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Elizabeth Holmes SEC Deposition JULY 13, 2017 1 OF 4 redacted — 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
0:214 a.m 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
0:50uh Stephen Neal Cooley LLP on behalf of
0:54Elizabeth Holmes John Dwyer also Cooley
0:57David Taylor of theranos on behalf of
1:00fairness Chris Davies from Walmart Bill
1:02mclucus 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
1:21Investigation this matter as
1:23supplemented will be available for
1:25examination during the course of this
1:26proceeding
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
2:01you 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
2:09two
2:16just for the benefit Council we just
2:17have to remark because of that number
2:18here so
2:20good
2:38foreign
3:08thank you so as Mr Cole icar 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 10. so
3:23um let the records show that I am
3:25marking what was previously marked as
3:28during his exhibit 191 as in the exhibit
3:31209.
3:32and that back to you
3:37and I'm marking what was previously
3:39marked as during this exhibit 192 as
3:42exhibit 210.
3:45[Applause]
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 because of it 212.
4:05I'm marking what was previously marked
4:07as their next exhibit 185 as exited 213.
4:15marketing what was previously marked as
4:18thermos exhibit 196 as exhibit 214.
4:24and marking as previously marked as
4:27during his exhibit 197 as
4:30exhibit 215
4:35unlocking what was previously marked as
4:37exhibit 198 as exhibit to 7 to 16.
4:41excuse me
4:44I'm marking what was previously marked
4:45as theirness 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 just to take back exhibit
5:20in the exhibit 209 Ms Holmes do you
5:24understand that you were appearing here
5:26today pursuant to commission centenna
5:28which is now thereiness exhibit 209 I do
5:31thank 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
5:43so when we left off on Tuesday we were
5:47talking about theranos's 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 bitterness is it at
6:2150.
6:26exhibit 50 reports to be a June 25th
6:292012 email from and with a copy of his
6:32subject line is meeting with starting
6:34dates number wag-t-h-00002493
6:41and there are
6:45a number of attachments
6:47um
6:48the first attachment it has Base number
6:50ending two four nine four the second
6:53attachment
6:56has Base number ending two four nine
6:58nine
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
7:14I I don't think the email
7:18I recognize
7:21one of the attachments as our Clio
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
7:36if you turn to the email
7:39um
7:40on 2493 uh it's an email from 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
8:07internet's Walgreens relationship right
8:09for a period 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 and so if you turn
8:20to the first attachment these are the
8:22meeting minutes
8:23the attendees here appear to be
8:26Elizabeth and sunny so did you attend
8:29this meeting on June
8:31June 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
8:54um
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
9:03menu theranos will provide Walgreens
9:05with a copy of the test menu
9:07incorporated as schedule J and
9:09operations manual that fairness trained
9:13Walgreens technician will utilize during
9:14the PSC do you understand PSC to the
9:17patient service center I do okay and
9:20then it goes on to say they gave us a
9:22clean copy of the test menu and they
9:24Hazard estimates approximately 600 tests
9:26so if you then turn to the last
9:28attachment
9:30this appears to be a test menu
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
10:11don'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
10:40on the architecture of the system and we
10:43were very focused on capability in terms
10:46of the device itself or the platform
10:49with our small sample methods being able
10:52to perform this range of tests there
10:57were additionally a number of these for
10:58which we had already developed assay
11:02development and validation reports which
11:05I can recognize on this list
11:08so your testimony is that theranos had
11:11developed all of these tests or at least
11:14assay development are all these tests
11:17were an assay development phase at this
11:19time in June 2012. I don't know if all
11:22of 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 any of the attendees
11:32at this meeting that that was the case
11:34that all of these tests were actually an
11:36assay development mode and had not
11:38actually been transferred to the tsp yet
11:41I I don't know I'm I also note that this
11:44is now in the time of the clinical lab
11:46and based on the email you just showed
11:48me I think 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
12:06uh 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 I 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
12:35uh commercially available machines in
12:36order to test smaller samples
12:40so my understanding is what was the time
12:42again
12:42summer in Fall of 2013. my understanding
12:46is that in the fall yeah in that period
12:50is when we we implemented our small
12:52sample volume chemistries on those
12:54platforms okay do you remember when that
12:57was 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 here
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 uh toward
13:17it ongoing at July okay
13:23during 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 with Walgreens that some
13:44of those three pit issues that you
13:46described earlier in your testimony
13:47during those meetings in summer and fall
13:50of 2013.
