Brian Grossman — Cross/Redirect (Continued)
1,907 linesSAN JOSE, CALIFORNIA NOVEMBER 17, 2021 P R O C E E D I N G S
(COURT CONVENED AT 8:35 A.M.)
(JURY OUT AT 8:35 A.M.)
JUDGE DAVILA: LET'S GO ON THE RECORD IN THE HOLMES MATTER. ALL COUNSEL ARE PRESENT AND MS. HOLMES IS PRESENT. WE ARE OUTSIDE OF THE PRESENCE OF THE JURY. GOOD MORNING. COUNSEL, I THINK 1146 WAS FILED, DOCKET 1146, AND I THINK, COUNSEL, YOU WANT TO SPEAK TO THAT FOR JUST A MOMENT.
MR. CLINE: YES, FOR JUST A MOMENT. AND I'M GOING TO HAND COURTESY COPIES TO MS. KRATZMANN.
JUDGE DAVILA: OH, THANK YOU.
MR. CLINE: (HANDING.) THIS HAS TO DO WITH MR. PARLOFF'S TESTIMONY. HE WON'T BE TESTIFYING UNTIL TOMORROW, AND SO I THINK MR. BOSTIC AND I AGREE THAT WE CAN DEFER DISCUSSION OF THIS MOTION UNTIL TOMORROW MORNING, BUT I WANTED TO TELL THE COURT -- UPDATE YOU ON WHERE WE ARE.
JUDGE DAVILA: WELL, THERE WAS SOME PROMISING LANGUAGE IN THIS THAT SUGGESTED THAT YOU WERE MEETING AND CONFERRING AND WORKING ON AGREEMENT.
MR. CLINE: WE HAVE HAD THE MOST PRODUCTIVE DISCUSSION HERE THAT YOU CAN IMAGINE. IT'S BEEN GREAT.
JUDGE DAVILA: WELL, WHY DON'T I JUST GO BACK THEN.
(LAUGHTER.)
MR. CLINE: WE'RE NOT QUITE AT THAT POINT, BUT WE'RE CLOSE. WE'RE CLOSE. THERE WERE FOUR DESIGNATED CLIPS THAT OUR MOTION ADDRESS. NUMBER ONE WE'RE GOING TO BE ABLE TO AGREE ON. WE'RE STILL TALKING ABOUT IT, BUT YOU DON'T NEED TO WORRY ABOUT THAT. NUMBER TWO IS STILL AT ISSUE.
JUDGE DAVILA: OKAY.
MR. CLINE: AND WE'LL WANT TO DISCUSS THAT TOMORROW MORNING. NUMBER THREE THE GOVERNMENT HAS NO OBJECTION, SO THAT ONE IS RESOLVED. AND NUMBER FOUR IS STILL AT ISSUE.
JUDGE DAVILA: OKAY.
MR. CLINE: NUMBER FOUR THERE'S A TRANSCRIPT FOR IT. IT'S EXHIBIT 3 TO MY DECLARATION. FOR NUMBER TWO THERE IS NOT A TRANSCRIPT. WE'VE HANDED UP A --
JUDGE DAVILA: THAT'S THE --
MR. CLINE: IT'S ON THE MEMORY STICK.
JUDGE DAVILA: I SEE. OKAY. SO I CAN LOOK AT THAT. ALL RIGHT. AND THESE ARE -- THESE DESIGNATIONS APPEAR ON PAGE 2 OF YOUR MOTION, I BELIEVE, UP AT THE TOP.
MR. CLINE: YES.
JUDGE DAVILA: RIGHT. GOT IT. OKAY. THANK YOU.
MR. CLINE: SO THAT'S WHERE WE ARE, AND THAT'S ALL WE NEEDED FROM THE COURT AND WE JUST WANTED TO UPDATE YOU.
JUDGE DAVILA: OKAY. WELL, THANK YOU VERY MUCH. AND YOU'RE GOING TO CONTINUE TO TALK, OR DO YOU THINK YOUR CONVERSATION IS EXHAUSTED SUCH THAT WE WILL HAVE TO RESOLVE THIS TOMORROW MORNING?
MR. CLINE: I THINK FOR DESIGNATIONS TWO AND FOUR WE'RE GOING TO HAVE TO TALK IN THE MORNING.
JUDGE DAVILA: OKAY.
MR. CLINE: ONE WE WILL AGREE ON, SO WE WON'T NEED TO WORRY ABOUT THAT.
MR. BOSTIC: AGREED, YOUR HONOR. THE PARTIES WILL KEEP IN TOUCH ON THESE ISSUES, BUT I THINK WE JUST SEE THE DESIGNATED CLIPS THAT MR. CLINE MENTIONED DIFFERENTLY, SO WE WILL NEED THE COURT'S INPUT ON THAT.
JUDGE DAVILA: GREAT.
MR. BOSTIC: I'M HAPPY TO DISCUSS THAT TOMORROW MORNING. I THINK THIS WITNESS WILL LIKELY TESTIFY TOMORROW MORNING OR MIDDAY TOMORROW.
JUDGE DAVILA: OKAY. THAT SOUNDS GOOD. OKAY. THANK YOU. THANK YOU FOR THAT. I'LL LOOK AT THESE. YOU KNOW, TODAY WE HAVE -- I THINK WE END AT 3:30 TODAY. I KNOW I'M PRESSING IT, BUT MAYBE WE COULD USE THE AFTERNOON TO DISCUSS, PERHAPS NOT THIS, I'LL NEED TO LOOK AT THINGS, BUT IF THERE'S ANYTHING ELSE THAT WE NEED TO DISCUSS, YOU KNOW, I'M -- I WOULD JUST AS SOON USE AS MUCH COURT TIME THAT WE HAVE AVAILABLE TO KEEP THINGS GOING FORWARD. SO WE'LL LOOK AT THE END OF THE DAY AND SEE HOW THAT LOOKS. AND WE HAVE A BREAK TODAY, I THINK IT'S FROM ABOUT 10:40 TO ABOUT 11:50 THAT WE'LL NEED TO --
MR. CLINE: RIGHT.
JUDGE DAVILA: RIGHT. AND THEN WE GO UNTIL 3:30. SO IT'S KIND OF AN ABBREVIATED DAY.
MR. CLINE: OKAY. THANK YOU.
JUDGE DAVILA: MR. CLEARY IS NOT HERE TODAY, IS HE? I DON'T SEE HIM IN THE AUDIENCE. I WANTED TO -- YOU KNOW, I NEGLECTED YESTERDAY TO THANK HIM FOR HIS THOROUGH PRESENTATION. I THOUGHT HE DID A FINE JOB, MORE THAN FINE, I THOUGHT HE DID AN EXCELLENT JOB ADVOCATING HIS INTEREST. HE RESPONDED TO MY QUESTIONS AND TO MR. BOSTIC'S COMMENTS, AND I DIDN'T GET A CHANCE TO THANK HIM AND RECOGNIZE HIM FOR HIS PRESENTATION. I WAS HOPING I COULD DO THAT TODAY. BUT IN HIS ABSENCE, COULD I ASK COUNSEL TO SHARE WITH HIM MY THOUGHTS?
MR. CLINE: CERTAINLY, YOUR HONOR. AND MORE THAN THAT, I'M GOING TO GET THIS PORTION OF THE TRANSCRIPT AND MAKE SURE HE PUTS IT ON HIS WEBSITE.
(LAUGHTER.)
JUDGE DAVILA: SOUNDS GOOD. OKAY.
(LAUGHTER.)
JUDGE DAVILA: ALL RIGHT. THANK YOU VERY MUCH. THANK YOU.
MR. CLINE: THANK YOU.
COURT CLERK: COURT IS IN RECESS.
(RECESS FROM 8:40 A.M. UNTIL 9:06 A.M.)
(JURY IN AT 9:06 A.M.)
JUDGE DAVILA: GOOD MORNING. WE'RE BACK ON THE RECORD IN THE HOLMES MATTER. ALL COUNSEL ARE PRESENT. MS. HOLMES IS PRESENT. OUR JURY IS PRESENT. GOOD MORNING, LADIES AND GENTLEMEN. WE'LL RESUME EVIDENCE IN JUST A MOMENT. LET ME ASK YOU THE QUESTION AGAIN. DURING THE BREAK, DID ANY OF YOU COME ACROSS, DISCUSS, READ, OR LISTEN TO ANYTHING TO DO WITH THIS CASE DURING THE BREAK? IF SO, PLEASE SHOW ME YOUR HAND. I SEE NO HANDS. GREAT. THANK YOU VERY MUCH. LET'S CONTINUE WITH THE WITNESS THEN. IF WE CAN BRING THE WITNESS IN. GOOD MORNING, MR. WADE.
JUDGE DAVILA: AND MR. GROSSMAN, GOOD MORNING.
BRIAN GROSSMAN: GOOD MORNING.
JUDGE DAVILA: PLEASE GO AHEAD AND HAVE A SEAT AGAIN AND MAKE YOURSELF COMFORTABLE. WHEN YOU ARE COMFORTABLE, AGAIN, WOULD YOU PLEASE STATE YOUR NAME.
BRIAN GROSSMAN: BRIAN GROSSMAN.
(GOVERNMENT'S WITNESS, BRIAN GROSSMAN, WAS PREVIOUSLY SWORN.)
JUDGE DAVILA: MR. WADE.
CROSS-EXAMINATION
BRIAN GROSSMAN: GOOD MORNING.
MR. WADE: YOU RECALL YESTERDAY WE HAD SOME DISCUSSION ABOUT THE JANUARY 10TH, 2014 MEETING THAT YOU HAD AT THERANOS?
BRIAN GROSSMAN: YES.
MR. WADE: AND I JUST WANT TO ASK A COUPLE OF QUICK QUESTIONS ABOUT THAT AND THEN MOVE ON ON SOME OF THE ITEMS THAT FOLLOWED OUT OF THAT MEETING. DO YOU RECALL THAT IT WAS -- ON BEHALF OF THERANOS, THAT IT WAS MR. BALWANI WHO SORT OF DROVE THAT MEETING?
BRIAN GROSSMAN: I RECALL THAT BOTH MS. HOLMES AND MR. BALWANI SPOKE IN THAT MEETING, AND THAT MS. HOLMES EXITED THE MEETING AT SOME POINT ROUGHLY HALFWAY THROUGH.
MR. WADE: RIGHT. AND DO YOU RECALL THAT DURING PART OF THE DISCUSSION THAT YOU WERE THERE THAT MR. BALWANI WAS SORT OF DRIVING THE DISCUSSION ON SOME OF THE DETAILS THAT YOU WERE FOCUSSED ON?
BRIAN GROSSMAN: I DON'T RECALL.
MR. WADE: IF YOU LOOK TO YOUR LEFT, THERE'S A BINDER IN FRONT OF YOU THAT SHOULD BE OPEN TO EXHIBIT 11049. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
MR. WADE: AND IF YOU COULD DO ME A FAVOR AND JUST READ THE LAST LINE ON THE LAST PARAGRAPH, OR THE LAST SENTENCE IN THE LAST PARAGRAPH -- SECOND TO THE LAST SENTENCE IN THAT PARAGRAPH ON THE FIRST PAGE.
JUDGE DAVILA: TO HIMSELF? OUT LOUD?
BY MR. WADE:
BRIAN GROSSMAN: OKAY.
MR. WADE: DOES THAT, READING THAT PORTION, THE PORTION OF THAT DOCUMENT REFRESH YOUR RECOLLECTION THAT IT WAS MR. BALWANI WHO DROVE THAT MEETING ON BEHALF OF THERANOS?
BRIAN GROSSMAN: WELL, THESE ARE NOT MY NOTES, SO I DON'T --
MR. WADE: AND WE DON'T WANT YOU TO READ THE NOTES. AND YOU RECALL THAT AT DIFFERENT POINTS DURING THIS INVESTIGATION THAT YOU HAD MEETINGS WITH THE GOVERNMENT; CORRECT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: I DO, YES.
MR. WADE: AND YOU RECALL THAT THERE WERE DIFFERENT LAWYERS FROM THE GOVERNMENT WHO WERE THERE WHO WERE TAKING NOTES?
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. MY QUESTION IS WHETHER SIMPLY READING THE NOTE IN FRONT OF YOU REFRESHES YOUR RECOLLECTION AS TO WHETHER IT WAS MR. BALWANI WHO DROVE THAT MEETING ON BEHALF OF THERANOS?
BRIAN GROSSMAN: WELL, MR. WADE, AS I SAID BEFORE, IN THE SECOND HALF OF THE MEETING, HE DEFINITELY DROVE THE MEETING BECAUSE HE WAS THE ONLY ONE IN THE MEETING.
BRIAN GROSSMAN: IN THE FIRST PART OF THE MEETING, I WOULD SAY -- I DON'T HAVE A SPECIFIC MEMORY OF WHO DROVE WHAT, WHO SAID WHAT, BUT BOTH MS. HOLMES AND MR. BALWANI WERE SPEAKING IN THE FIRST PART OF THE MEETING.
MR. WADE: FAIR ENOUGH. DO YOU RECALL YESTERDAY THAT I ASKED YOU SOME QUESTIONS ABOUT WHETHER THE BULK OF THE MEETING WAS ACTUALLY TAKEN UP BY AN INTERACTION WITH MR. BALWANI AND DR. RABODZEY? DO YOU RECALL THAT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: THAT'S FAIR.
JUDGE DAVILA: YES.
BY MR. WADE:
MR. WADE: AND I'M SHOWING YOU EXHIBIT 11483, WHICH IS A TRANSCRIPT EXCERPT. IF YOU COULD JUST LOOK AT THE HIGHLIGHTED PORTION WHICH STARTS AT PAGE 256. AND I BELIEVE I'VE TENDERED THIS TO THE COURT AND TO COUNSEL FOR THE RECORD. IF YOU COULD READ 256, STARTING AT LINE 13, AND READING TO 257 THROUGH LINE 4 TO YOURSELF, AND LET ME KNOW WHEN YOU'RE DONE.
BRIAN GROSSMAN: MAYBE IF I COULD JUST TAKE A MINUTE TO SORT OF REFRESH MYSELF OR REVIEW THIS A LITTLE, IF YOU DON'T MIND. THANK YOU.
MR. WADE: SURE. LET ME KNOW WHEN YOU'VE HAD A CHANCE. I'M FOCUSSED ON THOSE PORTIONS THAT I'VE IDENTIFIED.
BRIAN GROSSMAN: SO MAYBE YOU CAN JUST EXPLAIN WHAT THIS DOCUMENT IS.
JUDGE DAVILA: IF YOU COULD JUST, SIR, JUST DRAW YOUR ATTENTION TO THE AREAS THAT MR. WADE SUGGESTED YOU READ.
BRIAN GROSSMAN: OKAY.
JUDGE DAVILA: AND THEN HE'LL ASK YOU --
MR. LEACH: MAY I ASK THAT THE WITNESS ALSO BE DIRECTED TO THE FIRST PAGE SO HE HAS AN UNDERSTANDING, YOUR HONOR?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: OKAY.
BRIAN GROSSMAN: OKAY.
MR. WADE: AND MY QUESTION TO YOU IS WHETHER READING THAT EXCERPT REFRESHES YOUR RECOLLECTION THAT THE MAJORITY OF THE TIME IN THE MEETING WAS SPENT WITH MR. BALWANI AND DR. RABODZEY REVIEWING THE TECHNICAL DATA?
BRIAN GROSSMAN: NO, IT DOES NOT.
MR. WADE: OKAY. AND WITH RESPECT TO THAT MEETING, DO YOU RECALL YESTERDAY I ALSO ASKED YOU ABOUT WHETHER YOU ADVISED THAT 96 PERCENT OF TEST REQUISITIONS WERE COVERED BY 70 ASSAYS. DO YOU RECALL THAT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: I'M NOT SURE THAT THAT -- I DON'T REMEMBER SPECIFICALLY WHAT I SAID.
MR. WADE: OKAY. DO YOU RECALL WHETHER IN THAT MEETING YOU WERE ADVISED BY SOMEONE AT THERANOS THAT 96 PERCENT OF TEST REQUISITIONS FELL INTO 70 ASSAYS BASED UPON THEIR ESTIMATES OF DATA?
BRIAN GROSSMAN: I DO REMEMBER THAT THE NUMBER 96 PERCENT CAME UP, BUT IT WAS NOT IN THE CONTEXT THAT YOU WERE DESCRIBING.
BRIAN GROSSMAN: OKAY.
JUDGE DAVILA: YES.
MR. WADE: AND I'M GOING TO HAND YOU WHAT IS MARKED AS 3162. AND I'D JUST LIKE TO -- I'LL CALL YOUR ATTENTION TO PAGE 2 OF THE NOTES. I'VE HIGHLIGHTED AN EXCERPT FOR YOU THERE JUST TO MAKE IT EASY. DO YOU SEE THAT?
BRIAN GROSSMAN: YES, I DO.
MR. WADE: AND DOES THAT REFRESH YOUR RECOLLECTION THAT YOU WERE ADVISED THAT 96 PERCENT OF ALL TEST REQUISITIONS FALL WITHIN 70 ASSAYS?
BRIAN GROSSMAN: WELL, AGAIN, MR. WADE, I KNOW THAT -- I KNOW WHAT YOU'RE ASSUMING IN YOUR QUESTION, BUT I THINK YOU HAVE A MISUNDERSTANDING OF WHAT THIS SECTION IS REFERRING TO.
MR. WADE: I'M JUST ASKING IF IT REFRESHES YOUR RECOLLECTION AS TO WHETHER 96 PERCENT -- WE WANT TO BE CAREFUL NOT TO READ THE DOCUMENT. I'M JUST ASKING YOU TO READ IT TO YOURSELF. OKAY?
BRIAN GROSSMAN: YEAH.
MR. WADE: AND I'M ASKING IF LOOKING AT THE HIGHLIGHTED PORTION OF THE NOTES REFRESH YOUR RECOLLECTION THAT YOU WERE ADVISED THAT 96 PERCENT OF ALL TEST REQUISITIONS FALL WITHIN 90 -- WITHIN 70 ASSAYS?
BRIAN GROSSMAN: THIS SECTION OF THE NOTES IS REFERRING TO SOMETHING COMPLETELY DIFFERENT.
BRIAN GROSSMAN: WELL, I'D LIKE TO ANSWER YOUR QUESTION, BUT I WOULD NEED TO EXPLAIN MY ANSWER.
MR. WADE: BUT I HOPE YOU UNDERSTAND, I'M TRYING TO, TO BE RESPECTFUL OF THE RULES OF THE COURT WHEN I ASK THIS QUESTION. I'M NOT MEANING TO BE RUDE.
BRIAN GROSSMAN: THIS WAS A CONVERSATION ABOUT THE HOSPITAL ACQUIRED INFECTION. SO HOSPITALS ARE REQUIRED UNDER THE LAW TO TEST FOR ANY POTENTIAL INFECTION, AND AS PART OF THAT, THEY, THEY TYPICALLY SEND THOSE SAMPLES OUT TO OTHER HOSPITALS, AND THAT PROCESS CAN BE TWO TO THREE DAYS BEFORE THEY GET THOSE ANSWERS BACK. NOW, THIS WAS 10 PERCENT OF ALL OF WHAT MEDICARE SPENT ON TESTING, HOSPITAL ACQUIRED INFECTIONS ON THE LAW. SO THE POINT WAS THERANOS'S NEW PROPRIETARY TECHNOLOGY USING NUCLEIC ACID -- THIS GOES BACK TO OUR FIRST MEETING WHEN THE COMPANY --
MR. WADE: IF I COULD JUST INTERRUPT YOU FOR A SECOND. IF I COULD MOVE TO STRIKE THE ANSWER AND THEN I'LL REASK MY QUESTION.
JUDGE DAVILA: WELL, I'LL ALLOW THIS TO REMAIN AND STOP THE ANSWER THERE, AND THEN HE'S GOING TO ASK THE QUESTION.
BRIAN GROSSMAN: OKAY. THANK YOU.
BY MR. WADE:
MR. WADE: I DON'T MEAN TO BE RUDE. I'M JUST ASKING IF READING THAT HIGHLIGHTED PORTION REFRESHES YOUR RECOLLECTION THAT YOU WERE ADVISED THAT 96 PERCENT OF TEST REQUISITIONS FALL WITHIN 70 ASSAYS?
BRIAN GROSSMAN: NO, IT DOES NOT.
JUDGE DAVILA: YES.
BY MR. WADE:
MR. WADE: I'M GOING TO SHOW YOU A DOCUMENT THAT IS MARKED AS EXHIBIT 1415. AND, AGAIN, I'D JUST ASK THAT YOU READ THESE NOTES TO YOURSELF. DO YOU SEE THAT THERE ARE TWO EXCERPTS THAT ARE HIGHLIGHTED, ONE IN GREEN AND ONE IN ORANGE?
BRIAN GROSSMAN: YES, I DO.
MR. WADE: OKAY. AND IF YOU COULD JUST READ THE PART IN GREEN, AND THEN I HAVE A QUESTION FOR YOU.
BRIAN GROSSMAN: SINCE THESE ARE NOT MY NOTES, IF YOU DON'T MIND, I'D LIKE TO REVIEW THEM.
MR. WADE: YOU'RE WELCOME TO REVIEW THEM TO YOURSELF, AND THEN I WANT TO ASK YOU A QUESTION IF YOU'VE READ THE GREEN PORTION INTO THEM.
(PAUSE IN PROCEEDINGS.)
BRIAN GROSSMAN: OKAY.
BY MR. WADE:
BRIAN GROSSMAN: YOU MEAN THE YELLOW PART?
BRIAN GROSSMAN: I'M A LITTLE COLOR BLIND.
BRIAN GROSSMAN: YES.
MR. WADE: DOES THAT REFRESH YOUR RECOLLECTION THAT DURING THIS MEETING, YOU AND OTHERS AT PFM WERE ADVISED THAT 96 PERCENT OF TESTS FALL INTO 70 ASSAYS?
BRIAN GROSSMAN: MR. WADE, THIS IS CONSISTENT WITH EXACTLY WHAT I JUST DESCRIBED.
BRIAN GROSSMAN: THE LINE ABOVE THAT, HOSPITAL ACQUIRED INFECTIONS ASSAYS PANEL 2014 WERE DESCRIBING --
JUDGE DAVILA: MR. GROSSMAN, WE HAVE TO SPEAK ONE AT A TIME. WE HAVE THE BEST COURT REPORTER IN THE BUILDING.
BRIAN GROSSMAN: I'M SORRY.
JUDGE DAVILA: BUT EVEN WITH ALL OF HER SKILLS AND ABILITY, IT'S DIFFICULT FOR HER TO CAPTURE THREE PEOPLE TALKING AT THE SAME TIME.
BRIAN GROSSMAN: I UNDERSTAND.
JUDGE DAVILA: SO THAT'S HOW WE PROCESS HERE. SO THE QUESTION IS, JUST READING THAT, IF YOU CAN ANSWER THE QUESTION, JUST READING THOSE SIX WORDS, IF THAT REFRESHES YOUR RECOLLECTION? IS THAT YOUR QUESTION?
MR. WADE: DOES IT REFRESH YOUR RECOLLECTION THAT PFM WAS ADVISED IN THIS MEETING THAT 96 PERCENT OF TESTS FALL IN 70 ASSAYS?
BRIAN GROSSMAN: I WOULD LIKE -- I CAN'T ANSWER THAT QUESTION WITHOUT EXPLAINING THAT ANSWER. THE LINE DIRECTLY ABOVE THAT, HOSPITAL ACQUIRED INFECTIONS 2014, THOSE 70 ASSAYS ARE THE HOSPITAL ACQUIRED INFECTION PANEL THAT THEY'RE TALKING ABOUT.
JUDGE DAVILA: SIR, SIR, IF IT REFRESHES YOUR RECOLLECTION, IT DOES. IF IT DOESN'T, IT DOESN'T.
BRIAN GROSSMAN: IT DOES, YES.
BY MR. WADE:
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: IT REFRESHED MY RECOLLECTION ABOUT WHAT THAT SPECIFIC 70 ASSAYS ARE REFERRING TO.
BRIAN GROSSMAN: WHICH WAS THE HOSPITAL ACQUIRED INFECTION ASSAY PANEL THAT THEY WERE ROLLING OUT IN 2014.
BRIAN GROSSMAN: NOT THE RETAIL TEST MENU.
