A Theranos investor says the company never disclosed it wasn’t using its own tech

Brian Grossman of PFM Health Sciences tried to conduct detailed due diligence on Theranos, he testified in court.

PFM Health Sciences partner Brian Grossman

PFM Health Sciences partner Brian Grossman leaves the courthouse in San Jose Tuesday.

Photo: Biz Carson / Protocol

PFM Health Sciences partner Brian Grossman had a laundry list of due-diligence questions for the latest investment he was considering.

"How does your accuracy and speed stack up against your traditional tests?"

"What are the limitations of the technology? What tests are not feasible?"

The answers he got back from the company — Theranos — obfuscated the truth, he testified on Tuesday in the ongoing criminal fraud trial of Elizabeth Holmes, the blood-testing startup's co-founder and former CEO.

As he faced repeated questioning by Assistant U.S. Attorney Robert Leach, Grossman said he was never told that Theranos' own analyzers were only being used for a handful of tests. He did not know that modified commercial machines were being used, he said, and he "absolutely" did not know that Theranos' expenses included the cost of the Siemens machines it was using to test patient samples.

Instead, he said he was pitched on a 10-year-old company whose technology had been vetted, validated and used on the battlefield and medevac helicopters "in matters of life and death." In his first meeting with company executives in December 2013, he was told by Holmes and Sunny Balwani, Theranos' then-president who is also facing fraud charges, that it had taken Theranos a decade to get to the point where it could run every test on the menu of its largest competitors. They emphasized that their technology was "better than conventional lab equipment" with lower variability.

Grossman was particularly enamored with the potential Theranos had for replacing an entire laboratory in a box — a move that would have had major implications to the cost structure of health care if you could scale down the square footage and people needed to operate testing. And, importantly to Grossman, it was a technology that had made it beyond the lab and into Walgreens stores, being run on human samples.

"Was that impressive?" Leach asked. "Very," Grossman replied.

So far, much of the testimony from Theranos investors in the drawn-out trial has exposed gaps in due diligence and how FOMO overruled formal process. But Grossman's testimony has been notable for just how much due diligence his firm did and the pushback he had received from Theranos along the way.

"From a bigger-picture perspective, we wanted to understand if there was development technological risk, or if we were investing in a company that was past that proof of concept and the risks were commercial roll-out and business strategy," Grossman said.

When he tried to reach out to companies like Walgreens and United Healthcare, Balwani wouldn't allow him to talk to the companies, Grossman said.

"He said 'No, we are not comfortable with that. It would look badly if investors are asking to speak with the company,'" Grossman said. The PFM investor ended up talking to Channing Robertson, a Stanford professor and former board member, who signed off on the technology as not having serious risks.

Grossman then worked with Balwani to arrange a tour of the manufacturing facility and the lab at Theranos, but faced resistance because the company was concerned he would see unpatented work and it would "compromise their intellectual property." Balwani acquiesced and allowed him to visit after saying he'd move some machines, and when Grossman toured the manufacturing facility and the CLIA lab, he said he only saw miniLabs and not the third-party devices that often ran the tests.

Grossman also tried the Theranos miniLab himself, or at least attempted to.

He went to a Walgreens to have his own blood drawn, only to end up with a venous draw instead of a fingerstick prick. After the results came back past the promised four-hour window, Grossman raised concerns with Balwani, who assured him it was just a problem with a specific test.

An email shown in court revealed that Grossman's test had actually been run on a Siemens Immulite machine and not one of Theranos' proprietary devices, something he didn't know at the time. (A different analyst at PFM did successfully get a fingerprick test, the defense showed in their cross-examination.)

Defense attorney Lance Wade pressed Grossman on the idea that he should have known if his blood was being collected by a venous draw that the lab would've been using a third-party device, but Grossman said he believed the microsample, taken with a venous draw, meant it would still be used on the Theranos proprietary device designed for smaller samples.

"I would be concerned if someone was using a microsample from traditional methods and using that on traditional lab equipment," Grossman replied. "That would be concerning for me."

Wade noted that despite PFM's long list of diligence questions, it never explicitly asked if Theranos did use third-party devices. Grossman conceded his firm didn't pose that question.

