1:54:11or anyone else on the SEC staff no
1:54:17so did you review
1:54:19exhibit 223
1:54:23at that time
1:54:25I don't know do you know if you would
1:54:28have sent back revisions as requested
1:54:33if we reviewed it I believe we would
1:54:36have I don't know if we did
1:54:38is there anything
1:54:40in that first
1:54:46section on the central lab model that
1:54:48you believe would be inconsistent with
1:54:50what you might have told him
1:54:53I I don't remember the meeting so I
1:54:55can't I can't answer that accurately
1:54:57well is there any statement in that
1:55:00first section of the meeting notes that
1:55:02you believe is not true
1:55:06okay I mean if it's in the context of my
1:55:09understanding of of how we were talking
1:55:11about things at the time then no
1:55:15I I honestly don't know because I don't
1:55:17remember the meeting and I don't
1:55:18remember the context
1:55:24and put that one aside
1:55:27time when fairness and Safeway had
1:55:28discussions about modifying the
1:55:30contracts in order to change the
1:55:33business model into a rental agreement
1:55:35model sort of similar to what theranos
1:55:38was had been discussing with Walgreens
1:55:40yes when did that happen
1:55:44I I don't know specifically I believe we
1:55:47were already talking about it while
1:55:49Steve bird was still at Safeway and then
1:55:51on an ongoing basis after that
1:55:54so when did Steve bird leave Safeway
1:55:58would that have been an early 2014
1:56:02I think it was that sound right to you
1:56:03for this meeting which was in uh
1:56:07meetings before this
1:56:11foreign
1:56:19to you what's been marked
1:56:24fairness is it at 224.
1:56:29is it at 224 reports to be a May 1st
1:56:332014 email from Sonny balwani to
1:56:36Elizabeth Holmes with subject line re
1:56:39Safeway fairness
1:56:43and starting dates number on the
1:56:45document is
1:56:49thpfm00155-8606
1:56:51have you seen exhibit 224 before
1:56:57I I don't remember it but I think so
1:57:01what is exhibit 224
1:57:04and it looks like an email exchange
1:57:07between sunny and which he ultimately
1:57:10forwarded to me
1:57:14your review and receive and review
1:57:17exhibit to 24 honor about May 1st 2014.
1:57:21I don't know
1:57:24do you have any reason to believe that
1:57:26you didn't receive it on that date no
1:57:28okay if you look at the email on the
1:57:31bottom from Sonny balwani to
1:57:35um I'm sorry Ashley why don't you turn
1:57:37first to
1:57:41no I was right this was a very long
1:57:43email so there's an email starting on
1:57:45the bottom of the first page from
1:57:46sunnyvalewani to do you see that I do
1:57:54and
1:57:56here it looks like he's proposing a
1:57:59number of terms to
1:58:02to Sunny to uh do you see that we do so
1:58:06in the first uh section it's titled
1:58:09exclusive use of fairness wellness
1:58:11centers and he writes thereiness is
1:58:14offering additional 400 per week in rent
1:58:17for the additional room and locations
1:58:18with two runes for a total of one
1:58:21thousand two hundred dollars per week
1:58:23instead of 800 dollars per week that's
1:58:26safely proposed an amount significantly
1:58:29greater than any net margin safe we may
1:58:31be making from immunization and
1:58:32consultations currently do you know what
1:58:35he was referring to here
1:58:38just to
1:58:40I'm sure I answer the question you're
1:58:42asking what do you mean by that so did
1:58:44you understand at this time that he was
1:58:47talking about the possibility of
1:58:50um theranos renting space from Safeway
1:58:53yes and in that statement that I just
1:58:56read did you understand that he's
1:58:57proposing to
1:58:59offer more in rent per week to Safeway
1:59:04in order to rent out both rooms
1:59:07in the Wellness Center
1:59:09yes I don't know what it was more than
1:59:12but yes
1:59:14um and and this was taking place in
1:59:16April of 2014 so does that refresh your
1:59:18recollection that these rental
1:59:19discussions were still ongoing at this
1:59:21time yes okay
1:59:24um and then if you look
1:59:25at number two
1:59:27of his email which is on 607 entitled
1:59:31Safeway pilot
1:59:34he writes Safeway already knows about
1:59:36our concerns around agreeing to a pilot
1:59:38now that we have already launched we
1:59:39also can agree to Safeway unilateral
1:59:41unilaterally deciding on the Pilot's
1:59:44success do you see that I do so at this
1:59:47time was it your understanding that the
1:59:48two biggest hurdles
1:59:50um or the two issues that the parties
1:59:52were discussing really use of the
1:59:55Wellness Center space and the fact that
1:59:56Theron has wanted exclusive use of both
1:59:59rooms and also the fact that Safeway
2:00:02wanted to Pilot their nose services
2:00:08I know those were two of the issues I I
2:00:10don't know if if those were the only two
2:00:12there may have been others as well okay
2:00:14can you think of any other issues that
2:00:16were creating this disagreement between
2:00:18safely and fairness
2:00:21well I haven't read this email and there
2:00:24may be more in here I'm I
2:00:33I know that we didn't have a good
2:00:36um essentially working relationship with
2:00:38the project team there and we were
2:00:40trying to sort of replicate what we'd
2:00:43had with Steve bird with someone who was
2:00:45just deeply engaged in making the
2:00:47partnership successful I'm
2:00:49I think we were really concerned that
2:00:53the the fund I saw in the email here is
2:00:55cerebris that was coming in may have
2:00:58different sort of Visions for what we
2:01:00were trying to do and that we'd invested
2:01:02so many years in trying to build
2:01:05something for this that we really didn't
2:01:07want to restart from scratch
2:01:10um
2:01:11there's probably others
2:01:15um if you turn to 608 which is the next
2:01:18page
2:01:20under Safeway exclusivity
2:01:25do you know what this um
2:01:28issue was about
2:01:30do you mind if I take a minute to read
2:01:31it sure
2:02:07um I I interpret it as referring to our
2:02:10ability to work with other grocery
2:02:12stores okay so Safeway was concerned
2:02:15about theranos than working with other
2:02:17grocery stores and that there'd be some
2:02:19kind of provision that that provides for
2:02:21a Safeway exclusivity is that right yes
2:02:24and I also believe there were some
2:02:25complexities around what they had
2:02:27previously defined as the the Blackhawk
2:02:30Network which were other grocers that
2:02:32wanted to work with theranos but not
2:02:35through Safeway
2:02:38uh what's the relationship between
2:02:39Blackhawk Network and Safeway
2:02:43um
2:02:44Blackhawk was a program that Safeway had
2:02:48created to try to sell ideas that it
2:02:50came up with to other grocery stores and
2:02:53they thought that if we provided Lab
2:02:56Services through Safeway they could then
2:02:59essentially
2:03:00teach the other grocery stores how to
2:03:03roll this out and take a fee on it and
2:03:06the other grocery stores came back and
2:03:08said we'd really love to do this in so
2:03:10many words but we don't want to do it
2:03:12through Safeway and so there was a lot
2:03:13of tension about whether theranos could
2:03:16have a direct relationship with those
2:03:17grocery stores or not
2:03:19okay so if you look in the second
2:03:21paragraph under uh 0.4 it says fairness
2:03:24understands the concern you shared this
2:03:26morning that if fairness exceeds in Bay
2:03:28Area by end of this year and if at that
2:03:30point fairness exercise is the right
2:03:33exit right above then it will be free to
2:03:35go to any other grocer and not work with
2:03:37Safeway thus hurting Safeway
2:03:40however our concern is that if Safeway
2:03:42doesn't work with theranos in our
2:03:43partnership with Safeway is failing as
2:03:45it has since May 2013 then we can't
2:03:47restrict our growth with other retailers
2:03:49and Grocers just because Safeway doesn't
2:03:51want to work with us or as pre has
2:03:53proven difficult to work with
2:03:56um did you agree with Mr balwani that
2:03:59the relationship with Safeway was
2:04:00failing and it had been failing since
2:04:02May 2013.
2:04:04I wouldn't have used that word
2:04:06what word would she have used
2:04:09that we had much higher expectations for
2:04:11what we would have done by that point
2:04:13okay so it sounds like there were a
2:04:15number of discussions and things weren't
2:04:17going that well starting in May 2013.
2:04:21and even before then I mean we were we
2:04:25thought we were going to have rolled out
2:04:27to this
2:04:29large footprint that Safeway had done
2:04:31construction on much faster
2:04:36okay and then if you turn back to the
2:04:38first email
2:04:41or I guess it's the latest email but on
2:04:43the first page it looks like Sunny
2:04:45balwani has been forwarding you the
2:04:48email that he sent did he have a
2:04:49practice of doing that
2:04:54I'm just taking a look at the note sure
2:05:04I I don't know if it was a practice I I
2:05:07recognized that he would do this
2:05:08sometimes okay and you know and you also
2:05:11see in his email that he's sending you a
2:05:14draft email that he's planning to send
2:05:15yes you see that so did he have a
2:05:17practice of also doing that I'm sorry I
2:05:19thought that was the question yeah did
2:05:21he have a practice that your first
2:05:22question was did you have a practice of
2:05:24forwarding to you Communications that
2:05:27he's having unilaterally with third
2:05:28parties to keep you apprised my read on
2:05:32that is that he sometimes did that but
2:05:34not always
2:05:37um and then my second question is did he
2:05:40ever practice of sending you draft
2:05:41emails he was planning to send out to
2:05:43third parties again I wouldn't call it a
2:05:45practice I know that he did occasionally
2:05:47and but he he was pretty
2:05:50I'm
2:05:53focused on his ability to run things
2:05:56okay
2:05:58um did you on occasion when you would
2:06:00receive these emails would you edit them
2:06:02and send them that to him
2:06:04before he sent them out I wouldn't be
2:06:06surprised if there were instances when I
2:06:09did there was sometimes like you
2:06:12referenced where I would disagree with
2:06:13the way he was attempting to express
2:06:15things yeah I'm but I I wouldn't say
2:06:18that that was a routine practice to my
2:06:20knowledge to my memory you can set that
2:06:23one aside
2:06:29so at some point the rental model
2:06:31discussions eventually failed is that
2:06:33right
2:06:36I I don't know if I
2:06:38I would say it that way we were we were
2:06:40having those discussions all the way
2:06:42through the fall I'm sorry the winter of
2:06:452015 and it was ultimately
2:06:48the CMS sanctions and or I guess it
2:06:52wasn't sanctions but issues with our
2:06:54laboratory that
2:06:57caused the the final issue in the
2:07:00relationship with with Safeway overall
2:07:03and were you having discussions about
2:07:05the rental model throughout 2014 and
2:07:07through 2015 is that your recollection
2:07:11I don't know
2:07:12do you remember a time when the
2:07:14communication stopped and there was a
2:07:16period of
2:07:17basically no communication with Safeway
2:07:21I I don't I don't have a good memory of
2:07:25starts and stops of the interaction I I
2:07:27wouldn't be surprised if there were sort
2:07:29of dead points in the communications
2:07:45thank you
2:07:49so I'm handing to you what's been marked
2:07:52there and is visited 225
2:07:57is it a 2.5 of course be it in August
2:08:001st 2014 email from to Elizabeth Holmes
2:08:04with page number
2:08:09ts-0046261 and the second line is
2:08:11Safeway fairness have you seen exit at
2:08:13225 before
2:08:16foreign
2:08:19it looks like an email exchange between
2:08:21me
2:08:23if you receive and review exhibit 225 on
2:08:25or about
2:08:27um August 1st 2014.
2:08:30I I don't know if I reviewed it then I I
2:08:33don't have any reason to doubt that I
2:08:35received it then okay do you have any
2:08:36reason to doubt that you also received
2:08:38this email in the bottom of the page
2:08:39from Bob Gordon to you on June 6 2014.
2:08:43no
2:08:44okay so you'll see in this email that uh
2:08:48sort of detailing the history of
2:08:50discussions between theranos and Safeway
2:08:52and I'm not going to ask you any
2:08:53questions about the content of the email
2:08:55but
2:08:57um
2:08:58but you'll see then that he writes again
2:09:00on August 1st 2014 and he's asking for a
2:09:04response to his last email do you recall
2:09:06responding to him I don't
2:09:09do you know if you ever responded
2:09:14my my memory
2:09:16is that I to the extent we were engaging
2:09:19with Safeway would would call during
2:09:20this time but I I don't have
2:09:24specific memory as to whether that was
2:09:26around this August time frame or not
2:09:29okay so you don't remember responding
2:09:31either way I don't okay
2:09:34um
2:09:38do you know if there were any
2:09:39discussions with Safeway after this
2:09:42email
2:09:43in August 1st 2014.
2:09:46whether there were discussions in August
2:09:481st or in the 2014 time frame but after
2:09:51this August 1st 2014 you know
2:09:55do you recall
2:09:57between the first and second of these
2:10:00emails between June of 2014 and August
2:10:02of 2014 having a conversation with Dick
2:10:05kavasovich about
2:10:07possibly terminating the Safeway
2:10:09agreement
2:10:11I I don't recall during that period of
2:10:16time and I know that in the same way as
2:10:19I was talking with I believe he was also
2:10:22having Communications with people on
2:10:25their board and providing guidance on
2:10:27the best way to negotiate to
2:10:31make the rollout happen quickly did you
2:10:33ever think about terminating the
2:10:35agreement with Safeway
2:10:37my memory of it is that was more of a
2:10:39negotiation tactic to get them to roll
2:10:41out dick thought that the space was a
2:10:44great asset and that we needed to to get
2:10:47into that space quickly
2:10:50okay
2:10:51um what is your recollection as to the
2:10:53next communication that you had with
2:10:55Safeway after this email on August 1st
2:10:582014. I I don't know
2:11:10I'm going to ask you to lift back that
2:11:13very thick document over there
2:11:16which I believe was
2:11:25there no specific 221 thank you yes
2:11:32so
2:11:38turn to 6337
2:12:00are you there
2:12:03yes
2:12:07there is a
2:12:10text message about a third of the way
2:12:12down the page on February 27th 2015 from
2:12:17you to Sonny balwani and you say do you
2:12:20think I should go up to PC that I do you
2:12:22say no uh you say no harm if
2:12:26I'm sorry something about wania then
2:12:28responds to you and he says no harm if
2:12:30you feel right
2:12:31and then you respond he's talking to
2:12:33someone in the room I'm going to wait
2:12:34outside do you know who was who are you
2:12:37referring to here
2:12:39no I I believe this is a second yes
2:12:42um and then you then also say very good
2:12:45convo he really wants to get done says
2:12:47guy I talked to you at Cerberus is
2:12:49decision maker that guy was apparently
2:12:51pissed I said note note I think to him
2:12:54is what she meant do you see that yes do
2:12:58you remember that conversation with
2:13:00I just in reading this I I generally
2:13:04remember that I that I met with him okay
2:13:08there was apparently there was some
2:13:10meeting that was taking place that you
2:13:11were both attending yes do you remember
2:13:13which meeting that was
2:13:17um it was either a business Council or a
2:13:19Business Roundtable meeting and I was
2:13:22speaking there okay so you didn't expect
2:13:24to see
2:13:25um there
2:13:26no okay so
2:13:29um and it says do you think I should go
2:13:30up do you think that you hadn't had any
2:13:32conversations with him in preceding
2:13:34months before this
2:13:36not necessarily I I may have been on the
2:13:39phone with him I just can't remember
2:13:41specifically whether I was
2:13:45um and then
2:13:47Mr balwani then responds that's fine we
2:13:49will send them letter and see if they
2:13:51want to get moving or term did you
2:13:53understand him to mean terminate
2:13:56terminated or what do you what do you
2:13:58understand him to mean by term
2:14:02I'd be guessing I'm not sure
2:14:07but don't guess
2:14:10well did you have any understanding as
2:14:13to what that meant
2:14:15I would think I did at the time I just
2:14:17don't know sitting here now
2:14:19okay and then
2:14:21you write back to him and you say wants
2:14:23to come back with to me with how to get
2:14:25done
2:14:26and Mr baloney says come back where
2:14:29he says okay I get it I assume you told
2:14:31him rent model
2:14:33and then a couple text messages down you
2:14:35then respond it was implied
2:14:40do you see it do you see that
2:14:42I do
2:14:44um
2:14:45what do you
2:14:47understand what did you mean when you
2:14:50said how to get done
2:14:55I I don't know I'm assuming sitting here
2:14:58now that it means uh rollout
2:15:02yeah
2:15:04would you be surprised if there if there
2:15:08hadn't been any conversations or
2:15:10Communications between fairness and
2:15:11Safeway from the August 2014 time frame
2:15:14to this February 2015 encounter
2:15:18I I just don't know I I don't know when
2:15:21I was on the phone with him I don't know
2:15:22when dick was talking to some of their
2:15:23board members and we had other people
2:15:25who were interacting with them as well
2:15:27who were affiliated with us
2:15:30who else was acting on behalf of
2:15:31theranos to communicate with Safeway
2:15:34so I just understand yeah Mr kosovich
2:15:36yourself Mr Bowen
2:15:40I have in my mind that some of our board
2:15:43members knew knew some of their board
2:15:45members and I'm trying to remember who
2:15:47was having the interactions I'm
2:15:53I I need to think about it
2:15:57what do you think about it later yeah
2:15:58yeah I will I will
2:16:03do you recall a letter from April of
2:16:062015
2:16:08uh no do you recall a letter that she
2:16:12might have sent to restart the rental
2:16:15agreement model discussions
2:16:18I don't
2:16:20do you is there a practice of fairness
2:16:24employees sending you letters whenever
2:16:26they're you know especially a letter to
2:16:29non-safeway relationship would you
2:16:32expect that somebody would send you a
2:16:34copy of that letter to keep you apprised
2:16:36of what was going on
2:16:37generally yes
2:16:41what happened to the theranos Safeway
2:16:44partnership in the end
2:16:46as we were discussing earlier by the end
2:16:51of
2:16:512015 we had discussed a model for
2:16:56rolling out I think about 30 stores
2:16:57under the lease rental model that we had
2:17:00wanted to pursue but by that time we had
2:17:03serious issues with our our lab
2:17:05operations that we were dealing with and
2:17:07ultimately terminated with the
2:17:09discussion that if we were to resolve
2:17:11the lab issues we would go back and
2:17:14engage with them on trying to rent out
2:17:17the space
2:17:18and so when did those discussions take
2:17:21place on the lab issues
2:17:24all the way through the end of 2015 and
2:17:27potentially into January of 16.
2:17:31we take on a break
2:17:33I have just a couple more questions we
2:17:36just finished this topic I think we're
2:17:37close to me now a bit okay all right
2:17:39yeah I guess at the end of 2014 did did
2:17:43you have any expectation that Safeway
2:17:45was imminently going to roll out well
2:17:47there are services at Safeway
2:17:50I think we always thought that we could
2:17:52if we agreed to some of what they wanted
2:17:55from us if we needed that to supplement
2:17:59our our footprint I I guess but did you
2:18:02have any kind of concrete expectation
2:18:04that stores were going to open in early
2:18:052015.
2:18:07I I think I mean I I don't remember
2:18:10exactly what I was thinking at the end
2:18:11of 14 but I I know that because that
2:18:13footprint had already been completely
2:18:15built out with very custom specific
2:18:19details that we designed to our workflow
2:18:22we knew that you know if we said okay we
2:18:26agree to certain Provisions or
2:18:27compromised on our negotiating position
2:18:29we would be able to get into it and get
2:18:31a very large footprint very quickly
2:18:35do you know whether there were any
2:18:36preparations underway between Safeway
2:18:39and fairness to roll out stores in the
2:18:41beginning of 2015.
2:18:43I don't
2:18:44you're not aware of any preparations
2:18:48I I can't remember anything specifically
2:18:55in your mind did you have a
2:18:56geographic location where you expected
2:18:58Safeway stores to roll out at the start
2:19:00of 2015.
2:19:02this started 2015. I am
2:19:06what I remember is to the extent we were
2:19:09having sort of initial rollout
2:19:10discussions there were two options that
2:19:13we spent a lot of time talking about one
2:19:15was the Bay Area in California the other
2:19:17was Wyoming and it really depended on
2:19:22where some of these things played out
2:19:24with respect to announcement rates and
2:19:27how visible ultimately we thought this
2:19:30was the deployment initial deployment
2:19:32was going to be if Safeway maintained a
2:19:35right to terminate after it
2:19:43record at 11 42 and
2:19:52thank you
2:19:55we are back on the record at 11 56.
