(CN) — Attorneys for Elizabeth Holmes sought to demonstrate Wednesday that high-ranking executives from two major American retailers knew they were getting into a speculative enterprise when they signed up to do business with Theranos in 2013.
The now-defunct blood testing company dissolved in 2018 leaving a wake of angry investors, but Holmes, who is currently on trial, said her company collapsed due to honest failure, not fraud.
But attorneys for the Department of Justice spent Tuesday and Wednesday talking to executives with Walgreens and Safeway about how they were persuaded by Holmes and her business partner and boyfriend Sunny Balwani.
Walgreens was so enthusiastic about a presentation by Holmes in 2010, that it paid a $100 million “innovation fee” to the company for the right to invest in it. Holmes told Walgreens CFO Wade Miquelon, who has since moved on from the company, that Walgreens would be pulling in $2 billion in annual revenue within a couple of years due to its partnership with Theranos.
“We thought it would make testing more accessible for the average person, which would give them more control of their health care and lead to better outcomes,” Miquelon told U.S. Attorney Jeff Shenk.
Steven Burd, the former CEO of Safeway, testified this week about how Holmes’s charisma and knowledge of blood testing wooed his company into making a similarly substantial investment. He also said Holmes's claim that the company was cash-flow neutral meant Safeway believed that Theranos was pulling in considerable revenue at a time when their finances was in shambles.
On Wednesday, Holmes attorney Kevin Downey got Miquelon to concede that he continued to believe in Holmes and her company long after the relationship between Walgreens and Theranos began deteriorating in 2013.
"You are in my thoughts,” Miquelon wrote in 2015. “Hang in there. The haters are everywhere."
Miquelon also discussed Theranos in glowing terms during an earnings call in 2013, as Downey showed via transcripts, and corresponded with Holmes frequently even as the walls began closing in on the company after revelations about the testing woes were detailed in the Wall Street Journal in 2015.
Miquelon said he cared about Holmes and wanted her to succeed. Burd also attested to Holmes’s personal charisma, which has the potential to be helpful to the defense as they work to humanize the woman who has been unceremoniously disgraced in the court of public opinion in the last few years.
Miquelon said the company was in conversation with several different testing innovation companies and that Theranos was the furthest along as most companies could only perform one test.
Documents show that Theranos claimed they could run about 200 tests through a portable machine called the Edison that used blood collected via a prick of the finger. But in reality, the device could only carry about 12 blood tests to varying degrees of accuracy.
However, Downey did get Miquelon to concede that Walgreens understood that the Edison was not a finished product and that FDA approval still loomed as a potential impediment.
“Technology is always an evolution,” Miquelon said at one point.
This is critical for the defense as they are attempting to show that Holmes did not deceive unsuspecting rubes, but was instead upfront about the speculative nature of her business and that Safeway and Walgreens were sophisticated organizations with a phalanx of lawyers that knew what they were getting into.
Downey also prompted Miquelon to disclose that Walgreens enlisted lab workers from John Hopkins University to provide input on the Edison. The lab directors said the technology had promise but did not ever get personally tested, meaning their interaction was more cursory than thorough.
Nevertheless, both sides continue to set up their arguments. The government continues to prod executives how they were misled by Holmes, while the defense attempts to reveal all the ways in which these sophisticated businessmen knew the score.
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