Ethan Swope | Getty Images
Around the time Theranos was losing nearly $ 2 million a week, investors at the start of blood testing were told the company would soon bring in nearly $ 1 billion a year.
It’s not uncommon for startups to lose money in their early years, and it’s not at all uncommon for the fastest burn rate to occur before things turn around. Theranos, on the other hand, continued to make increasing losses. But that’s not what the company was telling investors, according to new documents shared during the jury trial of Theranos founder and CEO Elizabeth Holmes.
Yesterday in court, the jurors heard the testimony of the company’s former chief financial officer, Danise Yam, who also goes by So Han Spivey. Yam said Theranos lost $ 16.2 million in 2010, $ 27.2 million in 2011, $ 57 million in 2012 and $ 92 million in 2013. By 2013, things “had started to adjust- be a little, ”Yam said. There were weeks when the company burned about $ 2 million a week and there was no revenue to help improve losses. In 2012 and 2013, Yam didn’t even bother to add a revenue line: there was none.
After asking questions about Theranos ’continued losses and lack of revenue, prosecutors showed Yam a document they said was shared with investors; he projected $ 140 million in revenue in 2014 and $ 990 million in 2015. Yam said he had never seen the document nor did he know where those figures had come from.
“Have you ever provided financial projections to investors?” Robert Leach, an assistant U.S. attorney, asked Yam.
“No,” she said.
In fact, Yam relied heavily on Holmes for financial projections. When Yam was working with an analysis firm to set the price of stock options, he asked Holmes for some key financial forecasts, including projected revenue, because the CEO had “the best information”. During this process, Yam had sent an email to Holmes asking him how much income he was anticipating. In a response, Holmes said he projected $ 100 million for 2015, nearly ten times less than he told investors at one point.
Despite the persistent losses, Holmes’ salary was raised from $ 200,000 to $ 400,000, Yam said.
Quality problems
The next witness was Erika Cheung, who Theranos hired at the university as a lab partner. Cheung said he joined the company largely because of its CEO’s star power. “I had a charisma with her; she was very articulate, “Cheung said of Holmes.” She had a strong sense of conviction in her mission. “
Cheung left the job after seven months of work and filed a complaint with the complainants before the Centers for Medicare and Medicaid Services, alleging that the company used expired lab supplies to test on its proprietary test devices “Edison “, which had” great stability, accuracy “and accuracy problems.”
He first cared about Theranos ’proprietary machines when he used them to test his own blood. “Employees would essentially donate their blood to Theranos in cash,” Cheung said. When checking Edison’s performance on a vitamin D test, “it would always look like she was deficient,” he added. However, when he did a test on another company’s device, which Theranos kept in case his own machine didn’t live up to it, his vitamin D levels seemed normal.
“I felt uncomfortable processing patient samples,” he said. “I didn’t think the technology we were using was adequate enough to engage in this behavior.”
While working at Theranos, Cheung sent an email to other colleagues at the company, sharing his concerns about Edison machines. These emails eventually went to Holmes, who asked, “How fast can we solve this problem?” Another employee responded that after omitting some data, the problem seemed solved.
Most of the tests Theranos performed for customers were done on devices manufactured by other companies, Cheung said. Only 12 tests were performed on Edison devices and “the Edison analyzer could only do one type of test for a patient at a given time,” he said.
Government inspectors who arrived in Theranos in response to Cheung’s letter found conditions similar to those in the complaint. They proposed revoking the company’s license to test human specimens. Theranos ended up resolving this issue with the government, voluntarily closing all its laboratories.
After Cheung went to the federal government, Theranos hired a private detective to spy on her judicial documents released last week. The company spent more than $ 150,000 on surveillance of her and another whistleblower. Cheung’s testimony continues today.