2:19:59songs did you have any sense of
2:20:01conversations with the SEC staff during
2:20:03our break no
2:20:05do you recall a time when fairness began
2:20:08offering blood testing services to
2:20:11Safeway employees
2:20:16um
2:20:17I I know that there was a period of time
2:20:20in which theranos handled the samples
2:20:24that were collected by the on-site
2:20:27clinic at Safeway
2:20:29okay what do you mean by handle the
2:20:31samples so it wasn't labeled to my
2:20:35understanding theranos it was the clinic
2:20:37service and then the clinic would
2:20:39collect the samples and send them to
2:20:42fairness
2:20:43was the clinic conducting finger stick
2:20:45drawers or venous draws the only venous
2:20:49draws for patient testing I believe
2:20:51people could also opt into a research
2:20:56study in which we would collect finger
2:20:58stick
2:20:59but not for data that would be reported
2:21:02back to patients okay so the blood would
2:21:04be drawn at the clinics but then the
2:21:06samples would be sent to fairness lab
2:21:08for testing
2:21:10no I don't think we were I don't know
2:21:12what we were doing with them when they
2:21:13came to the lab I think we were trying
2:21:16to focus on how you would train someone
2:21:17to do a finger stick so the collection
2:21:19happened I I do know the samples came
2:21:22back I don't know what happened after
2:21:23that do you know what devices were used
2:21:26to process those samples
2:21:28I I don't it's my
2:21:30memory that there generally wasn't
2:21:32testing happening on those samples and
2:21:35just that we were doing the collections
2:21:36for purpose of beginning to refine that
2:21:39workflow and the training of the finger
2:21:41stick collection it's your understanding
2:21:43that there wasn't any testing being done
2:21:44on the samples that Safeway employees
2:21:46were providing
2:21:48my memory is that there was some
2:21:51studying of whether the samples had
2:21:52hemolized or lysed you know clotted or
2:21:55did not have good Integrity but I I
2:21:57don't think there was actual testing
2:21:59done on those samples and just to
2:22:01understand you mean the the samples that
2:22:03were done on the finger sticks correct
2:22:06yeah I'm sorry yeah so so with respect
2:22:10to the venous draws then that were done
2:22:11at the clinic yes this was fairness
2:22:15processing those samples
2:22:17yes those were processed on traditional
2:22:19commercially available machines and or
2:22:21sent to what I had previously referred
2:22:23to as a reference lab which is a
2:22:25third-party lab did you ever tell anyone
2:22:28at Safeway that those samples were being
2:22:31processed by third party commercially
2:22:33available machines are being sent out to
2:22:34reference Labs I believe so yes who did
2:22:37you tell
2:22:38I I don't know specifically
2:22:41I can't remember okay so you don't know
2:22:43either way whether
2:22:45you ever told
2:22:46anyone at Safeway that you were using
2:22:49third party machines were sending out to
2:22:50reference Labs I remember Safeway
2:22:53helping us to look at UCSF as a closer
2:22:57Reference Lab so I believe that there
2:23:00was discussion about the use of a
2:23:02reference lab because of that
2:23:04um but I I don't remember specific
2:23:06conversations
2:23:07okay and what about whether
2:23:10you told Safeway or anyone at Safeway
2:23:13that you were using commercially
2:23:15available machines that there knows the
2:23:16process example
2:23:19when did you do that
2:23:22I I think before we agreed to
2:23:27um
2:23:27do the testing because there was a
2:23:30discussion about the fact that it would
2:23:31just be venipuncture on traditional
2:23:33machines so that we could work through
2:23:35some of the workflow
2:23:36development that we were we were trying
2:23:39to do that we would not be collecting
2:23:40finger stick for patient testing and who
2:23:43did you tell that to
2:23:45I I don't know I mean I would assume to
2:23:48the extent I had conversations it was
2:23:49with Steve bird but I don't know
2:23:57so now I want to change yours again
2:24:00um
2:24:02yeah it's so funny I it's the most it's
2:24:06the least sincere thing I ever do
2:24:08because I almost always offer the staff
2:24:09cloth you want to go down no you can't
2:24:11accept but I didn't do it today I think
2:24:14the high road
2:24:16okay I wanted to change gears again now
2:24:19and focus now on CVS
2:24:23was there a time when fairness began
2:24:25having discussions with CVS
2:24:27yes
2:24:28when was that
2:24:32so there was a series of discussion over
2:24:35a period of years
2:24:37I'm I don't know when the first one was
2:24:41but it may have been as early as 2010 or
2:24:45or sooner I I don't know so around the
2:24:48same time that you might have started
2:24:49discussions with Walgreens in Safeway I
2:24:51think so
2:24:52uh what were those discussions about was
2:24:54it along the same lines as what you were
2:24:57discussing with Walgreens and Safeway to
2:24:59put a tspu in CVS stores
2:25:03um like all of our retail partner
2:25:06conversations have changed over time I
2:25:08think in the earliest time frame my
2:25:11memory is that we were actually talking
2:25:13about using the tspu in their Minute
2:25:17Clinic because they had a lot of
2:25:19point-of-care technology in their Minute
2:25:21Clinic and that that was what they
2:25:22specifically were interested in it it
2:25:25changed later
2:25:26okay so what did it change to later
2:25:30um ultimately we were discussing a lease
2:25:33model in which we would build out spaces
2:25:36within their stores
2:25:38and and there was iterations of that in
2:25:40the meantime
2:25:42what were your contacts at CVS
2:25:46so I I did not have the majority of
2:25:49direct contact with them my memory is
2:25:52that
2:25:53at least
2:25:55um
2:25:55at the in our last context with them was
2:25:59one of the principals who was
2:26:02engaged I think most directly with sunny
2:26:05but I I don't I don't know by memory all
2:26:09the people who were involved I I had a
2:26:12little bit of contact with toward the
2:26:14end of
2:26:16the engagement that we had with them
2:26:20oh you just said the end of the
2:26:22engagement did the engagement end
2:26:25just the interactions we were
2:26:26interacting around building a CLIA
2:26:29certified lab collection center in their
2:26:32stores we we may very well be
2:26:35interacting with them again
2:26:37uh did has theranos entered into a
2:26:41contract with CVS no it's my knowledge
2:26:43okay and so when you just said the end
2:26:45of the engagement or the end of the
2:26:46discussions when did the most recent
2:26:48discussions end
2:26:50I believe
2:26:52um
2:26:54in mid last year but I'm I'm not
2:26:58completely sure
2:27:00what happened
2:27:02we ended up
2:27:05receiving I think it was a notification
2:27:07of sanctions from CMS and trying to work
2:27:10through those issues and then decided to
2:27:13exit the clinical lab business
2:27:14so did you terminate the discussions or
2:27:17did CVS terminate
2:27:20I think the last email was keep us
2:27:22posted and we our plan has been to
2:27:25re-engage around what we're trying to do
2:27:28right now with minilab
2:27:30so the last email was from CVS saying
2:27:32please keep us posted I don't know what
2:27:35the last email was okay so you have no
2:27:38idea
2:27:39either way it's my understanding that
2:27:42that's where it was left and it's my
2:27:44understanding on on good terms
2:27:51okay so I want to change topics again
2:27:54how did you keep yourself apprised of
2:27:57the financial condition of the company
2:28:00I I trusted Sunny to run it and from a
2:28:04cash management perspective
2:28:07dates on how much in Revenue as the
2:28:09company was making
2:28:11not in revenues we were generally
2:28:14focused on tracking our cash balance
2:28:16internally and I would get updates on
2:28:18that how often would you get updates on
2:28:21your cash balance
2:28:24I'm sure it changed over the years but
2:28:27at some periodic frequency I don't know
2:28:29specifically what the frequency was
2:28:31do you think it was you know every did
2:28:34you ask her for updates every week or
2:28:36every month
2:28:38I I don't know I don't know
2:28:41it was it was at some recurring
2:28:43frequency
2:28:45um
2:28:48I mean you wouldn't go for a year
2:28:49without asking for the the cash balance
2:28:52right no so do you think you would ask
2:28:54or maybe every month or every couple
2:28:56months
2:28:57something like that it's my memory that
2:29:00I asked her to send it at a recurring
2:29:03interval like monthly I don't know if it
2:29:05was monthly something like that
2:29:09and
2:29:10did you apprise the board of the
2:29:13company's Financial condition
2:29:15we generally tracked our cash balance
2:29:17and then we talk about what we thought
2:29:20our potential was in terms of
2:29:22what we were working to do
2:29:24did you ever provide financial
2:29:26statements to the board that included
2:29:28you know both historical financials or
2:29:31financial projections
2:29:33not financial statements in the way that
2:29:35we're working to put them together now
2:29:38but we would share essentially what our
2:29:41cash balance was and what we models that
2:29:44would essentially have a series of
2:29:47assumptions on what we thought we could
2:29:48do in terms of potential revenue and if
2:29:52we'd received payments you know payments
2:29:53we'd received
2:29:56are those those financial
2:29:58documents that you would
2:30:00present to the board
2:30:03well just to be clear I did not present
2:30:05financial documents to the board so I
2:30:07always presented financial documents to
2:30:09the board yeah and and he would prepare
2:30:11the documents that he presented
2:30:13okay so there was never a time in the
2:30:16company's existence when you presented
2:30:18financial information to your board not
2:30:21that I can remember
2:30:23in preparation for those board meetings
2:30:25would you go over Sonny's proposed
2:30:27presentation uh sort of as like a dry
2:30:31run before presenting it to the board
2:30:33we wouldn't do a dry run generally a few
2:30:35minutes before the board meeting he
2:30:37would show me what he was going to be
2:30:38presenting
2:30:39um but I don't know that that happened
2:30:41every time as a gentlemanary
2:30:45whether before the board meeting or
2:30:47during the board meeting you paid
2:30:48attention to the financial information
2:30:49that was being presented about the
2:30:51company yes
2:30:54were there also times when prospective
2:30:56investors would ask to see the
2:30:58financials for the company
2:31:02um
2:31:03I I can't remember a specific
2:31:05conversation in which they asked for
2:31:07financials but I'm sure I'm sure there
2:31:09were investors who asked for financials
2:31:11at different points in time do you
2:31:13recall providing financials to
2:31:15prospective investors
2:31:17I I don't think so we we didn't have
2:31:19audited financials for a period of time
2:31:21okay if not audited financials do you
2:31:24remember providing unaudited financials
2:31:27to prospective investors I think we
2:31:30generally provided projections and I
2:31:32know we generally communicated about
2:31:34receipt of the payments that we'd gotten
2:31:37from retailers and and where our cash
2:31:40balance was okay so who was involved in
2:31:43putting together the financial
2:31:44projections that went to investors sunny
2:31:48did you have any involvement in that
2:31:50I saw what was in at least written
2:31:53material that we shared and and I as we
2:31:57discussed the other day generally
2:31:58understood that it was based on
2:32:00what we thought we could realize with
2:32:02the retail footprints that we thought we
2:32:04could build out
2:32:05did you agree with Sonny's Financial
2:32:07projections of the company that you were
2:32:10showing to investors
2:32:12I mean I I don't he had a lot of
2:32:14different models that he would create
2:32:16based on how things were evolving I
2:32:18think generally the assumption that we
2:32:22could hit a certain footprint was
2:32:23something that I believed was possible
2:32:26and you know if you had any problems
2:32:28with the assumptions or how the model
2:32:30was being built would you discuss that
2:32:32with sunny yes but I I generally
2:32:36deferred to him in this area
2:32:37can you recall an instance in which you
2:32:39did discuss with him
2:32:41revising the model to be more in line
2:32:43with assumptions that you thought were
2:32:45appropriate
2:32:47I I don't know that I was ever
2:32:51setting the assumptions for the model I
2:32:53I remember in the context of board
2:32:56discussions generally that he would
2:32:58share what the assumptions were and they
2:33:00seemed reasonable just in terms of
2:33:04again the retail footprint
2:33:08so I guess I'm trying to put myself in
2:33:09your uh to try to understand your
2:33:10perspective as the CEO definitely at the
2:33:12time what was the financial condition of
2:33:14the company something I I understand
2:33:16your testimony to be that you generally
2:33:17deferred to him on preparation of the
2:33:19the projections was it an area that
2:33:23you'd hope to learn more about or get
2:33:25more involved in over time
2:33:29my thinking was that if I had someone
2:33:32who knew how to do this well I could
2:33:35defer that to that person and that where
2:33:38I should really spend time in the
2:33:40company is on what our board would
2:33:42always call my comparative advantage
2:33:44which was inventing and sort of the
2:33:46strategy and the vision for how this
2:33:48could be rolled out and what gave you
2:33:51the belief that Sunny ball wani was a
2:33:53good fit for for preparing these
2:33:56Financial projections
2:33:58he was very confident in his ability to
2:34:00do it as I understood it he had
2:34:03successfully built and sold his own
2:34:06company and
2:34:08therefore I thought he was qualified to
2:34:11to do it
2:34:13I guess did he ever did he ever explain
2:34:14anything you to you about his experience
2:34:17um you know growing growing and selling
2:34:19that prior company that would relate
2:34:21specifically to the creation of
2:34:22financial projections
2:34:25I know but he understood Excel really
2:34:28well and he seemed to be good at
2:34:30creating models and I didn't have
2:34:32experience or
2:34:33any background in that so I I just
2:34:36deferred to him
2:34:40so you mentioned earlier that you did
2:34:41see the financial projections that Sunny
2:34:44would send out to investors did you ever
2:34:46send out Financial protections to
2:34:48investors directly typically I don't
2:34:50know that I saw all of them because he
2:34:52did have a lot of contact with investors
2:34:55after I would meet them initially
2:34:58I don't know if they ever came from my
2:35:02email account they they might have they
2:35:03would have been documents that he'd
2:35:05prepared for that purpose
2:35:08would you
2:35:09in those instances in which you would be
2:35:11sending out the financial projections
2:35:13directly would you review them prior to
2:35:15sending them out
2:35:18I don't have specific memory of
2:35:21the situation in which I was sending
2:35:23them out so I don't know if I had
2:35:25reviewed it beforehand I I would think
2:35:28that what we would send would be
2:35:30generally consistent with sort of
2:35:32assumptions that I would believe in in
2:35:34terms of again the retail footprint
2:35:37is it generally your practice to review
2:35:39documents that you're attaching to
2:35:41emails when you're sending them out
2:35:43to anyone in the company or outside of
2:35:45the company
2:35:46I think it depends on what it is if I'm
2:35:49if I'm just forwarding something that
2:35:51has already been reviewed by a team of
2:35:53people not necessarily if I'm creating
2:35:56content myself clearly if it's something
2:35:59I've never seen before and I'm sending
2:36:02maybe I need to look at a specific
2:36:05example
2:36:07I guess turn it back to the 2014 time
2:36:10frame uh who had thrown us had the
2:36:12ultimate sort of final say on the
2:36:14company's Financial projections Sunny
2:36:16did and and who had ultimate final
2:36:18Authority on in terms of uh when and how
2:36:21to recognize Revenue
2:36:24I I don't know that we were really ever
2:36:27recognizing Revenue in a gap way I mean
2:36:30we've brought Alvarez and Marcel in over
2:36:31the course of the last year to help us
2:36:33build systems to do this right we were
2:36:35really focused on cash accounting and
2:36:37would generally describe payments as
2:36:39they were received but Sunny would
2:36:42figure out how they should be reflected
2:36:45in the models that we were building
2:36:47what about I mean
2:36:50what about just on the books of the
2:36:52company who had ultimate decision in
2:36:54terms of whether something can be
2:36:56treated as cash that can be used for for
2:36:58operations
2:37:00between Sonny's they would have made
2:37:03that decision
2:37:08so what was the purpose of you reviewing
2:37:10the cash balance of the company
2:37:15I mean as a
2:37:17young company we were just trying to
2:37:19make sure that we had enough cash we
2:37:21were investing a lot in r d and
2:37:23operations and hiring people and wanted
2:37:25to get ready for these rollouts and
2:37:28launches and
2:37:29I needed to make sure that we weren't
2:37:31going to have to
2:37:33either change our operations or that we
2:37:35run out of cash so so you needed to
2:37:38generally make sure that you know the
2:37:40company was running smoothly that cash
2:37:42was going where it needed to be going
2:37:43and that there was enough cash
2:37:46to run the business
2:37:47is that right I was mostly making sure
2:37:49that there was enough cash to run the
2:37:51business yes
2:37:54I wouldn't say that I was necessarily
2:37:56the one managing where cash was going
2:37:58within the business
2:38:01going in the business
2:38:03we didn't have formal budgeting in place
2:38:05but
2:38:07the purchase order system reported in
2:38:11through sunny and he saw all the POS
2:38:13that were going through the system what
2:38:16about employee salaries
2:38:18who was reviewing that and making sure
2:38:20that there was enough cash to pay your
2:38:22employees
2:38:24the employee salaries were set based on
2:38:27compensation recommendations from
2:38:29whoever we had working in HR and then we
2:38:32were monitoring that based on what the
2:38:33cash balance was who's we myself uh
2:38:37Sunny okay and who was who would be
2:38:40um
2:38:41approving the compensation
2:38:43recommendations that you were being
2:38:45given
2:38:46who would have the ultimate say I think
2:38:48it depends on the period of time early
2:38:50on I would review and interview
2:38:53everybody then later I didn't and so I
2:38:57needed
2:38:58I think ultimately he may even have
2:39:00stopped interviewing and reviewing
2:39:02everyone and delegated some of that I
2:39:04don't know when that happened
2:39:08did you review projections Financial
2:39:11projections that were sent to Rupert
2:39:14Murdoch
2:39:15I've seen them
2:39:18I guess before they were sent out to Mr
2:39:19Murdoch did you review those projections
2:39:22I don't remember
2:39:24um but I've I've seen the documents in
2:39:25that binder
2:39:27you review them with Mr Murdoch in any
2:39:28of your meetings with him
2:39:31or something similar to the doctor of
2:39:32the Sun
2:39:34I don't know
2:39:36I'm not sure
2:39:41what about with the capital did you
2:39:43review Financial projections that were
2:39:46sent to Capital at the time they were
2:39:47sent
2:39:49I remember that when we asked them to
2:39:51work as an advisor to us was actually
2:39:53helping us to build a model
2:39:55um
2:39:56I don't know if I reviewed what was sent
2:39:59to them beforehand I remember
2:40:03I remember that they were working on
2:40:05creating one for us
2:40:08was that your understanding of part of
2:40:10what the purpose of the engagement was
2:40:12was to help build a financial model in
2:40:15the beginning yes as we discussed it
2:40:16changed over time do you know if the
2:40:19company ever used model that was if one
2:40:22was provided I think that we used parts
2:40:25of it I don't know that we used all of
2:40:27it
2:40:28was that your understanding at the time
2:40:30those discussions were taking place as
2:40:31well or is that just well you've come to
2:40:33understand that so what I've come to
2:40:35understand now
2:40:37do you have any understanding you know
2:40:39back the 2014 time period of of how the
2:40:41company was using the information it was
2:40:43getting from
2:40:45I I don't I don't
2:40:48Who would know that
2:40:50I would talk to Sonny about it
2:40:54what about uh pfm partner fund
2:40:57management did you review Financial
2:40:59projections that went out to them at the
2:41:01time that they were sent I I don't think
2:41:03I did
2:41:06I I think my current understanding is
2:41:09that they had asked for some information
2:41:12from Sunny to build their own model and
2:41:14he sent information to them that they
2:41:16thought would be useful for that
2:41:18so you're not a you're not you don't
2:41:20remember
2:41:22um
2:41:22either reviewing or receiving those
2:41:24projections before they were sent to pfm
2:41:26I don't
2:41:35in the fall of 2014 did you believe that
2:41:39fairness would be able to exceed 100
2:41:40million dollars in revenues
2:41:43by your end
2:41:45so I don't remember
2:41:48what I thought then
2:41:50um but I'm
2:41:54I I don't remember what I thought
2:42:00what about
2:42:03um
2:42:04did did you have any understanding of
2:42:08whether and that's right that we need to
2:42:11start over again
2:42:12in August 2014 did you believe that
2:42:15fairness would break even by your end
2:42:19again I don't remember what I thought at
2:42:21that time I
2:42:23I look back on how we were thinking
2:42:26about growth based on retail footprint
2:42:28and that if we could hit a certain
2:42:30number of locations we would see a
2:42:32certain number of a certain amount of
2:42:34Revenue
2:42:36what does break even mean to you
2:42:39that we are getting as much cash into
2:42:42the company as cash going out of the
2:42:44company
2:42:47I guess do you have any recollection
2:42:49from August 2014 through the end of that
2:42:52year about whether you thought the
2:42:53company was going to break even
2:42:55in 2014.
2:42:57I I can't I can't remember where my head
2:43:00was in those months it was a long time
2:43:02ago I I'm not sure was that a concern of
2:43:05yours at the time
2:43:06in 2014 whether we were going to break
2:43:08even right
2:43:10um
2:43:11I think at that time I was more
2:43:15concerned about how fast can we roll out
2:43:16the retail footprint and how quickly can
2:43:18we start that ramp
2:43:20and and I believed that the revenue and
2:43:23cash inflow would come from that
2:43:27why were you focused on the rollout of
2:43:31the fairness wellness centers at that
2:43:33time why was that important to you it
2:43:35was my understanding that our revenue
2:43:37streams were based around that so if we
2:43:40could hit a certain footprint then we
2:43:41would see full of people coming in to
2:43:44the stores as well as Associated revenue
2:43:46from other services that we could
2:43:48provide
2:43:49what is that Associated Revenue
2:43:52we thought we would be able to in a
2:43:55geography that we were in see revenue
2:43:58from samples coming from physician
2:44:00offices and hospitals and also begin to
2:44:02provide pharmaceutical trials around the
2:44:04retail footprint
2:44:06this was in this was in kind of that
2:44:08fall 2014 period you had that belief
2:44:11I I think we always thought I mean going
2:44:14back to when we put the contracts in
2:44:16place that you could build uh services
2:44:19like the Pharma studies around the
2:44:21retail footprint I guess in the fall so
2:44:24by that point the fall of 2014
2:44:26had a retail footprint in Arizona right
2:44:28we did uh had it done anything to build
2:44:31out a Pharma trials yeah trial business
2:44:35in in Arizona at that time
2:44:38Walgreens had a team that was focused on
2:44:40engaging with pharmaceutical companies
2:44:42to do clinical studies through the
2:44:44stores and as I understood it there I
2:44:47don't know if it was at that time
2:44:48specifically but there was a lot of very
2:44:50positive engagement with those companies
2:44:52to run the clinical trials
2:44:55okay but it was still sort of in the
2:44:57concept stage rather than the actually
2:44:59offers actually offering Services stage
2:45:02the way I've always thought about it is
2:45:04that it was triggered by how many stores
2:45:06we had and so if we had a bigger
2:45:09footprint then we would be able to run
2:45:10these studies and so in your mind what
2:45:13was the sort of the the minimum number
2:45:15of stories that their owners would need
2:45:16to have in a given geography that
2:45:19um to run those studies
2:45:21I I don't know if I ever thought of it
2:45:23as having a minimum number I think it
2:45:25was more that you would need to be
2:45:28ramping up roll out I mean the 41 number
2:45:30that we sort of plateaued at I was
2:45:33always associated with what was
2:45:34initially a pilot and we never really
2:45:36ramped beyond that so it was when we
2:45:38were getting into this National ramp we
2:45:40thought we were going to do is I guess
2:45:42so as long as as long as fairness was
2:45:45just in those 41 stores you didn't have
2:45:47any expectation that it was going to
2:45:49gain any money gain any revenue from
2:45:51these Farm Services
2:45:53Associated Revenue kind of stream is
2:45:55that is that fair
2:45:56no I mean both of them are previous work
2:46:00with pharmas as well as the engagement
2:46:02that Walgreens had with them we thought
2:46:04that for example you could use it as a
2:46:07site to enroll people but we were so far
2:46:10as projections are concerned really
2:46:12looking at the ramp as sort of the
2:46:15trigger for
2:46:16realizing through the multiple streams
2:46:18of Revenue that we were thinking about
2:46:21yeah I guess setting aside the
2:46:24projections just as a matter of you know
2:46:25this concept of thinking about uh
2:46:29ramping up Walgreens sure did you
2:46:33did you think you were going to have any
2:46:34you know pharmaceutical Services
2:46:35business if if fairness was just in the
2:46:3941 stores
2:46:41I I honest I don't think we thought that
2:46:43we were going to just be in 41 stores I
2:46:45think we thought that we were always
2:46:47about to ramp I don't think we were
2:46:49thinking about we're just going to be in
2:46:5041 stores
2:46:52you also mentioned just a minute ago the
2:46:54sort of the prior work that theranos had
2:46:56done with those pharmaceutical Partners
2:46:58or Partners like
2:46:59GSK and sharing plow was that is that we
2:47:02had in mind there
2:47:04um I was specifically as I said that I
2:47:06was thinking about
2:47:07um
2:47:08the opportunities that existed to do new
2:47:11programs based on some of the people
2:47:13within those Pharma companies who had
2:47:15expressed interest based on the success
2:47:17of the initial programs
2:47:22did you discuss with anyone at Walgreens
2:47:25the concept that theranos would be the
2:47:27service provider for their Pharma
2:47:29relationships these clinical trials
2:47:32and just to answer the question best
2:47:34what do you mean by service provider
2:47:36well how is it that you alluded to
2:47:39Walgreens having relationships the
2:47:42Pharmaceuticals and that theranos would
2:47:45earn money from that and I'm just trying
2:47:46to how is that supposed to work and who
2:47:48did you discuss it yes yes
2:47:50um so specifically the concept was that
2:47:53you allow people who walk into retail to
2:47:57enroll in a clinical trial for a
2:47:58pharmaceutical study they then would
2:48:00have a lab order it's not a
2:48:03physician-directed lab order but for an
2:48:05investigational use and they would get
2:48:07their sample collected at Walgreens for
2:48:10the purpose of the trial and then
2:48:13the Pharma company could use that for
2:48:15their clinical trials so because it was
2:48:16you're going to use the stores as sites
2:48:18and
2:48:19that was something that we discussed way
2:48:21back into 2010 and the original
2:48:24agreement
2:48:30fairness is inception until the
2:48:32president has fairness ever achieve
2:48:34Breakeven status
2:48:36I don't think so
2:48:39was there a time when theranists engaged
2:48:42company called aranca to prepare a 409a
2:48:45report to Value the companies of common
2:48:47stock yes
2:48:49and did you provide financial
2:48:50information to ranca for that purpose
2:48:54um I think so yes
2:48:58was it your intent and just to be clear
2:49:00by you you mean theranos or you mean me
2:49:02personally I met you oh I I don't think
2:49:04I personally did know okay who did
2:49:08um I think
2:49:09did you approve the financial
2:49:11information that she provided to iraqa
2:49:13and in some cases I think so
2:49:16was it your intent to provide accurate
2:49:18information to Iraq for the purpose of
2:49:20valuing the company's common stock
2:49:24um to the extent we were using it for
2:49:26issuing options yes we we also used
2:49:29aranca for other purposes as we work to
2:49:33develop our own internal evaluation
2:49:34models
2:49:36okay so I just asked you whether it was
2:49:37your intent to provide accurate
2:49:39information to Iraq are you saying that
2:49:41for other purposes it wasn't your intent
2:49:43to provide accurate information I know
2:49:45there were some instances in which we
2:49:47would hold Financial models constant to
2:49:49look at the impact of certain events
2:49:52like the financings
2:49:54on the stock price we were not using
2:49:57those reports as 409as in the
2:50:00traditional sense but we were using them
2:50:01as a external evaluation methodology
2:50:05that we could then build our own
2:50:06internal model from
2:50:09why use a 409a report as for that
2:50:13purpose
2:50:15um we'd received guidance that if we
2:50:17were to try to structure ourselves as a
2:50:19private company and build our own model
2:50:22for valuing our stock it would be useful
2:50:25to have a reference method that was done
2:50:28by a third party that we could use in
2:50:31forming our own model
2:50:32sure but why why why not hire a
2:50:36valuation firm to do that work the
2:50:39specific guidance that we've gotten was
2:50:40to have this firm that had been working
2:50:42with us and already built models for
2:50:45I'm understanding
2:50:47how they valued our stock to continue
2:50:49but just look at the differential impact
2:50:51of the financing events on the value of
2:50:55the stock that they previously
2:50:56established who gave you that advice
2:50:59and that that may raise privilege issues
2:51:02but I I get it to the extent it's not a
2:51:04turning I guess you know is is you know
2:51:07looking back at that time was was just
2:51:09so just tell that there was if there was
2:51:11a non-attorney or non-attorneys who gave
2:51:13that advice they could identify them but
2:51:15nothing else
2:51:18and you could say yes or no to that were
2:51:20there not attorneys
2:51:21it was discussed by our attorney with
2:51:24our board but it was an attorney who
2:51:27gave us feedback start going to that
2:51:28okay so today and the non-attorney board
2:51:31members express any concerns about using
2:51:33a 409a evaluation
2:51:35for the purpose you just described there
2:51:37was some confusion about it and we
2:51:39discussed that too in uh at least one of
2:51:42our board meetings
2:51:44I guess what do you mean by confusion
2:51:47um
2:51:48that we were using the model for the
2:51:51purpose of developing an internal
2:51:52evaluation method and that that was why
2:51:54we were holding our projections constant
2:51:56in that version of the model while we
2:51:58were sharing with our board the
2:52:00projections that we hoped to be able to
2:52:02achieve
2:52:03who expressed that confusion I did
2:52:05kavasovich anyone else
2:52:09not that I can remember others might
2:52:11have he he was the most vocal in the
2:52:13board meeting which this was discussed
2:52:15did you ever tell oraca that you were
2:52:17using their valuation report for the
2:52:20purpose you just described I don't know
2:52:28and just to clarify when we say internal
2:52:30evaluation model
2:52:31saying that someone internally was
2:52:33actually taking their reports and then
2:52:37putting them into a model that the
2:52:38company that owned just trying to
2:52:40understand what you mean by internal
2:52:41value yes
2:52:43um so we we believed that we were going
2:52:46to structure ourselves as a private
2:52:48company
2:52:49I was learning about and trying to model
2:52:52some of that off of the guidance that
2:52:54I'd received from Riley Bechtel about
2:52:56how they value their stock they have an
2:52:59internal valuation model to Value their
2:53:01stock we thought that we would try to
2:53:04build one too and we actually thought
2:53:06that ultimately it would be great to
2:53:09have the common stock in the preferred
2:53:11stock price be the same so that we could
2:53:13stay as a private company and so the
2:53:16question was how do we build an internal
2:53:18model and the
2:53:21um
2:53:22process that was agreed upon was to have
2:53:25some third party
2:53:28um
2:53:29continue to do valuations over a period
2:53:32of time so that for example it wouldn't
2:53:34be just us saying that if you raised a
2:53:37material amount of money it impacted
2:53:39your stock price in this way you could
2:53:42refer back to this as a reference source
2:53:45for how you were building the model in
2:53:47the algorithm I I don't think we ended
2:53:49up getting
2:53:50very far down that path so did anyone
2:53:53build an internal valuation I guess it's
2:53:55really my question I don't know who who
2:53:58was taking that on
2:54:01um I I don't know that we had we done it
2:54:04it would have been sunny I don't know
2:54:06that it started because we were just
2:54:08beginning to go down creating sort of
2:54:11the framework for that
2:54:14maybe I missed something but um so
2:54:19why would the projections in your
2:54:23internal model be different from the
2:54:26projections you'd be giving around the
2:54:28in order to Value the common stock of
2:54:30the company as of a certain period of
2:54:33time when we stopped issuing options we
2:54:36were trying to understand
2:54:38how much the impact of a certain
2:54:42financing transaction would have on the
2:54:46common stock price if all else were the
2:54:48same
2:54:54okay so when did you stop issuing stock
2:54:59options I think it was in December of
2:55:012013.