13:52my memory is that at the time we
13:54invented the nanotainer at that time we
13:58discussed the invention of the
13:59nanotainer
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
14:14so 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
14:34different 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
14:47theranos 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 uh 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
15:36did you discuss those issues with them
15:38my memory is that I talked about it in
15:42the context of the manotainer 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
16:18a 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 tsp
16:36could only
16:37perform uh testing on one sample at a
16:40time
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 and 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
17:22you know the theranos team communicating
17:24more directly with Walgreens
17:27disclosed theranosis 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
17:41commercially available machines and
17:43modifying the protocols on them
17:45I don't I mean we generally considered
17:48that implementation of our chemistries
17:50to be trade secret and we'd filed
17:53non-public patent applications on
17:55certain parts of it and so I wouldn't
17:58expect that we would have gotten into
17:59detail on that
18:01I thought that we had talked about it as
18:04ways we could Implement our chemistries
18:06in high throughput fashion in the lab I
18:09don't know
18:10the extent to which anything further
18:12than that was discussed with them but
18:14why wouldn't you tell Walgreens I mean
18:16Walgreens was theranos's most important
18:19business partner at the time don't you
18:20think that Walgreens would have wanted
18:22to know what device you were using to
18:24process these samples
18:26it was my understanding that they were
18:27very 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 they were
18:45not they were not specific conversations
18:46that I'm aware of of what the hardware
18:48platform was in Phase One But at the
18:50time 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 uh
19:04through 2015 when we got our first FDA
19:07clearance on the tspu our our thought
19:09even going into that year was that we
19:10were going to start putting those tsbus
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
19:31nanotainer 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
20:50a 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 I believe that that was
21:29generally how we describe the phase one
21:31phase two model to Walgreens and to
21:33others
21:34you also answered earlier question
21:36describes sort of the the architecture
21:39of the 4 Series mini lab yeah that's
21:42something that was capable of Performing
21:44that
21:45that that test menu we just looked at
21:48yes did you 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
22:00um I know that part of the Hopkins visit
22:03was as 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 it the architecture of the
22:35robotics whatever the the the the
22:38mechanism of the point of care device as
22:41as the focus of their evaluation it's
22:43not fair I'm sure there were other
22:46things and I know Walgreens had multiple
22:48interactions with them my understanding
22:50was that one of the things they were
22:52particularly focused on was is this a
22:56platform that is capable of running any
23:00combination of tests in so many words
23:02given the way it'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
23:20but 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
23:32at 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
23:57would 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
24:45test that there are no 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
24:57well I know that that's why they had us
24:59go to Hopkins and they had Hopkins look
25:01at it and and I believe look at a number
25:04of different inputs that Walgreens was
25:06getting on due diligence on theranos I 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 he
25:19in the in the
25:22um I guess in the summer fall 2013 time
25:24frame yeah if the focus is if is it fair
25:27to say that the focus from fairness
25:28aside was on phase one with respect to
25:30Walgreens at that time yes
25:32yeah
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
26:26two 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
26:45think you would convey that well to
26:47Walgreens at the time
26:49foreign
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 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 Tess
27:28question I don't know
27:30um I think part of the concept was that
27:33um
27:34there would be specific
27:38I I I don't know 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 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
28:06for Walgreens it's it's the number that
28:08I had in my head is when we started out
28:10what they thought would be a success I I
28:13know certainly over time and as we moved
28:16toward more of a venipuncture model the
28:19vinistras 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 start 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
28:53about the tsp to more of a venipuncture
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
29:15conversations 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
29:53sure 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
30:01their 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
30:45to 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
31:08venomuncture
31:11so 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 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 convey 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
33:02you know is interesting to me the the um
33:04this idea that you know once once it
33:06became 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 you essentially create a channel
33:43and then come in with this technology in
33:46phase two
33:47I I guess I understand that but it seems
33:49like at that point in time the
33:52phase one and phase two or someone 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
34:07you 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 for
34:44finger stick and even smaller turnaround
34:46time ultimately was was our plan
34:52so what's your company making any money
34:54offering low-cost lab testing
34:57so I 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
35:19to price theranos tests in a Walgreens
35:21purely based on capturing market share
35:25foreign
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
35:33provide a technology business model in
35:36lab testing so we we believed that we
35:38would ultimately be able to make money
35:41but we tried to figure out is what is
35:42the lowest price that we could possibly
35:44charge so that we're still breaking even
35:46or getting a little bit of profit but
35:49changing access for people so it's kind
35:52of like Walmart versus Neiman Marcus in
35:55terms of the the pricing in the business
35:57model right
35:58Walmart is high volumes really low
36:01margin
36:04so going back to the demonstrations then
36:09did you instruct anyone at fairness 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 CLIA 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 I don't I don't remember
37:17that's why she gets the document will
37:18there be any reason to move mini lab
37:21devices into either the CLIA lab or the
37:24r 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
37:44specific 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 was it at 219.