MR. WADE: OKAY. AND DO YOU RECALL BEING ADVISED DURING THIS MEETING THAT THERANOS ACTUALLY TOLD YOU THAT THEY HAD 70 SMALL SAMPLE ASSAYS THAT THEY WERE PREPARED TO ROLL OUT IN THEIR COMMERCIAL ENVIRONMENT? DO YOU RECALL THAT?
BRIAN GROSSMAN: MR. WADE, WE TALKED AGAIN ABOUT 70 ASSAYS IN THE HOSPITAL ACQUIRED INFECTION MARKET. THAT'S MY MEMORY OF THAT CONVERSATION.
MR. WADE: I UNDERSTAND. I'M JUST WANTING -- AND MY QUESTION, MY QUESTION IS WHETHER YOU ALSO RECALL IN THAT MEETING THAT YOU WERE ADVISED THAT -- BY THERANOS THAT THEY HAD 70 SMALL SAMPLE ASSAYS THAT WERE READY TO ROLL OUT IN THE COMMERCIAL SETTING?
BRIAN GROSSMAN: I THINK THEIR CARTRIDGES HAD 70 ASSAYS, SO ALL OF THEIR CARTRIDGES HAD 70 ASSAYS.
BRIAN GROSSMAN: SO, YES, THE ANSWER IS ALL OF THEIR CARTRIDGES HAD 70 ASSAYS. SO IF THE QUESTION IS, DID THEY TELL US THAT THEY WERE ROLLING OUT CARTRIDGES THAT HAD 70 ASSAYS, THE ANSWER IS, YES, THEY DID.
MR. WADE: OKAY. MY QUESTION -- AND IF YOU CAN CAN'T ANSWER IT, YOU CAN'T ANSWER IT. I'LL TRY ONE MORE TIME.
BRIAN GROSSMAN: OKAY.
MR. WADE: -- IS WHETHER THERANOS SPECIFICALLY TOLD YOU IN THAT MEETING THAT THEY HAD 70 SMALL SAMPLE ASSAYS THAT IT WAS WORKING TO ROLL OUT IN THE COMMERCIAL SETTING. DO YOU RECALL THAT, SIR?
BRIAN GROSSMAN: I DON'T RECALL THAT SPECIFIC STATEMENT.
MR. WADE: OKAY. AND REVIEWING THAT ORANGE EXCERPT ON THESE NOTES DOES NOT REFRESH YOUR RECOLLECTION AS TO THAT POINT; CORRECT?
MR. LEACH: OBJECTION, YOUR HONOR. ASKED AND ANSWERED.
JUDGE DAVILA: I THINK IT'S TIME TO MOVE ON. YOU CAN ASK ANOTHER QUESTION.
MR. WADE: THE -- COMING OUT OF THAT MEETING, I BELIEVE YOU TESTIFIED YESTERDAY THAT YOU HAD INTERACTIONS WITH MEMBERS OF YOUR TEAM; CORRECT?
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. AND DURING THOSE INTERACTIONS, DO YOU RECALL INITIALLY YOU EXCHANGED EMAIL THOUGHTS IN ADVANCE OF A HEALTH CARE CONFERENCE THAT YOU WERE GOING TO BE GOING TO?
BRIAN GROSSMAN: YES, THAT WOULD BE VERY TYPICAL AT THAT TIME OF THE YEAR.
BRIAN GROSSMAN: OKAY.
BRIAN GROSSMAN: I DO.
MR. WADE: AND DO YOU RECOGNIZE THIS TO BE AN EMAIL EXCHANGE BETWEEN YOU AND THE PFM TEAM DEBRIEFING ON THAT MEETING THAT YOU HAD AT THERANOS?
BRIAN GROSSMAN: YES, I DO.
MR. LEACH: 802, YOUR HONOR.
JUDGE DAVILA: MR. WADE?
MR. WADE: DO YOU -- OFTENTIMES WHEN YOU INTERACT WITH, WHEN YOU INTERACT WITH MEMBERS OF YOUR TEAM TO EXCHANGE INFORMATION IN CONNECTION WITH INVESTMENT DECISIONS, DO YOU DO THAT VIA ELECTRONIC MAIL?
BRIAN GROSSMAN: IT JUST DEPENDS. SOMETIMES, YES.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: OR PEOPLE HAVE MEETINGS. THEY'RE BUSY. THERE'S JUST -- YOU KNOW, SO, YES, FOR ALL OF THOSE REASONS.
MR. WADE: AND SOMETIMES THERE'S A NEED TO SHARE INFORMATION AMONG THE GROUP ELECTRONICALLY; RIGHT?
BRIAN GROSSMAN: SURE.
MR. WADE: AND, IN FACT, SOMETIMES THE EMAILS THAT YOU HAVE, YOU ACTUALLY SAVE IN A FOLDER FOR PARTICULAR INVESTMENTS THAT YOU'RE WORKING ON; RIGHT?
BRIAN GROSSMAN: I'M NOT SURE ABOUT -- I DON'T -- MAYBE YOU COULD BE A LITTLE MORE SPECIFIC.
BRIAN GROSSMAN: OKAY.
MR. WADE: BUT WHEN YOU'RE EMAILING ON THIS WITH YOUR TEAM, DO YOU ALWAYS WORK TO PROVIDE THE BEST INFORMATION POSSIBLE?
BRIAN GROSSMAN: DO I ALWAYS PROVIDE?
MR. WADE: YEAH. YOU TRY TO BE TRUTHFUL AND PROVIDE WHATEVER INFORMATION YOU'VE RECEIVED IN AN ACCURATE MANNER; IS THAT FAIR?
BRIAN GROSSMAN: YES.
MR. WADE: AND DO YOU TRY TO MAKE SURE THAT EVERYONE ON YOUR TEAM IS FULLY INFORMED ABOUT THE INFORMATION THAT YOU GATHER?
BRIAN GROSSMAN: I MEAN, YOU CAN'T MAKE THEM READ THE EMAILS, BUT YOU HOPE THAT THEY DO.
MR. WADE: BUT THAT'S THE PURPOSE IN SENDING THE EMAIL IS TO SHARE INFORMATION SO THAT THAT INFORMATION CAN BE CONSIDERED IN CONNECTION WITH INVESTMENT DECISIONS; IS THAT RIGHT?
BRIAN GROSSMAN: I MEAN, I -- IT'S A LITTLE -- THAT'S A LITTLE TOO SPECIFIC FOR YES, NO. IT MAY OR MAY NOT BE RELATED TO AN INVESTMENT DECISION. IT MAY BE RELATED TO OTHER ISSUES THAT ARE RELEVANT TO WHAT WE'RE TRYING TO ACCOMPLISH ON A GIVEN DAY-TO-DAY BASIS.
MR. WADE: OKAY. IS 7391 AN EMAIL IN WHICH YOU'RE SHARING INFORMATION RELATING TO AN INVESTMENT DECISION?
BRIAN GROSSMAN: IF YOU DON'T MIND, I CAN MAYBE READ IT.
BRIAN GROSSMAN: OKAY.
(PAUSE IN PROCEEDINGS.)
JUDGE DAVILA: SURE.
(DISCUSSION AMONGST COUNSEL OFF THE RECORD.)
BRIAN GROSSMAN: OKAY.
BY MR. WADE:
MR. WADE: AND DO YOU RECALL THAT THIS WAS AN EMAIL THAT WAS SENT WITH THE TEAM OF PEOPLE AT PFM THAT WAS INVOLVED IN THE THERANOS INVESTMENT DECISION?
BRIAN GROSSMAN: YES.
MR. WADE: AND DO YOU RECALL THAT THIS IS INFORMATION THAT WAS BEING PROVIDED AND ITEMS THAT WERE BEING DISCUSSED TO HELP THE TEAM FIGURE OUT A WORKFLOW ON HOW IT WAS GOING TO GO ABOUT GETTING ADDITIONAL INFORMATION ON THE INVESTMENT DECISION?
BRIAN GROSSMAN: YOU'RE SORT OF PUTTING WORDS IN MY MOUTH. I THINK THIS EMAIL IS SORT OF LAYING OUT SOME OF OUR VIEWS THAT AT THAT POINT, HAVING MET WITH THE COMPANY TWICE AND WE HAD -- AND THIS WAS A BIG INDUSTRY CONFERENCE IN THE SECOND WEEK OF JANUARY, SO MANY OF THE COMPANIES THAT WOULD BE COMPETING WITH, WITH THERANOS ON THE LABORATORY SIDE WOULD BE THERE, AND MANY OF THE COMPANIES THAT MAKE DIAGNOSTIC EQUIPMENT, ANALYTIC INSTRUMENTS, MOLECULAR DIAGNOSTIC EQUIPMENT WOULD ALSO BE AT THIS MEETING, COMPANIES LIKE CEPHEID WHO COMPETES IN THE HOSPITAL ACQUIRED INFECTION SPACE. SO FOR ALL OF THOSE REASONS, WE -- AND THERE WAS ACTUALLY ALSO NOT FOR PROFIT HOSPITAL PANEL, SO WE WOULD HAVE A CHANCE TO TALK TO SOME OF THE BLUES, FOR EXAMPLE, THE BLUES INSURANCE PLANS. SO I THINK THIS IS -- AND FOR ALL OF THOSE REASONS, IT WAS A GOOD OPPORTUNITY TO JUST LEARN ABOUT THIS SPACE AND THIS BUSINESS AND HOW IT WOULD AFFECT ALL OF THOSE DIFFERENT COMPANIES.
MR. WADE: AND TO SHARE INFORMATION IN CONNECTION WITH THAT WITH YOUR TEAM SO EVERYONE WOULD GO IN THINKING ABOUT SOME ISSUES THAT YOU SHOULD DISCUSS AT THAT CONFERENCE?
BRIAN GROSSMAN: WELL, WE HAD PROBABLY 100 MEETINGS THAT WEEK, SO IT WAS A VERY BUSY WEEK AND YOU DON'T WANT THOSE OPPORTUNITIES -- WHEN YOU MEET WITH COMPANIES, YOU DON'T WANT TO FORGET TO ASK QUESTIONS. SO A LOT OF PREPARING FOR THIS WEEK WAS JUST MAKING SURE THAT EVERYONE, YOU KNOW, HAD A LIST OF QUESTIONS TO ASK THE DIFFERENT COMPANIES THAT WE WOULD INTERACT WITH OVER THOSE FOUR OR FIVE DAYS.
BRIAN GROSSMAN: YES.
MR. WADE: AND IT WAS SPECIFIC BECAUSE YOU WERE IN THE PROCESS OF CONSIDERING AN INVESTMENT IN THERANOS; CORRECT?
BRIAN GROSSMAN: WE WERE DOING DUE DILIGENCE, YES. WE WERE DOING DUE DILIGENCE ON THE COMPANY AT THAT POINT.
MR. WADE: AND I TAKE IT PFM TAKES STEP TO PRESERVE ITS ELECTRONIC EMAIL IN A SAFE AND SECURE MANNER?
BRIAN GROSSMAN: I'M NOT IN CHARGE OF THE COMPLIANCE OR THE REGULATORY PART OF OUR BUSINESS, BUT WE CERTAINLY DO EVERYTHING THAT WE'RE REQUIRED UNDER THE LAW BY THE S.E.C. AS FAR AS RECORDKEEPING AND DOCUMENT RETENTION.
MR. LEACH: YOUR HONOR, THERE'S 802 WITH RESPECT TO THE LAST PAGE, BUT I HAVE NO OBJECTION TO THIS COMING IN FOR STATE OF MIND OR FOR SOME OTHER PURPOSE.
JUDGE DAVILA: THE LAST PAGE, THE LAST EMAIL?
MR. LEACH: YES, YOUR HONOR.
BRIAN GROSSMAN: SO WOULD YOU LIKE ME TO READ THE LAST PAGE?
JUDGE DAVILA: NO. JUST A SECOND. THANK YOU.
(PAUSE IN PROCEEDINGS.)
JUDGE DAVILA: MR. WADE, ANY OBJECTION TO THIS LAST PORTION, THE LAST EMAIL, THE JANUARY 10TH EMAIL BEING ADMITTED NOT FOR THE TRUTH OF THE MATTER ASSERTED, BUT RATHER AS TO THE STATE OF MIND OF THIS WITNESS?
JUDGE DAVILA: ALL RIGHT. THANK YOU. THIS WILL BE ADMITTED. 7391 IS ADMITTED. LADIES AND GENTLEMEN, THIS WILL BE PUBLISHED IN JUST A MOMENT. THE LAST EMAIL, FRIDAY, JANUARY 10, 2014, 4:37 P.M., THE CONTENTS OF THAT IS ADMITTED NOT FOR THE TRUTH OF THE MATTERS ASSERTED IN THAT EMAIL, BUT ONLY AS TO THE ISSUE OF THE STATE OF MIND OF THIS WITNESS. SO IT'S ADMITTED. IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 7391 WAS RECEIVED IN EVIDENCE.)
MR. WADE: THANK YOU, YOUR HONOR. IF WE CAN START WITH THAT LAST EMAIL THAT THE COURT JUST REFERRED TO FOR A LIMITED PURPOSE.
MR. WADE: DO YOU SEE THAT IN THIS EMAIL MR. RABODZEY -- DR. RABODZEY IS PROVIDING HIS TAKE COMING OUT OF THAT MEETING AT THERANOS?
BRIAN GROSSMAN: YES.
MR. WADE: AND YOU SEE THAT HE NOTES THERE FOR YOU AND OTHERS ON THE TEAM THAT HE THINKS THE TECHNOLOGY SOUNDS VERY GOOD, BUT HE WANTS TO BOUNCE SOME OF THIS OFF OTHERS IN THE INDUSTRY. DO YOU SEE THAT?
BRIAN GROSSMAN: I SEE THAT LINE THAT IS HIGHLIGHTED IN YELLOW.
MR. WADE: AND HE -- BUT HE ALSO, OF COURSE, NOTES THAT HE'S NOT GOING TO VIOLATE THE CBA THERE; CORRECT?
BRIAN GROSSMAN: THAT'S CORRECT.
MR. WADE: I JUST WANT TO BE FAIR TO DR. RABODZEY. AND PART OF THIS WAS SO THAT AS YOU WENT INTO THIS CONFERENCE, YOU COULD TRY TO VET SOME OF THE ISSUES WITH THERANOS IN AN APPROPRIATE WAY WITH OTHERS IN THE INDUSTRY: RIGHT?
BRIAN GROSSMAN: THAT'S CORRECT.
MR. WADE: AND IS THAT A NORMAL TYPE OF PROCESS THAT YOU WOULD GO THROUGH AS PART OF YOUR DUE DILIGENCE IF A CONFERENCE HAPPENS TO BE OCCURRING?
BRIAN GROSSMAN: YES.
MR. WADE: AND DO YOU SEE THERE THAT HE'S NOT CONVINCED ON THE IP AND COMPETITION? AND DO YOU RECALL DR. RABODZEY EXPRESSING SOME CONCERNS IN THAT REGARD AT THIS TIME?
BRIAN GROSSMAN: I DON'T RECALL SPECIFICALLY, BUT I DO SEE THAT HE WROTE "I AM NOT CONVINCED ON IP AND COMPETITION" AFTER HIS FIRST MEETING WITH THE COMPANY.
MR. WADE: AND DO YOU RECALL THAT YOU ASKED HIM SUBSEQUENTLY WHETHER IP LAWYERS SHOULD BE RETAINED TO REVIEW THE INTELLECTUAL PROPERTY OF THE COMPANY?
BRIAN GROSSMAN: I DON'T REMEMBER SPECIFICALLY.
BRIAN GROSSMAN: I DON'T RECALL. I KNOW THAT WE ASKED -- WE HAD FOLLOW-UP CONVERSATIONS WITH THE COMPANY ON THEIR IP, THEIR IP STRATEGY, THE COMPETITIVE BARRIERS, WHAT PREVENTED OTHER COMPANIES FROM PURSUING A BUSINESS LIKE THIS, COPYING THE MINILAB. WE HAD ALL OF THOSE TYPES OF CONVERSATIONS. I DON'T RECALL SPECIFICALLY WHETHER WE RETAINED AN IP FIRM.
MR. WADE: AND THE COMPETITIVE BARRIERS WAS AN ISSUE, OR THE RESPONSE FROM COMPETITION IS AN ISSUE THAT YOU WERE DISCUSSING ACTIVELY WITHIN THE COMPANY; RIGHT?
BRIAN GROSSMAN: ANY INVESTMENT THAT WE MAKE, WE WOULD WANT TO UNDERSTAND BARRIERS TO ENTRY AND COMPETITION.
BRIAN GROSSMAN: IT'S A STANDARD PART OF A DUE DILIGENCE PROCESS FOR ANY INVESTMENT WE WOULD MAKE.
MR. WADE: AND IF YOU LOOK A COUPLE OF LINES DOWN, YOU SEE IT NOTES THAT "THEIR PROJECTIONS ARE A BIT AGGRESSIVE FOR SPEED OF RAMP IN 2015 AND BEYOND BUT WITH EXCELLENT EXECUTION ARE DOABLE AND CAN BE EXCEEDED." DO YOU SEE THAT?
BRIAN GROSSMAN: MR. WADE, MAYBE I CAN READ THE FULL DOCUMENT IF WE'RE GOING TO GO THROUGH IT. IS THAT OKAY?
BRIAN GROSSMAN: NO. I WAS WAITING FOR THE JUDGE TO RULE.
(PAUSE IN PROCEEDINGS.)
BRIAN GROSSMAN: OKAY.
BY MR. WADE:
MR. WADE: AND MY QUESTION WAS JUST WITH THAT HIGHLIGHTED SENTENCE ABOUT THE PROJECTIONS. DO YOU RECALL RECOGNIZING THAT THE GROWTH OF THE COMPANY AND THE PROJECTIONS WAS A STEEP RAMP AND THAT EXECUTION WAS A RISK GOING INTO THIS INVESTMENT?
BRIAN GROSSMAN: AFTER OUR FIRST MEETING, THAT WAS -- APPEARS TO BE MR. RABODZEY'S POINT OF VIEW, YES.
BRIAN GROSSMAN: DID HE SHARE THAT VIEW?
BRIAN GROSSMAN: I DON'T RECALL SPECIFICALLY WHAT I WAS THINKING ON WHATEVER DAY THIS IS, JANUARY 12TH. I, I -- SO I DON'T -- I'M NOT SURE.
MR. WADE: WELL, DURING THE DUE DILIGENCE PROCESS, DO YOU RECALL COMING TO THE RECOGNITION THAT EXECUTION BY THE COMPANY WAS ONE OF THE RISKS THAT WOULD BE FACED?
BRIAN GROSSMAN: EXECUTION WAS A RISK FOR SURE. JUST LIKE ANY COMMERCIAL COMPANY THAT WAS ROLLING OUT A TECHNOLOGY OR A DRUG OR A MEDICAL DEVICE OR A NEW HEALTH CARE SERVICE, EXECUTION WOULD ALWAYS BE AN ISSUE WE WOULD FOCUS ON. IN THIS CASE THEY HAD DETAILED PROJECTIONS FROM WALGREENS THAT -- AND ACTUALLY IN THIS MEETING THEY HAD TOLD US THAT THEY HAD UPPED THOSE NUMBERS TWICE BASED ON HOW WELL THINGS WERE GOING. SO I THINK WE WALKED AWAY FROM THAT MEETING FEELING LIKE THEY HAD A REALLY GOOD, THEY HAD A REALLY GOOD SENSE OF HOW THE ROLLOUT WAS GOING AND WHAT THE 2014 PROJECTIONS IN PARTICULAR WOULD LOOK LIKE.
MR. WADE: WELL, YOU SAID WE WALKED AWAY FROM THAT MEETING, BUT DR. RABODZEY WALKED AWAY FROM THIS MEETING ADVISED THAT EXECUTION IS A POTENTIAL RISK; RIGHT?
BRIAN GROSSMAN: HE APPEARS TO HAVE HAD QUESTIONS ON EXECUTION.
BRIAN GROSSMAN: WHICH I THINK IS A VERY REASONABLE THING TO FOCUS ON IN THE DUE DILIGENCE PROCESS.
MR. WADE: AND HE ALSO NOTES ON THE BOTTOM THAT HE ALSO WANTS TO LOOK AT THE TECHNICAL DATA IN MORE DETAIL; RIGHT?
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. LET'S GO TO THE FIRST PAGE OF THE DOCUMENT. ON THE BOTTOM, AGAIN, YOU JUST NOTE -- YOU ASK FOR PEOPLE'S INPUTS AND SUGGEST YOU SHOULD HAVE A MEETING LATER ON; RIGHT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: I DON'T SPECIFICALLY RECALL THAT WEEK.
BRIAN GROSSMAN: A MEETING THAT WEEK.
BRIAN GROSSMAN: WE HAD A LOT OF MEETINGS THAT WEEK.
BRIAN GROSSMAN: YES. THERE'S THE -- EVERY JANUARY IN SAN FRANCISCO, I THINK IT'S THE THIRD BIGGEST TRADE SHOW OF THE YEAR FOR THE CITY, IT'S A HEALTH CARE FOCUSSED INVESTMENT CONFERENCE. IT TAKES PLACE AT THE WESTIN ST. FRANCIS, AND IT'S BEEN GOING ON I THINK FOR 30-PLUS YEARS. AND SO JP MORGAN JUST REFERS TO THAT. THAT'S WHAT JPM IS REFERRING TO, THIS INDUSTRY TRADE SHOW OR INDUSTRY INVESTMENT CONFERENCE.
MR. WADE: AND WHEN YOU TESTIFIED BEFORE ABOUT HOW THIS WOULD BE A PROCESS YOU WOULD GO ABOUT VETTING THIS INVESTMENT IN A CONFIDENTIALITY APPROPRIATE WAY, THAT'S WHAT YOU WERE REFERRING TO WAS THE JP MORGAN CONFERENCE IN SAN FRANCISCO?
BRIAN GROSSMAN: ARE YOU REFERRING TO THE PREVIOUS EMAIL?
BRIAN GROSSMAN: WE WOULD CERTAINLY WANT TO BE RESPECTFUL OF THE CONFIDENTIALITY OF THE COMPANY AND THE TECHNOLOGY, THE BUSINESS, ALL OF THE ASPECTS OF THE BUSINESS THAT THEY DID NOT WANT US TO SHARE WITH OTHER PEOPLE.
MR. WADE: OKAY. AND IF WE JUST GO UP THE CHAIN QUICKLY, DO YOU SEE THAT'S AN EMAIL WHERE MR. KHANNA PROVIDES SOME OF HIS THOUGHTS? DO YOU SEE THAT?
BRIAN GROSSMAN: YES, I DO.
MR. WADE: AND IF YOU JUST LOOK UNDER RISKS, YOU NOTE IN THAT FIRST BULLET THAT HE TALKS ABOUT EXECUTION BEING A RISK AS WELL; CORRECT?
BRIAN GROSSMAN: YES.
MR. WADE: AND AGAIN, ACTUALLY IF YOU LOOK AT THE LAST PORTION OF HIS EMAIL, THE LAST LINE THERE, HE SAYS, THIS IS ONE OF THE MOST INTERESTING COMPANIES HE'S MET, BUT IT ALL COMES DOWN TO EXECUTION; RIGHT?
BRIAN GROSSMAN: YES.
MR. WADE: AND AS THE DUE DILIGENCE PROCESS WENT FORWARD, I THINK YOU RECALL THERE WAS SOME VETTING THAT WAS DONE BY PFM ON REGULATORY ISSUES. DO YOU RECALL THAT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: 14002?
JUDGE DAVILA: THIS IS IN VOLUME 2?
BRIAN GROSSMAN: OKAY. SORRY. YEP.
JUDGE DAVILA: SURE.
BY MR. WADE:
BRIAN GROSSMAN: OKAY. THANK YOU.
MR. WADE: AND IS THIS AN EMAIL -- IS 14002 AN EMAIL IN WHICH DR. RABODZEY IS REPORTING TO YOU ON SOME OF THE RESEARCH HE WAS DOING ON THE REGULATORY ISSUES?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES, HE'S ALSO ON THIS EMAIL, YES.
MR. WADE: AND WAS THIS EMAIL FOR THE PURPOSE OF KEEPING, KEEPING THE TEAM INFORMED ABOUT WHAT HE WAS LEARNING ABOUT ISSUES RELATED TO THE THERANOS INVESTMENT?
BRIAN GROSSMAN: I BELIEVE THAT THAT'S -- I BELIEVE THAT'S RIGHT.