2:55:03so
2:55:05from 2014 onwards were you then sending
2:55:09these sort of
2:55:14sort of altered projections to aranca in
2:55:17order to
2:55:19um
2:55:19provide information for this internal
2:55:21model
2:55:22I think so I don't know exactly about
2:55:25every interaction with aranca but I know
2:55:27that that was happening after that
2:55:29period of time
2:55:31did you tell you were planning on using
2:55:33the Iraq reports for this purpose after
2:55:35the end of 2013. I don't know
2:55:38do you know if Sunny did I don't
2:55:43know
2:55:44do you think that's something that would
2:55:46have been helpful for her to know
2:55:49I don't know
2:55:50I I don't know very much about her
2:55:54interactions with aranca overall
2:55:59so I'm going to hand to you what's been
2:56:01Marsh fairness is it at 226
2:56:05hmm
2:56:11is it at 226 purports to be a document
2:56:17titled
2:56:19fairness Inc FMV of common stock as of
2:56:22March 25th 2015.
2:56:25the date of the report is actually April
2:56:286 2015 and the starting base number is
2:56:31ts-001
2:56:37ts-0021981 have you seen exhibit 226
2:56:40before
2:56:44um
2:56:45I I don't have memory of it but I
2:56:47recognize it as an aronco report okay
2:56:50I'll represent to you that this document
2:56:52was a part of the April 15 2015 board
2:56:56meeting binder that Theron has produced
2:56:57the SEC pursue NC subpoena
2:57:00so if you turn to
2:57:05being a member of the board would you
2:57:07have reviewed this as part of the board
2:57:09meeting binder materials
2:57:12I definitely would have received it I
2:57:14don't remember if we reviewed it okay
2:57:16who would have would would anyone have
2:57:19presented
2:57:21I don't think so why not
2:57:26I'm trying to remember if we ever had
2:57:28presentations of the iranco reports I I
2:57:30think they were included in the binders
2:57:32I don't think that anybody ever
2:57:33presented on them
2:57:36which you have reviewed this report
2:57:39prior to having it included in the board
2:57:41finder
2:57:42probably not
2:57:44who would have maybe we should talk
2:57:46generally about who actually collects
2:57:48documents and puts them in these board
2:57:50miners
2:57:53hi at what period of time
2:57:55did it change
2:57:57yes we have a very different system in
2:57:59place now yeah okay so I'm not talking
2:58:01about now yeah so from the 2013 to 2014
2:58:04period who was in charge of doing that
2:58:08um
2:58:11I I don't know specific
2:58:13it was a it was a pretty informal
2:58:16process where I don't think we ever
2:58:18really circulated materials in advance
2:58:20that were put together right before the
2:58:21meetings
2:58:22so you don't know who would have put
2:58:24together the materials before the
2:58:26meeting
2:58:28I I don't I I can guess I I don't aren't
2:58:32you the chair of the board I am
2:58:34so you had no knowledge as to how these
2:58:37board binders were being put together
2:58:39I'm sure I did then I just don't
2:58:41remember in the end of 2013 what group
2:58:43of people was doing it okay and as chair
2:58:46of the board would you have reviewed the
2:58:47materials prior to
2:58:50handing them out to board members
2:58:52generally yes I I don't know that I
2:58:54specifically read these reports I I
2:58:56don't think I did
2:58:58why don't you think you did
2:59:01like what's the basis for that answer
2:59:03because I don't think I've ever actually
2:59:05read one of these reports end and
2:59:14okay if you turn to
2:59:1622034
2:59:32two zero three four yes
2:59:36you'll see that there is a page in here
2:59:38with historical financials and on this
2:59:40particular page it's the income
2:59:42statement you'll see there's a revenue
2:59:44line it looks like in December 2011 as
2:59:48of December 2011 uh or for a period
2:59:52ending December 2011 theranos made 518
2:59:56000 in revenues and then there was no
2:59:58revenues in 2012 and 2013 and then 150
3:00:02000 in 2014. is that consistent with
3:00:06your understanding
3:00:09of the revenues that Theron has made in
3:00:10those years I I don't know what the
3:00:13actual revenues were in was yours
3:00:15you didn't keep track at all of what
3:00:17fairness was earning your revenues I did
3:00:19not personally know did never provide
3:00:22you with any updates as to what the
3:00:24company was generating revenues
3:00:27we weren't really focused on Revenue we
3:00:29were focused on cash management and
3:00:31Retail Roll-Up
3:00:35do you have any reason to question
3:00:37whether fairness generated 150 000 in
3:00:41Revenue in 2014.
3:00:45I don't know what this is based on I
3:00:48wouldn't know what to question
3:00:51I guess not yeah a minute ago you said
3:00:53you know by this time
3:00:55the Iraq reports were being used for a
3:00:57different purpose is that right yes and
3:01:00um and so what you were doing was
3:01:02keeping the projections of future
3:01:04Revenue constant with uh
3:01:07over time to help build the valuation
3:01:09model right generally as I understand it
3:01:12yes did you ever intend to keep the
3:01:14company's income statement
3:01:17stagnant as well to help develop
3:01:20evaluation my I don't know what was done
3:01:21with that
3:01:24I I guess in your mind back at the time
3:01:26did you have any reason why the income
3:01:29statement should remain stagnant or
3:01:30constant or unchanged
3:01:32um to help that evaluation process to
3:01:34describe
3:01:36I I don't know if I've I've ever thought
3:01:38about it I I don't know I I don't think
3:01:40this is something that that I've looked
3:01:42at before in terms of what the right way
3:01:45to handle that in the model is I I know
3:01:46there was discussions about that with
3:01:48respect to projections I'm I'm not aware
3:01:50of conversations about that with respect
3:01:52to the income statement one way or the
3:01:53other
3:01:55you said you were focused
3:01:58on correct is that true for 2011 through
3:02:002014
3:02:02yes so how is the company getting cash
3:02:04not through Revenue
3:02:07um
3:02:08we received these
3:02:11we were previously calling exclusivity
3:02:13payments from the retailers and then in
3:02:18the end of 13 early 14 raised Equity
3:02:21capital
3:02:24those are the Walgreens and the Safeway
3:02:26payments
3:02:29are those reflected here
3:02:31I don't know
3:02:33what what's the amount of this means
3:02:37I think Walgreens paid us in total 100
3:02:41140 million including the convertible
3:02:43note that they had and Safeway paid us I
3:02:48think 30 million and what year were
3:02:50those payments made
3:02:52um I know the 75 million from Walgreens
3:02:55was in December of 13 the 25 million was
3:02:59before that I don't know when the 40
3:03:01million note was
3:03:03um and the Safeway payments
3:03:07I I think we're in the 11 or 12 time
3:03:10frame
3:03:14okay so if you turn to 22009
3:03:19actually earlier in the document
3:03:32you'll see there's an income statement
3:03:34here as well
3:03:35but it looks like this is uh rejected I
3:03:38just also wanted to add to the answer to
3:03:40your question I I know we also received
3:03:42those payments from insurance companies
3:03:43and I'm not sure if it was during that
3:03:45time frame what do you mean by humans
3:03:48from certain Blue Cross Blue Shield
3:03:50plans were those payments for testing
3:03:52that was done no um they were same type
3:03:55of upfront payments
3:03:59okay so looking at 22009 there's an
3:04:02income statement it looks like it
3:04:04includes Financial projections for the
3:04:06years ended December 2015 to 2018 do you
3:04:10see that
3:04:11yes
3:04:13and Ashley it also includes a 10-month
3:04:15projection or I think this is
3:04:17um
3:04:21that covers the 10-month period covers a
3:04:2410-month period
3:04:25um
3:04:25uh for 2015 if you see that as well
3:04:30yes okay
3:04:33um so you'll see uh you know for 2015 to
3:04:372018
3:04:38roughly uh you're projecting here
3:04:42to generate about 113 million in 2015
3:04:452000 223 million in 2016 323 million in
3:04:502017 and 503 million in 2018
3:04:55did you approve of those financial
3:04:57projections that they be provided to
3:04:59ranca
3:05:00I don't know
3:05:05we can keep that in front of you for the
3:05:07moment
3:05:23I'm handing to you what's already been
3:05:25marked as uh Theron's exhibit 160.
3:05:35instead of 160 purports to be a December
3:05:3923rd 2014 email from Elizabeth Holmes to
3:05:42subject line Reed 409a with
3:05:46starting base number two HP
3:05:51fm000-889-870 have you seen exhibit 160
3:05:55before
3:05:57I I don't remember it but I I recognize
3:06:00my email here okay so we'll see about
3:06:03halfway down the page there's an email
3:06:05from to you
3:06:07and she's saying that she sent over
3:06:09projections to Ronka the night before
3:06:11because we have a deadline before the
3:06:13end of the year and then she writes I
3:06:15use the same assumptions for Revenue as
3:06:17in October roughly 100 million 200
3:06:20million 300 million 500 million in 2015
3:06:23through 2018 do you see that I do and
3:06:27then you respond back to her and you say
3:06:28a hundred million for 15 right so you're
3:06:31questioning whether or not
3:06:33um uh you're you're confirming with her
3:06:35that it's a hundred million dollars for
3:06:372015. do you see that I do and then she
3:06:40confirms yes that's that's correct and
3:06:43then you say thanks so does that refresh
3:06:45your recollection that you approved of
3:06:46these Financial projections that were in
3:06:49this April 2015 report to Ranka
3:06:52it doesn't refresh my little
3:06:54recollection but I I don't have reason
3:06:56to doubt this email
3:06:58what did you base these projections on
3:07:00the 100 200 300 and 500 million I I
3:07:04don't know
3:07:06did you have a financial model that you
3:07:08were working with
3:07:10I'm assuming that since she says the
3:07:13same assumptions this is based on
3:07:15something else I don't know what it was
3:07:18and you you think it was based on
3:07:20something else that you had worked on
3:07:22I I don't know
3:07:25so you have no idea how
3:07:29how she came up or you came up with 100
3:07:31200 300 to 500 million for those years
3:07:35I don't and I I don't know what we were
3:07:37using this report for at that time
3:07:43did you think to ask her a question why
3:07:46what is the purpose of this report
3:07:48what was how are you responding back to
3:07:51her and approving of the projections if
3:07:52you didn't know what the purpose of the
3:07:53report was
3:07:55I I can't remember now what the purpose
3:07:58of a report was I'm assuming at that
3:08:00time I had some understanding of what
3:08:02the purpose of the report was I just
3:08:04can't remember what it was
3:08:06are you aware of the financial model
3:08:09somewhere that would have projected
3:08:11these Revenue figures for 2015 to 2015.
3:08:15uh 2015 to 2018. again I don't know when
3:08:19I didn't maintain those models and I
3:08:22don't even know that this necessarily
3:08:23would have been consistent with any
3:08:25models that we were maintaining on
3:08:27assumptions for retail rollout
3:08:29who was maintaining those assumptions
3:08:31Sonny was
3:08:35so if I understand but by this time
3:08:37period
3:08:38um in the best of your memory Iraq was
3:08:40being used to help
3:08:42um
3:08:43help build an internal valuation model
3:08:45is that fair they were and and I think
3:08:47you said the goal was to have the value
3:08:49of a common stock be
3:08:52um on par with the preferred at some
3:08:54point in time to ultimately get to that
3:08:55point I realize it's a long ramp but yes
3:08:57that was the goal you had in mind right
3:08:59that was what we thought the end
3:09:01and objective was yeah and that was
3:09:04important to your goal of ultimately
3:09:05staying a private company in the long
3:09:06term yes and continuing to restructure
3:09:09ourselves as a private company
3:09:11is it fair to say that the company's
3:09:13valuation was something that was
3:09:15important to you in this time frame
3:09:17generally yes why was that
3:09:21because it's important to our
3:09:23shareholders and and at shareholder from
3:09:25time to time people who invested earlier
3:09:28whether
3:09:29when you first started or in 2010 ask
3:09:31for copies of Iraqis 409a reports not to
3:09:35my knowledge
3:09:36did anyone ever communicate to you that
3:09:38uh a prior investor has asked for
3:09:41foreign report
3:09:44I've been sitting here now I can't
3:09:45remember any it's possible that they did
3:09:48I
3:09:50I don't know
3:09:53I I guess
3:09:54if your ultimate goal is to to have
3:09:56common stock and be on Beyond par value
3:09:58with the preferred uh and evaluation of
3:10:02companies something that's important to
3:10:03you to understand why you never read one
3:10:04of these Iraq reports cover to cover
3:10:08okay so we began the process of
3:10:10structuring as a private company in the
3:10:13end of 13 and
3:10:15we assumed this was going to be a long
3:10:18multi-year process and that these were
3:10:20just the first steps in beginning to
3:10:22develop a formula for what the impact of
3:10:25capital infusion was on some of the
3:10:29these metrics are on common stock price
3:10:32I was not primarily focused on the
3:10:36finance aspects of our business I
3:10:38trusted that if this was what really
3:10:41smart people that we were paying a lot
3:10:42of money to thought was a good idea to
3:10:44do that that's what we would do and that
3:10:47at the time we would start building
3:10:48these models internally I would look at
3:10:50it and learn about it I I don't
3:10:53have specific background in this area
3:10:55and so it wasn't something that I was
3:10:57focused on did you track the
3:11:01so you mentioned you know you wanted
3:11:03these reports to see how the the equity
3:11:06events impacted the common stock value
3:11:07did you track those final
3:11:10numbers as they came in from a report to
3:11:11report I don't think so
3:11:13do you know who if anyone the company
3:11:15did
3:11:16I I don't know that we even started this
3:11:18I think we were just trying to get the
3:11:20information at this point and have it
3:11:22and that it would ultimately be used for
3:11:25the purpose of an internal model
3:11:34handing to you what's been marked
3:11:36is it at 227 and actually you can keep
3:11:39the Iran report in front of you
3:11:49is it a 227 reports to be a spreadsheet
3:11:54the first page I'm sorry I just wanted
3:11:56to clarify I can't remember any instance
3:11:59in which someone asked for a copy of a
3:12:00409a but it's you it's possible over all
3:12:03the years that they did is it something
3:12:06that you think parents would have shared
3:12:08with its investors
3:12:09I don't think that we did that generally
3:12:12it's it's possible that it's some
3:12:13instance we did but I I don't think
3:12:15certainly it wasn't routine that I know
3:12:18about
3:12:19I guess why why wouldn't the company
3:12:20generally should share these reports
3:12:23I think we saw it as an internal tool
3:12:25and for a very specific purpose which
3:12:27was initially evaluation of options and
3:12:30then development of our own models
3:12:34in in general but there's so many years
3:12:36in so many interactions that I I may
3:12:38just not be remembering something
3:12:43so exhibit 227 purports to be
3:12:46um
3:12:48financial statements the first page is
3:12:51titled Pro former projected statement of
3:12:54income with starting base number TS
3:12:58Dash zero zero two one nine one one have
3:13:01you seen exhibit 227 before
3:13:08be clear for the record I don't think
3:13:09these purport to be financial statements
3:13:11I mean they say what they say on the top
3:13:12of them but in the past when you said
3:13:15that it's been like
3:13:16an email just don't say Financial saves
3:13:21sure so exhibit 227 reports to be a
3:13:25document titled pro forma projected
3:13:28statement of income
3:13:30foreign
3:13:35so I'll represent to you that this
3:13:37document was part of the
3:13:39April 15 2015 board meeting uh materials
3:13:43that theranos produce to the SEC
3:13:45pursuant to subpoena so it was presented
3:13:48at the same time as
3:13:50exhibit 225.
3:13:54oh sorry is that wrong
3:13:57226. it was presented at the same time
3:13:59as exited 226. to the board to the board
3:14:04okay
3:14:08so you'll see that uh there's a
3:14:12projected statement of income a pro
3:14:14forma and protected statement of income
3:14:16there's a pro forma statement of cash
3:14:18flow and a Consolidated balance sheet
3:14:22here
3:14:23to review this at the time of the board
3:14:26meeting
3:14:27I don't know
3:14:30did you recognize this format generally
3:14:32I mean whether or not you recall this
3:14:33specific document
3:14:36the format of exhibit 220 227 looked
3:14:40like the kind of
3:14:42um
3:14:43projections of income projected uh
3:14:46performance savings cash flow and
3:14:48balance sheets but I can't be maintained
3:14:51um
3:14:53it's actually different than what I had
3:14:56remembered sharing
3:14:59um the the Murdoch projections that you
3:15:02showed me the other day
3:15:03um in format I think but I I don't have
3:15:07reason to doubt it
3:15:09prepare these Financial
3:15:12s because I mean
3:15:19so if you look at the revenues for the
3:15:23period ending 2014. this is on the first
3:15:25page in the statement of income
3:15:28you'll see that total revenue is
3:15:31projected to be or not projected
3:15:34actually because this is in 2015 but
3:15:36total revenue for the year was 108
3:15:39million dollars do you see that they do
3:15:41what was the basis for this number
3:15:45I think it was he was believing that the
3:15:49Walgreens payment could be earned within
3:15:51the 2014 time frame and then there was
3:15:53some retail Revenue as well that was
3:15:58associated with that I don't know if he
3:15:59also thought
3:16:01that some of the Safeway payment could
3:16:03have been earned I'm not sure
3:16:06what's your basis for that
3:16:07pretty understanding I guess what what
3:16:09you need to read
3:16:10because I remember conversations with
3:16:12him in which he would talk about the
3:16:14fact that we'd earned the Walgreens
3:16:15payment
3:16:17when do you recall those conversations
3:16:18taking place
3:16:20um
3:16:21on an ongoing basis uh certainly by this
3:16:262015 time period that you're talking
3:16:28about
3:16:30so you mentioned there were three
3:16:32different components that you thought
3:16:33might go into this there's the Walgreens
3:16:36payments 75 million dollar Innovation
3:16:39fee payment there is the Safeway payment
3:16:41when was that made
3:16:44so I just to be clear I think that by
3:16:462015 this number was based on thinking
3:16:50that for whatever reason the 100 million
3:16:52from Walgreens was in this time period
3:16:55um
3:16:56the 100 million from Walgreens I think
3:16:58so when was the 25 million initial
3:17:01payment from Walgreens when when did
3:17:03that come into the company I don't know
3:17:05but I know it was before December of
3:17:072013. okay so why would that be included
3:17:10in the revenues for 2014.