37:57exhibit 219 for reports to be a July 12
38:022013 email from with a copy to you
38:05Elizabeth Holmes
38:07the subject line is re-demo results for
38:107 11 and the starting dates number is
38:13thpfm00064613
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 learning dates number six four six
38:30two zero
38:31[Applause]
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.
38:52it appears to be an exchange about demo
38:55results
38:56did you receive and review exhibit g19
38:59on or about July 12 2013.
39:03I I don't know
39:05so if 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
39:16writing to you and if you see that I do
39:18and he says hi Elizabeth attached please
39:21find 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 you guys want to say tt4 and tt3
39:45has been removed for all thyroid panels
39:47as per suggestion do you see that they
39:49do and 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 me that was
40:02removing certain results from test
40:04reports
40:09I I'm
40:13yes
40:14what was your understanding as to why he
40:16did this
40:19um well again the clinical lab did not
40:20gone live at this point so
40:23um
40:25going back to my prior comment my
40:27understanding generally is if anyone who
40:29is reviewing the data had a concern
40:31about the data don't include it on the
40:33report yeah and you said your
40:36understanding was that you shouldn't
40:38include it on the report where was that
40:39what was that understanding 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
41:30that 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 uh 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
42:13did you gain that understanding from
42:16did somebody tell you that
42:18um I don't know I think it was just
42:20basic process that we wanted to make
42:22sure the results we were reporting were
42:24correct 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
42:38s came back incorrect how did you know
42:40that the results that you did report
42:41were 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 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 all
43:17um his background in statistics and data
43:19analysis
43:21background in statistics and data
43:22analysis 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 um
43:56take responsibility for this company I
44:00did not in this role I did not directly
44:03oversee the labs but I I tried to pick
44:06people who I trusted to do this right
44:09and so who was overseen at this time
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 it's July of 2013. I read this
44:40as a technology demo that was done in an
44:42r d setting and prior to the lab going
44:45live
44:47and I guess
44:51what's the difference what was the
44:52difference in your mind between uh
44:54importance of results in an r d setting
44:56versus the important results in it and
44:57adequately aesthetic
44:59I understand the results to be important
45:01across the board
45:03um
45:03I believe there was a different process
45:06in place once the lab went live for how
45:08decisions like this were made and based
45:11on the authority and discretion of the
45:13lab director
45:15did you communicate any distinction for
45:17to the the Walgreens folks receiving
45:19these uh these demonstrations that uh
45:23that that their house didn't have those
45:25sfps in place at this time
45:28I I don't know
45:30did you tell anyone that theranos to
45:32communicate that to these folks at
45:34Walgreens
45:36I I believe that Walgreens understand
45:39the 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
45:46they certainly knew we weren't
45:48operational at that time I I don't know
45:50what else was discussed or what the
45:52circumstance of this demo or I mean
45:54frankly I don't even know if this was
45:56for Walgreens I I defer to you if you're
45:58saying 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
46:16recognize 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 think so but I'm not
46:28sure
46:29so instead of removing the results
46:31entirely why didn't you just instruct
46:33him 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 that was
46:54incorrect was not share the value we
46:56thought that was
46:57um that 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
47:16six 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
47:45that 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
47:55I I mean I'm I'm speculating but my
47:58guess is that the bigger issue would be
48:00that if you potentially communicated
48:02something that there might be a medical
48:03issue with someone and there actually
48:05wasn't
48:07but you said this is for an art 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 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
48:40believed that our team is trained to do
48:43the right thing
48:45is it fair to say that at this time
48:46daranos was trying to demonstrate to
48:49Walgreens that it was technologically
48:51capable of running tests in a lab
48:54setting
48:56I I
48:58I don'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
49:13had gone through the CLIA certification
49:15process and we're very focused on trying
49:17to put the right infrastructure in place
49:20from a CLIA perspective on an ongoing
49:23basis as we've 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 their nose could
49:34run tests it wouldn't it wouldn't allow
49:39out there and it was to open in stores
49:45I mean I I don't know I would be
49:48speculating I I know that
49:51um ultimately you know we ended up with
49:54a all venipuncture model that if you had
49:57we talked about doing that at this point
49:59I I don't know what that conversation
50:01would have been
50:03was it important to you in the summer in
50:05fall of 2013 to demonstrate that
50:07theranos could perform clinical lab
50:09testing on blood samples of course
50:12absolutely
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
50:51look at that I I I know that we made
50:54mistakes in our clinical 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
51:06were 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
51:35theranos device was unable to test for
51:37creatine and vitamin D and tt4 and tt3
51:43and ft4
51:45do you know I believe at least let me
51:48just finish that question I'm sorry do
51:50you know if any of those issues were
51:51finally resolved
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 I 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
52:09ones 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
52:18um there's reports
52:20um and 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
53:09I'm heading to you what's been
53:12previously marked as during this exhibit
53:1563.