MR. LEACH: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 14002 WAS RECEIVED IN EVIDENCE.)
BY MR. WADE:
BRIAN GROSSMAN: I DO, YES.
BRIAN GROSSMAN: IT'S A COMPANY IN THE MOLECULAR DIAGNOSTICS SPACE.
BRIAN GROSSMAN: A MEDICAL DEVICE COMPANY.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: NO, I DON'T BELIEVE WE DID, NO.
MR. WADE: BUT IN ANY EVENT, IT LOOKS LIKE TO GATHER SOME INTELLIGENCE, DR. RABODZEY REACHED OUT TO THAT COMPANY TO VET SOME OF THE REGULATORY ISSUES. DO YOU SEE THAT?
BRIAN GROSSMAN: YEAH. WE MAY HAVE HAD A MEETING WITH NSTG THAT HAD NOTHING TO DO WITH THERANOS, SO I'M NOT SURE THAT HE REACHED OUT SPECIFICALLY BECAUSE OF THERANOS. BUT WE TYPICALLY HAVE MANY, MANY MEETINGS THAT WEEK, SO IT WOULD BE A COMPANY THAT HE WOULD POTENTIALLY MEET WITH.
MR. WADE: AND, AND DO YOU SEE IN THE SECOND PORTION OF THAT EMAIL HE SAYS, "THEY DID CONFIRM THAT A DEVICE USED FOR TESTING OUTSIDE OF A CLIA LAB HAS TO BE FDA CLEARED. THIS WOULD APPLY TO THERANOS IF AND WHEN THEY DECIDE TO MOVE THE DEVICE OUT OF THE CLIA LAB." DO YOU SEE THAT?
BRIAN GROSSMAN: YES, I DO.
MR. WADE: AND DO YOU RECALL THAT YOU RECOGNIZED AT THE TIME THAT THERE WAS AT LEAST A VIEW, I THINK -- LET ME STRIKE THAT. DO YOU RECALL THAT THERE WAS SOME GREY AREA ON SOME OF THE REGULATORY ISSUES THAT YOU TALKED ABOUT WITH MR. LEACH YESTERDAY?
BRIAN GROSSMAN: I'M SORRY, MR. WADE, I DON'T SPECIFICALLY REMEMBER WHAT YOU'RE REFERRING TO.
MR. WADE: OKAY. I THINK MR. LEACH WAS ASKING YOU SOME QUESTIONS ABOUT REGULATORY ISSUES THAT PFM WAS CONSIDERING RELATING TO THE THERANOS INVESTMENT, AND THERE WAS SOME GREY AREAS TO HOW THE CLIA REGULATIONS APPLIED VERSUS FDA REGULATIONS. DO YOU RECALL THAT?
BRIAN GROSSMAN: THE REGULATORY -- WHO HAS REGULATORY OVERSIGHT FOR THE LABORATORIES, YES.
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. AND DO YOU RECALL LEARNING IN THIS PERIOD THAT THERE WAS AT LEAST A VIEW EXPRESSED BY, BY THIS COMPANY THAT TO DISTRIBUTE THE DEVICE, THERE WOULD HAVE TO BE FDA APPROVAL. DO YOU SEE THAT?
BRIAN GROSSMAN: WELL, THEY TOLD US THAT THEY HAD NO PLANS TO DISTRIBUTE THE DEVICE THE WAY A TYPICAL MEDICAL DEVICE COMPANY WORKS. THEY HAD NO PLANS TO SELL ANY OF THEIR DEVICES TO THIRD PARTIES. SO I GUESS I WANT TO ANSWER YOUR QUESTION, BUT IF YOU'RE ASKING ME DID THEY PLAN ON SELLING, DISTRIBUTING THESE DEVICES OUTSIDE OF THEIR OWN CLIA LABS, OUR UNDERSTANDING FROM OUR DUE DILIGENCE WAS THAT THEY HAD NO INTENTION OF DOING THAT.
MR. WADE: OKAY. LET ME BE SLIGHTLY MORE PRECISE. DO YOU SEE WHERE IT SAYS "THE DEVICE USED FOR TESTING OUTSIDE OF THE CLIA LAB HAS TO BE FDA CLEARED"? DO YOU SEE THAT?
BRIAN GROSSMAN: A DEVICE.
MR. WADE: YEAH. AND DO YOU RECALL THAT PHASE II OF THERANOS WAS TO DISTRIBUTE THE DEVICES OUT TO AREAS OUTSIDE OF THE CLIA LAB?
BRIAN GROSSMAN: YES, PHASE II, I BELIEVE, WAS DEPLOYING SAMPLE PROCESSING UNITS IN RETAIL SETTINGS, YES.
MR. WADE: RIGHT. AND DO YOU RECALL LEARNING THAT THERE WAS A VIEW THAT FDA CLEARANCE WOULD BE REQUIRED BEFORE THAT COULD HAPPEN?
BRIAN GROSSMAN: MY MEMORY OF THAT WAS WE WERE NOT SURE WHETHER FDA CLEARANCE WOULD BE REQUIRED. THE COMPANY TOLD US THAT IF THE ANALYSIS WAS DONE CENTRALLY IN A CLIA LABORATORY, THAT IT WAS NOT CLEAR THAT THEY NEEDED FDA APPROVAL TO DISTRIBUTE THE DEVICES IN A RETAIL SETTING, UNLIKE A CONVENTIONAL PIECE OF ANALYTIC INSTRUMENTATION OR A CONVENTIONAL LABORATORY MEDICAL DEVICE WHERE YOU RUN THE SAMPLE AND ANALYZE THE SAMPLE IN THE SAME PLACE, THAT WOULD MOST LIKELY REQUIRE FDA APPROVAL. BUT IF YOU WERE JUST PROCESSING -- IF YOU WERE RUNNING THE SAMPLE AND THEN PROCESSING THAT INFORMATION IN ANOTHER LOCATION, THAT DID NOT, IN THERANOS'S VIEW, RUN AFOUL OF ANY FDA APPROVAL REQUIREMENTS FOR THAT SETTING.
MR. WADE: RIGHT. THIS, I BELIEVE, WAS THE GREY AREA THAT YOU WERE DISCUSSING WITH MR. LEACH; CORRECT?
BRIAN GROSSMAN: THE GREY AREA WAS MORE JUST GENERAL OVERSIGHT OF THE LABORATORY INDUSTRY, IS IT AN FDA OR IS IT SOME OTHER ORGANIZATION? AND THE FDA ACTUALLY HAS JURISDICTION, BUT THEY, THEY DEFER TO ANOTHER, ANOTHER ORGANIZATION TO MAINTAIN THE STANDARDS, THE CLIA STANDARDS. SO THAT'S THE REGULATORY GREY AREA THAT WE WERE, I BELIEVE WE WERE REFERRING TO YESTERDAY.
MR. WADE: OKAY. AND DO YOU RECALL THAT WHEN YOU WERE VETTING THE INVESTMENT, THAT YOU WERE DOING SOME ADDITIONAL RESEARCH TO UNDERSTAND HOW THE REGULATIONS MIGHT BE APPLIED? DO YOU RECALL THAT?
BRIAN GROSSMAN: I DO, YES.
MR. WADE: OKAY. AND DO YOU RECALL THAT AS PART OF THAT, THERE WAS AN EFFORT TO REACH OUT AND GET OTHERS' VIEWPOINTS ON THAT? DO YOU RECALL THAT?
BRIAN GROSSMAN: THAT WOULD CERTAINLY BE SOMETHING THAT WE WOULD WANT.
MR. WADE: OKAY. AND DO YOU RECALL THAT THERANOS TOLD YOU THAT THEY WERE GOING TO SEEK FDA APPROVAL OF THEIR DEVICES AND THEIR ASSAYS? DO YOU RECALL THAT?
BRIAN GROSSMAN: YES.
MR. WADE: AND DO YOU RECALL LEARNING THAT THERE WERE VIEWS OF PEOPLE IN THE INDUSTRY THAT THAT MAY ACTUALLY BE REQUIRED BEFORE THE DEVICE COULD BE USED IN A DEPLOYED SETTING? DO YOU RECALL LEARNING THAT?
BRIAN GROSSMAN: WELL, WHAT WE LEARNED WAS THAT IF YOU PLANNED TO SELL A MEDICAL DEVICE, IF YOU PLANNED TO SELL A PIECE OF DIAGNOSTIC EQUIPMENT, YOU NEEDED FDA APPROVAL TO SELL THAT IN A SETTING THAT WASN'T A CLIA LAB. THAT'S I THINK WHAT THIS EMAIL IS SPEAKING TO.
MR. WADE: WELL, DOESN'T THE SECOND SENTENCE -- THE SECOND SENTENCE OF THE FIRST PARAGRAPH SAY, "THIS WOULD APPLY TO THERANOS IF AND WHEN THEY DECIDE TO MOVE THE DEVICE OUT OF THE CLIA LAB." THAT'S WHAT THAT SAYS; RIGHT?
BRIAN GROSSMAN: IT POTENTIALLY COULD. BUT WE REALLY WEREN'T -- BASED ON WHAT THE COMPANY TOLD US ABOUT THE REGULATORY STRATEGY THAT THEY HAD WITH PHASE II, IT WASN'T CLEAR WHETHER THEY NEEDED FDA APPROVAL OR NOT. BUT IN THIS PARTICULAR CASE, NANOSTRING, THEIR PRODUCTS RECEIVE FDA APPROVAL AND AS A RESULT THEY DO SELL THEIR DEVICES, AND THAT'S A PART OF WHAT ALLOWS THEM TO OPERATE IN THE MARKETPLACE. SO I THINK THAT SENTENCE, THE FIRST SENTENCE IS REFERRING TO NANOSTRING AND THEIR BUSINESS, WHICH WAS A VERY DIFFERENT BUSINESS THAN THERANOS, A VERY DIFFERENT BUSINESS MODEL. AND MR. RABODZEY IS DOING HIS JOB, HE'S HIGHLIGHTING SOMETHING THAT WE NEED TO EXPLORE, AND WE ASKED QUESTIONS AROUND THIS IN FOLLOW-UP DUE DILIGENCE MEETINGS. SO THIS WAS, I THINK, A GOOD EXAMPLE OF THE KIND OF WORK WE TRY TO DO WHEN WE'RE IN THE EARLY PART OF A DUE DILIGENCE PROCESS WITH A NEW INVESTMENT IDEA.
BRIAN GROSSMAN: YEAH. I THINK THIS IS A WEEK AFTER, LESS THAN A WEEK AFTER THE SECOND MEETING WE HAD WITH THE COMPANY.
MR. WADE: OKAY. IF I COULD GO BRIEFLY TO 1422, WHICH I BELIEVE IS IN EVIDENCE. AND IF WE CAN BLOW UP THE BOTTOM. DO YOU SEE HERE -- WE TALKED ABOUT THIS EMAIL IN CONNECTION WITH THE CDA YESTERDAY. DO YOU RECALL THAT?
BRIAN GROSSMAN: YES.
MR. WADE: AND YOU JUST NOTE THAT THAT SENTENCE IN THE FOLLOWING PARAGRAPH, WHICH I DON'T THINK WE TALKED ABOUT YESTERDAY, THAT TALKS ABOUT "THE WAG ENDORSEMENT SPEAKS TO THE STRENGTH AND ROBUSTNESS OF THE TECHNOLOGY PLATFORM." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO, YES.
BRIAN GROSSMAN: THAT WAS OUR IMPRESSION, YES.
MR. WADE: AND YOU TALKED ABOUT HOW YOU MIGHT WANT TO HAVE A CALL OR AN ADDITIONAL MEETING TO DISCUSS FURTHER ISSUES AS YOU WERE CONSIDERING THE INVESTMENT; CORRECT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES, THAT'S CORRECT.
MR. WADE: AND I THINK THIS IS -- IF WE CAN GO UP TO HIS RESPONSE. THIS IS A RECOGNITION THAT HE'S GOING TO PROVIDE YOU ALL OF THE DOCUMENTS THAT YOU REQUESTED; CORRECT?
BRIAN GROSSMAN: THAT IS CORRECT.
MR. WADE: OKAY. IF WE CAN GO TO 4077, WHICH I BELIEVE IS ALSO IN EVIDENCE, THAT'S THE SLIDE DECK. I'M NOT GOING TO GO THROUGH THE SLIDE DECK AT THIS -- I'LL COME BACK TO THE SLIDE DECK, BUT I JUST HAVE A COUPLE OF QUESTIONS ABOUT THE EMAIL. FEEL FREE TO PULL IT UP IF YOU WANT TO READ THE DOCUMENT. BUT THE -- IF WE CAN LOOK AT THE EMAIL, DO YOU RECALL -- IF WE FOCUS ON THE BULLET POINTS DOWN BELOW. AND JUST SO WE'RE CLEAR, WE'LL COME BACK TO IT, BUT THE TOP EMAIL IS AN EMAIL IN WHICH HE'S TELLING YOU THAT HE'S GIVING YOU THE DATA THAT YOU REQUESTED, THE SLIDE DECK; CORRECT?
BRIAN GROSSMAN: I BELIEVE THAT'S RIGHT, YES.
MR. WADE: OKAY. AND IN THE BOTTOM EMAIL HE GIVES YOU SOME UPDATE ON SOME OTHER INVESTMENTS; RIGHT?
BRIAN GROSSMAN: THAT APPEARS TO BE THE CASE, YEAH. I HAVEN'T READ ALL OF THE BULLET POINTS, BUT, YES.
MR. WADE: OKAY. AND THE FIRST ONE NOTES THAT, "AT THE CONFERENCE, THE INTERMOUNTAIN HEALTH SYSTEMS ANNOUNCED A STRATEGIC PARTNERSHIP WITH THERANOS." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO, YES.
BRIAN GROSSMAN: THEY'RE WHAT IS KNOWN AS AN INTEGRATED DELIVERY NETWORK, AND A WELL RESPECTED ONE. THEY OPERATE IN UTAH. THEY OWN HOSPITALS, AND PHYSICIANS -- THEY EMPLOY PHYSICIANS AND THEY OWN HOSPITALS, AND THEY OWN SOME OF THE OTHER FACILITIES AROUND OTHER ALTERNATIVE SITE FACILITIES, EMERGENCY CARE CLINICS AND DIALYSIS CENTERS AND THOSE TYPES OF THINGS. SO THAT'S WHY THEY'RE CALLED AN INTEGRATED DELIVERY NETWORK. THEY ALSO OFTEN TAKE RISKS. SO UNLIKE A HOSPITAL, THEY -- SOMETIMES THEY ACTUALLY ACT AS AN INSURANCE COMPANY FOR THEIR OWN -- USING THEIR OWN ASSETS, HOSPITAL ASSETS TO TAKE CARE OF THOSE PATIENTS. SO THEY'RE ONE OF THE MORE, THEY'RE ONE OF THE MORE RESPECTED, FORWARD LOOKING ORGANIZATIONS, HOSPITAL ORGANIZATIONS.
MR. WADE: AND AT THE TIME THAT YOU -- YOU WERE AT THE CONFERENCE THAT IS BEING REFERRED TO HERE; CORRECT?
BRIAN GROSSMAN: THIS IS, AGAIN, REFERRING TO THE JP MORGAN CONFERENCE.
MR. WADE: AND DO YOU RECALL LEARNING, INDEPENDENT FROM MR. BALWANI'S UPDATE, ABOUT THE ANNOUNCEMENT OF THE STRATEGIC PARTNERSHIP?
BRIAN GROSSMAN: I DON'T REMEMBER SPECIFICALLY WHEN I LEARNED OF IT, BUT I WOULD HAVE LIKELY SEEN SOME PRESS RELEASE THAT WEEK.
BRIAN GROSSMAN: IT WAS A POSITIVE FACTOR, YES.
MR. WADE: OKAY. AND THEN BELOW HE ALSO NOTES SOME ADDITIONAL INFORMATION THAT CAME OUT AT THAT CONFERENCE FROM WALGREENS. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
MR. WADE: AND IN PARTICULAR -- AND DO YOU RECALL WALGREENS, WOULD THEY GENERALLY ATTEND THIS LARGE HEALTH CARE CONFERENCE AS WELL?
BRIAN GROSSMAN: USUALLY THEY DO, YES.
MR. WADE: AND YOU NOTE THAT THERE ARE SOME COMMENTS ATTRIBUTED TO, IS THAT GREG WASSON? DO YOU UNDERSTAND THAT TO BE GREG WASSON?
BRIAN GROSSMAN: IT SAYS CEO, SO THAT WOULD BE MY ASSUMPTION, YEAH, IN BRACKETS.
MR. WADE: OKAY. AND IT TALKS ABOUT AT THE TIME HOW THEY HAD LAUNCHED THE PALO ALTO LOCATION AND ARE BEGINNING THE ROLLOUT IN PHOENIX. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO, YES.
MR. WADE: AND THEN IT SAYS, "ONCE WE'VE DONE THAT SUCCESSFULLY YOU WILL SEE A MORE RAPID NATIONAL ROLL OUT." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
MR. WADE: AND HE SAYS THAT "THEY HAVE INCREDIBLE, INCREDIBLE TECHNOLOGY." RIGHT? AND THEN IT READS, "WE ARE NOT GOING TO COMMENT ON GUIDANCE IN TERMS OF REVENUE. ONCE WE HAVE ROLLED OUT IN OTHER STATES WE WILL BE ABLE TO TALK MORE ABOUT IT." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
MR. WADE: AND DID YOU VIEW THAT EXPRESSION OR ENDORSEMENT OF THE TECHNOLOGY BY MR. WASSON TO BE A POSITIVE FACTOR IN TERMS OF YOUR INVESTMENT DECISION?
BRIAN GROSSMAN: I DID.
MR. WADE: AND THEN IF YOU GO TO THE SECOND PAGE THERE ARE NOTES THAT REFER TO WADE, THE CFO. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
BRIAN GROSSMAN: YES.
MR. WADE: AND DO YOU SEE THE INFORMATION, HE TALKS THERE A LITTLE BIT ABOUT HOW THIS WORKS? DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
BRIAN GROSSMAN: YES, I DO.
MR. WADE: OKAY. AND, AGAIN, THIS WAS ANOTHER SORT OF FACTOR IN FAVOR OF YOUR INVESTMENT DECISION; IS THAT FAIR?
BRIAN GROSSMAN: IT WAS CONSISTENT WITH WHAT WALGREENS HAD ALREADY PUBLICLY SAID.
BRIAN GROSSMAN: SO, YES, IN THAT SENSE. IT DID NOT CHANGE FROM WHAT THEY HAD ALREADY SAID.
MR. WADE: IF WE CAN GO BRIEFLY TO 1443, WHICH I BELIEVE IS IN EVIDENCE. AND THIS IS AN EMAIL THAT YOU DISCUSSED WITH MR. LEACH ON DIRECT. DO YOU SEE THAT?
BRIAN GROSSMAN: YES.
MR. WADE: AND I THINK A MINUTE AGO YOU TALKED ABOUT THESE REGULATORY ISSUES AND HOW YOU WANTED TO GET SOME ADDITIONAL INFORMATION ON THAT AND HAD ADDITIONAL QUESTIONS; CORRECT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: IT WAS AN EMAIL THAT REFLECTED SOME OF THOSE QUESTIONS. I BELIEVE WE HAD OTHER -- THERE WERE OTHER POINTS IN THE DUE DILIGENCE PROCESS WHERE WE DISCUSSED ISSUES AROUND IP AND COMPETITION AND BARRIERS TO ENTRY. BUT, YES, THAT'S CERTAINLY PART OF THIS EMAIL.
BRIAN GROSSMAN: I DO.
BRIAN GROSSMAN: YES.
MR. WADE: AND IF WE LOOK UP AT THE TOP EMAIL, HE ACTUALLY NOTES HE WOULD BE HAPPY TO TALK ABOUT THE ISSUES THAT YOU RAISED IN THE MEETING AND HE WOULD GIVE YOU THE USB KEY WITH THE MODEL THAT YOU'VE REQUESTED; RIGHT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: WELL, YEAH, I CAN -- YES.
MR. WADE: AND DO YOU RECALL THAT IN THAT MEETING THERE WAS ADDITIONAL DISCUSSION ABOUT, THERE WAS ADDITIONAL DISCUSSION ABOUT THE REGULATORY PROCESS?
BRIAN GROSSMAN: ARE YOU REFERRING TO THE MEETING THAT HAPPENED SUBSEQUENT TO THIS EMAIL?
MR. WADE: FAIR ENOUGH. DO YOU RECALL THAT THERE ACTUALLY WAS A MEETING WITH MR. BALWANI THE NEXT DAY, JANUARY 21ST?
BRIAN GROSSMAN: I -- I'M NOT SURE WHAT -- I KNOW WE HAD ADDITIONAL MEETINGS, CONVERSATIONS WITH MR. BALWANI AFTER MONDAY, JANUARY 20TH. I'M NOT SURE SPECIFICALLY WHAT MEETING YOU'RE REFERRING TO.
BRIAN GROSSMAN: I'M SORRY, I DON'T RECALL THE SPECIFIC DATES. BUT I KNOW WE HAD A THIRD MEETING WITH MR. BALWANI, WHICH I BELIEVE WAS A TELEPHONE CALL.
BRIAN GROSSMAN: I THINK IT WAS. ACTUALLY, I DON'T KNOW -- I'M PRETTY SURE.
BRIAN GROSSMAN: THAT'S MY MEMORY.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: THAT IS CORRECT.
MR. WADE: AND THE -- DO YOU RECALL THAT ONE OF THE TOPICS THAT YOU ASKED ADDITIONAL QUESTIONS ABOUT WAS, OR ONE OF THE SUBJECT MATTER AREAS WERE REGULATORY ISSUES? DO YOU RECALL DISCUSSING THAT?
BRIAN GROSSMAN: I RECALL DISCUSSING COMPETITION AND INTELLECTUAL PROPERTY AT, IF NOT THAT MEETING, AT SOME FUTURE MEETING.
MR. WADE: AND DO YOU RECALL THAT THE PHASE I, PHASE II PROCESS WAS ALSO A PART OF THAT DISCUSSION?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: WELL, OUR INVESTMENT CASE WAS REALLY NOT BASED ON PHASE I OR PHASE II. IT WAS BASED ON THE TECHNOLOGICAL COMPETITIVE ADVANTAGES THAT THEY HAD BECAUSE OF THE MINILAB, BECAUSE OF THE CONSUMER ADVANTAGE, BECAUSE OF ALL OF THE THINGS THAT THEY TOLD US IN OUR FIRST FEW MEETINGS. BUT WE DID WANT TO UNDERSTAND THE REGULATORY RISK AND STRATEGY AS IT RELATED TO BOTH THE FDA AND CLIA LABS. SO THOSE WERE QUESTIONS THAT CAME UP OVER THE COURSE OF OUR DUE DILIGENCE.
MR. WADE: AND DO YOU RECALL DURING THAT, DURING THAT MEETING THAT YOU WERE ALSO ADVISED THAT THERANOS OFFERED A TOTAL OF 250 TESTS IN ITS CLIA LAB AND THAT THEY REPRESENTED 99 PERCENT OF THE VOLUME?
BRIAN GROSSMAN: I DO REMEMBER THAT, YES.
MR. WADE: OKAY. AND DO YOU RECALL THAT THE ADDITIONAL TESTS BEYOND THOSE 250 THAT WEREN'T YET CERTIFIED FOR THEIR LAB, THAT THEY HAD RELATIONSHIPS WHERE THEY COULD SEND THOSE OUT TO A REFERENCE LAB IF NEEDED?
BRIAN GROSSMAN: MR. WADE, WE NEVER DISCUSSED ANYTHING ABOUT A REFERENCE LAB IN THAT MEETING.
MR. WADE: OKAY. THE -- IF WE CAN GO TO 1454. AND I UNDERSTAND THE GOVERNMENT STIPULATES TO THE ADMISSION OF THAT DOCUMENT. WE CAN JUST PUT IT ON THE SCREEN IF IT'S EASIER THAN GOING THROUGH THE BINDER.
MR. LEACH: JUST ONE MOMENT, YOUR HONOR.
JUDGE DAVILA: SURE.
(PAUSE IN PROCEEDINGS.)
MR. LEACH: NO OBJECTION, YOUR HONOR. THAT'S FINE.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 1454 WAS RECEIVED IN EVIDENCE.)