3:17:13have to ask him I don't know
3:17:16and then you said the remaining amount
3:17:19of revenues would have come from the
3:17:21retail business this is the retail
3:17:22pharmacy business
3:17:24I I think so yes okay so
3:17:27um if if we're
3:17:31I'm sorry and I think I don't know if
3:17:34you answered my question about the
3:17:35Safeway payment when when did the safety
3:17:37Safeway payment come in
3:17:40I I don't know I believe it was before
3:17:422013. okay and and how much was that
3:17:45payment
3:17:46I think it was 30 million dollars but I
3:17:49think there was a 25 million and a 5
3:17:52million component I I don't know how he
3:17:54treated the five
3:17:56so if we add up the 100 million that you
3:17:59think Sunny might have put into this
3:18:01plus an additional 30 that's really 130
3:18:05million dollars so
3:18:07I I what is so what's the basis for your
3:18:10belief as to how he came up with this
3:18:12108 million dollar figure that he was
3:18:15treating the payments received from
3:18:17retailers I I believe at least Walgreens
3:18:20in this number plus some Retail Services
3:18:23revenue and I don't know how he was
3:18:25treating that 5 million from Safeway
3:18:28foreign
3:18:31there was such a difference between what
3:18:33we saw in the iraanca report which had
3:18:362014 Asheville revenues as 150 000 and
3:18:41here you're seeing revenues for 108
3:18:43million dollars why was there such a
3:18:45difference between the two
3:18:48I I don't know I I think this was in the
3:18:51context of discussion about the fact
3:18:54that we thought that we'd earned the
3:18:56Walgreens payment I don't know what the
3:18:59basis for the income statement in the
3:19:00aranca document is
3:19:08did you ever represent to prospective
3:19:10investors in 2015 that fairness
3:19:12generated over 100 million dollars in
3:19:14revenues in 2014.
3:19:17I I don't think we generally talked
3:19:20about historical revenues very much I
3:19:22know we openly talked about having
3:19:24received 100 million dollars from
3:19:27Walgreens and also the other payments
3:19:29from uh from Safeway and probably the
3:19:33insurance companies as well because we
3:19:35thought that showed the the interest and
3:19:38commitment of our partners
3:19:41foreign
3:19:44meeting with Sutter Health in August
3:19:462015 during which you showed their
3:19:50financials for the company
3:19:52do you recall that meeting
3:19:54I I remember meeting with him I don't
3:19:57know when it was
3:19:58okay but do you remember a meeting in
3:20:00which you showed him financial
3:20:01information for the company
3:20:04um
3:20:07I
3:20:10I'm trying to remember if I remember
3:20:12showing them financial information I'm
3:20:13not sure
3:20:15do you remember showing him statements
3:20:17financial statements that indicated
3:20:19their nose was making
3:20:21or had made 108 million dollars in 2014
3:20:24and was projected to make 240 million in
3:20:272015 and another 750 million in 2016.
3:20:32I I don't remember those numbers but if
3:20:35those were numbers we discussed they
3:20:36would have been based on whatever our
3:20:38internal models were at the time
3:20:40what do you mean by based on whatever
3:20:42internal models
3:20:43this type of
3:20:45understanding of the payments that we'd
3:20:47received and what we thought we could
3:20:49achieve in terms of retail footprint so
3:20:51you mean that you would have been
3:20:53relying on whatever Financial models
3:20:55Sonny balwani was working on absolutely
3:21:04they don't have to pay taxes right
3:21:07yes and and we're involved in the
3:21:10process of uh of signing off on
3:21:12fairness's tax returns
3:21:14from points in time I I don't know if my
3:21:17signature was required on a document I
3:21:18would have signed it but I I wasn't
3:21:20involved in a detailed way do you have
3:21:22any understanding of what Theron was
3:21:24reported to the IRS in terms of revenues
3:21:25in 2014. I do not how about 2013. I do
3:21:29not
3:21:31did you at the time
3:21:33if I signed the tax returns I would have
3:21:36I can't remember
3:21:38you wouldn't provide inaccurate
3:21:40information to the IRS would you no
3:21:44I guess is there any reason for the
3:21:47Revenue that theranos was reporting to
3:21:49the IRS to be different from the Revenue
3:21:51figure shared with Sutter Health
3:21:55I I don't know I think to the extent we
3:21:58were making projections we were talking
3:22:00about
3:22:01what we thought could be done with
3:22:03payments that had been received I I
3:22:05don't know if
3:22:07from I'm speculating from an
3:22:09government reporting standpoint if we
3:22:12weren't completely sure yet whether they
3:22:13could be recognized or not I know we
3:22:15were transparent about what those
3:22:17payments were and that there were these
3:22:19monies that had been received from
3:22:20Retail Partners
3:22:27I I guess what do you mean by you you
3:22:30remember that who we were transparent
3:22:32about
3:22:33we we thought that the fact that
3:22:36Walgreens had paid us 100 million and
3:22:38another 40 in the note and Safeway had
3:22:40paid us 30 was one of the most
3:22:42validating pieces of information we
3:22:44could share so openly communicating that
3:22:47was a way of communicating that we
3:22:49thought we had a real opportunity to
3:22:51roll out at retail
3:22:52everybody knew we were only in 41 stores
3:22:55and that we were trying to see you know
3:22:57I thought 10 patients a day if we were
3:22:59very open about that
3:23:03in other words you viewed not only just
3:23:05the existence of the Walgreens
3:23:06relationship the Walgreens is financial
3:23:09commitment as a as a sign of faith in in
3:23:11theranos absolutely and that's a sign of
3:23:13Faith he wanted to share with the best
3:23:15yes
3:23:16did you tell investors that the 108
3:23:18million or 100 million dollars that were
3:23:22generating removes in 2014 that that was
3:23:25made up of payments that were coming in
3:23:27from Walgreens and Safeway
3:23:29so I I don't know if this was ever
3:23:31shared with investors but I I know that
3:23:34again we openly talked about the 100
3:23:37million from Walgreens being a payment
3:23:39for exclusivity
3:23:41do you remember telling consider Health
3:23:42that the 108 million consisted of
3:23:45payments that were coming from Walgreens
3:23:46and Safeway
3:23:48I don't remember that conversation very
3:23:49well
3:23:52I mean again at that time we still would
3:23:54have been only in 41 stores so we were
3:23:57very open about what we were trying to
3:23:58do at retail
3:24:01hey so it's one o'clock if you want to
3:24:03take a lunch break
3:24:05a trick
3:24:08this concludes maybe a number two of
3:24:10Elizabeth Holmes
3:24:1345 minutes again
3:24:20we are back on the record at the
3:24:23beginning of media number three of
3:24:25Elizabeth Holmes the time is 1 55.
3:24:28Ms Holmes did you have any have any
3:24:30substantial conversation
3:24:34now yes correct
3:24:39um so we were talking before the lunch
3:24:41break about
3:24:43um the financials of the company and
3:24:45what you knew about how they were
3:24:47maintained and and who was preparing
3:24:50them for prospective investors to do do
3:24:52you remember that they do okay
3:24:54do you recall providing financial
3:24:56information to prospective investors in
3:24:59late 2014 showing fairness on the road
3:25:02to achieving over 100 million dollars in
3:25:04revenues
3:25:06I I don't have specific memory of that
3:25:11um but I I know
3:25:13we shared projections with investors in
3:25:16late 2014.
3:25:18do you recall providing financial
3:25:20information in August 2014 that
3:25:22indicated that fairness was projected to
3:25:24make 140 million dollars in revenues for
3:25:262014.
3:25:28I don't remember that specifically
3:25:30to your recall providing financial
3:25:32information of Fremont grief in October
3:25:332014 that indicated that fairness was on
3:25:36track to make 126 million dollars in
3:25:39revenues for 2014.
3:25:40again I don't have specific memory of it
3:25:43do you recall providing financial
3:25:45information to the capital in October
3:25:472014 that indicated that fairness was on
3:25:49track to make 125 million dollars in
3:25:51revenues for 2014.
3:25:53but no
3:25:55so
3:25:58I'm going to hand to you
3:26:11what's been previously marked as
3:26:14fairness exhibit 195.
3:26:19[Applause]
3:26:22exhibit 195 reports to be a an October
3:26:2613 2014 email from Sonny balwani to with
3:26:31a copy of Elizabeth Holmes and subject
3:26:33line is rethinks
3:26:36and the starting base number is BDT SEC
3:26:39underscore
3:26:42pst004140 and there is an attachment
3:26:48with Bates number ending 4142 have you
3:26:53seen exhibit 195 before
3:26:57I I don't recognize it but I don't have
3:27:01reason to doubt it
3:27:06so you'll see here that Sunny belwani is
3:27:09sending a financial model to Capital
3:27:13did you see that I do
3:27:16and the model is attached to the email
3:27:18what was your understanding as to how Mr
3:27:22balwani came up with the financial
3:27:24possessions
3:27:26I don't know
3:27:28did he send these to you prior to
3:27:30sending them out capital
3:27:33I don't think so
3:27:34I don't remember him doing that
3:27:37do you recall discussing them with him
3:27:39before they were sent out to Capital no
3:27:42you understand that you're copied on the
3:27:44I just want to clarify one thing that
3:27:45you're copied on the email that appears
3:27:47that when I I just saw that yeah
3:27:50did you review this attachment at the
3:27:53time that you received the email
3:27:56I I don't know
3:28:01so if you would turn to
3:28:08the income statement
3:28:10which is looks like four pages into the
3:28:13attachment
3:28:15you'll see here that revenue for 2014 is
3:28:18projected to be 125 million dollars in
3:28:212014. do you see that I do it
3:28:25and you'll see that there's a breakout
3:28:27for the revenues in 2014 and actually
3:28:30only 30 million dollars is coming from
3:28:33U.S retail pharmacies do you see that I
3:28:36do
3:28:37so U.S retail pharmacies would that be
3:28:40capturing the Walgreens and Safeway
3:28:42revenues that you were looking to to
3:28:45achieve
3:28:48it could be I don't know what this was
3:28:50specifically in this model you don't
3:28:52know what U.S retail pharmacies is
3:28:54referring to
3:28:56again I I don't remember going through
3:28:58any of the assumptions that went into
3:29:00this with sunny so I'm not sure exactly
3:29:01what he was referring to here
3:29:03have you seen versions of the financial
3:29:06projection that
3:29:08um that you were sending to prospective
3:29:11investors that look similar to this
3:29:17um
3:29:18as I as I said earlier I had in my mind
3:29:21the format that was in the Murdoch
3:29:24binder documents that you showed me but
3:29:27I
3:29:28I generally recognize this as a theranos
3:29:30document
3:29:31so you have no idea as to how Mr balwani
3:29:35was breaking out the revenue streams for
3:29:38for instance a U.S retail pharmacies
3:29:40physician offices and hospitals or what
3:29:43those categories were supposed to
3:29:45include were consist of
3:29:47I I don't I was just flipping back to
3:29:50the market assumptions page to look at
3:29:52what the assumptions were in here and
3:29:55which my assumption sitting here now
3:29:57would be that that's what this is based
3:29:59on okay so if you look at the market
3:30:01assumptions page
3:30:04it looks like
3:30:06for retail pharmacy
3:30:09so if you look at the first page of the
3:30:11document Retail Pharmacy you've got
3:30:13revenue per requisition and then the
3:30:15fully loaded cost system in RX
3:30:19if you turn the page
3:30:22you'll see that there are a number of
3:30:24assumptions related to the Walgreens and
3:30:28other Retail Pharmacy services do you
3:30:31see that
3:30:33I do
3:30:34I mean is there
3:30:36can you think of anything else at retail
3:30:38pharmacies could mean other than the
3:30:41Walgreens and possibly Safe Way
3:30:43relationships
3:30:46I I don't I don't know what he was
3:30:48thinking when he was creating this model
3:30:50and it looks here just from reading this
3:30:53document sitting here that he's
3:30:55assuming these are going to be Walgreens
3:30:56locations okay so looking back get the
3:30:59income statement then before our lunch
3:31:01break you had testified earlier that you
3:31:04believe that Mr balwani arrived at over
3:31:07100 million dollars in revenues in 2014
3:31:09because he he had included the 75
3:31:12million accelerated Innovation fee
3:31:14payment there
3:31:16do you remember that testimony what I
3:31:19was attempting to communicate was that
3:31:20the questions you were asking about the
3:31:22108 million dollar number and where it
3:31:25might have come from I believed was
3:31:27associated with the Walgreens payment I
3:31:31commented that I'm not sure about how
3:31:34Revenue should have been recognized okay
3:31:37so here it doesn't look like that 75
3:31:41million dollar accelerated payment was
3:31:44included in Mr balwani's projection for
3:31:472014. do you see that I do so do you
3:31:51know what the basis was for uh
3:31:54Mr balwani's projection of 125 million
3:31:57dollars for 2014.
3:32:00I do not
3:32:02I guess just looking at this these
3:32:05projected Revenue sources looks you know
3:32:0930 million dollars back from from
3:32:11retails pharmacies which looking back
3:32:14looks like Walgreens uh and then I think
3:32:16we talked earlier about the associated
3:32:17revenue from Physicians offices
3:32:20hospitals and and Pharma services
3:32:23in late 2014 was was this your
3:32:26expectation about how you know
3:32:30whether you know meeting the gross the
3:32:31the gross numbers are not just the sort
3:32:34of the breakdown of you know about a
3:32:36third from retail pharmacies a tenth
3:32:39from uh Physicians offices a little more
3:32:42than a third from
3:32:43uh
3:32:45from hospitals was that in your mind how
3:32:47the how the revenue stream was going to
3:32:49look like
3:32:50I never thought about it that way
3:32:51specifically I thought about it in terms
3:32:53of number of retail stores and then
3:32:56assuming you had that footprint what was
3:32:58a reasonable Assumption of number of
3:33:00samples that could get sent to you by a
3:33:03given Physician Office or Hospital group
3:33:05and how many of those was it reasonable
3:33:08to assume you could get in a given
3:33:10geography so
3:33:13in that sort of assumption
3:33:16um sample mind frame did you did you
3:33:18assume that more samples were going to
3:33:20be run uh from
3:33:23from hospital and farmer partners then
3:33:26we're actually being run from the just
3:33:28the operational Walgreens retail
3:33:30pharmacies
3:33:32I I don't know I I don't know if I ever
3:33:34focused on what the differential would
3:33:36be between the two I remember
3:33:39looking at both the number of store
3:33:41assumption as well as is it reasonable
3:33:44to pick up a certain number of samples
3:33:46per day from Physician Office groups and
3:33:49was it reasonable to get a certain
3:33:51number of Physician Office groups and
3:33:52focusing on that part of it
3:34:00what revenues had the company realized
3:34:03from Physicians offices by this time in
3:34:06October 2014.
3:34:09I don't know
3:34:11was there any
3:34:13I don't know it at some point we started
3:34:15doing a pickup from Physician Offices I
3:34:18don't know when it started
3:34:22did you have any contrast with
3:34:24Physicians offices at this time
3:34:27I don't know
3:34:28um as referenced we had a sales team in
3:34:31Arizona that was working on putting
3:34:33contracts in place with groups I I don't
3:34:34know the dates on those contracts from
3:34:36physician groups would it surprise you
3:34:38if theranos had no contracts with
3:34:40Physicians offices during this time
3:34:46I I think generally yes I think we were
3:34:51um
3:34:53we believed that the relationships that
3:34:56we had in place would
3:34:58give us the ability to realize the
3:35:00assumed number of Physician Offices so I
3:35:03I generally thought that we had the
3:35:06relationships that we needed to be able
3:35:07to put
3:35:08this footprint in place
3:35:11what about from hospital s do you know
3:35:13how much in revenues theranos had
3:35:15realized in revenues
3:35:17from hospitals up until October 2014.
3:35:22I I don't I unless we had
3:35:26been doing the same type of pickup that
3:35:28we had started doing in physician
3:35:30offices and physician offices that were
3:35:32part of Hospital groups I don't think
3:35:34there was any other Financial
3:35:36income from hospitals at that point in
3:35:39time and do you know if fairness was
3:35:41picking up samples from hospitals at
3:35:42this time I don't I don't know when we
3:35:44started the pickups
3:35:46did you start pickups with any Hospital
3:35:50um at any time i'm hesitating just
3:35:52because I think the word hospital here
3:35:54was referring to health systems and some
3:35:56of the physician groups that we were
3:35:57working with may have been part of uh
3:36:00Health Systems I I don't know when those
3:36:02started and whether the Physicians that
3:36:04we ultimately did that with were part of
3:36:07these Health Systems okay but do you do
3:36:10you remember
3:36:11theranos ever starting to process
3:36:14samples from hospitals
3:36:17I'm from position groups that were
3:36:20affiliated with Health Systems I I
3:36:22believe we did
3:36:23okay but but not from hospitals
3:36:25themselves
3:36:27so we were using I think the word
3:36:29hospital and health system
3:36:30interchangeably yeah and so the the
3:36:33group would have been associated with a
3:36:35hospital chain As I understood it what
3:36:37are some of those physician groups
3:36:40so I think
3:36:44Commonwealth in Arizona
3:36:46was one of them and there was another
3:36:49one
3:36:51I'm trying to remember
3:36:55um
3:36:57there was another Health System group I
3:37:00I don't remember the name
3:37:01but I know that was something that very
3:37:04focused on in Arizona
3:37:05so you recall there were two Physicians
3:37:08griefs that theranos was processing
3:37:10samples for
3:37:12I believe there were more than two I
3:37:14just don't know what all of them were
3:37:18I guess was this
3:37:20inflation of hospitals and Health
3:37:22Systems sort of like
3:37:23the normal language at theranos at the
3:37:25time or is this something you just come
3:37:26to understand and read the document now
3:37:30it's certainly something that I've come
3:37:31to understand now I I don't know at that
3:37:34time whether we use those words
3:37:36interchangeably I guess so
3:37:39do you know that that's what hospitals
3:37:41meant in this model
3:37:43I don't know that I'm assuming that
3:37:45based on your based on information
3:37:46you've gathered since this time yes
3:37:51Who would know as to how much theranos
3:37:54had realized and revenues from both
3:37:56Physicians offices and hospitals
3:37:592014.
3:38:03um I I would ask Sonny
3:38:05Sonny would know I don't know if he
3:38:07knows but I mean if I were trying to
3:38:09find that out and if I were still
3:38:11working with them he'd be the first
3:38:12person that I would have asked who else
3:38:13besides Sunny would know
3:38:16she would have known about what
3:38:18relationships we had in place with with
3:38:20health systems or physician groups in
3:38:22Arizona I don't think she had
3:38:26engagement on any of the National Health
3:38:29System groups she was focused only on
3:38:31local groups so there were other chains
3:38:35like dignity and others that had a
3:38:37national presence that we were hopeful
3:38:39we would be able to ultimately engage
3:38:40with I mean she wouldn't have been
3:38:43involved as I understand it in
3:38:45interactions with them okay and so who
3:38:47would have been responsible for those
3:38:49other relationships besides the Arizona
3:38:51ones Sunny West
3:38:57okay let's go down to um then
3:39:00pharmaceutical services
3:39:04what had theranos realized in the
3:39:07pharmaceutical service space in terms of
3:39:10revenues for 2014 by this time
3:39:14I I don't know I I don't remember
3:39:18doing much on the pharmaceutical
3:39:20Services side in 2014.
3:39:22did you have any contracts in place with
3:39:24any pharmaceutical companies at this
3:39:25time
3:39:27I I don't know I I know that we had some
3:39:30relationships from our prior work that
3:39:32we were hopeful we were going to
3:39:34reconstitute I don't know if there had
3:39:36been specific conversations with them or
3:39:38with
3:39:39the group I was referencing within
3:39:41Walgreens that was dedicated to uh
3:39:43working with Pharma companies at that
3:39:46time what is your understanding as to
3:39:48the last year that fairness received
3:39:50revenues from pharmaceutical companies
3:39:54so we're gonna I want to be careful
3:39:55about
3:39:56payment and revenue because I know we
3:39:59received payments at certain periods of
3:40:01time and then there was
3:40:03discussion and revision about when to
3:40:05recognize them
3:40:06um I I think the last years that we were
3:40:09paid
3:40:11um was certainly prior to 14. and
3:40:15and I don't know what year it was when
3:40:192011 sound right to you
3:40:22I wouldn't be surprised if it's wrong
3:40:24you wouldn't be surprised if it's wrong
3:40:26yeah I don't know
3:40:29okay so you don't know it all when you
3:40:31might have received payments from the
3:40:33pharmaceutical companies when the last
3:40:35payments were
3:40:37um I don't I
3:40:38again if you said 2011 I wouldn't doubt
3:40:41it
3:40:42who was responsible for those
3:40:44pharmaceutical company relationships in
3:40:46this time frame
3:40:48if there was anyone
3:40:50so
3:40:52I don't know what this specifically is
3:40:54referring to here if it was an
3:40:56assumption around the pharmaceutical
3:40:59relationships that Walgreens had been
3:41:00working to Foster then it would have
3:41:02been Walgreens relationships with Pharma
3:41:04companies and otherwise I'm
3:41:09we had originally had a sales force that
3:41:12had relationship with the Pharma
3:41:13companies we then got rid of that sales
3:41:15force and built a new one that was
3:41:17retail focused and had we reinstated
3:41:19those relationships we I don't know who
3:41:23we would have used Sonny would have made
3:41:24that decision because reported to him
3:41:27so you think that Sonny balwani would
3:41:29have known about the Pharma the state
3:41:30status of the pharmaceutical
3:41:31relationships that theranos had at this
3:41:34time
3:41:34I believe so
3:41:37so it sounds like Sonny balwani would
3:41:39have known about the physician's office
3:41:41contracts that theirness might have had
3:41:43hospitals system contracts and the
3:41:47pharmaceutical service contracts and
3:41:49sunny was also involved in the Walgreens
3:41:51relationship and responsible for that as
3:41:53well and that after a certain period of
3:41:55time he's also responsible for the
3:41:56safely relationship so what were you
3:41:58responsible for
3:42:01I was I was CEO of the company I from a
3:42:04technology perspective was focused on
3:42:06inventions I am named on a large number
3:42:09of our patents I tried to contribute
3:42:12creatively to
3:42:14technical issues when we were dealing
3:42:16with technical issues that would require
3:42:18invention
3:42:19um
3:42:20I was very focused on the restructure to
3:42:23become a private company I was focused
3:42:26on our vision and our strategy and I
3:42:28ultimately became very focused on policy
3:42:31related initiatives like the law change
3:42:34in Arizona and the work to try to build
3:42:36MediCare at lower prices and the work to
3:42:39try to advocate for regulation of ldts
3:42:42what was the last patent that you
3:42:45appeared on for fairness
3:42:47I I don't know I'm still writing
3:42:50memorandum of invention right now
3:42:55so if you turn back to the macro Market
3:42:59assumptions
3:43:01which is the first cage of the
3:43:03attachment
3:43:07you'll see there's a list of
3:43:10looks like device tops
3:43:13so for 2014 the device cost is 40 000
3:43:16for 2015 the device cost is thirty five
3:43:19thousand do you see that they do what do
3:43:23these costs depict
3:43:24what device are these costs for
3:43:29I I don't know again I didn't prepare
3:43:30this document I'm not sure what these
3:43:33are referring to
3:43:34was this consistent with the cost for a
3:43:37tspu or a mini lab
3:43:46I don't know
3:43:48how much does it cost to manufacture a
3:43:50mini lab in 2014.