53:19[Applause]
53:21exited 63.
53:24as a letter agreement dated December
53:2831st 2013.
53:31titled amended and restated theranos
53:34Master Services agreement with beginning
53:36dates number wag-t-h-00099
53:44have you seen exhibit 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
54:01or about December 31st 2013.
54:07um
54:07I don't know
54:09okay
54:10um if you turn to 104 which is the last
54:13pace of the page of the agreement is
54:15this your signature is it right yes okay
54:17so do you believe that you would have
54:19received this on or about December 31st
54:222013 and signed it on that date as well
54:24yeah I believe I signed it on that date
54:28so if you look at
54:30the second page of the agreement which
54:32is 100
54:36under 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
55:12foreign
55:14does this paragraph say whether there's
55:16a binding agreement to rule out National
55:18yes
55:20interest rate for a second
55:45foreign
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
56:30release that said we were going to roll
56:32out nationally that was the intent of
56:34this and both of us had ways to get out
56:37of the contract if we decided it wasn't
56:40going well
56:41okay so so what's the answer to my
56:44question are you aware of any
56:46contractual agreements between the two
56:48companies that would bind Walgreens to
56:50roll out nationally with fairness
56:53honestly that was my interpretation of
56:55of what this was
56:58like this agreement yes this amendment
57:02was saying we're going to do this we're
57:03going to go out nationally I think they
57:05say later in here that they're going to
57:07build out a certain number of what they
57:08called
57:09spaces 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 that's small d
57:31that says notwithstanding anything to
57:33the contrary there are no degrees that
57:35it shall 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
57:53their 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
58:12and theranos had to also consider
58:13reasonable Alternatives if Walgreens
58:15offered reasonable alternatives to
58:17fairness to rolling out with CVS correct
58:19yes okay why don't you turn the page to
58:22102.
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
58:34fairness
58:38my understanding was that ultimately in
58:41this agreement this money was paid
58:45um essentially as it says here to be
58:48better prepared for National Rollout and
58:50for essentially exclusivity to Walgreens
58:55was theranos asking 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 um by being compliant with the
59:35contract I know there was a
59:39a lot of Provisions in the agreement
59:41about
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
59:54fairness 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
1:00:11we thought that when we moved to this
1:00:14agreement we were we were earning it
1:00:16based on exclusivity and where does it
1:00:18say that you'd be earning it based on
1:00:19exclusivity
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
1:00:38theranos 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
1:00:56fee 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
1:01:26that were 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
1:01:44in your mind the Innovation fee wasn't
1:01:47dependent on Revenue targets at
1:01:49Walgreens
1:01:54yeah I'm trying to remember whether we
1:01:56had any conversations about the revenue
1:01:57targets again after this agreement I I
1:02:02I remember 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 daranis 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 are the exclusivity in your mind
1:02:29provide I mean how is thermos 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 her
1:02:52and The Innovation fee and and count
1:02:56that as revenues
1:02:58in a legal sense or an account do you
1:03:02understand what my question is
1:03:05I I'm I don't know what is your if you
1:03:09could so you just you just answered Mr
1:03:11Kola Carr's question and you said
1:03:13exclusivity means that at a certain
1:03:16point in time fairness 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
1:03:39previously put in place okay so at what
1:03:42point in time would the parties decide
1:03:43that theranos would have earned it
1:03:45because there are no should stay true to
1:03:46the 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
1:03:56looking at this that
1:03:58because we had amended this agreement we
1:04:00we as parents thought we'd earned it
1:04:03three-year conversations with sunny yes
1:04:07do you have any independent did you have
1:04:09any independent conversations with
1:04:11Walgreens no
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 to theranos
1:04:21unencumbered I did because we'd
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.
