Theranos sent a major investor financial projections that were wildly optimistic—perhaps even deceptive—the jury heard yesterday in the criminal trial of company founder and former CEO Elizabeth Holmes.
Laura Peterson, who oversees investments for RDV Corporation, the DeVos family office, testified that Theranos sent her company forecasts that predicted hundreds of millions of dollars in the very near future.
In October 2014, Theranos pitch materials said the startup would bring in revenues of $140 million in 2014, losing just $3 million that year. The picture was even more positive for 2015, when the projections forecast $230 million in profit from $990 million in revenue. In reality, the startup brought in only $150,000 in revenue in 2014. Peterson said that she and others were unaware that the company made no money in 2012 or 2013.
The DeVoses were just one of a handful of wealthy families that Holmes courted to invest in her company. The DeVos family fortune, pegged at around $5 billion today, stems from the Amway Corporation, a multilevel marketing company founded by the father-in-law of Betsy DeVos, the former secretary of education. Holmes also wooed the Walton family of Walmart fame and Rupert Murdock.
Peterson got the impression that the company was “hand-picking” investors. Peterson said that while she was vetting Theranos, it felt like Theranos was vetting the DeVoses. “She was inviting us to participate in this opportunity,” she said. Holmes told her that she was looking for long-term partners rather than more typical private equity investors who might want to cash out with a quick IPO.
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Peterson volunteered to look into Theranos after her boss, Jerry Tubergen, flagged the investment opportunity for family members in September 2014. “This morning I had one of the most interesting meetings I can recall with the woman profiled in the attached Fortune magazine article,” he wrote in an email.
Theranos followed up by sending Peterson two “very large” binders filled with information on the company. The rosy financial projections were included, as was a report that prominently featured Pfizer’s logo. That report, the jury heard last week, was in fact authored by Theranos scientists using Theranos’ data, and Pfizer had not given the startup approval to use its logo. The materials in the binders also claimed that the company’s proprietary blood-testing technology news had been “comprehensively validated over the course of the last seven years by ten of the 15 largest pharmaceutical companies.”
Things moved quickly from there. Peterson, Tubergen, and members of the DeVos family flew to California for a meeting at Theranos’ headquarters. There, they heard a pitch and received a demo of the company’s proprietary testing device—one of the DeVoses had her finger pricked for testing. Peterson told the prosecution that she and the others went into the meeting expecting to invest $50 million. But after the meeting, where they heard that others were investing nine-figure sums, they huddled in the parking lot and decided to increase their commitment to $100 million.
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What else prompted the family to double their investment? For one, they were impressed with the technology news and the claims that it could be used in military helicopters and other challenging environments. They also thought Theranos’ major risks were mostly in the rollout of its technology news at Walgreens and elsewhere. The startup had “long-term contracts, so risk is execution,” Peterson’s notes from the meeting said.
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Peterson and others were not aware that Theranos was having trouble getting results from its proprietary devices. Assistant US attorney Robert Leach asked Peterson if Holmes ever said that the company was relying on third-party devices for the majority of its tests.
“No,” she said.
“Would that have mattered to you?” Leach asked.
“Yes,” she replied.
In cross-examination, Holmes’ attorney Lance Wade questioned the level of diligence that Peterson performed. Had she read Theranos’ press releases about its Walgreens rollout or studied the company’s website, both of which mentioned that the startup used venous draws in many cases? No, Peterson said, she had not. Had she visited a Walgreens in Arizona where the rollout was happening? No. Had she called anyone at Walgreens, perhaps the chief information officer, whom she knew? No, Peterson admitted. Had she or anyone else at RDV hired a scientist or regulatory lawyer to investigate further? No, she said.
Why not? “They were telling us that it worked,” Peterson said. “We were relying on what we were told.” But it was more than that.
“We felt if we circumvented the process, we would be uninvited to participate,” she said. “We were very careful not to circumvent things and upset Elizabeth.”
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