3:43:56I I can I I don't know I can tell you
3:43:59what it is right now I don't know what
3:44:00it was then
3:44:01how much did it cost to purchase a
3:44:04seniors Advia 1800 2014.
3:44:09I don't know I would assume it was more
3:44:10than forty thousand dollars but I don't
3:44:12know why do you make that assumption
3:44:15I just have General understanding that
3:44:17the Siemens equipment was expensive
3:44:27um because we're trying to liquidate a
3:44:29lot of it right now and I've generally
3:44:31been in touch with our operations teams
3:44:33on how much money we can get from it did
3:44:36you know how expensive Siemens equipment
3:44:38was back in 2014
3:44:40I I probably didn't know the exact
3:44:42amount no
3:44:43did you know
3:44:49how did you know that
3:44:52because I was generally aware of the
3:44:53cost of traditional lab equipment
3:44:58can you think of any reason why the
3:45:00why but cost for a tspu would be
3:45:05relevant to their noises projections for
3:45:08at the end of 2014.
3:45:12I was I was just trying to
3:45:14look at that and hear I don't know if
3:45:16that was an assumption that we were
3:45:18building a certain number of devices for
3:45:20r d I don't know if that's in the r d
3:45:23number uh I I don't know
3:45:28I mean at the time it wasn't it wasn't
3:45:31there and it was as planned uh
3:45:35in your mind in in October of 2014
3:45:38fairness was still very much in phase
3:45:40one of its Walgreens Royal how does that
3:45:42appear we were uh
3:45:43and you didn't have a specific date in
3:45:46mind at the time of when phase two would
3:45:47start is that fair
3:45:50I I I don't know
3:45:53um at that time I I know that we were
3:45:56just focused on engaging with FDA as
3:45:58much as we could to try to get the
3:45:59Technologies through the FDA process
3:46:01yeah I don't know if we thought there
3:46:03was a specific date or not I I guess you
3:46:06know in October 2014 did you expect to
3:46:08move to phase two by the end of end of
3:46:10the year by the end of 2014.
3:46:13I again I don't know exactly what my
3:46:16mindset was in 2014 I I mean sitting
3:46:20here now don't think so
3:46:22um but
3:46:23um I I don't know
3:46:28so if you were still in the phase one
3:46:30part of the model with Walgreens where
3:46:34you were continuing to use
3:46:36for a majority of the tests the modified
3:46:39version of commercially available
3:46:41machines and there were some venous draw
3:46:44testing being done on reference machines
3:46:46during that time as well why wouldn't
3:46:50the device cost for a Siemens machine
3:46:53appear here under your assumptions
3:46:56again I I didn't create this document I
3:46:59don't know what was selected for the
3:47:01assumptions I know Sunny was working
3:47:02interactively with team one trying to
3:47:04build models I'm looking at it as we're
3:47:07talking and noting that this also
3:47:09includes things about number of theranos
3:47:11units per Hospital location 2015 so it
3:47:15may have been associated with that
3:47:17Assumption of phase two I don't know
3:47:20I I guess in October of 2014 was was
3:47:23there when I was planning on on sending
3:47:25any tspus to any hospitals
3:47:28imminently we were planning on trying to
3:47:30get FDA clearance to do that
3:47:33um
3:47:33again I'm looking at this sitting here
3:47:36now and noting it says Hospital location
3:47:382015 so I'm assuming sitting here now
3:47:40that
3:47:41the Assumption in this document was that
3:47:43that would happen if we got FDA
3:47:45clearance in time to do so in 2015
3:47:49but you'll see that the assumptions also
3:47:51use
3:47:53a device cost
3:47:56in 2014 of 40 000 so I think Mr akola's
3:48:00question is
3:48:02re-aware that theranos was imminently
3:48:05and in the last two months of 2014 going
3:48:08to be sending tspus to hospitals
3:48:11no we had to get FTA clearance prior to
3:48:13doing that
3:48:15you always understood that theranos
3:48:17needed FDA clearance of its tsp before
3:48:19it could distribute them broadly right
3:48:21yes and did Sonny share that
3:48:23understanding with you
3:48:26I think so what's your basis for that
3:48:28understanding
3:48:30um
3:48:31I'm trying to think of a specific
3:48:33conversation to answer that it was it
3:48:35was my general understanding that that
3:48:36was our plan as a company that the
3:48:39reason we were working so hard to get
3:48:41technology into the FDA was because it
3:48:44was required for phase two of our model
3:48:48okay
3:48:49it's sitting here today do you believe
3:48:52these assumptions about device costs and
3:48:55devices for hospitals could give a
3:48:57potential investor the impression that
3:48:59theranos was using the tspu for patient
3:49:01testing
3:49:02exclusively at the time I I don't why
3:49:05not
3:49:06because we were so focused on the tspu
3:49:09for phase two the only other thing I can
3:49:12think of here is that we might have been
3:49:13talking about building large numbers of
3:49:16them
3:49:18for use in our r d and clinical studies
3:49:20I I don't know what else would have gone
3:49:23into it I know especially in this case
3:49:25it'd be that there was very interactive
3:49:27engagement on the assumptions in the
3:49:29model and I would have expected that
3:49:31there was very active discussion about
3:49:34these assumptions because
3:49:36I think they were trying to build their
3:49:37own model and
3:49:39I mean did you ever share with anyone
3:49:40there and this was using either modified
3:49:43or unmodified commercially available
3:49:45analyzers
3:49:47I don't know I
3:49:50I don't know
3:49:54so we turn to the next page the fairness
3:49:58Market assumptions page you'll see that
3:50:01there are some assumptions here for
3:50:03Walgreens and there's other RX locations
3:50:06what did you understand the other RX
3:50:09locations to be referring to here
3:50:14some other Retail Pharmacy beside
3:50:17Walgreens okay so what other contracts
3:50:20did you have in place at this time other
3:50:22than Walgreens wouldn't that be a safe
3:50:24way
3:50:25yes we had the Safeway relationship in
3:50:27place so do you think that the other
3:50:29would have been referring to Safeway
3:50:31it could have been again I I don't know
3:50:35if you look at the Walgreens line
3:50:38the assumptions here for December 14 is
3:50:43that fairness Services would have been
3:50:44rolled out to Walgreens store Walgreens
3:50:48stores and 300 locations do you see that
3:50:53yes is that consistent with your
3:50:55understanding of where things were
3:50:57headed with the Walgreens relationship
3:50:58that by December 2014
3:51:01there are no Services would have been
3:51:04offered at 300 stores
3:51:06[Music]
3:51:08I generally remember that at that time
3:51:10we were really focused on rapidly
3:51:12ramping I I don't know if 300 was the
3:51:15number that we thought we would be at by
3:51:16the end of the year
3:51:19so we talked
3:51:21um in your earlier testimony about how
3:51:23at some point the parties were
3:51:25renegotiating the contract
3:51:27and so and those talks started happening
3:51:30and that the last store actually opened
3:51:32in the fall of 2014. do you remember
3:51:34that testimony I do okay so do you think
3:51:38that it was
3:51:40achievable to open 300 stores
3:51:43you know a month
3:51:45later after opening the last 41st store
3:51:50again I I don't know what was behind
3:51:53these numbers in this model I I know
3:51:55that through the end of 14 I continued
3:51:58to believe that there was an opportunity
3:52:00to ramp
3:52:01rapidly with Walgreens and I I don't
3:52:04know what the specific
3:52:06numbers that we were thinking at that
3:52:08time was
3:52:10and then you remember our earlier your
3:52:12earlier testimony and wish we
3:52:14established that by December 2014 the
3:52:17parties were talking about converting
3:52:19the business model to a rental agreement
3:52:21model do you remember that I do okay and
3:52:23so that would have required some
3:52:25modification of the contractor that came
3:52:27to pass correct correct okay so if you
3:52:31turn the page to the next page you'll
3:52:33see that by December 2015.
3:52:38the Assumption was that there are no
3:52:40Services would be ruled out to 900
3:52:42stores
3:52:43do you think that was reusable in light
3:52:45of the fact that the parties were just
3:52:48beginning to talk about the rental
3:52:49agreement model in December 2014.
3:52:52I do why
3:52:55because Walgreens used to refer to
3:52:58itself as an execution machine they
3:53:00rolled out injections for vaccines in 8
3:53:03100 stores in 12 months we thought that
3:53:06you could roll out nationally within 12
3:53:09to 18 months of the time you made a
3:53:11decision to do that
3:53:13so
3:53:15turn it back to these the store
3:53:16assumptions for the end of 2014. did Mr
3:53:20balwani ever tell you that he expected
3:53:21theranos to open
3:53:23200 Walgreens locations by November 2014
3:53:27or 300 by the end of the year
3:53:29I I don't remember specific
3:53:31conversations about those numbers I
3:53:33remember feeling generally optimistic
3:53:35going into the fall of 14 that we were
3:53:38going to be ramping
3:53:40quickly and when did that optimism fade
3:53:44in your mind
3:53:45I I don't know that it ever faded I mean
3:53:49looking at the the notes from the
3:53:51December meeting with Walgreens the fact
3:53:54that they were endorsing the kind of
3:53:57model that we wanted to pursue we we
3:53:59continued to see as a really positive
3:54:01sign
3:54:04so you'll see
3:54:06um
3:54:07turning back to
3:54:09the first Mark Market assumptions page
3:54:13so we just talked about how other was
3:54:16likely Safe Way since theranos had no
3:54:18other contrast with other retail
3:54:19pharmacies Brent
3:54:21again I I don't know what funny when you
3:54:25built this model I I can sit here and
3:54:27guess but I don't know but theranos
3:54:29didn't have any other contrast with
3:54:31other retail pharmacies at this time the
3:54:32size Walgreens and Safeway correct not
3:54:34that we're signed okay
3:54:37so
3:54:38do you
3:54:39based on what we saw before and the fact
3:54:42that things would slow down with Safeway
3:54:44and the parties seem to be disagreeing
3:54:47on a number of issues do you think it
3:54:48was reasonable
3:54:50to think that 135 stores would be
3:54:53rolling out in Safeway with fairness
3:54:55services in January 2015. I I don't know
3:55:00that this was Safeway
3:55:01who else could it be
3:55:03well I I don't know what the date of
3:55:05this was the Walton family had just I
3:55:08think by this time invested we were
3:55:11in talks with Executives at Walmart
3:55:13about the potential to roll out there we
3:55:15still had really good relationships with
3:55:17others from the grocery Network at
3:55:19Safeway who wanted to work with us if it
3:55:21didn't have to be from Safeway I just I
3:55:24genuinely don't know what this was
3:55:26referring to
3:55:28but you didn't have any contracts with
3:55:29any other Retail Pharmacy besides
3:55:32Walgreens and Safeway what would make
3:55:33you believe that in October 2014 you'd
3:55:35be able to open 135 stores wellness
3:55:39centers in January 2015. that's three
3:55:41months away
3:55:43I I don't know what this assumption was
3:55:46based on I do know that by this point in
3:55:49time we'd spent years working with in
3:55:52terms of meetings there wasn't a
3:55:53physical contract in place multiple
3:55:55retailers on what this could look like
3:55:57and I don't know what Sunny was thinking
3:55:59when he put this together or what its
3:56:01purpose was okay so we're not asking you
3:56:03to speculate here so if you don't know
3:56:04then you can just state that you don't
3:56:06know so you have no idea as to how these
3:56:08assumptions came do not know okay
3:56:12so you mentioned the the conversations
3:56:15with Walmart what was your view of the
3:56:17initial conversations with the with the
3:56:19Walmart folks
3:56:21my understanding was that first the
3:56:24people affiliated with the Walton family
3:56:26wanted to understand whether Walmart
3:56:28thought that this could be valuable and
3:56:31a potentially viable business model and
3:56:34then wanted to understand
3:56:35whether there was any conflict with them
3:56:38investing if Walmart at some point was
3:56:40to proceed with this and I believe both
3:56:44of those things turned out positively
3:56:46that Walmart thought that there was
3:56:48potential here and that it was also okay
3:56:50for the Walton family to invest
3:56:52in other words there was potential but I
3:56:55guess specifics of a framework for
3:56:56agreement weren't being discussed in
3:56:58October 2014 were they
3:57:00I don't know what Walmart had a team of
3:57:03Executives that came to theranos and we
3:57:05had
3:57:07specific conversations about what a
3:57:09pilot could look like and how many
3:57:10stores and these types of things
3:57:13I sitting here now think that that
3:57:15probably would have required follow-up
3:57:17with other retailers but I know that we
3:57:20generally believed that based on having
3:57:22had years of interactions with multiple
3:57:23retailers there were opportunities to
3:57:25engage with other retailers quickly if
3:57:28we
3:57:29needed or wanted to do that
3:57:33and with CBS it had in October 2014 had
3:57:38you shared with Walgreens the potential
3:57:40for Contracting with CVS on any Retail
3:57:43Pharmacy locations I think we talked a
3:57:46lot with people at Walgreens about
3:57:47whether or not we would engage with CVS
3:57:50and trying to be respectful of the fact
3:57:53that Walgreens wanted us not to but also
3:57:55trying to say to them unless we get the
3:57:58kind of rollout that you described to us
3:58:00we're going to need to have another
3:58:02partner do you recall personally having
3:58:04any of those conversations
3:58:06I I don't know whether I did or not I'm
3:58:10not sure
3:58:17what
3:58:18down
3:58:19on that first page again of the market
3:58:22assumptions
3:58:25page do you see that
3:58:27I'm sorry yes
3:58:29you'll see there is a line here
3:58:32called RX test per day per location is
3:58:36that
3:58:37requisitions per day per location
3:58:40I think so and is that a good process
3:58:42for patients per day per location
3:58:47um
3:58:50I I don't know
3:58:52um it
3:58:54I'm just trying to look at what's
3:58:56underneath it
3:58:57I I think it could be
3:59:00okay so here in the assumptions uh it
3:59:03looks like Mr balwani is using 40 for
3:59:06October 2014 and in fact I think that
3:59:10stays pretty constant through December
3:59:122015 if you look on the next page
3:59:15so do you remember your earlier
3:59:18testimony
3:59:20that you had seen a document showing
3:59:24that Walgreens was actually seeing about
3:59:27three patients per store per day in
3:59:302014. some patients are different
3:59:34totally different I don't and do you
3:59:38understand my question
3:59:39I I don't I'm sorry could you clarify
3:59:42my question was do you remember your
3:59:44earlier testimony in which
3:59:47we discussed that by May 2014 you're
3:59:51aware that Walgreens was seeing three
3:59:52patients per store per day
3:59:55I I remember the document that you
3:59:57showed me I don't know if I was aware of
3:59:58that at that time okay and then also you
4:00:01said that you were aware that Walgreens
4:00:02was trying or the goal for Walgreens was
4:00:05to reach 10 patients per store per day
4:00:07do you remember that yes okay do you
4:00:09think it was reasonable for
4:00:12um these financials be assuming that
4:00:15Walgreens
4:00:17would have would have seen or would be
4:00:20seeing 40 patients per day in in the
4:00:23stores by October 2014.
4:00:26again I'm not sure if this is patience
4:00:28per day because it says test per day and
4:00:30I'm not exactly sure what that means
4:00:32yeah I'm I do know that our numbers
4:00:35ultimately crossed
4:00:37in the stores that were in the right
4:00:39locations I believe above 60 patients
4:00:42per day and higher so if this is
4:00:44patients per day then yes
4:00:46yeah RX what does that mean to you
4:00:50it means prescription or Pharmacy I I
4:00:52don't know
4:00:53okay and so I mean 40 tests per day that
4:00:56would seem pretty low don't you think
4:01:00I I I'm just saying I don't know why it
4:01:03says tests as opposed to patients if I
4:01:04said patience I would assume it would
4:01:06save
4:01:07if he meant patients I would assume he
4:01:09would write patients I I don't know but
4:01:10but don't you think that 40 tests per
4:01:13day per location that would seem a
4:01:14little bit low to you right
4:01:17in terms of what
4:01:20it would seem a little bit low to be
4:01:22using an assumption of 40 tests per day
4:01:24per location
4:01:26um
4:01:29I I don't know I don't know what
4:01:32what assumptions were going into this
4:01:33and what it was based on I as I said I
4:01:36know that we ultimately saw more than 60
4:01:38patients per day in a number of
4:01:40locations that were the models for how
4:01:42we thought we were going to be rolling
4:01:44out and at the time did you have a sense
4:01:46of how many tests each of those patients
4:01:48ordered on average
4:01:50I I don't know what my understanding was
4:01:52at the time I I generally understand now
4:01:55that there was about 3.2 CPT codes per
4:01:58order on average
4:02:00did you have any understanding at the
4:02:02time about about how the patients per
4:02:04day translated in terms of
4:02:06numbers of tests there in us had to
4:02:08actually run
4:02:09at that time right I'm not sure yeah I I
4:02:13generally understood that as Sunny built
4:02:15models he tried to study what other
4:02:17Laboratories were doing and seeing in
4:02:19terms of number of patients per day and
4:02:22other metrics so I I believed that he
4:02:25was judging assumptions in general based
4:02:27on that research
4:02:29so if you turn back to the first page of
4:02:32the macro Market assumptions yep you'll
4:02:35see under retail pharmacy
4:02:37the revenue per requisition is forty
4:02:40dollars
4:02:43and we were just talking about how
4:02:44theranos was looking to offer tests for
4:02:46four dollars
4:02:48does that seem a little high to you
4:02:51I think it depends on how many tests are
4:02:53assumed in that requisition okay so then
4:02:57do you think based on these numbers that
4:03:00actually
4:03:03because as you can tell
4:03:0640 is being multiplied by
4:03:09the 41.
4:03:1240
4:03:1441 locations Walgreens locations
4:03:19and also another 40 tests per day per
4:03:21location
4:03:23so do you think that maybe RX test
4:03:25actually does mean requisition
4:03:31I'm sorry I didn't follow you said 40 is
4:03:33being multiplied by what so you see what
4:03:36Mr golwani is doing here
4:03:39she's multiplying the number of
4:03:41locations for Walgreens of 41 in October
4:03:44of 2014. by the number of tests per day
4:03:48per location
4:03:49by by the amount of money that you're
4:03:53receiving per
4:03:56requisition in order to get to
4:04:00the revenue figures
4:04:06where where is that
4:04:14the numbers College yeah
4:04:1941 times 40 equals 1600 that's what
4:04:23that's what you're playing right but
4:04:24then I think you also said and if you
4:04:27multiply that again by the amount of
4:04:29money that you're receiving per
4:04:31requisition you would get the revenue
4:04:33figure of 1.968
4:04:36okay so do you think it makes sense then
4:04:38that RX test is actually a requisition
4:04:42it could be
4:04:44okay
4:04:45so you don't know one way or the other
4:04:47how these assumptions came about
4:04:50I I don't again I was not involved in
4:04:53setting these
4:04:55do you have any concerns about these
4:04:56having been provided to potential
4:04:58investors you know if you're involved in
4:05:00preparing them these went out under the
4:05:01theranos name and were provided to
4:05:03potential investors is that give you any
4:05:05pause I I don't know that they were
4:05:08provided to potential investors I see
4:05:10they were going back and forth with year
4:05:11I don't know what the context of sending
4:05:14these to was whether this was in the
4:05:15context of interactive engagement on
4:05:18building a model or not I I don't
4:05:21recognize this as the format of the
4:05:23final model
4:05:26is something similar I've been provided
4:05:28other investors at the time with that
4:05:29around the time would that give you any
4:05:31concern
4:05:33depends on what the assumptions were
4:05:35based on right
4:05:38if the same assumptions were used with
4:05:40that concerning you
4:05:42the same assumptions as this yes
4:05:44meaning 40 patients per day and 40
4:05:46requisition yes and the 300 Walgreens
4:05:49stores by the end of 2014 and 900 by
4:05:532015.
4:05:56I don't I don't think that 900 by 2015
4:05:59would have given me pause I'm 40
4:06:01patients per day
4:06:03he's sitting here now given that I know
4:06:05that we beat that number uh in the right
4:06:08stores that would not have given me
4:06:10pause the requisition of forty dollars I
4:06:12don't know how many tests that was
4:06:14assuming but I know that our
4:06:16uh per
4:06:18requisition income was higher than forty
4:06:21dollars
4:06:25so you say that you knew that some
4:06:27stores were receiving 60 patients per
4:06:29day we also aware that somewhere later I
4:06:31don't know if it was at this time okay
4:06:34do you have a sense of when you came to
4:06:36kind of a more granular patience for
4:06:37store understanding I think it was in
4:06:392015
4:06:41I I can use it just geographically when
4:06:44like early 2015 late 2015.
4:06:48um I'm not sure
4:06:52I'm not sure I mean by late 2015 we were
4:06:55completely focused on engagement with
4:06:57CMS and FDA and the Wall Street Journal
4:06:59so I would think at least middle of 2015
4:07:02I don't know how early in 2015.
4:07:16foreign
4:08:07thank you
4:08:20put that one aside
4:08:27foreign
4:08:56we had talked about
4:08:58earlier in your testimony but you'll see
4:09:01that the first page so I'm sorry this is
4:09:05the document just standing up no no oh
4:09:08you're going back to one that was really
4:09:09remarkable yes or not today but um
4:09:13so you'll see the first page is called
4:09:16there it is confidential summary
4:09:18capitalization
4:09:20yes and then there's
4:09:24there's some financial information in
4:09:26the back
4:09:27so I represented to you at the time that
4:09:30we marked this exhibit that
4:09:32this was produced by fairness to the SEC
4:09:35pursuant to subpoena as part of a binder
4:09:38that was provided by theranos to Rupert
4:09:40Murdoch when he was considering whether
4:09:42to invest in fairness in December 2014
4:09:45and January 2015.
4:09:52so you'll if you turn to the projected
4:09:55statement of income which is 605.
4:10:05[Applause]
4:10:13you'll see here that your these this
4:10:17document is projecting
4:10:19almost a billion dollars of Revenue in
4:10:222015 and almost two billion dollars in
4:10:25Revenue in 2016.
4:10:28do you see that I do okay uh
4:10:33and if you turn back
4:10:37to the market assumptions page I'm sorry
4:10:43I will be giving that to you just
4:10:45shortly
4:10:46um
4:10:48but just so that you have this in front
4:10:50of you you'll see that half of the
4:10:52revenues from 2015
4:10:54and 2016 are from the retail pharmacy
4:10:57business do you see that I do okay
4:11:01um do you know what assumptions were
4:11:03used to
4:11:05get to those numbers 425 million dollars
4:11:09in 2015 and 993 that million dollars in
4:11:122016.
4:11:14I I don't sitting here now
4:11:19just looking further down the page you
4:11:20see there's a number that's listed next
4:11:21to ebitda
4:11:24Eva yes did you have an understanding in
4:11:27late 2014 what that what that number
4:11:29meant
4:11:31uh
4:11:34I don't know I I don't think I focused
4:11:37on that I don't know
4:11:40do you understand today what it means
4:11:43I understand that it's our earnings
4:11:47um
4:11:48and I I think this percent margin means
4:11:51our profit margin
4:11:53did you have an expectation in in late
4:11:562014 that that theranos would be
4:12:00um would have 300 million dollars or 300
4:12:03million dollars in earnings
4:12:05um at the end of 2015.