1:04:40seven 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 3 above
1:04:52may be converted at Walgreens option
1:04:54into equity on such terms as are made
1:04:56available to investors and fairness's
1:04:58planned Equity financing in the first
1:05:00quarter of 2014.
1:05:02the parties also agree that upon signing
1:05:04this agreement 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
1:05:14EG 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
1:05:25for the option to convert about 50 of
1:05:29the 75 million dollar accelerated
1:05:31Innovation fee to equity and then would
1:05:33also have an option for an additional 50
1:05:35million dollars in equity In fairness
1:05:38yes
1:05:44you testified earlier you can put that
1:05:47one aside
1:05:49after that doctor's been a little over
1:05:51an hour okay let's take a really short
1:05:53break if you don't mind so five minutes
1:05:54that worked
1:05:56okay off the Record at 10 10 A.M
1:06:07we are back on the record at 10 25.
1:06:12because Falls did you have any
1:06:13substantive conversations with the SEC
1:06:15staff during the break I did not
1:06:18so you testified earlier on Tuesday that
1:06:21you understood that Venus draw
1:06:23percentage and patient traffic were
1:06:26important metroids for Walgreens and
1:06:28evaluating the relationship do you
1:06:30remember that I think so
1:06:33so
1:06:36I don't know if I said that being a
1:06:39straw percentage was an important metric
1:06:40I certainly know that patient traffic is
1:06:42or 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 is it a
1:06:59focus 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
1:07:16um
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
1:07:26I I know that I don't know if it was an
1:07:28important metric to them I know that
1:07:30some of the the lower level team members
1:07:32were interested in it and
1:07:35over time I guess just who from who from
1:07:38the Walgreens 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
1:07:46heading to Western Marth during his
1:07:48exhibit 220.
1:07:54foreign
1:07:57exhibit 220 purports to be a May 6 2014
1:08:01email from Sunny balwani to Elizabeth
1:08:03Cole's subject line is forward final
1:08:06Deck with starting dates number of th
1:08:08PSN
1:08:11000-1558583 with an attachment with
1:08:14starting dates number
1:08:19apparently we don't know what the base
1:08:21number is but I believe it's 155-8584.
1:08:26being the next page have you seen
1:08:29exhibit
1:08:302 20 before
1:08:33I'm I'm not sure
1:08:37is this language produced to you guys
1:08:42[Applause]
1:08:43do we know this is the attachment
1:08:45business
1:08:47yes
1:08:52this uh
1:08:54it 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
1:09:03stamp isn't on it
1:09:06um do 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
1:09:15you see an exhibit to 20 before
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 on her about May 6
1:09:332014. I do not
1:09:36so you'll see in the email
1:09:39um there's a preceding email from to
1:09:42Sonny balani
1:09:44and he writes attaches the final deck
1:09:47and then Sunny ball one even forwards it
1:09:50on to you
1:09:51do you know why Sonny balwani forwarded
1:09:54it onto you
1:09:56I don't I would assume it's an FYI okay
1:09:58so he's trying to keep you in the loop
1:10:00about the longman's relationship
1:10:02right
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
1:10:41I I can see here that it says sunny and
1:10:44I believe that was correct okay or were
1:10:46you aware that there was an executive
1:10:47steering committee that was born between
1:10:50I was in fairness yes and did you
1:10:53understand that they were convening on a
1:10:55regular basis to discuss the Walgreens
1:10:57there in his relationship I did
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
1:11:28in May of 2014 that there were about
1:11:31three patients per day being seen first
1:11:33in 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 probably generally okay
1:11:52okay and then if you move down to Vienna
1:11:54straws it looks like the Venus draw went
1:11:57from 43 in February 2014 to 39 in May of
1:12:032014. 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 percent
1:12:33honestly 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 did you ever tell
1:12:56him to stop you know forging information
1:12:57about the Walgreens relationship no not
1:13:00at 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 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 fairness wellness
1:13:16centers 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
1:13:35generally 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
1:13:57it's titled the path forward
1:14:00and it's there are a number of bullet
1:14:03points the first being operations
1:14:04Improvement
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
1:14:51so we also testified earlier
1:14:55that fairness wellness centers were only
1:14:58ever opened in 41 stores do you remember
1:15:01that testimony
1:15:02at Walgreens at Walgreens
1:15:05do you know when that last door was
1:15:08opened I don't
1:15:10if I told you it was September of 2014
1:15:14would 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
1:15:26this was fairness's most important
1:15:29business relationship and you have no
1:15:30idea when the last door was open
1:15:33I genuinely don't remember it I she
1:15:36didn't say she had no idea you you asked
1:15:38her was it September she said she wasn't
1:15:39sure
1:15:40I I
1:15:43was trying to tell you exactly what I
1:15:44remember and what I don't remember do
1:15:46you have any reason to doubt that it was
1:15:47September around September 2014.