BY MR. WADE:
MR. WADE: AND THIS IS, THIS IS AN EMAIL SHORTLY AFTER THAT CALL THAT YOU HAD WITH MR. BALWANI; RIGHT?
BRIAN GROSSMAN: LET ME JUST TAKE A MINUTE TO READ IT.
BRIAN GROSSMAN: THANK YOU.
(PAUSE IN PROCEEDINGS.)
BRIAN GROSSMAN: OKAY.
BY MR. WADE:
MR. WADE: OKAY. AND DO YOU RECALL THAT THIS WAS AN EMAIL THAT CAME OUT OF THAT -- OR THAT YOU SENT SHORTLY AFTER THAT CALL WITH MR. BALWANI?
BRIAN GROSSMAN: WELL, THIS IS AN EMAIL THAT HE SENT TO ME.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
MR. WADE: AND THE PURPOSE OF THIS WAS JUST TO GET PERMISSION FROM THERANOS SO THAT YOU COULD RETAIN SOME REGULATORY CONSULTANTS TO LOOK INTO SOME OF THESE REGULATORY ISSUES; RIGHT?
BRIAN GROSSMAN: THE CONSULTANTS THAT WE WANTED TO USE WERE MUCH BROADER THAN REGULATORY CONSULTANTS ACTUALLY. THEY WERE BUSINESS CONSULTANTS WHO WERE EXPERTS IN THE LAB INDUSTRY AND WHO HAD EXPERIENCE OPERATING AND INVESTING IN THE LABORATORY SPACE.
MR. WADE: OKAY. FAIR ENOUGH. LET'S ACTUALLY LOOK AT HIS RESPONSE. YOU WANTED TO GET SOMEONE -- WAS THAT CLAMMER, ADAM CLAMMER WHO YOU WANTED TO GET INPUT FROM?
BRIAN GROSSMAN: HE WAS ONE OF THOSE INDIVIDUALS.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: THERE WAS ANOTHER INDIVIDUAL, I DON'T REMEMBER HIS NAME, BUT HE WAS AN OPERATE -- HE HAD OPERATED LABORATORIES OVER HIS CAREER. HE WAS A -- HE WAS AT THE TIME, I BELIEVE, AN EMPLOYEE OF A PRIVATE EQUITY FIRM THAT HAD MADE LABORATORY INVESTMENTS, SO HE HAD DIRECT OPERATING EXPERIENCE IN THE INDUSTRY. SO HE WAS SOMEONE WHO WE THOUGHT WOULD BE AN EXCELLENT REFERENCE AS WE, AS WE FINISHED OUR DUE DILIGENCE PROCESS.
BRIAN GROSSMAN: MR. BALWANI WAS UNWILLING TO GRANT HIM ACCESS BECAUSE WE WEREN'T ABLE TO DISCUSS ANY -- AS YOU CAN SEE IN THIS EMAIL, WE COULDN'T TALK TO HIM ABOUT ANY OF THE ISSUES WE WANTED HIS INPUT ON. SO WE, WE -- WE WEREN'T -- WE ENDED UP NOT, WE ENDED UP NOT WORKING WITH THAT INDIVIDUAL SINCE -- AND SO, WHICH WAS -- JUST MEANT THAT WE HAD TO, AGAIN, KIND OF RELY ON THE REPRESENTATIONS THAT THE COMPANY HAD MADE TO US ABOUT THE TECHNOLOGY, THE WALGREENS RELATIONSHIPS, THE HOSPITAL ACQUIRED INFECTION BUSINESS, THE PHYSICIAN OFFICE BUSINESS, ALL OF THE DIFFERENT ASPECTS OF THE FORECAST.
MR. WADE: OKAY. BUT YOU DO RECALL THAT THERE WERE QUESTIONS THAT YOU HAD WITH MR. BALWANI ABOUT -- OVER A PERIOD OF TIME ABOUT WHICH CONSULTANTS YOU COULD RETAIN? DO YOU RECALL THAT?
BRIAN GROSSMAN: YES.
MR. WADE: AND THERE WERE QUESTIONS ABOUT WHAT KIND OF INFORMATION YOU COULD SHARE WITH THEM; RIGHT?
BRIAN GROSSMAN: YES.
MR. WADE: BECAUSE THERE WAS SOME CONFIDENTIAL INFORMATION THAT MR. BALWANI DIDN'T WANT SHARED WITH CERTAIN PEOPLE IN THE INDUSTRY; RIGHT?
BRIAN GROSSMAN: HE DIDN'T WANT TO SHARE IT WITH -- I'M NOT SURE IT WAS SPECIFIC TO JUST THE INDUSTRY. BUT, YES, THERE WAS A WHOLE BUNCH OF -- MUCH OF THE IMPORTANT PART OF THE STORY WE WERE NOT ABLE TO SHARE WITH INDIVIDUALS THAT WEREN'T -- THAT THE COMPANY HADN'T AGREED TO, HADN'T ALLOWED -- THAT DIDN'T APPROVE OUR SPEAKING TO THEM ABOUT THE BUSINESS AND ALL OF THE OTHER ISSUES THAT WE WERE FOCUSSED ON.
MR. WADE: WELL, YOU ULTIMATELY RETAINED A NUMBER OF DIFFERENT EXPERTS TO ADVISE YOU ON THESE ISSUES; RIGHT?
BRIAN GROSSMAN: WE SPOKE TO SUBJECT MATTER EXPERTS, BUT MORE AT A HIGH LEVEL, NOT REFERENCING THERANOS SPECIFICALLY. SO KIND OF -- THE CONCEPT IS KIND OF SORT OF BACKGROUND INFORMATION, ALL RIGHT, EXPLAIN TO US HOW THE REGULATION OF A LAB WORKS, EXPLAIN TO US HOW A PHYSICIAN ORDERS LAB TESTS. WHAT WE WEREN'T ABLE TO DO IS TO GIVE THEM THE THERANOS BUSINESS SPECIFICALLY AND HAVE THEM COMMENT ON WHETHER THAT WAS -- OFFER THEIR PERSPECTIVE AND THEIR COMMENTS ON THE SPECIFICS OF THERANOS'S BUSINESS.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: WELL, MR. WADE, I THINK YOU ASKED ME ABOUT THE TWO INDIVIDUALS AND WHETHER THEY WERE REGULATORY CONSULTANTS, AND MY ANSWER IS THEY ARE NOT REGULATORY CONSULTANTS, THEY'RE BROAD INDUSTRY EXPERTS IN THE LAB SPACE. SO I'M HAPPY TO ANSWER YOUR QUESTION, BUT MAYBE YOU CAN REPHRASE IT SO I CAN GIVE YOU THE ANSWER YOU'RE LOOKING FOR.
BRIAN GROSSMAN: YES, I DO NOW. SORRY.
MR. WADE: AND IS THIS AN EMAIL FROM DR. RABODZEY TO YOU AND OTHER ANALYSTS WORKING ON THE TEAM WITH RESPECT TO THE THERANOS INVESTMENT?
BRIAN GROSSMAN: MAYBE I COULD JUST REVIEW IT FOR A SEC. THANK YOU.
(PAUSE IN PROCEEDINGS.)
BRIAN GROSSMAN: OKAY.
BY MR. WADE:
MR. WADE: AND DO YOU RECOGNIZE THIS TO BE AN EMAIL IN WHICH DR. RABODZEY IS CONVEYING INFORMATION THAT HE GATHERED AS HE WAS DOING RESEARCH RELATED TO THE THERANOS INVESTMENT?
BRIAN GROSSMAN: YES.
MR. LEACH: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 7399 WAS RECEIVED IN EVIDENCE.)
BY MR. WADE:
BRIAN GROSSMAN: I DO.
BRIAN GROSSMAN: I DO.
MR. WADE: AND THAT THERANOS SEEMS TO BE CORRECT THAT CLIA CERTIFICATION DOES MEAN THAT THEIR TESTS MEET A CERTAIN LEVEL OF ACCURACY. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
MR. WADE: AND DID YOU UNDERSTAND THAT TO BE THAT BECAUSE THERANOS HAD TO VALIDATE ITS TESTS BEFORE IT COULD OFFER THOSE TESTS IN THE CLIA LAB?
BRIAN GROSSMAN: THAT IS THE PROCESS OF GETTING -- OF QUALIFYING FOR A CLIA CERTIFICATION, YES.
BRIAN GROSSMAN: I BELIEVE THAT IS WHAT HE IS REFERRING TO, YES.
MR. WADE: OKAY. AND THEN HE NOTES IN THE SECOND LINE, "THIS MAY OR MAY NOT BE SUFFICIENT TO MEET THE FDA CRITERIA, BUT I HAVE NO REASON TO BELIEVE IT WON'T." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT.
BRIAN GROSSMAN: I DO.
BRIAN GROSSMAN: I BELIEVE HE MADE A TYPO. I BELIEVE HE'S REFERRING TO GLG, NOT GPG.
BRIAN GROSSMAN: GLG IS A -- THEY'RE AN ORGANIZATION THAT PROVIDES INVESTMENT FIRMS LIKE OURS EXPERTS IN DIFFERENT SUBJECT MATTER AREAS. SO YOU COULD FIND SOMEONE WHO IS THE WORLD LEADER IN, YOU KNOW, THE REPRODUCTIVE SYSTEM OF MICE, AND THEY WOULD FIND THAT FOR YOU, AND THAT MAY BE SOMETHING THAT IS INTERESTING IN THE CONTEXT OF A NEW DRUG. AND SO WE USE THEM TO FIND, WE USE THEM TO FIND VERY SPECIFIC CONSULTANTS.
MR. WADE: AND HERE HE NOTES THAT HE'S WORKING TO GET TWO CONSULTANTS, ONE WHO DEVELOPED LAB TESTS IN THE PAST AND CAN HELP EVALUATE THE TECHNOLOGY, AND ANOTHER PERSON WHO UNDERSTANDS THE CLIA AND FDA REGULATIONS TO EVALUATE THE REQUIREMENTS THAT THERANOS HAD TO MEET TO GET CLIA CERTIFICATION; CORRECT?
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. AND LET'S GO TO THE NEXT PARAGRAPH. HE ALSO CONVEYS HIS VIEW ON THE PHASE II STRATEGY. DO YOU SEE THAT?
BRIAN GROSSMAN: YES.
MR. WADE: AND HE NOTES THAT, "I WOULD STICK TO THE VIEW SHARED BY THE LAWYERS WE SPOKE WITH THAT THE FDA WILL WANT TO REGULATE TESTING AND WILL NOT BUY INTO THIS IDEA OF CLOUD DATA, SO THEY WILL HAVE TO GET THE DEVICE APPROVED BY THE FDA AND/OR THEY MAY NEED TO GET SOME FORM OF CLIA CLEARANCE FOR THOSE WAG LOCATIONS WHERE SYSTEMS ARE DEPLOYED." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
MR. WADE: AND DO YOU RECALL LEARNING THAT DURING THE DUE DILIGENCE PROCESS, THAT THAT WAS THE VIEW THAT DR. RABODZEY HAD COME TO?
BRIAN GROSSMAN: THAT'S ACTUALLY NOT HIS VIEW. THAT'S THE VIEW OF THE LAWYERS HE SPOKE TO.
MR. WADE: OKAY. DO YOU RECALL -- DID YOU RETAIN COUNSEL TO GET THEIR TAKE ON THE REGULATORY ISSUES?
BRIAN GROSSMAN: I DON'T SPECIFICALLY REMEMBER WHICH LAWYERS HE'S REFERRING TO, BUT, YOU KNOW, LAWYERS ARE OFTEN VERY CONSERVATIVE WHEN IT COMES TO REGULATORY POLICY. SO WE WOULD -- IN MANY INVESTMENTS, WE WOULD WANT PERSPECTIVE OR ADVICE IN TERMS OF HOW TO THINK ABOUT REGULATORY ISSUES AT A HIGH LEVEL, AND I THINK THAT'S -- I DON'T REMEMBER WHICH FIRM WE USED IN THIS PARTICULAR CASE, BUT, YOU KNOW, THAT WOULD BE FAIRLY NORMAL IN THE COURSE OF OUR INVESTMENT RESEARCH ACTIVITIES.
MR. WADE: OKAY. AND IF YOU GO DOWN A COUPLE MORE SENTENCES, HE NOTES THERE, "I WOULD THINK THIS IS NOT A BIG DEAL, BUT MAY BE A BIT OF DELAY FOR THAT PHASE ONLY, STILL, THEY CAN WORK AROUND THESE OBSTACLES QUICKLY AND CAPTURE VOLUME THROUGH THEIR HUB AND SPOKE MODEL." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
MR. WADE: AND SO THIS IS ESSENTIALLY A RISK THAT IT MAY BE AWHILE BEFORE THERANOS WOULD BE ABLE TO DEPLOY ITS DEVICE; CORRECT?
BRIAN GROSSMAN: IF YOU'RE REFERRING TO DEPLOYING DEVICES IN WALGREENS LOCATIONS, THAT IS I BELIEVE WHAT HE'S REFERRING TO HERE, YES.
BRIAN GROSSMAN: BUT THAT WASN'T WHAT OUR MODEL OR OUR INVESTMENT CASE WAS BASED OFF OF. IT WAS AN UP SIDE SCENARIO IF SOMETHING LIKE THAT PLAYED OUT.
BRIAN GROSSMAN: SO, YES.
MR. WADE: BUT YOU RECALL THE DISCUSSION OF THE PHASE I AND PHASE II, AND THIS IS SAYING THAT THE PHASE II MIGHT TAKE SOME TIME; RIGHT?
BRIAN GROSSMAN: WELL, I THINK IT'S SAYING THAT THERE IS -- THERE MAY BE A BIT OF A DELAY BASED ON -- THAT APPEARS TO BE MR. RABODZEY'S POINT OF VIEW -- BEFORE WE RAISE THESE ISSUES WITH THE COMPANY AND GOT THEIR PERSPECTIVE ON THESE, ON THESE HIGHER LEVEL REGULATORY QUESTIONS AROUND NOT THE INITIAL ROLLOUT, BUT THE LONGER TERM ABILITY TO PUT THESE DEVICES IN STORES LIKE A WALGREENS.
MR. WADE: WELL, DO YOU RECALL THIS WAS ACTUALLY, I BELIEVE, JUST AFTER THAT MEETING THAT YOU HAD WITH MR. BALWANI TO DISCUSS THOSE ISSUES?
BRIAN GROSSMAN: I CAN'T SEE THE DATE. THE 21ST OF JANUARY. SO THAT WOULD HAVE BEEN AFTER, I BELIEVE, OUR SECOND OR THIRD MEETING WITH THE COMPANY.
MR. WADE: AND, IN FACT, IF YOU NOTE DOWN IN THE LAST LINE IN THE EMAIL, IF WE CAN ZOOM BACK OUT AND JUST GET THE LAST PIECE, IT SAYS, "OVERALL, I THINK EVERYTHING THEY SAID MAKES SENSE AND I HAD NO PROBLEMS WITH THAT, AND I AM VERY MUCH IMPRESSED WITH THEIR LEVEL OF PREPAREDNESS AND PLANNING." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
MR. WADE: OKAY. AND DO YOU RECALL, DID YOU SHARE THAT VIEW COMING OUT OF THAT CALL WITH MR. BALWANI?
BRIAN GROSSMAN: I DON'T SPECIFICALLY REMEMBER ON THAT ONE ISSUE AFTER THAT CALL WHAT MY PERSPECTIVE WAS. BUT, I MEAN THEY HAD VERY GOOD ANSWERS FOR ALL OF THE ISSUES THAT WE RAISED ON THE REGULATORY STRATEGY. AND THEY TALKED ABOUT THE INTERACTIONS THAT THEY WOULD HAVE WITH PEOPLE LIKE KATHLEEN SEBELIUS AND OTHER IMPORTANT PEOPLE ON THE REGULATORY SIDE, IN ADDITION TO THE BOARD MEMBERS THEY HAD THAT HAD EXTENSIVE GOVERNMENT EXPERIENCE. SO THEY WERE VERY CONFIDENT THAT THEY HAD A SOUND REGULATORY STRATEGY GOING FORWARD. BUT, AGAIN, FROM OUR PURPOSES, WE WERE FOCUSSED ON PHASE I OF THE ROLLOUT, THE HUB AND SPOKE ROLLOUT OF THE TECHNOLOGY INITIALLY IN THE PHOENIX MARKET.
BRIAN GROSSMAN: YES.
MR. LEACH: CORRECT, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 7400 WAS RECEIVED IN EVIDENCE.)
MR. WADE: DOES THIS DOCUMENT RELATE TO THE RETENTION OF THAT CONSULTANT WHO IS SPECIALIZED IN LAB DEVELOPED TESTS?
BRIAN GROSSMAN: I WANT TO BE -- THIS IS -- THIS APPEARS TO BE AN INDIVIDUAL WHO IS AN INDUSTRY EXPERT, BUT I'M NOT SURE IT'S THE SAME CONSULTANT -- ARE YOU REFERRING TO THE PREVIOUS EMAIL?
MR. WADE: WELL, LET'S BLOW UP THE EMAIL AND SEE IF YOU RECALL THE RETENTION OF THIS PERSON TO DISCUSS THESE ISSUES. IN PARTICULAR, IF YOU LOOK AT THE SCREENING QUESTIONS RELATING TO HIS RETENTION, IT SAYS, "ARE YOU FAMILIAR WITH AND ABLE TO DISCUSS THE REQUIREMENTS THAT ARE NEEDED FOR LABORATORY-DEVELOPED TESTS TO BE CLIA CERTIFIED? PLEASE BRIEFLY ELABORATE." HE WRITES, "I WROTE THE CLIA MANUAL FOR USERS OF IVD TESTS AND QUITE FAMILIAR WITH ITS REGULATIONS." DO YOU SEE THAT?
BRIAN GROSSMAN: YES, I DO.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: WELL, I BELIEVE I ACTUALLY SPOKE TO THE INDIVIDUAL.
MR. WADE: SO YOU HAD A CALL IN WHICH YOU WERE ABLE TO ASK QUESTIONS AND GET ADDITIONAL INFORMATION?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: THE STANDARD TYPE OF THINGS WE WOULD DO FOR AN INVESTMENT, YES.
MR. WADE: FAIR ENOUGH. IN THE -- DO YOU RECALL THAT YOU ACTUALLY ALSO SOUGHT OUT A DOCTOR WHO HAD REFERRED PATIENTS TO A THERANOS WELLNESS CENTER TO GET INFORMATION FROM THE DOCTOR ON THE EXPERIENCE THAT THE DOCTOR HAD?
BRIAN GROSSMAN: AS PART OF OUR DUE DILIGENCE, I BELIEVE WE TRIED TO FIND PHYSICIANS THAT WERE INTERESTED IN USING THE SERVICE OR HAD USED IT. SO, YES, THAT WOULD BE VERY CONSISTENT WITH HOW WE APPROACHED OUR DUE DILIGENCE PROCESS.
BRIAN GROSSMAN: I DO RECALL THAT, YES.
MR. WADE: OKAY. THAT, THAT THROUGH A FIRM YOU WERE ABLE TO LOCATE A DOCTOR WHO YOU COULD TALK TO ABOUT THE EXPERIENCE HE HAD WITH THERANOS?
BRIAN GROSSMAN: I BELIEVE, YEAH, I BELIEVE THAT -- MY MEMORY IS THAT THERE WERE -- I WASN'T THE ONLY ONE THAT DID THAT. THAT WE HAD -- SO, YES. AGAIN, THAT'S KIND OF STANDARD OPERATING PROCEDURE FOR WHAT WE WOULD DO IN AN INVESTMENT LIKE THIS. WE WOULD WANT TO SPEAK TO REGULATORY CONSULTANTS, WE WOULD WANT TO SPEAK TO PHYSICIANS, WE WOULD WANT TO UNDERSTAND THE BUSINESS STRATEGY. AND SO, YES, WE DID SPEAK TO PHYSICIANS.
BRIAN GROSSMAN: GENERAL MEMORY.
BRIAN GROSSMAN: IF THE TECHNOLOGY --
MR. LEACH: YOUR HONOR --
BRIAN GROSSMAN: -- WAS --
JUDGE DAVILA: EXCUSE ME, MR. GROSSMAN. PARDON ME.
MR. LEACH: I WANT TO RAISE A HEARSAY ISSUE. I DON'T MIND THIS COMING IN FOR STATE OF MIND OF THE WITNESS, BUT I DON'T THINK IT SHOULD BE OFFERED FOR THE TRUTH.
JUDGE DAVILA: LADIES AND GENTLEMEN, I'LL LET MR. GROSSMAN FINISH HIS ANSWER, AND WHAT HE SPEAKS TO IS NOT OFFERED FOR THE TRUTH OF THE MATTER ASSERTED. AGAIN, IT'S OFFERED FOR THE STATE OF MIND OF THIS WITNESS?
JUDGE DAVILA: ALL RIGHT. IT RELATES TO THE STATE OF MIND OF THIS WITNESS ONLY. NOT FOR THE TRUTH. SO I'M SORRY TO INTERRUPT YOU, MR. GROSSMAN. YOU CAN FINISH.
BRIAN GROSSMAN: I'M SORRY, I INTERRUPTED YOU. SO MY GENERAL MEMORY OF THOSE PHYSICIAN INTERACTIONS, IF THE TECHNOLOGY WAS ABLE TO DO WHAT THE COMPANY TOLD US IT COULD DO, IF IT COULD MATCH THE FULL MENU OF LABCORP AND QUEST TESTS, YOU KNOW, IF THEY COULD, WITH A VENOUS PUNCTURE, TAKE DRAMATICALLY LESS VOLUME, IF THEY COULD GET THE ANSWERS BACK IN FOUR HOURS, IF A PATIENT COULD KEEP TRACK OF THEIR DATA OVER TIME ON AN APP, IF THEY COULD SEE THE PHYSICIAN THE SAME DAY THAT THEY GOT THEIR LAB WORK, ALL OF THOSE WERE VERY ATTRACTIVE FEATURES TO THE PHYSICIANS THAT WE SPOKE TO AND THEY WOULD BE INTERESTED IN USING A SERVICE LIKE THIS. THAT WAS THE GENERAL MEMORY OF THOSE CONVERSATIONS.
BY MR. WADE:
MR. WADE: AND DO YOU RECALL ACTUALLY SPEAKING WITH PHYSICIANS WHO HAD ACTUALLY USED THE SERVICE OR HAD PATIENTS WHO USED THE SERVICE?
BRIAN GROSSMAN: I BELIEVE WE DID SPEAK TO PHYSICIANS WHO HAD EITHER USED IT OR HAD REFERRED PATIENTS TO IT.
MR. WADE: AND WHAT DID, DID YOU LEARN AS A RESULT OF THOSE SPECIFIC CONVERSATIONS WITH RESPECT TO THE PHYSICIANS WHO HAD USED THE SERVICE?
BRIAN GROSSMAN: I, I DON'T RECALL SPECIFICALLY WHAT THOSE PHYSICIANS SAID. AGAIN, I WASN'T THE ONLY ONE HAVING THOSE CONVERSATIONS, DOING THAT TYPE OF DUE DILIGENCE.
MR. WADE: OKAY. I UNDERSTAND YOU DON'T RECALL SPECIFICALLY. DO YOU RECALL GENERALLY WHETHER IT WAS POSITIVE OR NEGATIVE?
BRIAN GROSSMAN: THE CONCEPTS, THE REACTION TO THE CONCEPT WAS WHAT WAS POSITIVE.
MR. WADE: RIGHT. I WAS TRYING TO ASK A SLIGHTLY MORE SPECIFIC QUESTION. DO YOU RECALL WHETHER YOU LEARNED FROM THE PHYSICIANS WHO HAD ACTUALLY USED THE SERVICE THAT THEY HAD A POSITIVE EXPERIENCE?
BRIAN GROSSMAN: I DON'T, I DON'T RECALL SPECIFICALLY.
MR. WADE: OKAY. AND IF I CAN DRAW YOUR ATTENTION TO 14 -- I'M SORRY, 7403, WHICH I BELIEVE IS IN VOLUME 1.
BRIAN GROSSMAN: OKAY.
MR. WADE: OKAY. AND DO YOU RECALL YESTERDAY WE TALKED ABOUT THE SLIDE DECK OF DATA AND OTHER ITEMS THAT YOU WERE SENT BY THERANOS; RIGHT?
BRIAN GROSSMAN: YES.