4:12:10um I think that I believed in whatever
4:12:14assumptions went into getting this kind
4:12:16of footprint and understood from the
4:12:19model that if we did that we would be
4:12:22profitable
4:12:25you see an item below that about
4:12:27depreciation
4:12:29uh
4:12:31sorry it was that yes I do I see it yes
4:12:34sorry the um
4:12:35do you have an understanding of what's
4:12:37being depreciated there no
4:12:41okay
4:12:42so I'm going to hand to you
4:12:45what's been marked as fairness exhibit
4:12:47228 and you can keep
4:12:49um
4:12:50instead of 213 in front of you
4:13:00live at 228
4:13:05reports to be an Excel
4:13:08spreadsheet
4:13:10and the first page there is a screenshot
4:13:14of the metadata that's associated with
4:13:16this file and on the second page is
4:13:19where the actual document starts
4:13:22the title is on the top of the first
4:13:24page is there in This Confidential
4:13:26Market assumptions with starting base
4:13:27number t-h-e-r-2550987
4:13:36have you seen exhibit 228 before besides
4:13:40the first page which includes the
4:13:42metadata
4:13:44I don't know okay okay I'll represent to
4:13:47you that this is the Excel spreadsheet
4:13:50that was
4:13:51produced by fairness
4:13:54to the SEC pursuant to subpoena and
4:13:56represented by Council to the SEC to be
4:13:58the financial model that produced the
4:14:00financial statements that are in the
4:14:02Rupert Murdoch binder so that would be
4:14:04exited 213.
4:14:07so if you look at the projected
4:14:09statement of income which is
4:14:13on
4:14:15the SEC the third to last page of the
4:14:18document
4:14:21you can go ahead and compare that to
4:14:23what you're seeing on that same page and
4:14:25I just exhibit 213. do they look
4:14:29identical to you
4:14:32they do without the highlighting or
4:14:34whatever this is do the numbers look
4:14:36identical to you they do okay
4:14:38why don't you turn back to the market
4:14:41assumptions page
4:14:44which is of exhibit 228.
4:15:01I'm sorry why don't you turn to this oh
4:15:03you're already on that page so on this
4:15:05page
4:15:07uh this would be the second Market
4:15:08assumptions page
4:15:11you'll see here instead of projecting
4:15:14900 stores for Walgreens in December
4:15:182015.
4:15:20now the projection is
4:15:221340 stores in December 2015 do you see
4:15:26that I do do you know why this
4:15:30projection change from 900 to 1 340 in
4:15:34the space of two months
4:15:36I don't
4:15:39think Mr balwani would be the best
4:15:41person to answer that question yes
4:15:48also you'll see that instead of opening
4:15:51190 135 store of other stores in January
4:15:572015. now the assumptions are that 135
4:16:02scores will be open in April 2015 do you
4:16:04see that I do why do you think this
4:16:07change was made
4:16:09I I don't know
4:16:19and then if you look further down under
4:16:21retail pharmacies there's some
4:16:23assumptions related to the physician's
4:16:25offices and Retail clinics do you see
4:16:27that
4:16:28yes
4:16:30so in March 2015
4:16:33the Assumption for the number of
4:16:34Physicians offices is 500.
4:16:37did you see that I do
4:16:43what was the basis for
4:16:46believing that thereiness would be in
4:16:49contract with 500 Physicians offices by
4:16:52March 2015.
4:16:54I I don't know specifically sitting here
4:16:57now looking at it I'm assuming there was
4:16:59some type of
4:17:04tied to being at a hundred retail
4:17:07locations by that time
4:17:12what was the relationship between the
4:17:13the retail locations and the and the
4:17:16doctors
4:17:17my general understanding has been that
4:17:19once we had a certain retail footprint
4:17:21around that retail footprint we would
4:17:24then be able to contract with Physician
4:17:26Offices both to send people to the
4:17:28stores as well as to pick up samples
4:17:31and that was your understanding in late
4:17:332014. I think so yes
4:17:37okay so if you look at hospitals there
4:17:40are some assumptions there as well
4:17:42and for January 2015
4:17:46the assumption is that there would be 10
4:17:49sites
4:17:51that would be using fairness services
4:17:55do you know what that relates to I do
4:17:58not
4:18:01okay so if you turn back to
4:18:04exhibit 213 then
4:18:12and turn to
4:18:15page with Bates ending 607
4:18:22you'll see there are a number of
4:18:23additional comments at the bottom of the
4:18:25page like footnotes do you see them they
4:18:28do okay and the first one says please
4:18:32note all revenue projections are based
4:18:34on contracts already signed and in place
4:18:36for 2015 and 2016 no additional
4:18:39contracts were seeing assigned do you
4:18:41see that I do
4:18:46and then if you go down to number three
4:18:50here it says theranos has an exclusive
4:18:53contract with second largest grocery
4:18:55chain in the U.S to be the only lab in
4:18:58those locations
4:18:59was that referring to Safeway
4:19:02I don't know
4:19:04so would you agree though that
4:19:08investors who would be receiving these
4:19:10financial statements including Rupert
4:19:12Murdoch would believe that these numbers
4:19:14were based on already signed contracts
4:19:16based on these additional comments
4:19:20I I don't think
4:19:23I I I can't speak for them yeah our
4:19:27understanding was that that we engaged
4:19:29very directly with any questions that
4:19:32investors had about
4:19:34what was important to them in evaluating
4:19:36the investment
4:19:37but you if you had received these would
4:19:40you understand then based on these
4:19:42comments on this page that the revenue
4:19:44projections were based on contracts
4:19:46already signed by theirness
4:19:49I I don't know I I reflecting in my head
4:19:53on the kind of conversations that
4:19:54happened with investors around their
4:19:58investment in the company and we were
4:19:59very open about the state of our
4:20:02relationships with Retail Pharmacy
4:20:04partners
4:20:06okay what about other businesses like
4:20:08hospitals and Physicians offices were
4:20:11you very forthright with investors about
4:20:14those contracts as well my understanding
4:20:16is that we generally discuss the fact
4:20:18that Intermountain and dignity had
4:20:20invested through peer and that we
4:20:24thought that there was opportunity to
4:20:25engage with them in providing Services
4:20:27because they had an investment and that
4:20:30therefore we would be able to rapidly do
4:20:33that as soon as we were ready
4:20:35besides Intermountain and dignity what
4:20:38other hospitals did their anus have
4:20:40contrast with
4:20:41I I don't know as I said earlier I know
4:20:44that there was work in Arizona to engage
4:20:46with
4:20:47what I was calling hospitals or health
4:20:48systems and I don't know by memory which
4:20:51ones the company ultimately signed
4:20:54contracts with
4:20:57call discussing exhibit 213 with Mr
4:21:01Murdoch and his associates
4:21:03I don't recall
4:21:06discussing this
4:21:09specifically I know
4:21:12I'm after we he invested we had
4:21:15discussions about what we thought we
4:21:18could do financially in terms of
4:21:20projections
4:21:22what do you mean by that when do you
4:21:23think he invested
4:21:26um it's my memory that he communicated
4:21:28that he
4:21:30wanted to invest
4:21:33um
4:21:35as early as
4:21:39I want to say October but that's
4:21:40probably wrong specifically and we we
4:21:42later sent him all these materials
4:21:46um we then I had a couple meetings with
4:21:49him after he invested I think in early
4:21:512015 and generally discussed you know
4:21:54what we thought the potential was for a
4:21:58number of stores and Associated Revenue
4:22:00that that's the only time I can remember
4:22:02specifically discussing numbers with him
4:22:05do you see this is just my understanding
4:22:07is it your general understanding that
4:22:08you only discussed sort of the financial
4:22:10potential of the company after he had
4:22:13actually invested in theranos
4:22:17that's the only time that I personally
4:22:19can remember talking about it with him
4:22:20he he came to theranos before he
4:22:24invested and sunny was in the meeting
4:22:26and I can't remember if financials were
4:22:29discussed in that meeting or not
4:22:31um but I I remember after he invested
4:22:33sort of having a conversation about how
4:22:35do you think you're doing and talking
4:22:37about you know the challenges and
4:22:38rolling out in retail and what we
4:22:40thought we were going to be able to do
4:22:41or make up
4:22:43uh you mentioned sort of a meeting with
4:22:46Tim and his son before he invested do
4:22:47you remember any other in-person
4:22:48meetings with Mr Murdoch
4:22:51um at theranos before he invested
4:22:55um I don't remember any other meetings
4:22:56at thermos
4:22:58that what other meetings do you recall
4:23:01um the first time I met him and then
4:23:03when he decided to invest and which was
4:23:07a meeting at his Ranch near San
4:23:11Francisco
4:23:15do you recall Sonny ever telling uh Mr
4:23:17Murdock anything about the financial
4:23:20possibilities of the company
4:23:23again I know he was in a meeting with
4:23:26Robert and I I can't remember exactly
4:23:30whether Sunny presented on the
4:23:31financials there or not or just discuss
4:23:33them I'm not sure
4:23:37were you present for that meeting I
4:23:38guess or are you I was I was so if Sonny
4:23:41had presented
4:23:42is that something you would have been
4:23:44attendance at least I was yes
4:23:49what was the company's cash balance as
4:23:52of the end of 2013.
4:23:56I'm I believe
4:23:59um we received the 75 million dollar
4:24:01payment from Walgreens right at the end
4:24:03of 2013 so I I think it was at least 75
4:24:07million okay were you aware that the
4:24:09company was running out of money at that
4:24:11time yes
4:24:13okay and was that uh part of the reason
4:24:15why fairness wanted to accelerate the
4:24:17Innovation fee payments from Walgreens
4:24:21I think the initial reason for trying to
4:24:23accelerate the Innovation fee payments
4:24:25from Walgreens is that we were investing
4:24:26a lot of money into the Walgreens
4:24:28relationship and it was not going to be
4:24:31sustainable if they didn't make this
4:24:33payment
4:24:34um
4:24:36so that was the primary driver for it
4:24:38okay was that was it also part of the
4:24:40reason why you ended up going out to
4:24:41raise more capital from investors
4:24:44I'm sorry was what was the fact that the
4:24:47company was running out of money at the
4:24:49end of 2013 they're also the reason why
4:24:51you went out to raise more capital from
4:24:53investors
4:24:54the the raises happened after that and
4:24:57so by that time we'd received the
4:24:59payment from Walgreens and we didn't
4:25:00need Capital to continue operations what
4:25:04was your bird rate on cash per month in
4:25:06that time frame I don't know do you
4:25:08think it was something like 10 million
4:25:09dollars
4:25:11in early 14.
4:25:14in early 14. I I don't know
4:25:18so even if you had say 75 million
4:25:20dollars from Walgreens that would likely
4:25:22only last
4:25:24you know say a year maybe at most is
4:25:27that consistent with what you would
4:25:29understand
4:25:31no the the payment of the 75 from
4:25:33Walgreens to us meant we were going to
4:25:35be expanding nationally so at that point
4:25:37we thought financially the company was
4:25:40in a strong position
4:25:42so why did why did theranos engage with
4:25:45with the partner fund around the late
4:25:472013 early 2014 period uh in connection
4:25:50with an investment
4:25:52um partner fund was introduced to us as
4:25:54someone who was interested in investing
4:25:56and
4:25:58our first meeting with them was in I
4:26:01think December of 2013.
4:26:03yeah
4:26:05but is your testimony today that sort of
4:26:08their potential investment was not
4:26:10viewed as potential source of operating
4:26:12capital in your mind
4:26:15I believe in I'm
4:26:18I'm speculating a bit here but knowing
4:26:21now that the first meeting was around
4:26:22December 10th
4:26:25um we certainly wouldn't have expected
4:26:26that we would be closing investment from
4:26:28them before the end of December I think
4:26:30we we thought that our our business
4:26:31lived on getting payment from Walgreens
4:26:34and then it was really a question of
4:26:37with pfm going to be the kind of
4:26:38long-term investor that we
4:26:41wanted to begin to bring in because at
4:26:44that point
4:26:45not only did we have the payment from
4:26:47Walgreens we also had some capital from
4:26:49existing shareholders that had been
4:26:51invested
4:26:54so I'm going to hand it back to you uh
4:26:57anything that those two minutes in this
4:26:58way but I'm going to hand back to you
4:27:00what was previously marked
4:27:05there's actually just one thing I want
4:27:06to look at in here so this is exhibit
4:27:10221 that I'm handing over to use the
4:27:13same way yes these are the text messages
4:27:15between you and Mr balwani yes so
4:27:22you can turn to
4:27:26the page with babe sending 6263
4:27:32six two six three
4:27:49yes
4:28:11so you'll see
4:28:14towards the bottom of the page
4:28:17there is a text message from sunny
4:28:19belwani on November 21st 2013 at 5 35
4:28:25and he says you should make yourself
4:28:27comfortable with financial models
4:28:29alternatively you can cover everything
4:28:31else and I can meet with him on Tuesday
4:28:33and answer any questions do you see that
4:28:35yes and then a couple text messages down
4:28:39you say I'll get myself comfortable let
4:28:41me know what file to use
4:28:43and then if you go on to the next page
4:28:45which is 6264.
4:28:49there's a number of adaptions but about
4:28:53six messages down
4:28:55uh
4:28:57there's another text message from Mr
4:29:00balwani to you and he says please close
4:29:02the file
4:29:03under DST folder under thin not safe to
4:29:07give them yet
4:29:08and then another message where he says
4:29:10under DST
4:29:12and then a few more messages down you
4:29:16respond to him can I edit it there are
4:29:18typos okay to open do you see that I do
4:29:21what do you recall about
4:29:23what was going on here
4:29:27I'm not sure
4:29:29does it look like you were opening a
4:29:31file on Mr belt and Mr balani's folder
4:29:35in order to edit some files
4:29:38it looks like I was
4:29:40opening a file under his folder yes I I
4:29:43don't know if I edited it
4:29:49what is DST
4:29:51I I think this refers to
4:29:54did you understand them to be a
4:29:55potential investor and there knows at
4:29:57this time
4:29:58I think so
4:30:00yeah
4:30:02so do you think that you opened the file
4:30:04and reviewed it at the time I don't know
4:30:08does it look like he did
4:30:12it's your ball when he says please close
4:30:14the file
4:30:22I'm sorry where does he say that on 6264
4:30:28at 5 30 pm
4:30:36I I don't know
4:30:41were there other instances in which you
4:30:44might have opened a file and reviewed it
4:30:47yes
4:30:48and other instances in which you might
4:30:50have opened a financial model that Sonny
4:30:53balwani was working on and reviewed it
4:30:55could have been
4:30:58do you recall any instance in which you
4:31:00edited a financial model that he was
4:31:01working on no
4:31:07okay we can take a short break we're off
4:31:09record at 303 P.M
4:31:14foreign
4:31:21at 3 25.
4:31:24it's Holmes if you have any substantive
4:31:26conversations with the SEC staff during
4:31:28the break no
4:31:32so I want to switch gears again and and
4:31:34now we're going to talk about theranosis
4:31:36Communications with FDA do you recall
4:31:39Communications that Theron has had with
4:31:41FDA that started in 2012. yes
4:31:45why did you start having those
4:31:46conversations with the agency
4:31:50uh do you mean generally are the ones in
4:31:522012 specifically uh the ones in 2012
4:31:55specifically
4:31:58um I believe FDA had questions about
4:32:02um
4:32:03information that they had heard about
4:32:06fairness and we wanted to answer their
4:32:09questions and give them any information
4:32:11on our work that they wanted what
4:32:13questions that they have
4:32:15I I think that they thought that we were
4:32:19trying to sell our devices to other
4:32:21Laboratories at the time and we
4:32:25tried to immediately convey to them that
4:32:27we weren't and that we had actually
4:32:30hoped to come in and start working with
4:32:33them when our lab developed tests came
4:32:34live and that we were hopeful that we
4:32:37could take them through the regulatory
4:32:38process
4:32:39and so why did the FDA have these
4:32:42questions that somebody bring a concern
4:32:44to their attention I I think there was a
4:32:47miscommunication with people that we had
4:32:50been interacting with in DOD
4:32:53in the Department of Defense yes
4:32:55uh what information would the dod have
4:32:58given FDA
4:33:00with respect to
4:33:02or concerning theranosis possible sale
4:33:05of devices
4:33:07I don't know what information they give
4:33:09the FDA what were your talks with the
4:33:12dod about that led to DOD contacting FDA
4:33:17I actually don't know why DOD contacted
4:33:20the FDA I I'm not sure
4:33:27art
4:33:28fairness visited 29.
4:33:31I'm sorry
4:33:37exhibit 229 reports to be a letter
4:33:42with Hyman Felson McNamara letterhead
4:33:45dated November 26 2013 the letter is
4:33:49addressed to the FDA and the starting
4:33:50dates number is ts-0995690
4:33:56have you seen Exhibit 2 29 before
4:34:01you know I don't remember this letter
4:34:04specifically but I I recognized the
4:34:07letterhead as
4:34:12do you remember
4:34:15having discussions with
4:34:17Hyman Phelps about sending a letter to
4:34:19FDA in this time frame
4:34:23um I I have to read the letter to
4:34:26remember exactly what this was referring
4:34:29to but I know that this was one of our
4:34:31regulatory Council that was advising us
4:34:33is we were engaging with the FDA in
4:34:362013.
