theranos elizabeth holmes split
A jury has returned verdicts in the trial of Theranos founder Elizabeth Holmes
02:12 - Source: CNN Business
San Jose, California CNN Business  — 

Erika Cheung, a former Theranos lab worker turned whistleblower, testified Wednesday during the trial of founder Elizabeth Holmes about how she grew increasingly uncomfortable about the startup’s ability to accurately conduct blood tests on patients.

In her testimony, Cheung detailed her growing concerns about the company’s devices failing quality control tests in the research lab as well as what she said was a manipulation of data to pass quality control. This made her question the capabilities of the startup’s proprietary testing machine, which she said was only being used on a small number of tests at the time it was hailed as the company’s revolutionary innovation.

At times, she said, Theranos employees would delete up to two out of six data points as part of a test in order to pass quality control. She said there appeared no standard protocol within Theranos for when outlier deletion was appropriate, but noted it was something that happened “frequently” inside the company and said it would “normally be considered cherry-picking.”

Cheung testified that she raised her concerns with higher-ups, including having a conversation with a top Theranos executive who she said dismissed her as being unqualified to weigh in. She said she was told she had little visibility into the company. Cheung quit soon thereafter, just six months after first joining the blood-testing startup in 2013 as a recent college graduate.

Cheung first took the stand Tuesday as the government’s second witness in the long-awaited trial of Holmes, who faces a dozen counts of federal fraud and conspiracy charges over allegations she knowingly misled investors, patients, and doctors about the capabilities of her company’s proprietary blood testing technology. Holmes, who has pleaded not guilty, faces up to 20 years in prison.

Cheung previously recounted being eager to work for a female founder promising patients the ability to test for conditions like cancer and diabetes with just a few drops of blood, only to become “really stressed and uncomfortable with what was going on,” as she put it Wednesday.

Many of the details of Cheung’s experience have been highlighted over the years as she became a prominent figure in the disgraced startup’s story. Cheung, who reached out to the Centers for Medicare and Medicaid Services to look into Theranos in 2015, has been featured in “Bad Blood,” the definitive book about the company by then Wall Street Journal reporter John Carreyrou who first broke the story, as well as in the HBO documentary “The Inventor.” She’s also given a TED Talk about her experience as a whistleblower.

She testified she had “amassed a lot of evidence” suggesting that the company’s technology wasn’t adequate and she didn’t feel comfortable running patient tests. “I was attempting to tell as many people as I could but was not seeming to get through,” she said Wednesday, noting that she ultimately, as “a final resort,” spoke to a Wall Street Journal reporter, presumably Carreyrou although he was not directly named, who reached out to her about an investigation into the company.

The prosecution presented a chart on Wednesday that included internal data from March 2014 showing roughly 25% of tests on Theranos’s proprietary devices failed quality control. Cheung, who left the following month, testified that this drastically differed from the failure rate of third-party testing devices approved by the US Food and Drug Administration. The latter rarely failed, she said.

During cross examination, Holmes’ defense attorney Lance Wade attempted to highlight Cheung’s lack of experience and qualifications as a recent college graduate whose first job was with the startup by having her recount the names and qualifications of superiors on her team, including those with PhDs, medical degrees.

Addressing her testimony about omitting outlier data, Wade showed calibration tables that indicated Theranos disclosed when such data was removed to show it was accounted for. He also presented to jurors the names of those who signed off on Theranos’ validation documents for regulators, including the lab director – Holmes’ signature was not on it. In the defense’s opening statement last week, Wade stressed to jurors that it is ultimately the lab director – not the CEO – who decides on the accuracy and reliability of tests.

His cross examination of Cheung will continue when the trial resumes Friday.

There was little direct mention of Holmes during the first few hours of Cheung’s testimony Wednesday, but toward the end of its questioning, the prosecution asked whether she had considered speaking to Holmes directly prior to quitting over her concerns. Cheung testified that she hadn’t, citing a close relationship with a colleague, Tyler Shultz, who was also a Theranos whistleblower and whose grandfather – the former Secretary of State George Shultz – sat on the company’s board. Tyler Shultz, Cheung testified, had sent Holmes an email about some of the same concerns she’d raised, including around quality control. (Cheung said Tyler Shultz had a closer relationship with Holmes so she didn’t do so herself.)

Cheung said she and Shultz also met with his grandfather, who has since passed away, to appeal to him about their concerns. Tyler Shultz is also an expected witness.

According to a court document filed last week, Theranos spent more than $150,000 on a private investigator to spy on Cheung and Shultz.

Years after leaving the company, the two launched a nonprofit called Ethics in Entrepreneurship.