MR. WADE: AND ONE OF THE REASONS THAT WAS SENT WAS BECAUSE DR. RABODZEY WANTED TO REVIEW THE TECHNICAL DATA MORE CLOSELY; CORRECT?
BRIAN GROSSMAN: WELL, WE WANTED HIM TO REVIEW THE TECHNICAL DATA.
BRIAN GROSSMAN: IF I COULD JUST HAVE A MINUTE TO REVIEW IT?
(PAUSE IN PROCEEDINGS.)
BRIAN GROSSMAN: OKAY.
BY MR. WADE:
MR. WADE: AND DO YOU RECALL THAT THIS EMAIL IS A REPORT FROM HIM ON HIS REVIEW OF THAT DATA AND RELATED ANALYSIS?
BRIAN GROSSMAN: YES.
MR. LEACH: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: THIS IS THE MULTIPAGE -- IS THE EMAIL WITH THE ATTACHMENT?
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 7403 WAS RECEIVED IN EVIDENCE.)
MR. WADE: DR. RABODZEY HERE IS PROVIDING A REPORT. HE NOTES -- THIS IS JANUARY 24TH, 2014; CORRECT?
BRIAN GROSSMAN: JANUARY 24TH, YES.
MR. WADE: AND HE NOTES, "HERE ARE THE REFERENCE DOCUMENTS FOR OUR DISCUSSION TODAY." AND IT WAS A LONG TIME AGO. DO YOU RECALL A DISCUSSION ON THE TOPICS IN THIS EMAIL?
BRIAN GROSSMAN: I DON'T SPECIFICALLY RECALL THE DISCUSSION, NO.
MR. WADE: OKAY. BUT DO YOU RECALL LEARNING -- DR. RABODZEY -- DO YOU RECALL LEARNING THAT HE DID SOME ANALYSIS WHERE HE WAS COMPARING SOME OF THE THERANOS DATA TO OTHER DATA FOR SIMILAR TESTS?
BRIAN GROSSMAN: I, I'M NOT -- I DON'T REMEMBER SPECIFICALLY WHAT HE -- WHAT ANALYSES HE DID.
MR. WADE: OKAY. WE'LL JUST WALK THROUGH IT AND TAKE A LOOK. HE -- IF YOU LOOK AT LINE 2, YOU SEE THAT HE MENTIONS A PARVOVIRUS IG ASSAY WITH 4 PERCENT CV. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT, YES.
MR. WADE: AND, IN FACT, I THINK HE ATTACHED THE VALIDATION REPORT FOR THAT ASSAY. DO YOU RECALL THAT?
BRIAN GROSSMAN: I DON'T RECALL THAT, BUT IT SAYS SEE PAGE 143.
MR. WADE: OKAY. AND HE COMPARES THE CV TO THE THERANOS ASSAY AT 15 TO 20 PERCENT. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
BRIAN GROSSMAN: YES, I SEE THAT.
MR. WADE: AND YOU UNDERSTOOD THAT WAS THAT SLIDE DECK THAT MR. LEACH, PART OF THE SLIDE DECK THAT MR. LEACH SHOWED YOU YESTERDAY?
BRIAN GROSSMAN: YES.
MR. WADE: AND HE THEN ALSO COMPARES, IN ITEM 3, THE R SQUARED FOR SOME COMMONLY USED TESTS. AND HE NOTES THAT MOST OF THEM ARE GREATER THAN 95 PERCENT, BUT THERANOS IS SOMETIMES UNDER 95 PERCENT. DO YOU SEE THAT?
BRIAN GROSSMAN: YES.
MR. WADE: AND, AGAIN, THAT WAS JUST BASED UPON HIS ABILITY TO REVIEW THE DATA PROVIDED BY THERANOS; RIGHT?
BRIAN GROSSMAN: YES.
MR. WADE: AND HE SAYS THERE, "BASICALLY, MY CONCERN IS THAT THEIR METHODOLOGY IS STILL RAW." DO YOU SEE THAT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: I DO.
MR. WADE: AND HE SAYS, "I DO NOT THINK IT'S A DEAL BREAKER AS LONG AS THEY CAN GET CLIA AND FDA APPROVAL ON THEIR TESTS AND CAN MAINTAIN CERTIFICATION IN THE FUTURE." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT.
MR. WADE: AND SO IF YOU LOOK DOWN BELOW, HE ALSO NOTES THERE IS A GOOD EXAMPLE OF WHAT HE IS REFERRING TO ON PAGE 137 OF THEIR ASSAY. DO YOU SEE THAT? AND HE COMPARES THE R SQUARED AT .91 TO OTHER R SQUARES THAT ARE AT .992. DO YOU SEE THAT?
BRIAN GROSSMAN: YES.
MR. WADE: AND YOU UNDERSTAND THAT CLOSER TO 1, THE HIGHER NUMBER WAS BETTER THAN THE LOWER NUMBER; IS THAT RIGHT? THE .992 IS THE BETTER NUMBER; RIGHT?
BRIAN GROSSMAN: I'M NOT EXACTLY SURE WHAT TEST THAT IS REFERRING TO, BUT THERE ARE NO HARD AND FAST RULES WHEN IT COMES TO THESE TYPES OF TESTS AND GETTING CLIA CERTIFICATION. SO IN GENERAL, A HIGHER NUMBER IS BETTER, BUT EACH TEST IS DIFFERENT.
MR. WADE: RIGHT. AND YOU UNDERSTOOD AT THE TIME THAT DR. RABODZEY IS SORT OF DOING HIS JOB TO USE --
BRIAN GROSSMAN: YEP.
BRIAN GROSSMAN: YES.
MR. WADE: AND HE COMPARED IT TO OTHER DATA AND EXPRESSED SOME CONCERN THAT THE METHODOLOGY MAY STILL BE RAW AND THEY MAY BE TESTING THEIR LIMITS A LITTLE BIT. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT, YES.
BRIAN GROSSMAN: AT THIS POINT IN TIME ON JANUARY 24TH, THAT WAS HIS -- HE WAS DOING EXACTLY WHAT WE ASKED HIM TO DO, WHICH WAS ANALYZE THE DATA WITH A SKEPTICAL POINT OF VIEW AND REPORT BACK HIS CONCLUSIONS. AND AS HE SAID, IT'S NOT A DEAL BREAKER. THE COMPANY HAD ALREADY TOLD US THAT THEY HAD CLIA CERTIFICATION FOR ALL OF THEIR TESTS AND THEY HAD BEEN ABLE TO REPEATEDLY MEET THOSE FOR PROFICIENCY TESTING IN THEIR CLIA LAB. AND SO THEY WERE VERY COMFORTABLE THAT IF THERE WERE ONE OR TWO TESTS THAT LOOKED LIKE THEY HAD A LOW R SQUARED, THAT WAS PERFECTLY ACCEPTABLE WITHIN THE RULES FOR HOW THESE TYPES OF TESTS WORK. THERE WAS NO HARD RULE THAT YOU HAD TO BE A CERTAIN NUMBER. AND IT'S ACTUALLY JUST MATH. YOU'RE DIVIDING THE VARIANCE OF THE STANDARD DEVIATION OF THESE TESTS BY THE MEAN. SO IF YOU HAVE A SMALL REFERENCE RANGE, LET'S SAY A NORMAL RANGE IS 10 TO 15, THAT'S GOING TO HAVE A LOW COEFFICIENT OF VARIATION. BUT IF THE RANGE IS 10 TO 10,000 AND PEOPLE HAVE VERY DIFFERENT READINGS, YOU'RE GOING TO HAVE A MUCH HIGHER COEFFICIENT OF VARIATION, AND THAT'S PERFECTLY ACCEPTABLE UNDER THE RULES FOR PROFICIENCY TESTING. SO THIS IS, THIS IS A GOOD EXAMPLE OF MR. RABODZEY DOING HIS JOB.
MR. WADE: RIGHT. AND GATHERING THE INFORMATION SO THAT YOU COULD MAKE A FULLY INFORMED DECISION; CORRECT?
BRIAN GROSSMAN: CORRECT.
MR. WADE: AND ONE OF THE OTHER THINGS THAT YOU VETTED IN CONNECTION WITH THIS PROCESS WAS THE PATIENT EXPERIENCE; CORRECT?
BRIAN GROSSMAN: THAT IS CORRECT.
MR. WADE: AND AT DIFFERENT TIMES, DIFFERENT PEOPLE WENT AND HAD THEIR TEST TAKEN AT WALGREENS; RIGHT?
BRIAN GROSSMAN: THAT'S CORRECT.
BRIAN GROSSMAN: I BELIEVE THEY WERE ALL UNANNOUNCED, YEAH.
BRIAN GROSSMAN: OKAY. I HAVE IT.
MR. WADE: OKAY. AND DO YOU RECOGNIZE THIS DOCUMENT TO BE A REPORT ON DR. RABODZEY'S VISIT TO THE WALGREENS, THE THERANOS TESTING CENTER AT THE WALGREENS LOCATION IN PALO ALTO?
BRIAN GROSSMAN: MR. WADE, IF I COULD HAVE A MINUTE TO REVIEW IT?
BRIAN GROSSMAN: THANKS.
(PAUSE IN PROCEEDINGS.)
BRIAN GROSSMAN: OKAY.
BY MR. WADE:
MR. WADE: DO YOU RECOGNIZE THIS TO BE AN EMAIL REPORT FROM DR. RABODZEY ON HIS VISIT TO THE WALGREENS LOCATION?
BRIAN GROSSMAN: I DO.
MR. LEACH: YOUR HONOR, 802, BUT I DON'T OBJECT TO THIS COMING IN FOR STATE OF MIND CONSISTENT WITH THE OTHER DOCUMENTS.
JUDGE DAVILA: SO THIS SHOULD BE ENTERED THEN, MR. WADE, NOT FOR THE TRUTH OF ANYTHING ASSERTED IN THIS EMAIL, BUT ONLY AS TO THE STATE OF MIND OF THIS WITNESS?
JUDGE DAVILA: ALL RIGHT. IT'S ADMITTED WITH THAT LIMITATION. LADIES AND GENTLEMEN, THIS IS NOT ADMITTED FOR THE TRUTH OF THE MATTER OF ANYTHING ASSERTED IN THE EMAIL. IT ONLY GOES TO THE STATE OF MIND OF MR. GROSSMAN AS TO THIS ISSUE.
(DEFENDANT'S EXHIBIT 14001 WAS RECEIVED IN EVIDENCE.)
JUDGE DAVILA: AND BEFORE YOU BEGIN YOUR EXAMINATION, WE'RE GOING TO HAVE TO BREAK. I THINK I TOLD YOU WE'RE BREAKING AT ABOUT 10:35, 10:40 THIS MORNING. AND THIS WILL BE ABOUT AN HOUR BREAK.
JUDGE DAVILA: I THINK SO. IF YOU'RE GOING TO GO THROUGH THIS, I DON'T WANT TO BREAK UP YOUR QUESTIONS, NOR MR. GROSSMAN'S ANSWERS IN THE NEXT THREE OR FOUR MINUTES.
JUDGE DAVILA: SO LET'S BREAK NOW.
BRIAN GROSSMAN: OKAY.
JUDGE DAVILA: SO, LADIES AND GENTLEMEN, IT WILL PROBABLY BE ABOUT AN HOUR. THAT'S THE LENGTH OF THIS BREAK. SO WE'LL SEE YOU ALL BACK IN ABOUT AN HOUR. THANK YOU.
(JURY OUT AT 10:36 A.M.)
(RECESS FROM 10:37 A.M. UNTIL 11:53 A.M.)
JUDGE DAVILA: ALL RIGHT. THANK YOU VERY MUCH. PLEASE BE SEATED. WE'RE BACK ON THE RECORD. ALL PARTIES PREVIOUSLY PRESENT ARE PRESENT ONCE AGAIN. OUR JURY IS PRESENT. THANK YOU, LADIES AND GENTLEMEN, FOR THE BREAK. MR. WADE, IF YOU WOULD LIKE TO CONTINUE.
BRIAN GROSSMAN: GOOD AFTERNOON.
MR. WADE: I'D LIKE TO TURN BACK TO EXHIBIT 14001, WHICH IS IN EVIDENCE. AND I BELIEVE YOU MAY RECALL BEFORE THE BREAK WE WERE TALKING ABOUT DR. RABODZEY GIVING A REPORT ON THE PATIENT EXPERIENCE HE HAD AT WALGREENS. DO YOU RECALL THAT?
BRIAN GROSSMAN: YES, I DO.
MR. WADE: OKAY. AND I JUST WANT TO -- IF I CAN FOCUS INITIALLY JUST ON THE TOP. DO YOU RECALL THAT HE NOTED THAT IT TOOK ABOUT 31 MINUTES FOR HIM TO DO THE TEST? AND HE THEN GAVE A PRETTY DETAILED REPORT OF HIS EXPERIENCE; RIGHT?
BRIAN GROSSMAN: THAT IS -- YES.
MR. WADE: AND PART OF THE REASON THAT HE WAS GIVING A DETAILED REPORT IS THAT YOU WANTED TO CONSIDER THIS INFORMATION IN CONNECTION WITH YOUR INVESTMENT DECISION. IS THAT FAIR?
BRIAN GROSSMAN: I THINK HE WAS GIVING US A DETAILED REPORT ON HIS EXPERIENCE. IT WAS -- SO, YES.
MR. WADE: OKAY. AND IF YOU GO ABOUT HALFWAY DOWN, YOU SEE THAT HE REPORTS ON THE MOST FREQUENT TEST THAT REQUIRES VENOUS DRAW IS SODIUM, WHICH IS DONE PRE-SURGERY. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
MR. WADE: AND DO YOU RECALL THAT ONE OF THE THINGS THAT DR. RABODZEY TRIED TO DO IS JUST GET AS MUCH INFORMATION AS HE COULD ABOUT THIS PROCESS AND CONVEY THAT TO THE TEAM?
BRIAN GROSSMAN: I'M SORRY. COULD YOU ASK THE QUESTION AGAIN?
MR. WADE: YEAH. DO YOU RECALL THAT DR. RABODZEY AS HE WAS EMAILING -- INTERACTING WITH PEOPLE AT WALGREENS, WAS TRYING TO GET WHATEVER INFORMATION ABOUT THE PROCESS HE COULD SO THAT HE COULD RELAY THAT TO THE TEAM?
BRIAN GROSSMAN: I DON'T KNOW SPECIFICALLY WHAT HE DID WHILE HE WAS AT WALGREENS OR WHO HE SPOKE TO, SO I --
BRIAN GROSSMAN: I, I RECALL THIS. NOW THAT I'M LOOKING AT THIS EMAIL, I DO REMEMBER THAT HE WENT TO WALGREENS AND SENT AN EMAIL.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: THEY WERE DOING VENOUS DRAWS, BUT THEY WERE STILL USING THE PROPRIETARY TECHNOLOGY ON THOSE VENOUS DRAWS, YES, THAT'S CORRECT.
MR. WADE: THE -- AND HOW IS IT, SIR, THAT YOU KNOW THAT THEY WERE DOING THE -- USING THE PROPRIETARY TECHNOLOGY? I BELIEVE YESTERDAY YOU TESTIFIED THAT YOU DIDN'T REMEMBER DISCUSSING THAT WITH THERANOS.
BRIAN GROSSMAN: THAT IS NOT MY MEMORY OF WHAT QUESTION YOU ASKED ME, BUT MS. HOLMES ACTUALLY TOLD ME THAT.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: IT WAS A MEETING IN I BELIEVE IT WAS 2000 -- IT MAY HAVE BEEN 2015, 2016 WHEN SHE --
BRIAN GROSSMAN: OKAY.
MR. WADE: AND YESTERDAY WE ASKED QUESTIONS ABOUT THE PERIOD DURING THE INVESTMENT. AND I BELIEVE YOUR TESTIMONY WAS THAT YOU DIDN'T RECALL HAVING ANY DISCUSSIONS ABOUT WHAT TECHNOLOGY WAS USED FOR VENOUS DRAWS.
BRIAN GROSSMAN: WELL, I THINK WHAT I, WHAT I, WHAT I TESTIFIED TO WAS THAT WHEN THEY DID A VENOUS DRAW, IT WAS ON THE WORLD'S SMALLEST VENOUS DRAW, DRAMATICALLY LESS BLOOD, AND YOU WOULDN'T USE THAT ON CONVENTIONAL LAB EQUIPMENT. SO OUR ASSUMPTION ALL THROUGH THE DUE DILIGENCE PROCESS WAS THAT EVEN WHEN THERE WAS A VENOUS DRAW, IT WAS STILL RUN ON THERANOS PROPRIETARY ANALYZERS.
MR. WADE: OKAY. AND I JUST WANT TO MAKE CLEAR, THAT WAS AN ASSUMPTION THAT YOU HAD IN THIS PROCESS, AND I BELIEVE YOUR TESTIMONY YESTERDAY WAS THAT YOU DON'T RECALL HAVING A DISCUSSION WITH THAT -- ABOUT THAT WITH THERANOS; IS THAT CORRECT?
BRIAN GROSSMAN: I DON'T SPECIFICALLY RECALL THAT. I DON'T SPECIFICALLY RECALL THAT. SO, YES, I DON'T SPECIFICALLY RECALL IN WHICH MEETING OVER THE COURSE OF THIS DUE DILIGENCE PROCESS WE ADDRESSED THAT SPECIFIC QUESTION. BUT WE CERTAINLY ASKED MANY TIMES WHAT THE TECHNOLOGY COULD DO, AND WHAT THE LIMITATIONS WERE.
BRIAN GROSSMAN: I UNDERSTOOD THE TECHNOLOGY SAMPLE TO BE WHAT?
BRIAN GROSSMAN: THAT WAS THE COLLECTION DEVICE THEY USED FOR DROPS OF BLOOD, YES.
MR. WADE: YEAH. AND I BELIEVE YOUR TESTIMONY, BUT I WANT TO MAKE SURE THAT I UNDERSTAND IT, YESTERDAY WAS YOU DON'T RECALL THE TYPE OF VENOUS DRAW YOU PERSONALLY RECEIVED WHEN YOU WENT TO WALGREENS IN PALO ALTO; IS THAT CORRECT?
BRIAN GROSSMAN: THAT'S CORRECT, I DO NOT.
BRIAN GROSSMAN: I DON'T RECALL.
BRIAN GROSSMAN: I DON'T REMEMBER.
BRIAN GROSSMAN: I DON'T REMEMBER.
MR. WADE: IF YOU GO DOWN TO "OVERALL, I THINK THERE ARE QUITE A FEW THINGS THEY CAN IMPROVE AND THE PROCESS WAS NOT COMPLICATED." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
MR. WADE: AND DO YOU RECALL GENERALLY DR. RABODZEY'S REPORT THAT AT THIS POINT THE PATIENT EXPERIENCE WAS FAR FROM PERFECT?
BRIAN GROSSMAN: AT -- I MEAN, I BELIEVE THIS WAS THE FIRST, THE FIRST PART OF THE DAY ON A WEEKEND. YES, THAT'S -- THAT WAS -- IT TOOK 30-SOMETHING MINUTES. SO, YES, THAT WAS -- THERE WAS ROOM TO IMPROVE THE PROCESS.
MR. WADE: OKAY. AND DO YOU RECALL THEN TAKING SOME OF THE QUESTIONS THAT YOU HAD ABOUT VENOUS DRAWS AND RELAYING THEM TO MR. BALWANI?
BRIAN GROSSMAN: MAYBE YOU COULD BE A LITTLE MORE SPECIFIC.
BRIAN GROSSMAN: OKAY.
MR. WADE: AND DO YOU UNDERSTAND THIS TO BE AN INTERACTION THAT YOU HAD WITH -- AN EMAIL THAT YOU HAD WITH MR. BALWANI IN LATE JANUARY OF 2014 ON SOME OPEN DUE DILIGENCE ITEMS?
BRIAN GROSSMAN: I'M JUST GOING TO REVIEW IT FOR A SECOND. OH, OKAY.
MR. WADE: AND DO YOU RECALL THAT THIS WAS AN EMAIL WITH MR. BALWANI IN LATE JANUARY 2014 WITH RESPECT TO SOME OPEN DUE DILIGENCE ITEMS?
BRIAN GROSSMAN: I DO.
MR. LEACH: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 1477 WAS RECEIVED IN EVIDENCE.)
BY MR. WADE:
MR. WADE: AND I'D LIKE TO JUST CALL YOUR ATTENTION DOWN TO THE BOTTOM PARAGRAPH THERE STARTING WITH "HOW DO THEY DEAL." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
MR. WADE: AND IT NOTES -- YOU'RE POSING TO THE QUESTION TO HIM, "HOW DO THEY DEAL WITH THE VENOUS DRAW ISSUE. I HAD TESTS DONE TODAY IN THE" -- IS THAT PALO ALTO WALGREENS?
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. -- "AND HAD TO GET A VENOUS DRAW." YOU WEREN'T OFFERED A FINGERSTICK. AND THEN YOU HAD SOME QUESTIONS RELATING TO HOW THAT WOULD IMPACT WHETHER OR NOT A PHLEBOTOMIST WAS NEEDED; CORRECT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
MR. WADE: AND DO YOU RECALL THAT MR. BALWANI TOLD YOU THAT FOR SOME TESTS THEY WERE STILL USING VENOUS DRAWS; CORRECT?
BRIAN GROSSMAN: HE SAID THAT 1 PERCENT OF PATIENTS WOULD REQUIRE A VENOUS DRAW, YES, AND IT WOULD BE SIX MONTHS BEFORE THEY WOULD ADDRESS THAT.
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. LET ME TAKE THIS ONE STEP AT A TIME. DO YOU RECALL, FIRST OF ALL, THAT HE SAID THAT THEY WERE STILL DOING VENOUS DRAWS, OR THEY WERE USING VENOUS DRAWS AT THE WALGREENS LOCATIONS; RIGHT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
MR. WADE: AND HE TOLD YOU THAT IN -- HE TOLD YOU THAT THE GOAL WAS WITHIN SIX MONTHS TO DRAMATICALLY REDUCE THE PERCENTAGE; CORRECT?
BRIAN GROSSMAN: THAT'S CORRECT.
MR. WADE: AND THAT THE GOAL WAS TO REDUCE IT TO 2 PERCENT VENOUS DRAWS WITHIN SIX MONTHS; CORRECT?
BRIAN GROSSMAN: I BELIEVE HE SAID THAT THEY WERE AT 99 OR 98 PERCENT, AND THEY HAD A PLAN WITHIN A FEW MONTHS TO GET TO 100 PERCENT.
MR. WADE: WELL, ISN'T IT TRUE, SIR, THAT HE ACTUALLY SAID THAT WITHIN SIX MONTHS THE GOAL WAS TO GET THE BLOOD DRAW UNDER 2 PERCENT?
BRIAN GROSSMAN: I MEAN, I DON'T REMEMBER SPECIFICALLY WHAT HE SAID. MY GENERAL MEMORY IS THAT THE NUMBER WAS 98 OR 99 PERCENT, AND HE HAD A PLAN WITHIN A FEW MONTHS TO GET THAT NUMBER DOWN TO WHERE 1 OUT OF EVERY 100, OR LESS, OF PEOPLE THAT WOULD WALK INTO A WALGREENS WOULD REQUIRE A VENOUS DRAW.
MR. WADE: RIGHT. BUT MY QUESTION IS A SPECIFIC ONE, AND IF YOU DON'T RECALL, YOU DON'T RECALL. BUT DO YOU REMEMBER HIM SAYING THAT IT WAS GOING TO TAKE SIX MONTHS TO TRY TO GET THAT DOWN TO 2 PERCENT?
BRIAN GROSSMAN: WELL, I -- WE HAD MULTIPLE MEETINGS OVER THIS COURSE OF THE DUE DILIGENCE. SO I DON'T REMEMBER SPECIFICALLY WHAT MEETING YOU'RE REFERRING TO, BUT I DO REMEMBER THAT THOSE NUMBERS I JUST -- THE ANSWER I JUST GAVE IS MY MEMORY OF HIS RESPONSE TO THIS PARTICULAR QUESTION.
BRIAN GROSSMAN: THE GOVERNMENT ONE?
MR. LEACH: ONE MOMENT, YOUR HONOR.
(PAUSE IN PROCEEDINGS.)
MR. LEACH: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: THIS IS ADMITTED. IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 14073 WAS RECEIVED IN EVIDENCE.)