4:34:39generally would you communicate with the
4:34:41FDA would you include regulatory counsel
4:34:44or would you have to have discussions
4:34:47with FDA
4:34:49directly I think both
4:34:52okay and on what occasions would you be
4:34:54having direct conversations with FDA
4:34:56versus having your Law Firm communicate
4:34:59with them
4:35:01the first one that comes to mind is we
4:35:03would have interactive review with their
4:35:07teams and in that context we were
4:35:09directly engaged we have had in-house
4:35:12regulatory Council involved in that but
4:35:15but generally not outside regulatory
4:35:17Council
4:35:19would you expect that a law firm that
4:35:20you hired would
4:35:25discuss with you the possibility of
4:35:27sending a letter to FDA before doing so
4:35:30yes okay and do you would you expect
4:35:33that that law firm would also discuss
4:35:35what they were planning to say to the
4:35:37FDA before going ahead and communicating
4:35:39with FDA on behalf of theranos yes yes
4:35:43so do you have any reason to doubt that
4:35:45you knew at the time that I'm in Phelps
4:35:48was sending this letter to FDA
4:35:50no
4:35:54I'm going to
4:36:00uh
4:36:02the attachment to the letter which
4:36:04starts on 700
4:36:06just you'll see that the attachment is
4:36:09some meeting minutes for a meeting
4:36:13on October 15 2012 and the minutes and
4:36:17solves are dated November 16 2012. do
4:36:20you see that
4:36:22yes
4:36:24were you present at this meeting in
4:36:26October 15 2012 yes
4:36:29so there's a meeting between
4:36:31theranos then and cdrh
4:36:34correct
4:36:37yes
4:36:38and they didn't know they were cdrh I
4:36:40thought of them as FDA but I see that
4:36:42here okay
4:36:44um that's fine uh so you understood that
4:36:47you were at a meeting on this day with
4:36:49the FDA yes okay
4:36:52um and your Council wasn't involved in
4:36:55this meeting
4:36:56right
4:36:57they were not present at the meeting why
4:37:00not
4:37:01because we wanted to directly engage
4:37:04with you just said I mean to the extent
4:37:06that
4:37:07I mean you can answer that but I mean to
4:37:09the extent that you're asking for
4:37:11communications that you have at Council
4:37:13about what your strategy was and why
4:37:15they showed up and shouldn't answer that
4:37:17right and I'm not asking yeah I'm not
4:37:19asking about your conversations with
4:37:21Council but I'm wondering if you can't
4:37:23answer the question why you didn't
4:37:25include regulatory Council in that
4:37:27meeting
4:37:28I I think in general we wanted to
4:37:30directly engage with with people at the
4:37:32agency okay
4:37:35so
4:37:38do you recall this meeting
4:37:40yes okay what was discussed
4:37:44um my memory is I'm first there are
4:37:49explicit concerns based on information
4:37:51that they had heard and then secondly
4:37:55I'm we attempted to communicate that we
4:37:58really wanted to engage successfully
4:38:01with the FDA and try to create a model
4:38:04for becoming the first company to take
4:38:07all their ldts through the FDA process
4:38:10so if you look
4:38:12first page of these minutes on 700
4:38:18that went and actually before before we
4:38:20look at that do you know who drafted
4:38:21these minutes
4:38:24someone at the FDA okay so if you look
4:38:27in that first paragraph
4:38:30following the following information is
4:38:32meant to summarize the issues raised at
4:38:34the meeting the first uh bigger
4:38:36paragraph starting with FDA about
4:38:38halfway through the paragraph it says it
4:38:41was stated very early in the meeting
4:38:43that the FDA does not consider the
4:38:44assays to be asrs and distribution of
4:38:46the fairness system
4:38:48analyzer and reagents in the U.S as an
4:38:51ldt is not appropriate do you remember
4:38:54them telling you that
4:38:57I I don't remember this communication of
4:39:00this sentence specifically do you
4:39:02remember them telling you that they did
4:39:04not believe that Uranus's system and its
4:39:06free agents would be considered ldts
4:39:09I remember them saying that if we were
4:39:12commercially Distributing the device
4:39:14that that would not be an ldt but that
4:39:16if we were running the tests in our lab
4:39:18that would be an LTC
4:39:21okay it goes on to say fairness was also
4:39:23informed that many of the potential
4:39:25assays that could be used on their
4:39:26analyzer are nucleic acid based or are
4:39:30classified as Class 2 or class 3
4:39:32therefore classification of the
4:39:34instrument as a class one device is
4:39:36incorrect and requires pre-market
4:39:38clearance for approval for marketing in
4:39:40the United States can you see that they
4:39:43do did they tell you that
4:39:46your assays
4:39:49would be classified as Class 2 and class
4:39:523 and wouldn't be considered a Class 1
4:39:55device
4:39:58if I am reading this correctly sitting
4:40:01here now I think it's referring to the
4:40:04fact that the device would be classified
4:40:06according to whatever test you were
4:40:08pursuing clearance with okay but did you
4:40:11understand here then that they were
4:40:13telling you that because the assays were
4:40:15not considered a class one devices that
4:40:19the system as well wouldn't be
4:40:20considered a class one device
4:40:24um
4:40:28I I I I don't remember thinking about
4:40:31this at the time sitting here now I
4:40:33interpret it as
4:40:35if you file for clearance on one of
4:40:37these assays the whole test system is
4:40:39going to be classified according to the
4:40:41classification of the assay okay but in
4:40:44any case it looks like
4:40:46because of the types of assays that
4:40:48theranos was thinking of performing on
4:40:50its device it was likely that they were
4:40:53not going to be considered class 1
4:40:54devices isn't that what they told you
4:40:58again I don't remember the specific part
4:41:00of the discussion with them
4:41:02I mean at the time you understood what a
4:41:04nucleic acid-based assay was right yes
4:41:08and I mean for alignment is it is it
4:41:11fair to say that those are more
4:41:12complicated than a
4:41:14um than other types types of acids
4:41:17all right or or did you have an
4:41:19understanding that they they would
4:41:21generally run on class two devices at
4:41:22the time
4:41:24again
4:41:26I'm not sure about this part of the
4:41:28discussion I don't have specific memory
4:41:29of it I I believe that this is
4:41:32essentially saying that nucleic acid
4:41:34tests in general are Class 2 or class
4:41:37three and therefore if you file a piece
4:41:40of Hardware with those chemistries that
4:41:42piece of Hardware will be treated in the
4:41:44same way as the chemistry is treated
4:41:46okay and
4:41:48um
4:41:51I I guess leaving the leaving that
4:41:53meeting with the FDA did you have that
4:41:55understanding that the type of assay
4:41:58would uh
4:42:00dictate what sort of class treatment the
4:42:04the approval you're receiving if they
4:42:06would require for the assays yes
4:42:08eventually the type of assay but the
4:42:10specific assay itself for example yep
4:42:13I'm sorry I was in the type of essay
4:42:14because that's the only way I can think
4:42:16about it but I think I understand
4:42:18okay and then in the second paragraph
4:42:20towards the bottom of the page you'll
4:42:22see there's a sentence that starts
4:42:24however do you see that
4:42:28yes
4:42:30Francis however it was pointed out that
4:42:33the deployment of theranosystems for
4:42:35research or investigational use at U.S
4:42:37military facilities in Afghanistan for
4:42:39evaluation purposes is acceptable and
4:42:42does not violate any regulations as long
4:42:44as the results obtained during the
4:42:46evaluation are strictly not used for
4:42:48patient diagnosed diagnosis and
4:42:50management and theranos follows required
4:42:52labeling regulation stated in CFR 21
4:42:56809.10
4:42:59so here theranos had told you that it
4:43:03was fine to use the theranos system for
4:43:07research purposes but not fine to use it
4:43:10for patient testing
4:43:12is that what you understand
4:43:14as to what they told you at this meeting
4:43:15yeah I'm sorry
4:43:18um so here it seems that the FDA is
4:43:21telling you that
4:43:23it was fine to use it there in a system
4:43:25for research purposes but not for
4:43:28patient diagnosis is that what you
4:43:30understood that they told you that day
4:43:32no God
4:43:34it's not what is your understanding
4:43:37my understanding was that the majority
4:43:40of the meeting was based on a discussion
4:43:42about what an ldt is and that our tests
4:43:45were able to be used as ldts so long as
4:43:48they were in the same facility that they
4:43:50were developed but that to the extent
4:43:52they would be distributed they would no
4:43:53longer be ldts based on the commentary
4:43:56in this meeting okay but you agree that
4:43:58that's not exactly what is being written
4:44:01in these minutes right
4:44:03um do you mind if I take a minute just
4:44:05to look at this document
4:44:07sure
4:44:37yeah if you look on the first page where
4:44:40it says this theranos is established a
4:44:42clear certified laboratory in Palo Alto
4:44:44under enforcement discretion use of a
4:44:46test developed and validated by the
4:44:48laboratory and which meets the
4:44:49definition of an ldt can be performed on
4:44:51clinical samples which are shipped back
4:44:53to the CLIA lab in Palo Alto
4:44:55and results can then be transmitted to
4:44:57an ordering position
4:45:01so what was your understanding from that
4:45:04that this model was consistent with
4:45:09fda's enforcement discretion for
4:45:11laboratory developed tests
4:45:13okay so how do you square that with
4:45:16da then subsequently writes here which
4:45:18is that
4:45:20it's fine to use the system for research
4:45:22purposes but not for diagnosis purposes
4:45:25it was my understanding that those are
4:45:27two different discussion topics the
4:45:29specific discussion about
4:45:30investigational use was with respect to
4:45:33Distributing the devices for use in a
4:45:36U.S military facility outside of the U.S
4:45:39oh you're saying that
4:45:41FDA told you that it was fine to have
4:45:44the device here in the U.S but it was
4:45:47not fine to ship it overseas for patient
4:45:49diagnosis
4:45:50no what's the distinction
4:45:53my understanding is that FDA was saying
4:45:55that distribution of the device in the
4:45:58U.S
4:45:59makes it not an ldt the distribution of
4:46:02the device in the US or outside of the
4:46:04US could be done in an investigational
4:46:06basis and that the sentence that I just
4:46:09read was consistent with their
4:46:11enforcement discretion for ldts okay
4:46:14uh why don't we go on to
4:46:18the paragraph that starts to move
4:46:20forward
4:46:23the second full paragraph down on 701
4:46:27so it says to move forward with the
4:46:29regulatory process the agency
4:46:30recommended that for their first
4:46:32submission their initiative pick an
4:46:34analyte or a panel to analyze that may
4:46:35be of interest to DOD and proceed to
4:46:37work interactively with the agency to
4:46:39develop a regulatory Pathway to achieve
4:46:41pre-market clearance approval status
4:46:50so FDA here was telling you that you did
4:46:52need to achieve pre-market clearance or
4:46:54approval status
4:46:55for the system correct if we were going
4:46:58to distribute the device if you were
4:47:00going to distribute the device where
4:47:02outside of theranos's Clinical
4:47:04Laboratory facility okay so you were
4:47:07aware that you would need to at least
4:47:09buy 2012 that you would need to obtain
4:47:11either approval or clearance status from
4:47:14the FDA before Distributing the device
4:47:16to some place besides the laboratory is
4:47:19that right
4:47:21that was what was discussed in this
4:47:22meeting is we engaged with regulatory
4:47:25Council a lot on that to understand
4:47:27how to interpret the regulations around
4:47:30that
4:47:32so I guess again without asking about
4:47:33your specific conversation with the
4:47:35council it
4:47:36around this time in late 2012
4:47:40um was it your understanding that
4:47:43theranos would have to get approval from
4:47:45the FDA before Distributing its device
4:47:48outside the clear lab
4:47:50we understand
4:47:52I believe I understood that that was
4:47:55what was said in this meeting
4:48:01okay what what did you understand
4:48:03the FDA
4:48:05required about the from from theranos in
4:48:09order to distribute its its tspu as of
4:48:12the end of 2012. whether at this meeting
4:48:14or otherwise
4:48:17um
4:48:19I want to make sure I'm answering your
4:48:21question what I understood in this
4:48:22meeting was that FD the FDA
4:48:24representatives there were saying that
4:48:25to distribute our device we should get
4:48:28the FDA clearance that was commensurate
4:48:30with whatever test we would try to get
4:48:33through the clearance process
4:48:36did you have any personal view that was
4:48:38different from what the FDA described
4:48:40for you at this meeting
4:48:42so I don't know if that gets into
4:48:44privilege questions we had very active
4:48:46engagement with regulatory Council on
4:48:48this topic
4:48:49well sure so I think you can you can
4:48:51tell them what you understood at various
4:48:54points in time that don't get into the
4:48:56advice that you were given for people
4:48:57even explain what you're understanding
4:49:00huge amount of it's already in the
4:49:01public record through letters from those
4:49:03councils so okay so our my understanding
4:49:06was that
4:49:08um there was certainly a belief that a
4:49:11Clinical Laboratory could use technology
4:49:14within its own patient service centers
4:49:16even without receiving clearance of the
4:49:19device we engaged with the FDA a lot on
4:49:22that later and we ultimately responded
4:49:26to their request that we pursue 510k
4:49:30clearance on the device and the tests
4:49:31and and did with our with our first test
4:49:35is that what you're referring to with
4:49:37the hsb1 yes
4:49:40so you just said that they requested
4:49:41that you submit 510k submissions when
4:49:45did that happen
4:49:48um so we began
4:49:51engaging interactively with them right
4:49:53before we announced our retail rollout
4:49:56and over a period of months following
4:50:01that initial engagement okay so that
4:50:03would have been in 2013.
4:50:06um
4:50:08I don't know
4:50:09I know that in 2013 we sent in a lot of
4:50:12pre-submissions I think there was
4:50:14initially
4:50:16a focus on those and then on the
4:50:18nanotainer and then later to get a test
4:50:20on the device cleared okay so they
4:50:22requested
4:50:23um
4:50:25510k submissions for the Tessie said the
4:50:28nanoteener and what was the third
4:50:31no I'm sorry I didn't say they requested
4:50:33them uh you asked when they asked us to
4:50:36submit the device and I said that
4:50:40I don't know when exactly they asked us
4:50:42to submit the device I know that after
4:50:44we initially reached out to them to let
4:50:46them know that we would be launching at
4:50:48retail
4:50:49um the first focus with them was on the
4:50:52pre-submissions for the tests they then
4:50:55requested that we agree to do a 510k
4:50:59submission on the nanotainer and I know
4:51:01it was after that that they began to
4:51:04focus on the importance of getting
4:51:05clearance on the device but based on my
4:51:07memory okay so just to move back then
4:51:10you're saying that you submitted
4:51:13pre-submissions to FDA they asked for
4:51:17the device and it was sometime after
4:51:18that that they wrote then requested a
4:51:20510k submission for the nanotuner
4:51:23no I think the sequencing was
4:51:26was first a a general discussion about
4:51:29the commitment to work with the agency
4:51:31even though we were pursuing the model
4:51:33that was described here as an ldt that
4:51:35manifested in a lot of pre-submissions
4:51:37the as I remember it initial specific
4:51:41request was to proceed with 510k on the
4:51:44nanotainers and later there was specific
4:51:46communication that it was important to
4:51:49them to focus on clearance of the device
4:51:53okay so if you look with a test if you
4:51:56look then back at the first page of the
4:51:59letter from Hyman Phelps
4:52:01yes
4:52:03it looks like there was also meeting on
4:52:06November 4th 2013. you see a reference
4:52:09that in the letter
4:52:13yes did you attend that meeting as well
4:52:17I I don't know but I think I did okay
4:52:19what happened at that meeting
4:52:22I'm not sure which meeting this was
4:52:24there was a lot of Engagement with the
4:52:26theater during this period okay well
4:52:28then why don't we just look back at
4:52:29exited 229 so about halfway down the
4:52:33paragraph
4:52:34a second to last sentence thereiness has
4:52:38been working closely with oir for the
4:52:41past four months to develop a plan for
4:52:43the submission and review of multiple
4:52:45510k pre-market notifications to cover
4:52:47hundreds of assays those discussions
4:52:50have been extremely productive due to
4:52:51the open communication so is this what
4:52:53you were referring to earlier as the
4:52:55510k pre-submissions like that there
4:52:57isn't prepared
4:52:59yes okay and then it goes on to say we
4:53:02were therefore very surprised to hear
4:53:04oir for the first time question whether
4:53:06in the phase one model thereiness is
4:53:08Laboratory Testing complies with Federal
4:53:10Federal Food Drug and cosmetic Act
4:53:13because an oir's view the company is not
4:53:16offering laboratory developed tests and
4:53:19here the phase one model is at the phase
4:53:21one model that you have been describing
4:53:23to us with Walgreens
4:53:26I think so I again haven't
4:53:28I don't know exactly what's described in
4:53:30here but I think so okay I mean we can
4:53:32we can turn to the next page which is
4:53:35um
4:53:3791 under background
4:53:40and the second paragraph there talks a
4:53:43little bit about the phase one model
4:53:44which is that testing is conducted only
4:53:46in full theranos laboratory on patient
4:53:48samples that are shipped to the facility
4:53:49so is that consistent with your
4:53:51understanding of what the phase one
4:53:52model was yes okay
4:53:55um so here it sounds like FDA told
4:53:59theranos at this November 4th 2013
4:54:02meeting that the company was not
4:54:04offering ldts
4:54:11um
4:54:11I I don't know that they told us that we
4:54:13were not offering lgts I think that one
4:54:16of the people in one of the meetings
4:54:19said that they didn't know whether our
4:54:22ldts
4:54:24would
4:54:25warrant enforcement discretion by the
4:54:28FDA
4:54:29do you remember who that person was
4:54:31I I believe it would be vision
4:54:34did anyone in that meeting express any
4:54:36different views from what you recall
4:54:40um from the FDA
4:54:43I I don't know who's in that meeting we
4:54:46had a lot of Engagement with division
4:54:48that we worked with and also with as we
4:54:50went along to try to make sure we were
4:54:52doing the right thing
4:54:54okay
4:54:56so you just said that there were
4:54:58questions that were raised as to whether
4:54:59your tests would be classified as ldts
4:55:04would
4:55:06get enforcement discretion as ldts as I
4:55:09remember it okay
4:55:11um
4:55:12did FDA ever tell you subsequently that
4:55:16it didn't consider your test to be ldts
4:55:22I I don't know there was there was a
4:55:24large number of interactions with them
4:55:26and I generally understood that where
4:55:29this came out was that if we continued
4:55:31working with them in good faith that we
4:55:33would have enforcement discretion
4:55:36do you recall telling prospective
4:55:38investors in 2014 that theirness is
4:55:40assays were ldts that fell under fda's
4:55:44enforcement discretion
4:55:47I don't have specific Recollections of
4:55:49that but I know we would openly talk
4:55:51about
4:55:53um
4:55:53the tests being ldts
4:55:57so did you also disclose to them that
4:56:00there were talks back and forth and FDA
4:56:03wasn't sure whether
4:56:06fairness's test would be considered ldts
4:56:10um I I don't know I don't remember
4:56:13specific conversations on this I I
4:56:15believe at that time we'd been operating
4:56:17for a year under enforcement discretion
4:56:19and so we we really believed at that
4:56:21point that we were in good faith
4:56:23operating under enforcement discretion
4:56:27I guess at that time in late 2014 did is
4:56:30it fair to say you viewed theranos's
4:56:32approach and planned to take all his
4:56:35ldts through through the FDA process as
4:56:38sort of a
4:56:40differentiating factor between you and
4:56:42your competition we did why is that
4:56:45because no other company that we knew of
4:56:48was voluntarily saying to the FDA that
4:56:51they wanted to take all these tests
4:56:52through the FDA clearance process and in
4:56:55fact they were actively
4:56:57campaigning to prevent FDA from
4:56:59regulating ldts and Theron was taking
4:57:02sort of the opposite approach filing a
4:57:04comment to pursue a FDA oversight of
4:57:08realities is that we did correct and
4:57:17thank you
4:57:23foreign
4:57:34aside
4:57:39I'm handing to you what's been marked
4:57:41during this instead at 2 30.
4:57:46Exhibit 2 30. it reports to be a letter
4:57:50from the Department of Health and Human
4:57:52Services FDA to there it is
4:57:56the date is June 13 2014 with starting
4:58:00dates member at
4:58:02ts-099-2588 have you seen exhibit 230
4:58:05before
4:58:07I I think so I'm not sure
4:58:11do you have any reason to believe that
4:58:12you didn't receive this
4:58:14and didn't review it no
4:58:22so if you look on the second page of the
4:58:26letter
4:58:30FDA is now writing to fairness about
4:58:33um
4:58:35the pre-market protocol that fairness
4:58:38has submitted for review
4:58:41if you look on the second page there is
4:58:43a paragraph that starts with based on
4:58:46prior conversations do you see that yes
4:58:49so FDA writes here based on prior
4:58:51conversations between FDA and fairness
4:58:54and documents sent from baroness to FDA
4:58:56FDA had understood that you were
4:58:58currently using mostly cleared or
4:58:59approved assays in your laboratory
4:59:01however the more complete information
4:59:03you recently sent for our request
4:59:04clarified that the tests you perform are
4:59:06FDA cleared assay is running a fairness
4:59:09protocol
4:59:11I.E modified under the CLIA regulations
4:59:13for our fairness assays run on the tspu
4:59:17therefore most of the tests you're
4:59:19running in your lab appear to be lab
4:59:20laboratory and develop tests ldt is
4:59:22currently under fda's enforcement
4:59:25discretion and the rest are tests
4:59:26running your tspu that require clearance
4:59:28or approval prior to their use and are
4:59:30not under enforcement discretion
4:59:33so here FDA is telling you that first it
4:59:37misunderstood what devices thereiness
4:59:39was using correct
4:59:42this specific person who wrote this
4:59:44number was saying that yeah and also
4:59:47that
4:59:49um
4:59:51and also that
4:59:55actually the rest the the tests that are
4:59:58run on the tspu would not be considered
5:00:01lbts
5:00:04correct
5:00:07um yes that's what I understand the
5:00:09sentence to me
5:00:11okay did you understand that at the time
5:00:13as well
5:00:15so I I don't
5:00:18remember exactly when I read this but I
5:00:22know that we engaged with FDA
5:00:25very frequently on the fact that we were
5:00:29running these tests in our clinical lab
5:00:30what tests we sent them spreadsheets
5:00:32with exactly what platform was being
5:00:34used and how many tests per month to
5:00:36make sure that we were still in good
5:00:38faith operating under enforcement
5:00:40discretion
5:00:42my platform do you mean devices yeah
5:00:46and did you know is it someone you've
5:00:49interacted with
5:00:51um I I I think that I started
5:00:55interacting with her to the extent I
5:00:58joined calls on the clearance of the
5:01:00nanotainer after this creative time but
5:01:03I'm not completely sure
5:01:07because
5:01:08he is also now so was he
5:01:12maintaining the relationship between
5:01:13theranos and FDA during this time frame
5:01:16he was one of the people I think there
5:01:18were others who were also involved but
5:01:19yes he was a constant and were there any
5:01:23interactions that you had with FDA that
5:01:25he was not a part of
5:01:28um
5:01:28probably I don't know any specifically
5:01:31but there was a lot of interactions with
5:01:33FDA
5:01:35Okay so
5:01:37at the bottom of the page there is a
5:01:40sentence that starts therefore do you
5:01:42see that yes is therefore based on this
5:01:44new information we recommend that
5:01:46clearance of your capillary tubes and
5:01:48nanotainers be obtained over time as you
5:01:50receive clearance or approval for each
5:01:52individual assay as part of that test
5:01:54system
5:01:55please note that without clearance
5:01:57approval you cannot continue to ship
5:01:59these collection devices or nanotanners
5:02:01to your sample collection sites for use
5:02:03with tests currently run in your
5:02:04laboratory so did you understand from
5:02:06FDA at this time that they were telling
5:02:08you that theranos could not continue
5:02:10shipping the nanotainers
5:02:13true uh
5:02:15from the patient service centers to the
5:02:18theranos lab
5:02:19because they weren't cleared by FDA
5:02:22I think our understanding at the time we
5:02:25got this memo was that they were saying
5:02:27in this memo that there was no way to
5:02:30get clearance General clearance on the
5:02:32nanotainers if we needed to use ldts to
5:02:35get that clearance and therefore we
5:02:38would need to do this and we immediately
5:02:41began to engage with them on that and on
5:02:44in fact proceeding with General
5:02:46clearance of the nanotainers okay so did
5:02:48you stop using the nanotainers then
5:02:50while you were engaging with them on
5:02:52getting approval or clearance nope why
5:02:55not
5:02:56because we understood following this
5:02:58letter that it was okay to do that if
5:03:00instead of trying to use the ldts for
5:03:03the clearance of the nanotainer we
5:03:05actually used commercial machines and
5:03:08pooled the samples and that's what we
5:03:10ended up doing
5:03:13what do you mean by that if
5:03:16explain that distinction I guess between
5:03:17using the ldt and using the commercial
5:03:19machine I just so I understand it
5:03:21yeah so it's my understanding that what
5:03:24this letter was predicated on was a
5:03:26belief that if we needed to use ldts or
5:03:30uncleared tests
5:03:33to be able to show that the nanotainers
5:03:35worked
5:03:36then that would not be acceptable to the
5:03:39FDA as a means to get the nanotainers
5:03:42cleared because they wanted us to use a
5:03:44test system that had already been
5:03:46cleared for those experiments so if we
5:03:48were comparing for example nanotainer to
5:03:50somebody else's tube and we were using
5:03:53an ldt they didn't want the ldt for
5:03:55doing that comparison they wanted us to
5:03:57use a system that was cleared
5:03:59my understanding is that after this when
5:04:02we agreed to
5:04:04use commercial machines for that purpose
5:04:07that there was a path to get the
5:04:10nanotainers cleared and we began working
5:04:13toward that and the way that we
5:04:16accommodated that is that to get enough
5:04:19sample to run the cleared commercial
5:04:21machine you would take for example
5:04:24five finger sticks from a single person
5:04:27pull them together to get enough sample
5:04:30and then you could run the commercial
5:04:31machine to do the comparison between our
5:04:34tube and someone else's tube and when
5:04:37you say run the commercial machine
5:04:38meaning
5:04:39an unmodified unmodified predicate
5:04:41device correct
5:04:44so why was it your understanding though
5:04:45that because you had agreed with FDA to
5:04:48use cleared
5:04:50assays in order to provide this data for
5:04:54clearance of the nanotainer that it was
5:04:56appropriate to continue using the
5:04:57nanotuner while you were submitting this
5:04:59data
5:05:02because once there was once we agreed
5:05:04there was a path to get clearance of an
5:05:07Entertainer we understood that we were
5:05:10in good faith operating under
5:05:11enforcement discretion still
5:05:14and how did you gain that understanding
5:05:17based on our ongoing interactions with
5:05:19the FDA who told you that
5:05:22I'm I believe there were multiple
5:05:25conversations in which we wanted to make
5:05:28sure that we were okay continuing to use
5:05:31the the nanotainer and interpreted the
5:05:34feedback on those conversations to mean
5:05:36that we were
5:05:37but who told you it
5:05:40I mean I I specifically remember a
5:05:42conversation around Christmas Eve with
5:05:45in which he had indicated that there was
5:05:48a path with the submissions that we had
5:05:49sent in after this to move toward
5:05:52clearance that they wanted more data for
5:05:54I think two of the three filings that
5:05:57we'd made but that we could potentially
5:05:59in the short term get clearance on
5:06:00hematology and I had asked wanting to
5:06:03make sure we were continuing to be in
5:06:05good standing and I interpreted what he
5:06:07said to mean that so long as we
5:06:09continued to work with them it was okay
5:06:11to do that never told you that you could
5:06:14continue using the nanotainers you're
5:06:16just interpreting the fact that he said
5:06:18there might be a path forward to
5:06:20clearance as him
5:06:21telling you that I I could continue
5:06:24using wait just let me finish that you
5:06:26can continue using the Nana tanners I I
5:06:28thought that I had asked him on that
5:06:30call is it okay to we want to make sure
5:06:32we're doing the right thing and
5:06:33continuing to operate while we're going
5:06:34through this process and
5:06:36I I remember interpreting what he said
5:06:38is being
5:06:41assuring of the fact that so long we
5:06:44continued to work with them in good
5:06:45standing that
5:06:46um
5:06:47that we could continue to operate under
5:06:49enforcement discretion
5:06:50was anyone else on that call
5:06:53no but I remember sending notes to my
5:06:55team immediately after it
5:07:11put that one aside
5:07:13I'm handing to you what's been marked
5:07:17during this exhibit 231.