1:15:50no
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
1:16:03for there it is by the end of 14 I'm
1:16:10no
1:16:12you 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 The Mending and expanding
1:16:35our our contract potentially around a a
1:16:39lentil a rental model
1:16:42as 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 I I don't know I know there were a
1:16:56lot of discussions of continuing
1:16:58amendments and I know that sometimes the
1:17:00models that we were following did not
1:17:02reflect the exact contracts that we had
1:17:04in place at the time I I don't know if I
1:17:07knew that there had to be an amendment I
1:17:09I don'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
1:17:18um for example with Safeway we moved to
1:17:21a CLIA certified lab model even though
1:17:23the contract reflected a CLIA waiver
1:17:26model and we never amended the contract
1:17:28so we
1:17:29we had Partnerships in place where we
1:17:32were 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
1:17:47operating with Walgreens in a way that
1:17:49was not consistent with your
1:17:50understanding the Walgreens contracts
1:17:58I I don't know if we 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
1:18:41foreign
1:18:48to you
1:18:54what's been marked
1:18:58they're an open sit at 221
1:19:13foreign
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 dates number is
1:20:10ts-1036239 have you seen exhibit 221
1:20:13before
1:20:17I'm
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 you that
1:20:26these are this is the file that
1:20:29um Theron is provided to the SEC
1:20:31pursuant to subpoena which is supposed
1:20:33to reflect the text messages between you
1:20:36and Mr balwani on your fairness issued
1:20:38cell phone 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
1:20:55the page with Bates number 1036292
1:21:01621 6292
1:21:21are you there I am
1:21:25it's a little different from
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
1:21:54yeah I think so okay
1:21:56um and he says we can't scale with wag
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 SW Y and CVS do you understand s
1:22:12w y 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 valwani responds they told
1:22:25our 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
1:22:49I'm sitting here now reading this
1:22:52exchange I don't think I would have
1:22:53taken 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
1:23:14indicative 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
1:23:24a meeting that they
1:23:25wouldn't be looking to roll out there
1:23:27are no services in any additional stores
1:23:29I 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 at this
1:23:40time
1:23:41so I I saw from the other document that
1:23:44you gave me that I believe was already
1:23:46involved at this time I know I had I'm
1:23:49fairly frequent interactions with him
1:23:51that were generally positive I I 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
1:24:09so 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 I understood that he had been
1:24:25very frustrated with them for a long
1:24:28time there were 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
1:24:46what were Sonny's other frustrations
1:24:48with Walgreens 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 being in
1:25:01locations where not a lot of people
1:25:02would come into the stores so they
1:25:04weren't ideally suited for Success in
1:25:06terms 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 but I
1:25:33think that was the basis of the
1:25:34frustration so by this time did you have
1:25:37an understanding of why Walgreens hadn't
1:25:39expanded those three geographies
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 recall when Boots the boots
1:26:05came in I don't
1:26:07the um so it's your understanding that
1:26:10the
1:26:12boots team wanted to sort of rear review
1:26:14the Walgreens theranos relationship to I
1:26:17guess reconsider how to roll out the
1:26:19stores
1:26:21I don't know whether they wanted to
1:26:23reconsider rolling out I I understand
1:26:26that they did re-review the relationship
1:26:28and I I don't know what they were
1:26:30particularly thinking in it I think they
1:26:33were
1:26:33sort of reevaluating everything that the
1:26:35old Walgreens 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
1:27:03do you see that
1:27:07it's on the same date at 5 12. yes
1:27:11what did you understand him to mean by
1:27:13that
1:27:18um
1:27:22foreign
1:27:25CTN 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
1:27:56attacks
1:27:59capillary tube and Nana tuner
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
1:28:16minimize the number of Collections and
1:28:18redraws and
1:28:20if you don't do it right the sample gets
1:28:23what's called hemolyzed which is messed
1:28:26up and so there's a huge ongoing focus
1:28:29on that
1:28:31okay you can set that aside which I
1:28:34understand might be difficult but
1:28:37I'm getting rubber bands or something
1:28:52so earlier in your testimony we also
1:28:55discussed that there was a time when
1:28:56theranos and Walgreens started
1:28:57discussing the possibility of a rental
1:28:59model yes
1:29:03uh do you recall those discussions
1:29:04taking place around December 2014
1:29:07I don't I 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
1:29:32I'm handing to you what's been marked
1:29:34fairness was it at 222
1:29:37two copies there thank you
1:29:45exhibit 222 purports to be
1:29:48handwritten notes from December 1st uh
1:29:51excuse me it's December 10 2014.