MR. WADE: DO YOU RECALL THAT IN CONNECTION WITH YOUR DUE DILIGENCE PROCESS THAT YOU ACTUALLY -- ONE OF THE THINGS YOU DID WAS THAT YOU INTERACTED WITH YOUR OWN PERSONAL DOCTOR ABOUT THE EXPERIENCE AND WHAT YOUR DOCTOR THOUGHT ABOUT THE EXPERIENCE?
BRIAN GROSSMAN: I DID HAVE A, A FRIEND OF MINE WHO WAS A PHYSICIAN ORDER SOME TESTS FOR ME, YES.
MR. WADE: OKAY. ARE YOU COMFORTABLE WITH US PUBLISHING THIS EMAIL, OR WOULD YOU PREFER THAT WE NOT?
BRIAN GROSSMAN: I WOULD PREFER NOT.
MR. WADE: OKAY. OKAY. LET ME JUST ASK YOU SOME QUESTIONS ABOUT IT IN THAT CASE. DO YOU RECALL THAT -- YOU TALKED WITH THIS FRIEND WHO WAS A PHYSICIAN AFTER YOU GOT THE BLOOD TEST RESULTS BACK; IS THAT RIGHT?
BRIAN GROSSMAN: I DON'T REMEMBER SPECIFICALLY.
MR. WADE: OKAY. DO YOU RECALL YOUR BLOOD TESTS BEING GENERALLY CONSISTENT WITH OTHER BLOOD TESTS YOU HAD PREVIOUSLY RECEIVED?
BRIAN GROSSMAN: I DON'T REMEMBER.
MR. WADE: AND DO YOU RECALL WHETHER THE DOCTOR WHO YOU INTERACTED WITH WAS GENERALLY FAVORABLE ABOUT THE THERANOS CONCEPT?
BRIAN GROSSMAN: I DON'T REMEMBER.
JUDGE DAVILA: LET ME JUST -- JUST BASED ON MR. GROSSMAN'S WISHES, THIS HAS BEEN INTRODUCED BY STIPULATION, BUT YOU'LL NEED TO REDACT THIS INFORMATION IN THE MIDDLE.
MR. WADE: IT'S ACTUALLY ALL REDACTED, YOUR HONOR. AND IF THE GOVERNMENT CONSENTS, GIVEN THE WITNESS'S PREFERENCE, I'LL WITHDRAW IT FROM EVIDENCE AND -- JUST GIVEN THE WITNESS'S PREFERENCE.
JUDGE DAVILA: ALL RIGHT. ANY OBJECTION TO THAT?
MR. LEACH: I DON'T OBJECT TO IT BEING WITHDRAWN, YOUR HONOR. I MAY HAVE QUESTIONS ON REDIRECT ABOUT SOME OF THE SUBSTANCE, BUT I THINK WE CAN DO THAT WITHOUT PUBLISHING IT.
JUDGE DAVILA: ALL RIGHT. THANK YOU. THEN THIS EXHIBIT 14073 IS WITHDRAWN WITH CONSENT OF THE PARTIES.
(DEFENDANT'S EXHIBIT 14073 WAS WITHDRAWN.)
BRIAN GROSSMAN: YES.
MR. WADE: OR MAYBE PROFESSOR CHANNING ROBERTSON, JUST SO WE'RE ALL ON THE SAME PAGE. DO YOU RECALL THAT?
BRIAN GROSSMAN: YES, I DO.
BRIAN GROSSMAN: I DID.
BRIAN GROSSMAN: YES.
MR. WADE: AND THAT HE WAS GENERALLY, I THINK YOU SAID, A VERY WELL-THOUGHT OF GUY WITHIN THE LOCAL SCIENTIFIC COMMUNITY?
BRIAN GROSSMAN: YES.
MR. WADE: AND I DON'T WANT TO GO THROUGH -- YOU TESTIFIED YESTERDAY, AND I DON'T WANT TO RE-PLOW THE SAME GROUND. I JUST HAVE A COUPLE OF SPECIFIC QUESTIONS. DO YOU RECALL THAT WHEN YOU TALKED WITH HIM ABOUT THERANOS, YOU ALSO ASKED HIM SOME QUESTIONS ABOUT MS. HOLMES PERSONALLY?
BRIAN GROSSMAN: YES.
MR. WADE: AND DO YOU RECALL HIM TELLING YOU THAT IN HIS OVER 50 YEARS AT STANFORD, HE NEVER ENCOUNTERED ANYTHING LIKE HER?
BRIAN GROSSMAN: I VAGUELY REMEMBER SOMETHING TO THAT EFFECT, YES.
MR. WADE: AND THAT HE HAD A HIGH DEGREE OF CONFIDENCE IN HER AND THE MANAGEMENT TEAM AT THERANOS?
BRIAN GROSSMAN: YES.
MR. WADE: AND I THINK YOU TALKED ABOUT HIM IDENTIFYING PATIENT EXPERIENCE AS ONE OF THE RISKS THAT HE IDENTIFIED; RIGHT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: I BELIEVE THAT'S RIGHT, YES.
MR. WADE: AND THE PROFESSOR -- ONE OF THE WAYS YOU GOT TO KNOW PROFESSOR ROBERTSON WAS BECAUSE HE WAS ACTUALLY FRIENDLY WITH YOUR FATHER-IN-LAW; IS THAT RIGHT?
BRIAN GROSSMAN: THEY WERE NEIGHBORS.
BRIAN GROSSMAN: IN -- ON THEIR STREET.
BRIAN GROSSMAN: YEAH.
MR. WADE: AND YOUR FATHER IS A -- YOUR FATHER-IN-LAW IS A VERY DISTINGUISHED PROFESSOR OF POLITICAL SCIENCE AND A FELLOW AT THE HOOVER INSTITUTE AT STANFORD; CORRECT?
BRIAN GROSSMAN: HE USED TO BE.
BRIAN GROSSMAN: UH-HUH.
MR. WADE: OKAY. AND IF WE CAN GO TO EXHIBIT 7398. DO YOU RECALL THAT IT WAS -- IS THIS AN EMAIL WHERE YOUR FATHER-IN-LAW WAS PROVIDING INFORMATION AND HELPING FACILITATE AN INTRODUCTION TO PROFESSOR ROBERTSON?
BRIAN GROSSMAN: YES, IT IS.
MR. LEACH: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: WHAT'S THE RELEVANCE OF THIS?
JUDGE DAVILA: HE JUST ANSWERED THE QUESTION THAT THERE WAS THE INTRODUCTION. AND WHY IS THIS NECESSARY?
(PAUSE IN PROCEEDINGS.)
MR. WADE: I CAN TRY TO ASK QUESTIONS WITHOUT ADMITTING THE EMAIL IF THERE'S SOME CONCERN THE COURT IDENTIFIES.
MR. WADE: JUST SO WE'RE -- YOUR FATHER-IN-LAW ENDED UP INVESTING IN THERANOS AS WELL; IS THAT CORRECT?
BRIAN GROSSMAN: YES, HE DID.
BRIAN GROSSMAN: THROUGH PFM, YES.
JUDGE DAVILA: IS THAT IT?
JUDGE DAVILA: THERE'S A PHONE NUMBER HERE. I ASSUME YOU'RE GOING TO REDACT THAT.
JUDGE DAVILA: ALL RIGHT. WITH THAT REDACTION, IT'S ADMITTED, AND IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 7398 WAS RECEIVED IN EVIDENCE.)
BY MR. WADE:
MR. WADE: AND IN THIS EMAIL, YOU SEE WHERE YOUR FATHER-IN-LAW MENTIONS THAT PROFESSOR ROBERTSON HEADED BIO X AT STANFORD?
BRIAN GROSSMAN: I DO SEE THAT, YES.
BRIAN GROSSMAN: I DON'T RECALL.
MR. WADE: AND I THINK YOU HAD TESTIFIED THAT YOU HAD ACTUALLY ENCOUNTERED PROFESSOR ROBERTSON WITH RESPECT TO SOME COMPANIES SORT OF INDEPENDENTLY AS WELL, SOME COMPANIES THAT YOU HAD WORKED WITH?
BRIAN GROSSMAN: WELL, I THINK WHAT I TESTIFIED WAS THAT HE HAD BEEN INVOLVED IN HELPING TO START AND ADVISE COMPANIES IN THE HEALTH CARE SECTOR, BIOTECHNOLOGY SECTOR FOR MANY YEARS.
MR. WADE: OKAY. AND THIS CONVERSATION -- DO YOU RECALL THAT THIS CONVERSATION OCCURRED ABOUT A WEEK AFTER YOUR FATHER-IN-LAW INTRODUCED YOU TO PROFESSOR ROBERTSON?
BRIAN GROSSMAN: I DON'T RECALL THE SPECIFIC DATE.
MR. WADE: JUST TO REFRESH YOUR RECOLLECTION, IF YOU COULD TAKE A LOOK AT EXHIBIT 783, WHICH I THINK IS IN YOUR BINDER. IT MIGHT BE IN THE GOVERNMENT BINDERS ACTUALLY.
COURT CLERK: COUNSEL, EXHIBIT 783?
BRIAN GROSSMAN: OKAY. I SEE 783, YES.
MR. WADE: AND DOES THAT REFRESH YOUR RECOLLECTION THAT YOUR FIRST CONVERSATION WITH PROFESSOR ROBERTSON WAS ON JANUARY 25TH, 2013?
BRIAN GROSSMAN: YES, IT DOES.
BRIAN GROSSMAN: I MEAN, I -- I'M NOT ALWAYS GREAT AT REMEMBERING EXACTLY WHAT DATE IT IS, BUT IT PROBABLY IS PRETTY CLOSE.
MR. WADE: OKAY. FAIR ENOUGH. AND YOU REPORTED OUT ON THIS CONVERSATION TO SOME OF THE MEMBERS OF YOUR TEAM. DO YOU RECALL THAT?
BRIAN GROSSMAN: I DON'T RECALL, NO.
MR. WADE: OKAY. I'D LIKE TO TURN YOUR ATTENTION TO 14072, WHICH I BELIEVE THE GOVERNMENT HAS STIPULATED TO.
MR. LEACH: THAT'S CORRECT, YOUR HONOR.
(PAUSE IN PROCEEDINGS.)
JUDGE DAVILA: THIS IS ADMITTED. IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 14072 WAS RECEIVED IN EVIDENCE.)
BRIAN GROSSMAN: OKAY.
BY MR. WADE:
MR. WADE: OKAY. AND THIS IS AN EMAIL FROM YOU TO MR. JAMES ON THE 26TH OF JANUARY, 2014; CORRECT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
MR. WADE: AND IN HERE YOU TALK ABOUT SOME SCHEDULING MATTERS RELATING TO A PRESENTATION THAT WAS GOING TO BE GIVEN AT PFM RELATING TO THERANOS; RIGHT?
BRIAN GROSSMAN: YES, THAT APPEARS TO BE THE CASE.
MR. WADE: AND THEN I WANT TO JUST FOCUS ON THAT SECOND PARAGRAPH. YOU NOTE, "VALUATION AND TERMS ASIDE, WHICH ARE OBVIOUSLY TOUGH TO SWALLOW." AND LET ME JUST PAUSE THERE FOR A SECOND. YOU RECALL YOU WERE HAVING SOME UNCERTAINTY AS TO WHETHER YOU WERE COMFORTABLE PAYING THE AMOUNT THAT THERANOS WAS ASKING, THAT $17 A SHARE?
BRIAN GROSSMAN: UM, YES.
MR. WADE: AND YOU WERE GOING THROUGH THE ANALYTICS TO SEE WHETHER IT WAS WORTH THE INVESTMENT; IS THAT FAIR?
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. AND THEN YOU SAY WHILE THAT'S TOUGH TO SWALLOW, YOU'RE FEELING EVEN BETTER ABOUT THAT NOW. "I HAD A MIND BLOWING CALL YESTERDAY WITH ELIZABETH'S PROFESSOR WHO HELPED HER START THIS. WAS THE ORIGINAL BOARD MEMBER." RIGHT?
BRIAN GROSSMAN: YES.
MR. WADE: AND IS THAT A FAIR DESCRIPTION OF HOW YOU FELT ABOUT THE CONVERSATION, IT WAS A MIND BLOWING CONVERSATION?
BRIAN GROSSMAN: IT WAS A POSITIVE CALL.
MR. WADE: AND YOU THEN GO ON IN THIS EMAIL TO TALK ABOUT THE RELEVANT COMP GROUP TO USE. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT.
BRIAN GROSSMAN: WE'RE TRYING TO FIND OPEN ENDED, BEST OF BREED, DISRUPTIVE COMPANIES AS A WAY TO THINK ABOUT HOW THE PUBLIC MARKET WILL VALUE A COMPANY THAT HAS THIS TYPE OF TECHNOLOGY THAT IS THIS OPEN ENDED THAT HAS REALLY A GLOBAL OPPORTUNITY. AND SO THAT WAS THE, THAT WAS THE IDEA BEHIND THAT STATEMENT.
MR. WADE: OKAY. AND YOU'RE INTERACTING WITH MR. JAMES, WHO WAS ANOTHER SENIOR PRINCIPAL WITHIN PFM; CORRECT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
MR. WADE: AND YOU'RE TALKING ABOUT WHICH GROUP OF COMPARATOR COMPANIES TO USE HERE. AND, AND THE -- THERE ARE THREE COMPANIES IDENTIFIED THERE. AND ARE THOSE TICKER SYMBOLS?
BRIAN GROSSMAN: THOSE ARE TICKER SYMBOLS, THAT'S RIGHT.
BRIAN GROSSMAN: THE FIRST ONE IS GOOGLE; THE SECOND ONE IS FACEBOOK; AND THEN THE THIRD ONE, ILMN, IS A COMPANY CALLED ILLUMINA.
BRIAN GROSSMAN: THEY WERE OPEN ENDED, DISRUPTIVE, BEST OF BREED BUSINESSES.
BRIAN GROSSMAN: I DON'T KNOW IF THEY WERE ALL REFERRED TO AS UNICORNS. I DON'T THINK THEY WERE.
MR. WADE: AND PART OF THE REASON THAT YOU WERE LOOKING AT THIS IS IN CONNECTION WITH TRYING TO FIND THE APPROPRIATE VALUATION FOR THE COMPANY; IS THAT RIGHT?
MR. WADE: OKAY. YOU'RE USING IT TO TRY TO MODEL OUT HOW THERANOS MIGHT COMPARE IN VALUE TO THESE SIMILAR COMPANIES?
BRIAN GROSSMAN: WE'RE TRYING TO UNDERSTAND HOW PUBLIC MARKET INVESTORS, WHEN THEY HEAR THIS INCREDIBLE OPEN ENDED STORY, WHAT THE TECHNOLOGY COULD DO, THE GLOBAL NATURE OF IT, HOW MUCH BETTER IT IS FROM A CONSUMER EXPERIENCE, WE WERE TRYING TO GET A SENSE OF HOW OTHER INVESTORS WOULD REACT TO A REAL OPEN ENDED, DISRUPTIVE BUSINESS LIKE THIS.
MR. WADE: OKAY. AND YOU -- AND AS PART OF THAT, YOU DID A FINANCIAL ANALYSIS RELATING TO THE PERFORMANCE OF THOSE COMPANIES AND THE VALUATION OF THOSE COMPANIES OVER TIME?
BRIAN GROSSMAN: I BELIEVE WE LOOKED AT THE REVENUES FROM THOSE BUSINESSES.
MR. WADE: AND THAT WAS IN CONNECTION WITH SOME OF THE FINANCIAL MODELING THAT YOU DID THAT YOU TALKED ABOUT YESTERDAY; IS THAT RIGHT?
BRIAN GROSSMAN: THAT IS CORRECT.
MR. WADE: AND THERE WAS -- YOU ALSO LOOKED AT THE INFORMATION THAT THERANOS PROVIDED YOU WITH RESPECT TO ITS MODEL; RIGHT?
BRIAN GROSSMAN: YES.
MR. WADE: AND THEY GAVE YOU THE ELECTRONIC FILE SO THAT YOU COULD HAVE ALL OF THE DATA THAT WENT INTO THEIR MODEL; IS THAT RIGHT?
BRIAN GROSSMAN: THAT IS RIGHT.
MR. WADE: AND MR. LEACH ASKED YOU SOME QUESTIONS ABOUT THAT YESTERDAY, BUT I'LL CONFESS THAT THE FONT WAS SO SMALL, I COULDN'T, I COULDN'T SEE IT. SO I'VE GOTTEN, WITH THE GOVERNMENT'S STIPULATION, THE ELECTRONIC FILE AND I'LL PUT THE SPREADSHEET UP. IT MIGHT BE A LITTLE EASIER TO READ. YOUR HONOR, WITH STIPULATION FROM THE GOVERNMENT, I WOULD MOVE THE ADMISSION OF EXHIBIT 13720A.
MR. LEACH: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED, AND IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 13720A WAS RECEIVED IN EVIDENCE.)
BY MR. WADE:
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. AND JUST SO WE'RE CLEAR, IN TERMS OF THE ITEMS THAT I'VE JUST MENTIONED, THERE ARE -- YOU UNDERSTAND THAT THE MODEL IS BASED UPON DIFFERENT ASSUMPTIONS; CORRECT?
BRIAN GROSSMAN: THE PROJECTIONS WERE BASED ON DIFFERENT ASSUMPTIONS.
MR. WADE: RIGHT. WHEN YOU'RE MODELING FUTURE PERFORMANCE, YOU'RE DOING IT BASED UPON CERTAIN ASSUMPTIONS; RIGHT?
BRIAN GROSSMAN: YES.
MR. WADE: AND THERANOS INCLUDED IN THE MODEL THAT THEY SENT YOU ALL OF THE ASSUMPTIONS HERE WITH RESPECT TO WHAT WENT INTO THEIR MODEL; CORRECT?
BRIAN GROSSMAN: THAT IS CORRECT.
MR. WADE: AND SO THAT GAVE YOU THE ABILITY TO ASK QUESTIONS ABOUT ANY OF THE ASSUMPTIONS IF YOU WEREN'T CLEAR ON WHY THEY WERE USING PARTICULAR ASSUMPTIONS; RIGHT?
BRIAN GROSSMAN: THAT WOULD GIVE US THE ABILITY TO DO THAT, YES.
BRIAN GROSSMAN: WE DID ASK THE QUESTIONS, YES.
MR. WADE: AND THEY ALSO -- SOME OF THIS DATA YOU CONSIDERED IN CONNECTION WITH PREPARATION OF YOUR OWN MODEL; IS THAT RIGHT?
BRIAN GROSSMAN: YES.
MR. WADE: BUT YOU ALSO WENT OUT AND GOT SIGNIFICANT ADDITIONAL DATA THAT YOU FACTORED INTO YOUR PROPRIETARY ANALYSIS; RIGHT?
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. AND MR. LEACH ASKED YOU SOME QUESTIONS ABOUT, I THINK IT WAS ON THIS SHEET HERE, RELATING TO THE MINILAB COSTS OR THE MINILAB PRODUCTION COSTS. MAYBE IT WAS -- DO YOU RECALL THAT?
BRIAN GROSSMAN: YES, I DO.
MR. WADE: AND I JUST WANT TO ASK SOME OTHER -- SOME QUESTIONS RELATED TO THAT. DO YOU SEE I HAVE UP THE SUMMARY CASH FLOW STATEMENT TAB OF THE SPREADSHEET?
BRIAN GROSSMAN: I DO, YES.
BRIAN GROSSMAN: I DO.
MR. WADE: AND DID YOU HAVE ANY DISCUSSION WITH MR. BALWANI ABOUT THE LINES OF PRODUCTION CAPITAL EXPENDITURES?
BRIAN GROSSMAN: I BELIEVE WE TALKED ABOUT THAT, YES.
MR. WADE: AND YOU HAD ACTUALLY -- I THINK YESTERDAY YOU SAID YOU WENT AND LOOKED AT THEIR PRODUCTION FACILITY. DO YOU RECALL THAT?
BRIAN GROSSMAN: I DO RECALL SAYING THAT YESTERDAY.
MR. WADE: AND THAT, AND THAT MR. BALWANI SAID THAT THEY ALREADY HAD THE CAPABILITY TO PRODUCE A PRETTY HIGH VOLUME OF MINILABS WITHIN THAT FACILITY?
BRIAN GROSSMAN: WELL, HE -- I BELIEVE WHAT HE TOLD US WAS THAT THERE WOULD BE NO PROBLEM PRODUCING MINILABS TO MEET THE NEEDS OF BOTH THE RETAIL ROLLOUT --
BRIAN GROSSMAN: -- AND THE HOSPITAL ROLLOUT.
MR. WADE: OKAY. AND DID YOU ASK HIM WHETHER THE LINES OF PRODUCTION AND CAPITAL EXPENDITURE INCLUDED ANYTHING RELATING TO ANY COMMERCIAL DEVICES?
BRIAN GROSSMAN: WE DID NOT.
BRIAN GROSSMAN: THAT WOULD BE A SEPARATE ITEM ON A CAPITAL EXPENDITURE. YOU WOULD NOT PUT OTHER PRODUCTION LINES. YOU WOULD NOT PUT THIRD PARTY EQUIPMENT IN THE LINES OF PRODUCTION. THAT WOULD BE -- UNDER ACCOUNTING PRINCIPLES, THAT WOULD BE A SEPARATE LINE ITEM. LINES OF PRODUCTION RELATE TO INCREASING THE MANUFACTURING FACILITY THAT IS MAKING THE MINILABS.
JUDGE DAVILA: DOES THIS ASSIST YOUR PREVIOUS QUESTION?
MR. WADE: THERE WAS NOT A PREVIOUS QUESTION FOR THAT ANSWER, SO JUST MOVE TO STRIKE THAT ANSWER.
JUDGE DAVILA: MY QUESTION WAS, DOES THIS ASSIST YOUR PREVIOUS QUESTION?
JUDGE DAVILA: ALL RIGHT. THANK YOU.
MR. LEACH: I THINK IT'S RESPONSIVE, YOUR HONOR. HE SHOULD BE ALLOWED TO ANSWER.
JUDGE DAVILA: WELL, HE DID RESPOND TO THE PREVIOUS QUESTION IN THE MIDDLE OF YOUR CURRENT QUESTION, AND I'LL ALLOW IT TO REMAIN FOR EXPLANATION OF THE BOX. YOU CAN RETURN TO IT IF YOU WISH. BUT LET'S FINISH WITH YOUR PREVIOUS QUESTION.
MR. WADE: THAT DATA COMPARED THERANOS'S ASSAYS ON FINGERSTICK TO A PREDICATE ASSAY. DO YOU RECALL THAT?
BRIAN GROSSMAN: CAN YOU BE A LITTLE MORE SPECIFIC?
MR. WADE: YEAH. SORT OF THE CORE OF THE PURPOSE OF THE DATA THAT THERANOS WAS PROVIDING YOU WAS TO SHOW HOW THE PERFORMANCE OF ITS FINGERSTICK ASSAYS COMPARED TO THE PERFORMANCE OF TRADITIONAL VENOUS ASSAYS?
BRIAN GROSSMAN: ARE WE TALKING ABOUT THE PRESENTATION THAT MR. -- THAT DR. RABODZEY REVIEWED?
BRIAN GROSSMAN: OKAY. YES, THAT'S MY GENERAL UNDERSTANDING.
MR. WADE: YOU UNDERSTAND THAT THE BASIC PREMISE WAS ON AN ASSAY-BY-ASSAY BASIS THAT WAS SHOWING YOU HOW THERANOS'S ASSAYS PERFORM TO PREDICATE FDA APPROVED ASSAYS; RIGHT?
BRIAN GROSSMAN: I DON'T REMEMBER. I DON'T REMEMBER SPECIFICALLY WHAT THAT WAS MEASURING.
BRIAN GROSSMAN: WELL, I JUST -- DR. RABODZEY WAS THE ONE THAT REVIEWED THAT DATA FOR US, SO I DON'T WANT TO SPEAK FOR HIM IN TERMS OF WHAT HE WAS REVIEWING. WE ASKED FOR DATA ON THE ACCURACY OF THEIR PROPRIETARY TECHNOLOGY, AND THAT'S WHAT WE ASSUMED THEY GAVE US.
MR. WADE: OKAY. FAIR ENOUGH. DO YOU SEE ON THE SUMMARY CASH FLOW STATEMENT TAB OF EXHIBIT 13720A THIS BREAKS OUT DIFFERENT CASH FLOW FOR DIFFERENT PERIODS. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT.