Even with the hiccups in the diligence process, Grossman's fund went ahead and invested roughly $96 million because it believed the representations Holmes had made about Theranos' capabilities — without revealing what was really going on in the labs.

Grossman's testimony is expected to continue Wednesday.

The pandemic permanently changed Black Friday. Here’s how.

Here are the five biggest trends that will affect Black Friday and the holiday shopping season.

Here are the five biggest trends that will affect Black Friday and the holiday shopping season.

Photo: Jewel Samad/AFP via Getty Images

Click banner image for more Shopping Week coverage

Shopping is changing. It's not just the influence of COVID-19 altering what products we buy and how we buy them. It's also the many shifts in consumer behavior and retailer strategy — from the steady rise of ecommerce to the boom of on-demand delivery — years in the making, which have all been accelerated by the pandemic.

Keep Reading Show less
Nick Statt
Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.

The Bureau of Labor Statistics indicates that by 2026, the shortage of engineers in the U.S. will exceed 1.2 million, while 545,000 software developers will have left the market by that time. Meanwhile, business is becoming increasingly more digital-first, and teams need the tools in place to keep distributed teams aligned and able to respond quickly to changing business needs. That means businesses need to build powerful workplace applications without relying on developers.

In fact, according to Gartner, by 2025, 70% of new applications developed by enterprises will use low-code or no-code technologies and, by 2023, there will be at least four times as many active citizen developers as professional developers at large enterprises. We're on the cusp of a big shift in how businesses operate and how organization wide innovation happens.

Keep Reading Show less
Andrew Ofstad
As Airtable’s co-founder, Andrew spearheads Airtable’s long-term product bets and represents the voice of the customer in major product decisions. After co-founding the company, he helped scale Airtable’s original product and engineering teams. He previously led the redesign of Google's flagship Maps product, and before that was a product manager for Android.

It’s time to rethink Black Friday

The pandemic didn't end Black Friday, but it'll never look the same again.

We can expect Black Friday to stick around but lose relevance as retailers effectively dilute its meaning and purpose.

Illustration: Christopher T. Fong/Protocol

Click banner image for more Shopping Week coverage

"I'm selling meditation, so I shouldn't be stressed," said Charlie Rousset, the co-founder of sleep and relaxation gadget-maker Morphée. But even deep breathing can't help Rousset feel less on edge this Black Friday.

Keep Reading Show less
Janko Roettgers

Janko Roettgers (@jank0) is a senior reporter at Protocol, reporting on the shifting power dynamics between tech, media, and entertainment, including the impact of new technologies. Previously, Janko was Variety's first-ever technology writer in San Francisco, where he covered big tech and emerging technologies. He has reported for Gigaom, Frankfurter Rundschau, Berliner Zeitung, and ORF, among others. He has written three books on consumer cord-cutting and online music and co-edited an anthology on internet subcultures. He lives with his family in Oakland.

The pandemic permanently changed Black Friday. Here’s how.

Here are the five biggest trends that will affect Black Friday and the holiday shopping season.

Here are the five biggest trends that will affect Black Friday and the holiday shopping season.

Photo: Jewel Samad/AFP via Getty Images

Click banner image for more Shopping Week coverage

Shopping is changing. It's not just the influence of COVID-19 altering what products we buy and how we buy them. It's also the many shifts in consumer behavior and retailer strategy — from the steady rise of ecommerce to the boom of on-demand delivery — years in the making, which have all been accelerated by the pandemic.

Keep Reading Show less
Nick Statt
Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.
Protocol | Fintech

The pandemic keeps changing ecommerce. That makes fraud harder to fight.

As the second holiday season under COVID-19 gets underway, fraud finds new forms.

Online fraud is frustrating consumers and merchants.

Photo: fizkes/iStock/Getty Images Plus

Click banner image for more Shopping Week coverage

The second pandemic holiday shopping season is underway. That means cybersecurity experts get another chance to figure out how fraudsters operate in the COVID era.

Keep Reading Show less
Benjamin Pimentel

Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.

Latest Stories