1:29:56uh
1:29:58with starting dance number
1:30:02ts-0480486 have you seen exhibit 222
1:30:05before
1:30:07and not like this but it looks like
1:30:09these are my notes
1:30:12it is
1:30:14and uh up on the upper right corner
1:30:17there's a date of December 10 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
1:30:55um 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
1:31:31we're gonna 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 exhibit 186.
1:31:54I said that 186 reports to be a December
1:31:569th 2014 email to a number of
1:32:00individuals uh
1:32:04including yourself
1:32:06um with a copy to again a number of
1:32:08individuals such a client is copy eight
1:32:12o'clock ampt Walgreens theranos meeting
1:32:17and
1:32:18um
1:32:19the debates number is
1:32:24w-a-g-t-h-00037045 have you seen exhibit
1:32:26186 before
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-homes at fairness.com
1:32:37that's your email address direct 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 the email
1:32:54okay so
1:32:56um when you would receive calendar
1:32:58invites you would it wouldn't go to your
1:33:00inbox correct it would go directly to
1:33:02your assistance yes okay who is your
1:33:04assistant 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 eah office okay do
1:33:26you know who your assistant was at that
1:33:28time
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 10 a.m PT is for a meeting
1:33:43on December 10th 2014 do you see that I
1:33:45do okay and then your meeting notes um
1:33:49have roughly the same information except
1:33:51that it says 10 p.m instead of 10 a.m do
1:33:53you have any reason to doubt that these
1:33:55notes were from the December 10th 2014
1:33:56meeting no okay so if you turn the page
1:34:00to page two of your notes
1:34:04foreign
1:34:10you see at the top it says lab data and
1:34:14then I can't read the word next to it
1:34:27I don't know I know I'm guessing it
1:34:30might be phase but I'm not sure okay and
1:34:33then underneath it says services and
1:34:35Clinic is that correct
1:34:37yes okay and then underneath again in
1:34:39bullet points it says Vienna puncture
1:34:41and five 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
1:34:49venipuncture and
1:34:52um
1:34:52five patients per day in Walgreens uh
1:34:57stores Servicing
1:35:00providing fairness Services during this
1:35:03time
1:35:04it doesn't refresh my recollection but I
1:35:08I recognize the the words the page
1:35:13so halfway down the page
1:35:16it says there's a bullet point and it
1:35:19says rental
1:35:21agmt model I assume agmt is agreement is
1:35:25that right I'm sorry where are you
1:35:27halfway down the page
1:35:32yes
1:35:33do you see that yes is agmt agreement
1:35:36yes so does it look like you were
1:35:38discussing with Walgreens Executives the
1:35:41possibility of a rental agreement model
1:35:42during this meeting
1:35:45and 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 don't know
1:36:02did you view the rental agreement as
1:36:03with Walgreens as something that could
1:36:05be beneficial to both parties absolutely
1:36:07why
1:36:09because 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
1:36:32okay so we can put that aside
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
1:36:50more of a rental agreement model
1:36:54I don't and remember specific
1:36:56conversations but I I wouldn't be
1:36:58surprised if we did we were
1:37:00excited and proud of this we thought
1:37:02this was going to be the way that we
1:37:05would scale ultimately okay so but you
1:37:08don't remember having any conversations
1:37:09with prospective investors I don't I
1:37:11don't
1:37:13you mentioned a minute ago that that
1:37:15Sunny had had some some frustrations
1:37:16around 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 do you
1:37:46recall 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 he did
1:37:58chose to restructure the relationships
1:38:00so it was more of a rental model would
1:38:03that have had any impact on the timing
1:38:06of the rollout if they're in a services
1:38:07to Walgreens stores
1:38:10I'm sure it would have impacted but I
1:38:13don't know whether it would have made it
1:38:14better or worse
1:38:17in that way
1:38:20I I don't understand what was
1:38:22controlling the
1:38:24the rollout Pace on the Walgreens side
1:38:27and I don't know exactly how fast we
1:38:29thought 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
1:38:46or not
1:38:50you can put that one aside
1:39:01so I want to change gears and now let's
1:39:04start talking about thereiness's
1:39:05relationship with Safeway
1:39:07uh why was thurinos interested in
1:39:10entering into a contract with Safeway
1:39:16Global 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 did you have any understanding as
1:39:38to 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 I'm also were interested
1:39:50in ways to expand their and
1:39:52differentiate their Pharmacy
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
1:40:11diabetes that are diet related
1:40:14so was what the parties were discussing
1:40:17and by parties I named theranos in
1:40:19Safeway of course
1:40:21um at uh at the time that you started
1:40:23the discussions were you contemplating
1:40:25sort of a similar model to what theranos
1:40:28had been discussing with Walgreens which
1:40:30is to 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 uh
1:40:44from Safeway
1:40:45my primary contract contact was with
1:40:48Steve bird
1:40:50and were any others involved beside
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
1:41:49and there was a fund that acquired them
1:41:54and and
1:41:56I think he was working with that fund
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
1:42:29request that we didn't want to restart
1:42:31it from scratch
1:42:33so then what happened after those
1:42:34discussions
1:42:36did fairness ever end up rolling out its
1:42:38services and Safeway stores 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
1:43:05thank you
1:43:28I'm handing to you what's been marked
1:43:30very nice Exhibit 2 23.