MR. WADE: AND YOU SEE THERE'S NO CASH FLOW IDENTIFIED IN 2014 AND '15 RELATING TO WALGREENS; CORRECT?
BRIAN GROSSMAN: THAT IS CORRECT.
BRIAN GROSSMAN: I DO SEE THE BALANCE SHEET TAB, YES.
MR. WADE: OKAY. AND YOU'LL FORGIVE ME FOR ASKING SOME OF THESE QUESTIONS, BUT I JUST NEED TO MAKE SURE THE RECORD IS CLEAR.
BRIAN GROSSMAN: YEP, I SEE THAT.
MR. WADE: OKAY. AND DO YOU SEE THAT THERE'S DEFERRED REVENUE THERE IN THE AMOUNT OF ABOUT $184 MILLION?
BRIAN GROSSMAN: I DO SEE THAT.
MR. WADE: OKAY. THE -- IF I CAN, I'D LIKE TO FLIP TO YOUR MODEL IN A SECOND, BUT DO YOU SEE THAT THIS HAS MACRO -- THIS MODEL, WHICH IS 13720A, HAS A MACRO ASSUMPTIONS TAB, A THERANOS MARKET ASSUMPTIONS TAB, PRO FORMA INCOME STATEMENT TAB, SUMMARY CASH FLOW STATEMENT TAB, AND A BALANCE SHEET TAB?
BRIAN GROSSMAN: I DO SEE THAT, YES.
MR. WADE: OKAY. YOUR HONOR, I'D LIKE TO MOVE THE ADMISSION OF 4093 WITH STIPULATION FROM THE GOVERNMENT.
MR. LEACH: THAT'S CORRECT, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 4093 WAS RECEIVED IN EVIDENCE.)
BY MR. WADE:
BRIAN GROSSMAN: IT LOOK LIKE A MODEL THAT WE WOULD -- A FORMAT OF A PFM MODEL, YES.
MR. WADE: OKAY. AND YOU UNDERSTAND, THOUGH, JUST CALLING YOUR ATTENTION TO THE TABS DOWN BELOW, YOU HAVE -- IF I SCROLL OVER HERE, DO YOU SEE THOSE BLUE TABS THERE? THOSE ARE, THOSE ARE IMPORTED FROM THE THERANOS MODEL; CORRECT?
BRIAN GROSSMAN: I BELIEVE THAT'S THE CASE, YES.
MR. WADE: AND THEN THE ORANGE TABS HERE, WHICH INCLUDE HIGH GROWTH COMPS, OUTPUTS, CHARTS, CENSUS DATA, AND CENSUS DATA (2), ARE ADDITIONAL INPUTS THAT YOUR TEAM ADDED; IS THAT RIGHT?
BRIAN GROSSMAN: THAT IS RIGHT.
MR. WADE: AND I'M NOT GOING TO GO THROUGH THESE IN DETAIL, BUT YOU SEE THESE HAVE SPECIFIC DATA RELATING TO POPULATION IN DIFFERENT METROPOLITAN MARKETS. DO YOU SEE THAT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
MR. WADE: AND SOME OUT -- SOME HIGH GROWTH COMPS. DO YOU SEE THAT TAB COMPARED SOME OF THOSE COMPANIES THAT WE WERE TALKING ABOUT PREVIOUSLY?
BRIAN GROSSMAN: YES.
MR. WADE: AND IN ADDITION TO THOSE COMPANIES, THERE ARE A FEW OTHER COMPARATIVE COMPANIES THAT WERE ADDED INTO THIS ANALYSIS; CORRECT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: THIS INCLUDED INTUITIVE SURGICAL, SALESFORCE.COM, TESLA, FACEBOOK, SPLUNK, TWITTER.
MR. WADE: OKAY. AND THOSE WERE ALL VERY SUCCESSFUL SILICON VALLEY BASED TECHNOLOGY COMPANIES AT THE TIME; IS THAT FAIR?
BRIAN GROSSMAN: THEY WERE OPEN ENDED, DISRUPTIVE PLATFORM COMPANIES THAT HAD RECENTLY MOVED INTO THE PUBLIC MARKETS.
MR. WADE: OKAY. WHEN I GO OVER TO THE GREEN TABS HERE, THOSE WERE ALSO TABS CREATED BY PFM; CORRECT?
BRIAN GROSSMAN: I CAN'T SEE THEM, BUT I BELIEVE SO.
BRIAN GROSSMAN: MAYBE YOU COULD CLICK.
JUDGE DAVILA: SURE.
BY MR. WADE:
BRIAN GROSSMAN: MAYBE IF YOU CLICK.
BRIAN GROSSMAN: THERE YOU GO.
BRIAN GROSSMAN: YES.
MR. WADE: AND DO YOU SEE UP AT THE TOP THERE, THERE'S A NOTE THAT SAYS BEAR CASE, BASE CASE, AND BULL CASE?
BRIAN GROSSMAN: I DO.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
MR. WADE: AND THE BASE CASE IS CONSIDERED SORT OF THE MEDIAN SCENARIO IN THE MODEL; IS THAT RIGHT?
BRIAN GROSSMAN: IT'S OUR KIND OF AVERAGE -- WHAT WE THINK IS MOST LIKELY TO HAPPEN.
MR. WADE: OKAY. AND I'D LIKE TO GO TO THE VALUATION TAB. THIS IS A -- THIS IS AN ANALYSIS THAT YOUR TEAM DID; CORRECT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
MR. WADE: AND YOU WERE AWARE AT THE TIME THAT IN 2013 THE COMPANY HAD 20 -- ABOUT $25 MILLION IN REVENUE; RIGHT?
BRIAN GROSSMAN: I BELIEVE THAT'S ROUGHLY RIGHT, YES.
MR. WADE: SO YOU WERE PROJECTING FROM -- AND YOU WERE DOING THIS AT THE BEGINNING OF 2014; CORRECT?
BRIAN GROSSMAN: THAT'S CORRECT.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
MR. WADE: AND THAT -- EVEN THAT LAST PIECE IS, GOING FROM 2014 TO 2015, WAS 525 PERCENT GROWTH; CORRECT?
BRIAN GROSSMAN: THAT IS CORRECT.
MR. WADE: OKAY. AND WERE YOU AWARE OF ANY OTHER COMPANY THAT HAD THAT SORT OF REVENUE GROWTH WITHIN A TWO YEAR PERIOD?
BRIAN GROSSMAN: THERE HAVE BEEN EXAMPLES OF COMPANIES WHO HAVE HAD THAT KIND OF REVENUE GROWTH. THEY TEND TO BE OPEN ENDED, IMPORTANT TECHNOLOGIES, NEW PRODUCT. SO, YES, THERE ARE EXAMPLES.
BRIAN GROSSMAN: WELL, I CAN GIVE YOU A RECENT EXAMPLE, LIKE A MODERNA, RIGHT.
BRIAN GROSSMAN: THAT COMES UP WITH A REALLY IMPORTANT NEW VACCINE, AND YOU CAN SEE REVENUES RAMP DRAMATICALLY. SO, YES, THERE ARE EXAMPLES OF COMPANIES. THEY TEND TO BE REALLY IMPORTANT OPEN ENDED TECHNOLOGY, VERY DISRUPTIVE, THAT HAVE A BIG IMPACT ON SOCIETY, BIG IMPACT ON THE HEALTH CARE SPACE.
MR. WADE: OKAY. AND AS PART OF THIS ANALYSIS, THE GOAL WAS TO DO A NET PRESENT VALUATION OF THE COMPANY; CORRECT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: IT WAS ONE WAY. THERE ARE DIFFERENT WAYS OF VALUING HIGH GROWTH COMPANIES LIKE A THERANOS, AND SO WE WANTED TO MAKE SURE THAT WE LOOKED AT THESE A FEW DIFFERENT WAYS. ONE OF THEM WAS USING A DISCOUNTED CASH FLOW MODEL.
BRIAN GROSSMAN: THAT'S WHAT THIS IS, THAT'S CORRECT.
MR. WADE: A DISCOUNTED CASH FLOW MODEL IS SORT OF A STANDARD MODEL THAT IS USED TO VALUE COMPANIES; IS THAT FAIR?
BRIAN GROSSMAN: IT IS A STANDARD MODEL USED TO VALUE COMPANIES, YES.
MR. WADE: BUT AS YOU KNOW, THERE ARE A VARIETY OF OTHER MODELS, SOME OF WHICH ARE MORE CONSERVATIVE AND SOME THAT ARE LESS CONSERVATIVE; IS THAT FAIR?
BRIAN GROSSMAN: I'M SORRY, COULD YOU ASK THAT ONE MORE TIME?
BRIAN GROSSMAN: A VARIETY -- I DON'T QUITE UNDERSTAND THE QUESTION.
MR. WADE: WHY DON'T WE JUST GO BACK TO YOUR MODEL. BASED ON THE MODEL, YOU VALUED THERANOS AT $20.3 BILLION; CORRECT?
BRIAN GROSSMAN: THAT'S THE TOTAL VALUE IN THIS, IN THIS MODEL, AND THAT'S, THAT'S THE U.S., THAT'S JUST THE U.S. -- THAT'S THE U.S. OPPORTUNITY, YES. IT DOESN'T INCLUDE ANYTHING FROM ANY OTHER PART OF THE WORLD. BUT, YES, THAT IS THE OUTPUT OF THIS PARTICULAR SPREADSHEET.
MR. WADE: RIGHT. AND THERANOS, BASED UPON -- I THINK WE TALKED ABOUT YESTERDAY, BASED UPON THE C-1 VALUATION SOLD AT $15 A SHARE; RIGHT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: CORRECT.
MR. WADE: OKAY. AND IN PREPARING THIS VALUATION, YOU ALSO PROJECTED REVENUE, CORRECT, RELATING TO THE RETAIL EFFORTS? DO YOU RECALL THAT?
BRIAN GROSSMAN: WE, WE CERTAINLY WOULD HAVE PROJECTED REVENUE FOR THE RETAIL OPERATION, YES.
MR. WADE: OKAY. AND THE -- DO YOU RECALL THAT THE REVENUE NUMBERS THAT PFM PROJECTED FOR 2014, FOR EXAMPLE, WERE SIGNIFICANTLY HIGHER THAN THE NUMBERS THAT THERANOS GAVE YOU?
BRIAN GROSSMAN: THAT'S NOT MY MEMORY.
MR. WADE: OKAY. LET'S TAKE A LOOK. LET'S FIRST GO TO THE PFM REVENUE MODEL-BOTTOMS UP. AND IF WE CAN SCROLL -- DO YOU SEE THE RETAIL REVENUE -- I'M IN THE PFM REVENUE MODEL-BOTTOMS UP TAB. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT.
BRIAN GROSSMAN: I DO SEE THOSE, YES.
BRIAN GROSSMAN: I DO SEE THAT.
BRIAN GROSSMAN: I DO SEE THAT.
BRIAN GROSSMAN: I DO SEE THAT.
MR. WADE: OKAY. LET'S, LET'S GO BACK TO THE THERANOS PERIOD. LET'S GO BACK TO THE OTHER SPREADSHEET. AS WE'RE DOING THIS, DO YOU RECALL THAT YOU CAME UP WITH YOUR REVENUE NUMBERS AND YOUR MODELING NUMBERS TOTALLY INDEPENDENT FROM THERANOS; RIGHT?
BRIAN GROSSMAN: WE DID ADD ADDITIONAL DATA TO OUR MODEL, YES.
MR. WADE: AND YOU WERE AWARE AT THE TIME THAT THE MODELS WERE BASED UPON, WERE BASED UPON THE -- AN ASSUMPTION OF A NUMBER OF PATIENTS WITHIN STORES; RIGHT?
BRIAN GROSSMAN: THERE WERE A BUNCH OF ASSUMPTIONS THAT WENT INTO THE MODEL.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: THAT WAS AN ASSUMPTION IN THE MODEL.
MR. WADE: AND THERANOS TOLD YOU THAT IN THEIR MODEL THEY PROJECTED 25 PATIENTS PER STORE; RIGHT?
BRIAN GROSSMAN: I DON'T REMEMBER SPECIFICALLY WHAT THEY TOLD US.
MR. WADE: OKAY. WELL, LET'S TAKE A LOOK. DO YOU SEE UP HERE IN EXHIBIT 13720A IT IDENTIFIES 25 PATIENTS PER STORE AT WALGREENS THERE?
BRIAN GROSSMAN: YES.
MR. WADE: AND DO YOU ALSO RECALL THAT AT THE TIME MR. BALWANI GAVE THIS, THAT THERE WERE ACTUALLY ONLY 10 TO 15 PATIENTS PER STORE THAT WERE COMING INTO THE FEW LOCATIONS; RIGHT?
BRIAN GROSSMAN: I DON'T REMEMBER SPECIFICALLY. WHAT DAY ARE YOU REFERRING TO?
MR. WADE: WELL, DO YOU RECALL DURING THE DUE DILIGENCE PERIOD LEARNING THAT BREAK EVEN FOR THE STORES WAS 15 PATIENTS A STORE?
BRIAN GROSSMAN: I DO REMEMBER TALKING ABOUT BREAK EVEN. I DON'T REMEMBER THE SPECIFICS OF WHAT THE ACTUAL NUMBERS WERE, BUT, YES, I DO REMEMBER GOING THROUGH THE ECONOMICS FROM THE WALGREENS PERSPECTIVE.
MR. WADE: OKAY. AND YOU RECALL HIM TELLING YOU THAT WHAT THEY WERE MODELING WAS ACTUALLY ABOVE THE 15 PERCENT, OR THE 15 PATIENTS PER STORE; RIGHT?
BRIAN GROSSMAN: WELL, I DON'T REMEMBER EXACTLY THE 15, BUT, YEAH, I DO REMEMBER -- WHAT I REMEMBER WAS THAT HE FELT LIKE THESE NUMBERS WERE VERY CONSERVATIVE BASED ON THE PATIENT FLOW THAT THEY WERE SEEING IN SOME OF THE FIRST STORES THAT THEY HAD OPENED. BUT I DON'T REMEMBER SPECIFICALLY WHAT CONVERSATION I HAD WITH HIM AT A GIVEN POINT IN TIME ON THIS PARTICULAR VERSION OF THE MODEL.
MR. WADE: OKAY. AND DO YOU REMEMBER THAT IN MANY LOCATIONS WHERE YOU WERE MODELING, THAT YOU WERE PROJECTING 80 OR 90 PATIENTS PER STORE PER DAY?
BRIAN GROSSMAN: I DON'T BELIEVE THAT'S HOW OUR MODEL WORKS, BUT WE -- SO I DON'T REMEMBER THAT.
MR. WADE: OKAY. WELL, LET'S LOOK -- LET'S LOOK BACK AT YOUR MODEL. LET'S LOOK AT THE STORE BUILD. AND LET'S GO DOWN HERE. AND DO YOU SEE HERE WHERE THERE ARE PATIENTS PER STORE DATA?
BRIAN GROSSMAN: I DO SEE THAT, YES.
MR. WADE: AND DO YOU SEE THAT MANY OF THEM ARE AS HIGH AS 80 OR 90 PATIENTS PER STORE IN SOME MARKETS?
BRIAN GROSSMAN: YES. WELL, I ACTUALLY DON'T SEE -- MAYBE YOU COULD SHOW ME WHERE. I DON'T SEE THAT, SO I'M SORRY. MAYBE YOU COULD POINT TO WHERE THE --
MR. WADE: DO YOU SEE HERE IN LOS ANGELES IT'S -- YOU INCLUDE PROJECTIONS OF AS HIGH AS 90 TO 92 PATIENTS PER STORE. DO YOU SEE THAT?
BRIAN GROSSMAN: THAT'S IN 2017.
BRIAN GROSSMAN: I THINK YOU WERE ASKING ME ABOUT 2014.
BRIAN GROSSMAN: I'M SORRY, COULD YOU ASK THE QUESTION AGAIN?
BRIAN GROSSMAN: IN 2014.
BRIAN GROSSMAN: I DON'T RECALL. MAYBE WE CAN LOOK AT THE MODEL FOR '15. I DON'T REMEMBER WHAT THE ASSUMPTION THEY HAD WAS FOR 2015.
MR. WADE: AND DO YOU RECALL MEMBERS OF YOUR TEAM EXPRESSING CONCERN ABOUT THE PROJECTIONS ON PATIENTS PER STORE?
BRIAN GROSSMAN: I REMEMBER THAT WE DID THINK VERY HARD ABOUT THIS PARTICULAR ASSUMPTION, ESPECIALLY IN THE CONTEXT OF OUR 2017 AND '18 MODEL. WE WANTED TO MAKE SURE THAT THE MARKETS THEY HAD TOLD US THEY WOULD ROLL OUT INTO, THERE WERE ENOUGH STORES TO SUPPORT THE REVENUES ESTIMATES THAT WE HAD IN 2017 AND '18, ESPECIALLY IN 2018, SO YEAR FIVE OF THE COMMERCIAL LAUNCH. IT KIND OF LED INTO A LARGER DISCUSSION AROUND HOW MANY EXTRA RETAIL PARTNERS DID THEY NEED? SO THIS ANALYSIS WAS REALLY MORE TO SANITY CHECK OUR ESTIMATES OF HOW MUCH SHARE THIS COMPANY WOULD TAKE WITH ALL OF THE ADVANTAGES THAT THEY HAD IN THESE GEOGRAPHIC MARKETS THAT THEY TOLD US THAT THEY WERE GOING TO ROLL OUT INTO. AND THEN BACKING INTO WHETHER OR NOT THEY WOULD NEED ADDITIONAL PARTNERS, LIKE A CVS OR A RITE AID OR OTHER GROCERY STORE CHAINS. THAT WAS THE POINT OF THIS ANALYSIS. THIS ISN'T ACTUALLY WHAT DROVE OUR ACTUAL, WHAT WE CALL POINT ESTIMATES, THE ESTIMATE WE HAD FOR A PARTICULAR QUARTER IN 2014 OR '15 OR OUR MODEL IN 2016, '17, OR '18.
MR. WADE: OKAY. BUT THIS WAS ALL -- THE ANALYSIS THAT YOU JUST DESCRIBED IS ALL ANALYSIS THAT YOU AT PFM DID ON YOUR OWN; RIGHT?
BRIAN GROSSMAN: AND IT WAS IN CONJUNCTION WITH OUR ESTIMATES FOR 2017 AND '18, NOT RELATIVE TO WHAT THE COMPANY GAVE US FOR THE 2014 TO 2015 PROJECTIONS.
BRIAN GROSSMAN: AND WHICH OUR NUMBERS WERE LOWER -- OUR OVERALL REVENUE NUMBERS FOR THERANOS FOR BOTH '14 AND '15 ON THE BASE CASE WERE LOWER THAN WHAT THERANOS'S MODEL TOTAL REVENUES HAD FOR BOTH YEARS. SO, YES, THAT WAS -- THAT MODEL WAS VERY IMPORTANT TO HOW WE BUILT THIS MODEL. IT WAS VERY IMPORTANT TO HOW WE THOUGHT ABOUT 2014 AND 2015, AND IT REFLECTED THE INFORMATION THAT THEY HAD BECAUSE OF THE WALGREENS RELATIONSHIP.
MR. WADE: AND ULTIMATELY YOU CAME TO -- WHATEVER ANALYSIS YOU CAME TO IN DOING THIS WITH YOUR TEAM, YOU WERE COMFORTABLE WITH THE VALUATION THAT YOU, THAT YOU COMMUNICATED TO YOUR INVESTORS; CORRECT?
BRIAN GROSSMAN: IN AN ANALYSIS LIKE THIS, YOU WANT TO MAKE SURE THAT ON YOUR BASE CASE ASSUMPTIONS, YOU CAN JUSTIFY A SUBSTANTIALLY HIGHER PRICE FOR THE ASSET, FOR THE COMPANY, AND THAT WAS THE POINT OF THIS EXERCISE. AND, YES, WE FELT LIKE WE COULD MORE THAN JUSTIFY INVESTING AT $9 BILLION BASED ON THE MODEL THE COMPANY HAD GIVEN US FOR 2014 AND 2015, AND THEN THE ASSUMPTIONS THAT WE HAD FOR HOW MUCH SHARE OF THE MARKETS THAT THEY WERE GOING TO TARGET, NEW YORK CITY, L.A., THE OTHER MAJOR METROPOLITAN AREAS, WHAT SHARE OF THOSE MARKETS THAT A COMPANY WITH THIS TYPE OF TECHNOLOGY WOULD BE ABLE TO, WOULD BE ABLE TO ACHIEVE.
MR. WADE: AND PART OF THAT WAS THE NUMBER OF STORES THAT YOU COULD GROW TO, CORRECT, THE RATE OF EXPANSION?
BRIAN GROSSMAN: WELL, IT WAS -- THEY HAD A SUBSTANTIAL ADVANTAGE AGAINST EXISTING LAB COMPANIES. LAB -- QUEST HAS 2,000 OR SO STORES THAT YOU CAN GET YOUR BLOOD DRAWN. WALGREENS HAD OVER 8,000 LOCATIONS. SO THEY HAD A LOT OF ADVANTAGES WHEN IT CAME TO CONVENIENCE. BUT WE WANTED TO MAKE SURE THAT WE UNDERSTOOD THEIR COMMERCIAL STRATEGY, ESPECIALLY WHEN IT CAME TO PARTNERING WITH ADDITIONAL RETAILERS SO THAT THEY WOULD HAVE ENOUGH DISTRIBUTION, ENOUGH ACCESS POINTS TO DELIVER ON THE FINANCIAL FORECAST THAT WE HAD FOR 2017 AND 2018.
MR. WADE: RIGHT. AND JUST SO WE'RE CLEAR, THEY HAD THREE STORES AT THE TIME THAT YOU WERE DOING THIS ANALYSIS; RIGHT?
BRIAN GROSSMAN: AT THE FIRST MONTH OF THE LAUNCH, YES. IN JANUARY OF 2014, YES.
MR. WADE: AND PART OF YOUR ANALYSIS HERE WAS TO PROJECT THE NUMBER OF STORES THAT THEY WERE GOING TO OPEN DURING PARTICULAR PERIODS OF TIME IN DIFFERENT MARKETS; CORRECT?
BRIAN GROSSMAN: WELL, THEY GAVE US A VERY SPECIFIC BY-THE-MONTH FORECAST FOR WALGREENS STORES, AND ALSO SAFEWAY STORES.
BRIAN GROSSMAN: AND SO THAT WAS -- SO WE USED THEIR FORECAST TO BUILD OUR MODEL IN 2014 AND 2015. I BELIEVE WE MAY HAVE USED, I BELIEVE WE MAY HAVE USED LOWER -- WELL, ANYWAY, YEAH, WE HAD DIFFERENT ASSUMPTIONS AS WE KIND OF WENT OUT BEYOND -- THEY GAVE US A MODEL THAT WENT TO 2015, A VERY DETAILED MODEL. BUT WHEN IT CAME TO OUR MODEL BEYOND 2015, WHICH BUILT OFF OF ASSUMPTIONS AND THE INFORMATION THAT THEY PROVIDED US, WE USED OUR OWN ASSUMPTIONS THAT WERE DIFFERENT IN SOME CASES FROM -- OVER TIME.
MR. WADE: AND YOU TALKED ABOUT THE ASSUMPTIONS FOR STORES IN 2014. ISN'T IT TRUE THAT YOU ACTUALLY -- YOU PROJECTED ABOUT 1500 MORE STORES WOULD BE OPEN THAN THERANOS HAD IN ITS MODEL?
BRIAN GROSSMAN: I DON'T BELIEVE THAT'S TRUE, BUT -- SO, NO, I DON'T BELIEVE THAT'S TRUE.
MR. WADE: WELL, LET'S TAKE A LOOK. IF YOU LOOK AT THE NUMBER OF STORES IN RETAIL HERE, AND WE GO TO COLUMN G FOR '15. DO YOU SEE COLUMN G HERE?
BRIAN GROSSMAN: I DO SEE COLUMN G, YES.
BRIAN GROSSMAN: I DO SEE THAT, YES.
MR. WADE: DO YOU SEE THAT? AND SO THIS IS THE PART WHERE IT GETS QUITE DANGEROUS. AND DO YOU SEE THAT THAT EQUALS 4685 STORES?
BRIAN GROSSMAN: THAT -- I DO SEE 4685, YES.