5:07:24look at it foreign
5:07:37as an FDA on June 19 2014. it's a
5:07:42teleconfidence meeting it looks like and
5:07:44the starting date's number is
5:07:46t-h-e-r-0353763
5:07:53have you seen exhibit
5:07:56231 before
5:07:58I I don't remember it specifically but I
5:08:01think so
5:08:03do you know who drafted these minutes
5:08:06I don't
5:08:13did you attend this meeting on June 19
5:08:152014 with the FDA I think so what was
5:08:18the purpose of the meeting
5:08:22what was his role in the discussions
5:08:25with FDA
5:08:28it varied over time he was our our
5:08:31technical expert on
5:08:33a lot of the technology that we worked
5:08:35on in certain areas data analysis okay
5:08:38so why was he being included in this
5:08:40meeting though
5:08:42I I don't know specifically I haven't
5:08:44read these minutes but I would assume
5:08:46for the purpose of being a technical
5:08:48lead
5:08:53I I don't I don't remember this meeting
5:08:55specifically
5:09:02so if you turn to
5:09:07page four
5:09:09or three seven six six in the document
5:09:15towards the bottom of the page about
5:09:18two-thirds down from the top of the page
5:09:21it says FDA inquired whether theranos
5:09:23was setting out the tubes reused at this
5:09:25time are the tubes being used in
5:09:27commercial testing
5:09:29and then again it says FDA inquired as
5:09:33to whether theranos was shipping the
5:09:35capillary tubes and manotainers to the
5:09:37collection sites thereiness said yes FDA
5:09:40said that fairness should not be
5:09:42shipping collection devices for clinical
5:09:43use until theranos obtains FDA clearance
5:09:47Aaron should use other clear collection
5:09:49devices and then transfer the sample to
5:09:51the other containers if necessary for
5:09:53testing at the theranos lab
5:09:56so FDA here is telling you unequivocally
5:09:59that their owner should stop shipping
5:10:01these nanotainers correct
5:10:04I I think that was what was said in this
5:10:07meeting
5:10:08do you recall what was said in this
5:10:10meeting you recall that being said I
5:10:12don't
5:10:14I guess do you have any recollection at
5:10:16any point in time of FDA telling you
5:10:17specifically to stop shipping the
5:10:21entertainers in this time frame again I
5:10:24I remember that when
5:10:27the people on the team that we were
5:10:29working with thought that we would not
5:10:30be able to get General clearance for the
5:10:32nanotainers there was then discussion
5:10:34that we would potentially not be able to
5:10:36use the nanotainer because we could no
5:10:38longer work interactively with the
5:10:40agency toward that but once we worked
5:10:43through that
5:10:44and moved to the revised model that I
5:10:48was talking about earlier it was my
5:10:49understanding that we were okay
5:10:51continuing to use the tubes under
5:10:52enforcement discretion
5:10:54and when do you think you transitioned
5:10:56to that revised model
5:10:59um
5:11:00I know that we'd gotten feedback on the
5:11:03submissions by December I think
5:11:06I we would have submitted them months I
5:11:09I think before that I don't know exactly
5:11:11when the decision was made without to do
5:11:13that hey are you referring to December
5:11:162013 or December 2014. I I think this
5:11:18was in 2014. and what you mentioned a
5:11:21Christmas Eve conversation with us um
5:11:23was that 2013 or 2014. I think it was
5:11:272014.
5:11:40did you ever tell prospective investors
5:11:42in Fall of 2014 that it was that
5:11:46fairness was not required to obtain
5:11:47clearance or approval for its testing
5:11:50system
5:11:54I don't think
5:11:56we would have said that I think we
5:11:58talked about our belief that the system
5:12:00was an ldt and that we wanted to take
5:12:03the system and the test through the FDA
5:12:08and when you're referring to the system
5:12:09there what were you what exactly were
5:12:11you referring to is that they're in a
5:12:12system
5:12:14in answer to her question I was
5:12:15referring to the tests that would be run
5:12:18on proprietary theranos devices okay so
5:12:23collecting a device from a finger
5:12:26stick placing it in an Entertainer
5:12:28testing on a tsp yes
5:12:31and and that that's consistent with the
5:12:34clearance and clear waiver we got on the
5:12:36HSV-1 test system
5:12:39did you ever tell prospective investors
5:12:41that fairness was seeking FDA approval
5:12:43voluntarily
5:12:47I'm trying to remember how we worded it
5:12:50um
5:12:52I I don't know specifically how we
5:12:53described it I I think we talked about
5:12:56the fact that we believed our systems
5:12:57were ldts and that we we wanted
5:12:59proactively to engage with the agency on
5:13:03it on all our tests
5:13:06did you ever tell investors that
5:13:07theranos was seeking FDA approval
5:13:09voluntarily because FDA approval was the
5:13:12gold standard or the highest standard in
5:13:13the industry
5:13:15I think I think we would have said
5:13:16something like that
5:13:19why would you tell investors that
5:13:22fairness was seeking FDA approval
5:13:24voluntarily if that wasn't true
5:13:28we thought it was
5:13:29why did you think it was
5:13:32because we thought that the testing that
5:13:34we were doing fell squarely within the
5:13:36definition of an ldt and we knew that
5:13:39that was a controversial field where
5:13:42regulations were evolving but we engaged
5:13:44with
5:13:45multiple of the top law firms in the
5:13:47country to to research that and
5:13:51we really wanted to take the systems
5:13:53into the FDA and try to get clearance
5:13:55we hear FDA is telling you that you have
5:13:57to get it approved before using the
5:13:59nanotainer devices and sending them
5:14:02from the patient service centers to the
5:14:04theranos lab
5:14:06how does that square with you thinking
5:14:09that
5:14:10approval was voluntary or that FDA
5:14:12wasn't requiring it
5:14:14this is specific to the capillary tubes
5:14:18I was talking earlier about the tests in
5:14:20response to your question my
5:14:22understanding is that
5:14:23As I understood the issue with the
5:14:25capillary tubes there was a period of
5:14:27time in which we were discussing with
5:14:30FDA whether it would be possible to get
5:14:32General clearance at all on the
5:14:34capillary tubes and that then presented
5:14:36these issues about the inability to use
5:14:38the tubes and I understood that if we
5:14:42were able to find a way to proceed with
5:14:44getting clearance then we could continue
5:14:46to operate under enforcement discretion
5:14:48because we would be working in good
5:14:50faith with the agency
5:14:51so you're making a distinction here
5:14:53between the tests and the nanotainer
5:14:55device yes did you ever tell investors
5:14:58that FDA thought you needed to obtain
5:15:01approval or clearance for the nanotainer
5:15:04I I don't remember specific
5:15:06conversations to that effect but I I
5:15:09think we discussed the fact that we were
5:15:11working to get the nanotainers cleared
5:15:13with investors
5:15:15who did you discuss that with
5:15:18again I don't remember specific
5:15:19conversations about it
5:15:21you don't remember I don't
5:15:25just want to have a clear sense of your
5:15:27memory of your conversations about the
5:15:29FDA with prospective investors
5:15:31it was the conversations about the FDA
5:15:34with prospective investors was always
5:15:36about the the fairness system as you
5:15:38just described it which was
5:15:40proprietary Entertainer
5:15:43proprietary tsp is that is that correct
5:15:46yes about the the tests on the tspu and
5:15:51specifically the tests the device and
5:15:53cartridge and the software and then also
5:15:57additionally on the nanotainer by itself
5:15:59is a standalone product
5:16:00did you ever talk about uh regulatory
5:16:04requirements for theranosis test that it
5:16:07was running on modified predicate
5:16:10devices
5:16:12it was our understanding that those were
5:16:14operating as traditional ldts and that
5:16:18would clearly would not be Distributing
5:16:20those and that sort of the need for
5:16:22clearance was associated with the
5:16:24distribution of the devices
5:16:26I mean I guess is it fair to say that
5:16:28your discussions around FDA were about
5:16:29clearance for
5:16:31A system that ultimately included the
5:16:33tsp yes
5:16:38were any regulatory Council involved in
5:16:42uh either this meeting or or any meeting
5:16:45talking about the nanotanners
5:16:48I just answer that yes or no from the
5:16:51University
5:16:53um
5:16:54did you share uh exhibit 231 with any of
5:16:59your Council
5:17:10well Ms Holmes was just talking about
5:17:13how her understanding was based on
5:17:15things that Council had told her and you
5:17:17said you didn't want to ask her about
5:17:18what council told her and now you're
5:17:20asking what she gave them to illicit
5:17:22advice which is an attorney-client
5:17:24communication well and you're going to
5:17:26the substance no no just that wait a sec
5:17:28please you're going to the substance of
5:17:30the of the of the correspondence and
5:17:34you're asking whether she shared it with
5:17:35Laura I'm not saying that I'm gonna say
5:17:37no but I want to understand like where
5:17:39we're going with this because it may be
5:17:41that's an easy question and she can
5:17:43answer it and we're all fine it may be
5:17:45that that we're that this is the camel's
5:17:47nose Going Under the Tent and before we
5:17:49get there I'd like to make sure that I
5:17:50understand
5:17:51what what you're doing that's all is
5:17:55your understanding as to whether or not
5:17:57fairness was permitted to continue
5:18:03using the nanotainer is that was that
5:18:06predicated on any advice that you've
5:18:08received from Council
5:18:12how about just asking
5:18:14whether she discussed the use of the
5:18:17nanotainer
5:18:19if it can be used in that Entertainer
5:18:21with the council because you just asked
5:18:23what the outcome of the advice was do
5:18:25you think you can ask whether that topic
5:18:26was discussed with Council and you can
5:18:28ask the time frame for it the same way
5:18:29kind of the same information you'd get
5:18:30on a print log and I think that would be
5:18:33that would be responsible did you ever
5:18:35discuss uh the topic of continuing to
5:18:39use the nanotainer after receiving
5:18:41exhibit 231 with Council yes
5:18:45which Council
5:18:47um
5:18:48I don't know how many different
5:18:51regulatory law firms we had involved at
5:18:53this time but
5:18:54whoever was acting as counsel we would
5:18:57have discussed with probably all of them
5:18:59would be my guess and who were your
5:19:01regulatory Council who are you thinking
5:19:03of right now
5:19:05um
5:19:08I I don't know who it was in in June of
5:19:1114 I I shared yesterday I know we
5:19:15started with and then we went to
5:19:18multiple law firms to get their advice
5:19:20on the definition of an ldt and what
5:19:22could in good standing qualify as an
5:19:24ldts and got opinion memos and and then
5:19:29I think there were one or two others who
5:19:31we started working with after that there
5:19:33was a lot of law firms we were asking
5:19:35for regulatory advice on this
5:19:38they're trying to be careful here again
5:19:39but did you ever seek any um any input
5:19:43from Council uh about the kinds of
5:19:46disclosures you should make to potential
5:19:48investors about their initial status
5:19:51with the FDA
5:19:54I mean I understand what you're asking
5:19:56it's not because I
5:19:58um there's probably a better way to ask
5:19:59that question at a moment it's just as I
5:20:02guess I'm trying to get a sense of
5:20:05did you talk to council about your
5:20:08disclosures to potential investors
5:20:09concerning the FDA
5:20:13yes or no
5:20:15yes
5:20:18which ones
5:20:21um I
5:20:22I think you can give a name okay boy
5:20:25Schiller
5:20:26who a boy
5:20:27uh David Boyce do you recall the time
5:20:30frame for that conversation
5:20:33um
5:20:34I mean I I believe he was
5:20:37actively attending board meetings by
5:20:39this point and we we discussed these
5:20:41topics
5:20:42um
5:20:43in that context
5:20:46I guess more broadly did you did you
5:20:48discuss what could be disclosed with
5:20:49potential investors with the board
5:20:54um
5:20:55I I don't know if it was what could be
5:20:57disclosed but just generally what we
5:20:59were disclosing yes
5:21:03I guess did you ever share you know we
5:21:05could talk a little about the Murdoch
5:21:07financials before did you ever share
5:21:09that exhibit with the report
5:21:11to your collection I I don't know if it
5:21:13was the exact same document but those
5:21:15General assumptions of the way the
5:21:18retail footprint would ramp yes
5:21:24you can put that one aside
5:21:27machine
5:21:28sure let's take a quick break we are off
5:21:32the Record at 4 17 p.m and this
5:21:34concludes media number three
5:21:46we are back on the record at the
5:21:48beginning of media number four of
5:21:50Elizabeth Holmes the times 4 17.
5:21:56Miss Holmes did we have any substantive
5:21:58conversations during the break no
5:22:02going to sorry I didn't hear the answer
5:22:04no thank you
5:22:06I'm going to hand to you what's been
5:22:08March there in his Exhibit 2 32.
5:22:14exhibit 232 uh
5:22:18reports to be a letter from FDA to
5:22:23fairness
5:22:25the date of the letter is October 28
5:22:282014 with starting dates number
5:22:34thdr-0360329 have you seen exhibit 230
5:22:39to you before I don't know
5:22:43[Music]
5:22:51would you have expected to forward a
5:22:54letter that he received from FDA to your
5:22:56attention
5:22:58generally yes
5:23:03you look on the first page this is 329.
5:23:09it says a third paragraph down in the
5:23:13middle of that paragraph
5:23:14the email you received is your
5:23:16notification that the submission has
5:23:17been placed on hold
5:23:21and the submission for OIC yes right and
5:23:25the submission the first sentence is for
5:23:27theranos is capillary and nanotanner
5:23:29choose were you aware
5:23:30in October 2014 that theranos had put
5:23:33this submission on hold
5:23:37I don't think theranos put it on hold I
5:23:39I read this to mean that oh fdfda put it
5:23:43on hold sorry I keep getting confused
5:23:44were you aware as of October 2014 that
5:23:47the FDA had put theranos's 510k
5:23:51pre-market submission on hold for the
5:23:55capillary and nanotainer tubes
5:23:58I hadn't remembered that
5:24:00um previously I'd been thinking about
5:24:03that having happened in December but I I
5:24:05see that here
5:24:07you thought that happened in December
5:24:092014. I did when I had the discussion
5:24:13with
5:24:15so if you turn to 3 30 which is the
5:24:18second page of exited 232
5:24:36especially when she sorry if you can
5:24:38head back to 329 first
5:24:45under modified assays
5:24:47it says here you stated in the study
5:24:50design tables you provided in an email
5:24:52sent on November 20th 2014 that you use
5:24:55FDA cleared or approved assays without
5:24:57any modifications so is this what you
5:25:00were referring to earlier in your
5:25:01testimony that theranos agreed to
5:25:04provide data based on cleared or
5:25:07approved assays
5:25:09to support this application
5:25:13um so I'm confused by the date because I
5:25:16think this is dated October of
5:25:192014.
5:25:21so I'm
5:25:25you're right
5:25:28do you do you remember sending an email
5:25:31with study design tables
5:25:36that included data
5:25:39where theranists used FDA cleared or
5:25:41approved assays without any
5:25:42modifications
5:25:45I I'm honestly not sure what this is
5:25:47referring to I'm not clear
5:25:51I'm not sure cute
5:25:57if you continue reading in that
5:25:59paragraph it says however we consider
5:26:01changing the sample Matrix from venous
5:26:03blood samples to capillary blood samples
5:26:05to be an assay modification because the
5:26:07acid was validated by the manufacturer
5:26:09and cleared by the FDA if you use for
5:26:12the penis would changing the sample type
5:26:15from venous blood to capillary whole
5:26:16blood may have and impact on the
5:26:19performance the assay that has been
5:26:20cleared or approved by FDA
5:26:23and then if you turn the page
5:26:26two three three zero the letter goes on
5:26:30to talk about how
5:26:32glucose concentrations and capillary
5:26:35blood are often higher than venous blood
5:26:37you can take a moment to read it if you
5:26:39haven't which can have the effect of
5:26:41invalidating reference ranges
5:26:45to see that discussion
5:26:47you do I'm just
5:26:48reading it quickly
5:26:59oh
5:27:22do you understand FDA to be saying here
5:27:26that it was not okay for theranos to be
5:27:28submitting data on
5:27:30cleared
5:27:33devices
5:27:35if those clear devices were being used
5:27:39to show
5:27:40the
5:27:43being used to show that data on theranos
5:27:46is devices were accurate because you
5:27:48were using those clear devices with
5:27:50capillary blood and not with venous
5:27:52blood
5:27:54so I actually don't remember this memo
5:27:57specifically but I know that at a
5:27:59certain point in time FDA asked that we
5:28:02only submit on devices that were cleared
5:28:05for capillary samples okay when did you
5:28:09obtain that understanding
5:28:13would it have been around this late 2014
5:28:16time frame
5:28:19I thought it was after that because I
5:28:22believe that
5:28:24we ended up getting agreement to send
5:28:27the submissions in for which we got
5:28:29feedback in December and I don't think
5:28:31that all of those test systems were
5:28:33cleared for capillary use but I I could
5:28:36be wrong
5:28:57foreign
5:29:03okay so if you go on to 331 which is
5:29:06page three of
5:29:08exhibit 232 in the middle of the page
5:29:11under two it says in your submission you
5:29:14provided testing using your Aaron is
5:29:16capillary tubes and Nano Tanner tubes
5:29:19for the following analytes with modified
5:29:20assays that are not cleared for use with
5:29:23capillary blood samples and there's a
5:29:25list you should repeat testing for these
5:29:27analytes using unmodified acids cleared
5:29:30by the FDA for use with capillary blood
5:29:32samples
5:29:33so here FDA is saying you need to use
5:29:37devices that are cleared for capillary
5:29:38blood in in order to submit your data
5:29:41correct
5:29:43I'm sorry I lost you where are you it's
5:29:46two oh I was in the wrong one okay I'm
5:29:53yes I see the sentence
5:29:56so my question to you was so FDA is
5:29:59saying here to you that it was not okay
5:30:02to use
5:30:03um
5:30:04modified assays that are not cleared for
5:30:07use with capillary blood and that you
5:30:08should use cleared assays that have been
5:30:11cleared for use with cap with capillary
5:30:14blood correct
5:30:17I believe for the specific analytes that
5:30:19are listed in the sentence above
5:30:24was that a yes
5:30:25for those analytes yes
5:30:28and then if you turn to page four of
5:30:31exhibit 232 or three beats another three
5:30:35three two
5:30:38for number three
5:30:40and the letter goes on to say we have
5:30:42serious concerns with many of the method
5:30:44comparison results provided in your
5:30:46submission for example the regression
5:30:48analysis you provided for albumin
5:30:50potassium and sodium obtain slopes of
5:30:530.829
5:30:551.415 and 0.884 respectively
5:31:01uh we have not cleared a recent blood
5:31:05collection device that obtained results
5:31:06with such high bias
5:31:08this High bias means there's a big
5:31:10difference between results generated by
5:31:12your CTN and the results generated by
5:31:14the comparative tube it's very important
5:31:16that results obtained by your CTN
5:31:18generate accurate results because
5:31:19patients could be harmed if an
5:31:22unnecessary medical treatment is used
5:31:23based on
5:31:25inaccurate diagnostic results do you see
5:31:27that I do
5:31:29foreign
5:31:31were you aware that there was a high
5:31:32bias in your method comparison results
5:31:34and that this could lead to Patient harm
5:31:37if patients believe the inaccurate
5:31:40results and then acted upon them
5:31:42no actually my memory in general was
5:31:45that our team specifically disagreed
5:31:48with the statistics that were being
5:31:50applied in
5:31:52some of the bias calculations
5:31:53specifically
5:31:55who on your team was disagreeing with
5:31:57the bias data I believe our our
5:32:00biostatistics team and who look who's
5:32:03that but I remember that we ended up
5:32:06having to engage directly with the FDA
5:32:08statisticians about that
5:32:11was there anyway
5:32:14that was involved in this
5:32:16I think that it was as well I'm not sure
5:32:19who else I I don't know who else
5:32:24why don't you turn to
5:32:27page eight and
5:32:33under Precision studies number 15 do you
5:32:36see that
5:32:38I do
5:32:40so here the letter stays we have serious
5:32:43concerns with many of the Precision
5:32:44results provided in your submission for
5:32:46example the total Precision percent CVS
5:32:49you obtained for potassium and ferritin
5:32:51were 8.0 and 19.12 respectively these
5:32:56Precision results were unusually
5:32:58unusually large and unacceptable based
5:33:02on the comparison to the cleared assay's
5:33:04performance
5:33:07and then a few lines down it says when
5:33:11repeating the Precision studies for
5:33:12these analytes with unmodified passes
5:33:14please ensure that you provide
5:33:15acceptable Precision studies with
5:33:17results that could demonstrate
5:33:19your CTN do not contribute additional
5:33:23imprecision or change but in Precision
5:33:26to the results obtained by the cleared
5:33:29assay
5:33:31do you see that I do
5:33:37were you aware that FDA believed that
5:33:40the Precision data that theirness had
5:33:43submitted
5:33:44was concerning to them
5:33:47I I don't remember any specific
5:33:49discussions on Precision I know that our
5:33:52teams again were engaging with their
5:33:55statisticians including on study design
5:33:59and the effective pooling samples and
5:34:01other things that could impact
5:34:02variability in the results
5:34:04when was your team working with the FDA
5:34:07status
5:34:08statisticians I I don't know
5:34:10specifically would it have been in this
5:34:122014 time frame end of 2014 time frame
5:34:17I I don't know
5:34:21do you know whether the Precision
5:34:22studies were ever submitted again to the
5:34:25FDA
5:34:27I think we
5:34:29did a submission after this that
5:34:31resulted in the December call we were
5:34:33talking about and then I believe we did
5:34:36additional studies and submissions in
5:34:392015.
5:34:41what happened to the 510k submission for
5:34:44the Nana Tanner in the end
5:34:46the final submissions yes what what
5:34:49happened to the submission
5:34:51did you receive clearance or approval
5:34:53for the nanotainer well only in the hsv1
5:34:56clearance what about for the other
5:34:58assays no
5:35:00so what happened to those submissions
5:35:03I I don't remember specifically I think
5:35:05that after we
5:35:09um
5:35:11I I don't remember I
5:35:15I believe that we
5:35:18I'm trying to remember the sequencing of
5:35:20when we started looking at potentially
5:35:21exiting the clinical lab business and we
5:35:23stopped using the nanotainer they'd
5:35:26given us feedback on our final set of
5:35:28submissions and I think we decided to
5:35:31pause work on everything except for
5:35:34trying to do root cause analysis of our
5:35:36business operations and fix the issues
5:35:38so I think we didn't follow the last set
5:35:42of feedback from the agency
5:35:44so and when did you stop using the
5:35:47nanotanner
5:35:49I believe it was in the fall of 15.
5:35:53or summer late summer fall of 15. would
5:35:56have been before or after fda's
5:35:58inspection fairness
5:36:01um I think it was
5:36:05when FDA said they were going to issue
5:36:08Quality Systems observations on the
5:36:10nanotanner on one of the nanotainers so
5:36:12when FDA said they were going to issue a
5:36:1443 with a deficiency about fairness's
5:36:18entertainers that would have been the
5:36:20time where when you pulled the
5:36:21nanotainer from use
5:36:23yes and just to be clear it was on one
5:36:25of our nanotanners not on the other one
5:36:28did you ever tell prospective investors
5:36:30that FTA had concerns with the data that
5:36:32fairness had submitted for the
5:36:33nanotainer device
5:36:36again I don't remember conversation
5:36:38specifically on this but I know we were
5:36:41talking about the fact that we were
5:36:43trying to get the entertainers through
5:36:45and trying to work with the agency on
5:36:47feedback about them
5:36:49so you don't know either way whether you
5:36:52told them that there were serious
5:36:54concerns from the FDA overuse of the
5:36:56nanotainer device I I don't know what we
5:36:59specifically said
5:37:03in the middle over now are you done with
5:37:04that document uh yes
5:37:06we were off record at 4 34 pm
5:37:14yeah
5:37:17we are back on the record at 5 25.
5:37:21as we have no further questions at this
5:37:23time we will be sorry we didn't have any
5:37:25substantive discussions with the staff
5:37:26during the break is that correct and I
5:37:28did not
5:37:30during during the break or all week
5:37:34we have no further questions at this
5:37:36time we will be adjourning testimony to
5:37:38a later date but thank you for coming in
5:37:40absolutely this concludes media number
5:37:43four and volume two of Elizabeth Holmes
5:37:46were off the Record at 5 26.

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