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 Theranos & Wallgreens (Holmes Trial Update #9) 

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Michael Santos

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Theranos’ pharmacy partner Walgreens was unhappy about the number of non-finger prick blood tests Theranos conducted for its customers.

WALGREENS (HOLMES’ CRIMINAL FRAUD TRIAL UPDATE #9)

INTRODUCTION

We continue to learn about the federal criminal justice system in the United States through the developments in the white-collar fraud trial of Elizabeth Holmes. Holmes faces federal charges of defrauding patients and investors with lies about her revolutionary blood-testing technology.

*Pro-Tip: Remember to consult legal counsel for legal advice regarding any court case. Prison Professors, an Earning Freedom company, regularly helps clients locate and vet experienced white-collar defense counsel. We work alongside, not in place of defense counsel to help clients obtain better outcomes.

The prosecution continues to parade before the jury witnesses to establish that Holmes was directly involved in making knowing misrepresentations to the public, investors, business partners, doctors, and patients. 

For its part, the defense continues to forcefully cross-examine each and every witness, as is every criminal defendant’s constitutional right under the Sixth Amendment.

*Pro-Tip: Whether a person is a witness, subject, or target in any criminal investigation, our team at Prison Professors works alongside legal counsel to help people obtain better outcomes. Check out a recent blog post from the Prison Professors blog discussing what is a witness, subject, or target in a federal criminal investigation: Witness, Subject or Target.

WALGREENS

The defense seeks to distance Elizabeth Holmes from direct day-to-day involvement in Theranos’ partnership with Walgreens.  

Former executive Nimesh Jhaveri oversaw Walgreen’s healthcare-services division and worked for Walgreens for approximately 30 years. Jhaveri told the jury that he only met with Elizabeth Holmes “maybe two or three times at most.” He testified that he worked directly with Holmes’ partner and boyfriend Ramesh “Sunny” Balwani, whose trial is early next year.

On one occasion, Jhaveri gave Holmes and Balwani a short tour of a Walgreens store redesigned to pilot Walgreen’s planned expansion of healthcare offerings at its pharmacies. Walgreens had a significant expansion planned that included launching Theranos centers in 2,5000 stores nationwide. 

Jhaveri told the jury that Walgreens was disappointed with the high percentage of patients getting regular venous blood draws instead of a finger prick. On cross-examination, Holmes’ team focused on internal memos showing that Walgreen’s patients did not complain about venous blood draws. 

Prosecutors supplemented Jhaveri’s testimony with text messages between Holmes and Balwani about Walgreens. Unbeknownst to many investors and business partners, Balwani and Holmes were also romantically involved for years.

Between March 2015 and October 2015, Balwani and Holmes discussed their concerns about upcoming contract negotiations with Walgreens and other pharmacy partners. Also, around that time, the Wall Street Journal published articles disclosing that Theranos’ proprietary technology was unreliable. The company regularly used commercial third-party blood analyzers instead of its own devices.

“Ok. Wag freaking out. Lack of transparency,” Jhaveri read from a text sent in October 2015, referring to Walgreens’ reaction to the Wall Street Journal reports. Balwani said in his text messages that Walgreens was unhappy to hear things about Theranos from the company directly and not in the Wall Street Journal.

“I told him we were surprised by the article as much as” them, Balwani said in another text to Holmes.

Walgreen’s initial plans called for building 500 Theranos wellness centers in Walgreens pharmacies in the fiscal year 2015. That number dropped to 200, said Jhaveri, as Walgreens faced incredibly high costs in redesigning its stores to add Theranos centers, and Theranos continually failed to meet performance benchmarks.

Indeed, according to email records, Jhaveri told Balwani in August 2014 that Theranos remained an essential part of Walgreens’ goal of becoming a healthcare service provider. However, the patient experience with Theranos had to improve. The number of patients having blood drawn from the arm, instead of a finger prick, needed to fall below 10%, Jhaveri told Balwani at the time. He also communicated on behalf of Walgreens that patients needed to rate their experience as at least a “4” in Walgreens’ customer surveys.

“We need to have a documented detailed plan on both, or it will be difficult for me to convince expansion beyond AZ,” Jhaveri wrote in an email, referring to the roll-out of Theranos labs in Arizona. 

Walgreens never expanded its Theranos labs much beyond 40 pharmacies in Arizona (and a single store in Northern California).

Initially, Walgreens was all for the partnership with Theranos to provide a new type of blood-testing experience for its customers. Jhaveri told jurors that the promise of a blood test that could get done with less pain and require less blood “was the actual magic” that got Walgreens interested in a partnership with Theranos. So when Theranos began running blood-testing centers in Walgreens pharmacies, Jhaveri testified that they were disappointed in how many patients were still getting blood drawn the traditional way, from an arm vein. 

Balwani tried to re-assure Walgreens that the percentage of venous draws would fall below 5% by the end of 2014, but that never happened. 

Also, when Walgreen’s complained about the high number of non-finger prick blood draws, Balwani told Jhaveri that the reason for the high number of vein draws was a problem with cartridges used in the blood tests. Balwani also complained that Theranos’ competitors sent people to Walgreens stores to order tests requiring venous draws, and doctors also ordered tests for which a finger prick was insufficient.

Jhaveri also told the jury that Balwani represented to Walgreens that the military was using Theranos’ blood-testing technology. This bold misrepresentation has been raised by multiple witnesses in the trial so far.

Our team at Prison Professors regularly helps people involved with the criminal justice system to locate and vet experienced criminal defense counsel.

CONCLUSION

All in all, Mr. Jhaveri was a good witness for the prosecution. He established Theranos’ failure to meet some basic requirements of its blockbuster deal with Walgreens. Most significantly, for a company touting blood-testing with a finger prick, Jhaveri established that an unusually high number of tests were actually done with regular venous blood draws, which was not what Walgreens had bargained for. When Jhaveri sought to discuss the issue with Balwani, Balwani made excuses and blamed competitors and doctors. Balwani’s trial is in early 2022.

Jhaveri also corroborated the fact that Theranos touted its relationship with the military. Jhaveri testified that Balwani specifically told them that the military was using Theranos’ blood-testing technology. This bold misrepresentation was refuted by other witnesses, including former Secretary of Defense Jim Mattis. The jury is likely to remember this. 

The defense, for its part, may be comforted by the fact that Jhaveri’s communications and interactions were almost exclusively with Balwani and not Elizabeth Holmes. As such, Jhaveri’s testimony plays into the defense counsel’s strategy to distance Holmes from day-to-day operations as much as possible in front of the jury.

Follow the Prison Professors blog for regular updates on the Elizabeth Holmes criminal fraud trial as it reaches the halfway mark. We regularly publish on the criminal justice system in America, primarily federal white-collar crime.

Prison Professors, an Earning Freedom company, works alongside (not in place of) civil and criminal defense counsel to help clients proactively navigate through investigations and prosecutions. Our team also helps clients prepare mitigation and compliance strategies.

If you have any questions or are uncertain about any of the issues discussed in this post, schedule a call with our risk mitigation team to receive additional guidance.

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