1:43:37foreign
1:43:43to be
1:44:01oh I'm no that was previously March of
1:44:05186.
1:44:06yeah I'm sorry okay so I'm handing to
1:44:09you what's been marked as thereiness
1:44:11exhibit 223 and exited 223 purports to
1:44:15be a June 28 2013 email out to Elizabeth
1:44:20Holmes and Sunnyvale so to find a
1:44:23Safeway fairness
1:44:24meeting 6 26 13 with Base number
1:44:32ts-0034026 there's an attachment that
1:44:35starts at dates ending three four zero
1:44:38one six have you seen exhibit 223 before
1:44:44um
1:44:45I I don't know
1:44:52and again this is your email address do
1:44:54you have any reason to believe that you
1:44:56didn't receive this email
1:45:00so you can see in the current email
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 okay and then he's attaching some
1:45:23notes 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 I don't specifically but I know we
1:45:34were engaging with him around this time
1:45:39so
1:45:40under Central lab model in the summary
1:45:43he said 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 and the stories thereiness
1:45:53has determined that the use of the
1:45:55central lab model provides the quickest
1:45:57and easiest way to expand geographically
1:46:00the central lab contains the advice and
1:46:01fact the device is the only way of
1:46:03obtaining results from the managingers
1:46:05do you see that I do
1:46:08did you make this comment during the
1:46:10meeting
1:46:12I don't know
1:46:13do you know if Sonny made this comment
1:46:15during the meeting I don't
1:46:17so 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 and stores yes
1:46:32well he uses devices throughout so you
1:46:36understand that devices here would be if
1:46:39he's talking about placing devices in
1:46:41the stores he could only be talking
1:46:42about the tspu 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
1:47:09so when you said that fairness has
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 taking at stores and sent
1:47:39to theranis's lab what was what the
1:47:42reason
1:47:42the 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
1:47:55it wasn't what I guess in a way it was
1:47:57what
1:47:58I drove 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
1:48:14say that it was or was not the reason
1:48:15why you switched to a central lab model
1:48:18for 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
1:48:38um why don't we look at the next
1:48:39paragraph then it says the reasons for
1:48:41starting with the central lab model are
1:48:43as follows and you can read it for
1:48:45yourself but it essentially describes a
1:48:48courier model and the fact that because
1:48:50fairness would need to be offering a
1:48:53full array of lab tests including
1:48:54esoteric tests you would need a courier
1:48:58to come pick up samples anyway and so if
1:49:00that's the case why not start with a
1:49:02courier model do you see that
1:49:08foreign
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 believe we had that conversation with
1:49:26them previously when we sent them our
1:49:28complete a 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
1:49:36away 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 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
1:51:13did you ever tell that the tspu
1:51:16that theranos had only validated 12
1:51:19tests on the tsp
1:51:21as we previously discussed it this time
1:51:24no tests were live in the clear lab the
1:51:26clear lab was not yet operational okay
1:51:28it's
1:51:30if this is June 2013 so Uranus would
1:51:32have been 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 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 Cleo live lab was not live and that
1:52:07no tests were live in the Clio lab yet
1:52:09but that's 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 tspu
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 is currently capable mean to you
1:52:46um
1:52:49foreign
1:52:51just reading the rest of the paragraph
1:52:52to 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 CLIA 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.

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