BRIAN GROSSMAN: THAT'S FOR 2018, '17, '16, '15, '14. THEY'RE ALL THE SAME NUMBER. SO IF THAT'S YOUR QUESTION, YES. WE WERE LOOKING AT -- WE WANTED TO -- THIS ISN'T HOW WE DROVE THE MODEL. THE MODEL WAS DRIVEN BASED ON THE PERCENTAGE OF THOSE -- WE LOOKED AT THE POPULATION OF EACH MARKET, AND THEN WE FORECAST THE PERCENTAGE OF THE TESTS DONE IN THOSE MARKETS. THAT'S WHAT DROVE THE REVENUE FORECASTS. THIS WAS JUST A SANITY CHECK. AGAIN, AS I SAID BEFORE, THIS WAS REALLY DONE TO LOOK TO SEE WHETHER THE ESTIMATES THAT WE HAD FOR 2017 AND 2018 WERE REALISTIC AND WHETHER THEY NEEDED MORE RETAIL PARTNERS. THIS DIDN'T ACTUALLY DRIVE ANY REVENUE ASSUMPTIONS IN ANY OF OUR MODELS IN ANY QUARTER IN ANY YEAR. SO, AGAIN, THIS WAS A SECONDARY ANALYSIS THAT WE DID TO MAKE SURE THAT WALGREENS -- TO SEE HOW FAR THEY COULD GO WITH WALGREENS AND WHETHER THEY NEEDED OTHER ADDITIONAL PARTNERS. AND YOU CAN SEE THE NUMBER OF STORES IN 2018 IS THE SAME AS '17, '16, '15, AND WE WANTED TO SEE WHAT THE THROUGHPUT WAS JUST WITH WALGREENS AND SAFEWAYS AS THEY RAMPED OVER THIS PERIOD OF TIME AND JUST MAKE SURE THAT IT WAS A NUMBER THAT WASN'T UNREALISTIC BASED ON OUR UNDERSTANDING OF THROUGHPUT IN THOSE ORGANIZATIONS. AND IF IT WAS, THAT WOULD LEAD TO FOLLOW-ON CONVERSATIONS, WELL, WHAT OTHER RETAIL PARTNERS DO YOU NEED FOR A MARKET LIKE LOS ANGELES? AND MAYBE THE ANSWER IS RITE AID WOULD BE A GREAT ADDITIONAL PARTNER TO HAVE FOR THAT MARKET. SO THAT'S WHAT THIS ANALYSIS WAS REFERRING TO.
MR. WADE: AND THE ANALYSIS, I BELIEVE YOU JUST TESTIFIED ABOUT 90 TO 120 SECONDS AGO THAT YOU BUILT THE ANALYSIS OFF OF THE NUMBER OF STORES THAT THERANOS USED IN ITS MODEL FOR 2014 TO 2015. THAT WAS YOUR TESTIMONY, WAS IT NOT?
BRIAN GROSSMAN: THAT WAS THE MODEL THAT THEY SENT US.
BRIAN GROSSMAN: WE, WE USED -- WE RELIED HEAVILY ON THE MODEL THAT THEY PROVIDED.
MR. WADE: I'M NOT ASKING ABOUT WHAT YOU RELIED ON. I'M ASKING YOU THAT YOU JUST TESTIFIED THAT YOU USED THE SAME NUMBER OF STORES FROM THE THERANOS MODEL AND YOUR MODEL? DID YOU JUST TESTIFY TO THAT?
BRIAN GROSSMAN: I, I -- MR. WADE, I'M -- I -- I'M SORRY. I DIDN'T MEAN TO CONFUSE YOU OR MISLEAD YOU IN MY ANSWER. THE MODEL REALLY HAS TWO STAGES. IN 2014 AND 2015, WE RELIED HEAVILY ON THE THERANOS ASSUMPTIONS. WE DIDN'T TAKE THEM WORD FOR WORD, NUMBER FOR NUMBER, BUT WE RELIED ON THOSE. AND THEN IN '16, '17 AND '18, WE HAD NO THERANOS ASSUMPTION, SO WE HAD TO HAVE OUR OWN. THE PERCENTAGE OF EACH MARKET THAT THESE -- I BELIEVE THE MODEL WAS DRIVEN BY THE PERCENTAGE OF EACH ONE OF THESE METROPOLITAN AREAS, THE TESTS THAT WERE DONE IN THOSE AREAS IN EACH OF THOSE YEARS.
MR. WADE: WELL, LET ME TAKE THOSE ONE AT A TIME. THE PERCENTAGE OF PATIENTS IN A MARKET IS A TOTALLY DIFFERENT ANALYSIS FROM THE ANALYSIS THERANOS DID; CORRECT?
BRIAN GROSSMAN: WELL, I'M NOT SURE WHAT ANALYSIS THERANOS DID. THE THERANOS MODEL WAS DRIVEN BY PATIENTS PER STORE THAT HAD A WHOLE SERIES OF ASSUMPTIONS.
MR. WADE: RIGHT. RIGHT. THERE WAS NO ANALYSIS BASED UPON THE POPULATION IN THE AREA AND AN ASSUMPTION OF ORDER OR ANYTHING OF THE KIND THAT YOU JUST DISCUSSED; RIGHT?
BRIAN GROSSMAN: THAT IS CORRECT.
BRIAN GROSSMAN: THAT'S CORRECT.
MR. WADE: AND SO WHAT YOU JUST DESCRIBED AS TO YOUR MODELING WAS COMPLETELY DIFFERENT METHODOLOGY THAN THE THERANOS MODEL; RIGHT?
BRIAN GROSSMAN: IT WAS A DIFFERENT METHODOLOGY, YES.
MR. WADE: OKAY. AND TO THE EXTENT THAT YOU LOOKED AT THE NUMBER OF RETAIL STORES IN 2015 AS SOME SORT OF SANITY CHECK OR THE LIKE, YOU CAME UP WITH 4685 STORES; IS THAT RIGHT?
MR. WADE: IT, IT -- I USED THE SPREADSHEET. ISN'T THAT WHAT THOSE STORES IDENTIFY IN THAT COLUMN?
BRIAN GROSSMAN: THOSE ARE THE NUMBER OF WALGREENS AND SAFEWAY STORES IN THE 18 METROPOLITAN AREA THAT OUR MODEL USED TO FORECAST REVENUES, THE TOTAL NUMBER OF STORES.
MR. WADE: RIGHT. SO THE ASSUMPTION WOULD BE THAT THEY'RE ACTUALLY OPERATING OUT OF THE STORES; IS THAT RIGHT?
BRIAN GROSSMAN: THAT WAS NOT OUR ASSUMPTION.
MR. WADE: OKAY. AND YOU'RE AWARE THAT THERANOS, THERANOS'S PROJECTION AT THE TIME WAS 3100 STORES?
BRIAN GROSSMAN: I BELIEVE THAT'S RIGHT.
BRIAN GROSSMAN: BY THE END OF 2015.
MR. WADE: CORRECT. AND I THINK YOU DID TESTIFY THAT THERE WAS SOME CONCERN EXPRESSED BY YOUR TEAM, OR SOME DISCUSSION WITHIN THE TEAM, ABOUT SOME OF THE ASSUMPTIONS IN THE MODEL. DO YOU RECALL THAT?
BRIAN GROSSMAN: I DON'T RECALL ALL OF THE BACK AND FORTH, BUT WE DID HAVE A COLLABORATIVE EFFORT AROUND THE MODEL AND THE ASSUMPTIONS THAT WENT INTO IT.
BRIAN GROSSMAN: THAT WOULD BE TYPICAL OF ANY INVESTMENT, YES.
MR. WADE: OKAY. AND DO YOU RECALL THAT THERE WAS ALSO SOME DEBATE INTERNALLY ABOUT THE ACCURACY OF THERANOS'S TESTS?
BRIAN GROSSMAN: I DO RECALL THAT, YES.
MR. WADE: AND IN THE DAYS LEADING UP TO THE INVESTMENT IN JANUARY OF 2000 -- IN LATE JANUARY OF 2014, SOME MEMBERS OF THE TEAM EXPRESSED, YOU KNOW, SOME CONCERNS BASED UPON THE DATA ANALYSIS OF THE ACCURACY OF THE TESTS; RIGHT?
BRIAN GROSSMAN: I BELIEVE THERE WERE QUESTIONS AROUND THE ACCURACY, YES.
BRIAN GROSSMAN: OKAY.
BRIAN GROSSMAN: YES.
MR. WADE: AND IN THAT EMAIL -- AND MR. CLAMMER ENDED UP INVESTING IN THERANOS THROUGH PFM; CORRECT?
BRIAN GROSSMAN: I BELIEVE THAT'S CORRECT.
MR. WADE: AND IN THAT -- IN THIS EMAIL YOU'RE, YOU'RE IDENTIFYING FOR HIM THAT THERE WAS THAT DEBATE WITH RESPECT TO ACCURACY; CORRECT?
BRIAN GROSSMAN: YES.
MR. LEACH: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 4088 WAS RECEIVED IN EVIDENCE.)
BRIAN GROSSMAN: NOT AN EXECUTIVE. AN INVESTOR IN THIS INDUSTRY DURING HIS CAREER AS AN INVESTOR.
MR. WADE: AND HE ENDED UP COMING UNDER A CDA SO HE COULD RECEIVE INFORMATION RELATING TO THERANOS?
BRIAN GROSSMAN: I BELIEVE BY THE END OF THE PROCESS, YEAH, HE WAS.
BRIAN GROSSMAN: HE WAS -- YEAH, HE, HE WAS, HE WAS NOT INVOLVED VERY MUCH IN, IN THE ANALYSIS.
MR. WADE: OKAY. BUT HERE YOU'RE IDENTIFYING FOR HIM THE DEBATE INTERNALLY ABOUT THE ACCURACY; CORRECT?
BRIAN GROSSMAN: YES.
MR. WADE: AND IF WE GO BACK TO OUR CALENDAR DEMONSTRATIVE HERE ON THE ELMO, THIS IS, THIS IS, RIGHT HERE, ABOUT A WEEK BEFORE YOU MAKE THE INVESTMENT DECISION; CORRECT?
BRIAN GROSSMAN: YES.
MR. WADE: AND DO YOU RECALL IN THAT WEEK THERE WERE SOME OTHER CONCERNS THAT CAME UP AS EXPRESSED BY THE DUE DILIGENCE TEAM?
BRIAN GROSSMAN: I DON'T RECALL SPECIFICALLY. I KNOW WE HAD A NUMBER OF ITEMS THAT WE WANTED TO GET THROUGH THAT LAST WEEK.
BRIAN GROSSMAN: I DO, YEAH.
MR. WADE: AND IS THIS AN EMAIL IN WHICH DR. RABODZEY IS PROVIDING A THERANOS TECHNICAL AND REGULATORY ASSESSMENT TO THE ANALYST TEAM?
BRIAN GROSSMAN: MAYBE I COULD HAVE A MINUTE TO REVIEW IT.
BRIAN GROSSMAN: OKAY.
(PAUSE IN PROCEEDINGS.)
BRIAN GROSSMAN: OKAY. SORRY. IT'S A LONG EMAIL.
BY MR. WADE:
MR. WADE: AND MY QUESTION, MR. GROSSMAN, WAS, IS THIS A THERANOS TECHNICAL AND REGULATORY ASSESSMENT THAT WAS PROVIDED TO THE ANALYST TEAM BY DR. RABODZEY?
BRIAN GROSSMAN: IT IS AN ANALYSIS OF SOME OF THE TEST MATERIAL FROM THERANOS, YES.
MR. LEACH: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 4089 WAS RECEIVED IN EVIDENCE.)
BY MR. WADE:
MR. WADE: AND JUST LOOKING AT THE TOP OF THE EMAIL, DR. RABODZEY NOTES THAT HE WANTED TO FOLLOW UP ON SOME OF THE DISCUSSIONS AND SPEND MORE TIME UNDERSTANDING THE RISKS WE HAVE TO ACCOUNT FOR. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO, YES.
MR. WADE: AND HE GOES THROUGH A PRETTY DETAILED DISCUSSION OF SOME CALLS HE HAD WITH RESPECT TO CONSULTANTS ON DIFFERENT REGULATORY ITEMS; CORRECT?
BRIAN GROSSMAN: THAT IS CORRECT.
MR. WADE: AND THEN IF YOU LOOK AT THE PARAGRAPH STARTING WITH "IN FACT," IN THE MIDDLE OF THAT DISCUSSION. HE NOTES AT THE END, AT THIS POINT MANY OF THERANOS TESTS WOULD NOT QUALIFY UNDER ONE OR TWO OR BOTH FDA REQUIREMENTS. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: WELL, THAT'S MR. RABODZEY'S, MR. RABODZEY'S PERSPECTIVE AT THAT POINT IN TIME, YES.
MR. WADE: AND IF YOU GO DOWN TO -- AND THAT WAS THE DATA THAT THERANOS PROVIDED TO PFM; CORRECT?
BRIAN GROSSMAN: I'M NOT SURE WHAT DATA HE'S ANALYZING HERE.
MR. WADE: OKAY. IF YOU GO TO THE NEXT BULLET POINT, HE TALKS ABOUT -- I'M SORRY. IF WE CAN JUST GRAB THE LAST SENTENCE OF THAT BULLET STARTING WITH "IN COMPARISON TO." DO YOU SEE THERE IT SAYS, "IN COMPARISON TO THAT, THERANOS USED 32 SAMPLES TO VALIDATE," SOME OF ITS ASSAYS. AND HE'S COMPARING THE RESULTS OF SOME OF THE THERANOS DATA TO OTHER DATA THAT HE REVIEWED. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT.
BRIAN GROSSMAN: I THINK HE'S SAYING BOTH ARE GOOD NUMBERS. SO I'M NOT SURE I AGREE WITH YOUR CONCLUSION THERE.
MR. WADE: OKAY. WELL, LET'S LOOK AT HIS CONCLUSION DOWN BELOW. LET ME DIGEST IT IN A SIMPLE WAY. LET'S LOOK AT -- HE HAS THREE NUMBERED PARAGRAPHS THERE. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO, YES.
BRIAN GROSSMAN: YES.
MR. WADE: HE SAYS, "THE FDA COULD CHOOSE TO SEND CEASE AND DESIST ORDER TO THERANOS ANY TIME BECAUSE THEIR TESTS ARE NOT FDA CLEARED." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
MR. WADE: HE SAYS, "HISTORICALLY, THE FDA DID NOT DO THIS, SO THERANOS IS CORRECT THAT SUCH AN AGGRESSIVE SCENARIO IS UNLIKELY IN THE NEAR FUTURE." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT.
MR. WADE: HE THEN SAYS, "CLIA DOES NOT GUARANTEE THE COMPANY THAT THE FDA WILL NOT GO AFTER THEM, BUT THERE ARE EXAMPLES OF LARGE CLIA LABS OPERATING WITHOUT FDA APPROVAL." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT.
MR. WADE: AND THEN HE NOTES THAT THERE'S A RISK, IF YOU GO ON TO THE SECOND PAGE AT THE TOP. DO YOU SEE IT SAYS, "BASED ON THE DATA I HAVE SEEN SO FAR I DO NOT BELIEVE THERANOS HAS ADEQUATE DATA FOR FDA APPROVAL FOR MANY OF ITS TESTS TODAY (THEY ARE CLEARLY WORKING ON THAT)." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT, YES.
BRIAN GROSSMAN: MR. RABODZEY IS DOING HIS JOB. HE'S ANALYZING THE DATA AND HE'S PROVIDING HIS RISK ASSESSMENT BASED ON THE DATA THEY PROVIDED US, WHICH WAS NOT ALL OF THE DATA THAT THEY HAD, AND WAS NOT THE DATA THAT WAS -- WE DIDN'T REVIEW THEIR FDA FILINGS, SO WE DON'T KNOW WHAT ADDITIONAL DATA SETS THEY HAVE. WE JUST ASKED FOR A SAMPLE OF DATA ON THEIR TECHNOLOGY. SO BASED ON THAT, THIS IS HIS RISK ASSESSMENT.
MR. WADE: OKAY. THAT IS WHAT YOU WERE ASKING HIM TO DO IS TO ASSESS THE RISK SO YOU KNEW THE RISK YOU WERE TAKING WHEN YOU MADE THE INVESTMENT; RIGHT?
BRIAN GROSSMAN: THAT'S CORRECT.
MR. WADE: ALL RIGHT. LET'S LOOK AT THE CONCLUSION. AND I WANT TO LOOK IN PARTICULAR AT THE LAST SENTENCE OF THAT FIRST PARAGRAPH. HE SAYS, "WE ALSO HAVE TO ASSUME THAT THERE IS A POSSIBILITY THAT THEY WILL NEVER BE ABLE TO GET CERTAIN TESTS APPROVED BY THE FDA AND THEY WILL REMAIN VENOUS BLOOD DRAW TESTS (WHICH THEY MENTIONED)." DO YOU SEE THAT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: I'M SORRY, COULD YOU REPEAT THE LAST PART?
BRIAN GROSSMAN: WELL, THIS IS HIS RISK ASSESSMENT. WELL, THIS IS HIS -- WELL, MR. RABODZEY IS PROVIDING US HIS PERSPECTIVE ON THE RISKS AROUND FDA APPROVAL.
MR. WADE: AND THAT THEY MAY NOT GET APPROVAL AND THAT SOME OF THEIR TESTS MAY REMAIN VENOUS BLOOD DRAW TESTS, WHICH THERANOS TOLD YOU; RIGHT?
BRIAN GROSSMAN: THEY DID NOT TELL US THEIR TESTS WOULD REMAIN VENOUS BLOOD DRAW TESTS, NO, THAT'S NOT WHAT THEY TOLD US.
BRIAN GROSSMAN: WELL, I THINK WE MAY BE TALKING ABOUT DIFFERENT THINGS. THE COMPANY TOLD US THAT THEY WOULD, IN A SHORT PERIOD OF TIME, BE DOING ALMOST ALL FINGERSTICK USING THE PROPRIETARY TECHNOLOGY. THIS IS REFERRING TO THE RISKS -- ALL COMPANIES THAT ARE GOING THROUGH AN FDA APPROVAL PROCESS HAVE RISKS. WE CAN PICK UP THE PAPER EVERY WEEK AND READ ABOUT COMPANIES THAT HAVE SETBACKS FROM A REGULATORY STANDPOINT. IT'S JUST PART OF THIS INDUSTRY. SO HE'S DOING HIS JOB TO IDENTIFY THE POTENTIAL RISKS ASSOCIATED WITH SEEKING FDA APPROVAL. BUT THEY WERE ABLE TO OPERATE THEIR CLIA LABORATORY, THEY WERE ABLE TO PROVIDE A GREAT RETAIL PRODUCT, DIFFERENTIATED RETAIL PRODUCT, WITHOUT GETTING FDA APPROVAL. SO THIS WAS AN IMPORTANT PART OF UNDERSTANDING LONGER TERM HOW THEY WOULD EVENTUALLY SECURE FDA APPROVAL FOR ALL OF THEIR TESTS, WHICH IS SOMETHING THEY TOLD US THAT THEY WERE GOING TO DO. BUT IT REALLY WASN'T FUNDAMENTAL TO THE MODEL, THE BUSINESS THAT WE WERE INVESTING IN AT THAT POINT IN TIME. BUT IT WAS SOMETHING THAT WAS IMPORTANT TO THE COMPANY, SO WE WANTED TO UNDERSTAND WHAT THE PROCESS FOR GETTING FDA APPROVAL WAS.
MR. WADE: WELL, DOESN'T IT SAY RIGHT HERE, SIR, THAT THERANOS TOLD YOU CERTAIN OF ITS TESTS MAY RETAIN VENOUS BLOOD DRAW TESTS? ISN'T THAT WHAT THAT SENTENCE SAYS RIGHT THERE?
BRIAN GROSSMAN: I BELIEVE THIS IS MR. RABODZEY COMMUNICATING TO US. NOT -- I DON'T BELIEVE THIS IS A THERANOS EMAIL TO PFM.
MR. WADE: NO. HE'S SAYING WE HAVE TO ASSUME THAT THERE IS A POSSIBILITY THAT THEY WILL NEVER BE ABLE -- "THEY" MEANING THERANOS; RIGHT?
BRIAN GROSSMAN: YES, THAT'S WHO HE IS REFERRING TO.
MR. WADE: "WILL NEVER BE ABLE TO GET CERTAIN TESTS APPROVED BY THE FDA AND THEY WILL REMAIN VENOUS BLOOD DRAW TESTS (WHICH THEY MENTIONED)."
BRIAN GROSSMAN: THEY DID MENTION TO US THAT A SMALL PERCENTAGE OF TESTS WERE VENOUS BLOOD DRAW AT THE TIME OF OUR DUE DILIGENCE, THAT IS TRUE.
MR. WADE: LET'S GO TO THE NEXT PARAGRAPH AND LOOK AT THE BOTTOM SENTENCE STARTING WITH "BASICALLY." IT SAYS, "BASICALLY, I WOULD ASSUME 10 TO 25 PERCENT CHANCE OF A MAJOR DELAY OR PROBLEMS WITH GETTING ALL TESTS ON THE MARKET THROUGH FDA." DO YOU SEE THAT?
BRIAN GROSSMAN: I SEE THAT.
MR. WADE: AND IT SAYS, "OBVIOUSLY, IF EVERYTHING GOES WELL, THIS WILL BE A HUGE SUCCESS, SO I DON'T WANT US TO BE TOO CONSERVATIVE HERE, BUT WANT TO MAKE SURE WE UNDERSTAND THE RISKS INVOLVED SINCE THIS MAY AFFECT SIZING DECISIONS." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT.
BRIAN GROSSMAN: OKAY.
MR. WADE: AND DO YOU RECOGNIZE THIS TO BE ANOTHER EMAIL IN WHICH INFORMATION IS BEING CONVEYED AS PART OF THE DUE DILIGENCE PROCESS RELATING TO THERANOS?
BRIAN GROSSMAN: IF I COULD HAVE A MINUTE TO JUST GO THROUGH THIS EMAIL CHAIN? THANK YOU.
MR. WADE: SURE. IF IT HELPS, I'M GOING TO START WITH THE SECOND TO LAST EMAIL ON THE SECOND PAGE.
(PAUSE IN PROCEEDINGS.)
BRIAN GROSSMAN: OKAY. SORRY. IT'S A LONG CHAIN.
BY MR. WADE:
MR. WADE: OKAY. DID I ACCURATELY DESCRIBE THIS AS AN EMAIL THAT CONVEYS ADDITIONAL INFORMATION RELATING TO THE DUE DILIGENCE PROCESS WITH RESPECT TO YOUR THERANOS INVESTMENT?
BRIAN GROSSMAN: YES.
MR. LEACH: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 4090 WAS RECEIVED IN EVIDENCE.)
MR. WADE: DO YOU SEE HERE THAT MR. KHANNA IS CONVEYING TO YOU THAT -- SOME INTEL THAT HE GOT WITH RESPECT TO THERANOS?
BRIAN GROSSMAN: YES, HE IS.
BRIAN GROSSMAN: WELL, BASED ON THIS EMAIL, HE SAID THAT HE CHECKED WITH BLUE CROSS AND BLUE SHIELD OF ILLINOIS, THAT'S WHAT THAT -- THOSE SYMBOLS STAND FOR, BCBSIL.
BRIAN GROSSMAN: AGAIN, WE TALKED ABOUT THIS YESTERDAY, EACH STATE HAS A NOT FOR PROFIT HEALTH INSURANCE COMPANY UNDER THE BLUE CROSS OR BLUE SHIELD NAME, AND SO THIS IS THE ILLINOIS BLUE CROSS AND BLUE SHIELD. IT'S NOT A PUBLIC COMPANY SO THIS IS A CONTACT THAT HE HAS FROM THIS NOT FOR PROFIT ORGANIZATION IN ILLINOIS. AND THE FEEDBACK WAS THAT THEY HAD EVALUATED THERANOS'S SERVICES AND THEY CONCLUDED THAT IT DOES NOT WORK -- I'M JUST READING FROM THE EMAIL -- THEY HAVE NO CONTRACT WITH THERANOS AND THEY DID EXTENSIVE DILIGENCE ON THE MACHINE AND CAME TO THIS CONCLUSION.
MR. WADE: OKAY. SO YOU LEARNED THROUGH YOUR DUE DILIGENCE PROCESS THAT THIS BLUE CROSS BLUE SHIELD ENTITY HAD LOOKED AT THE TECHNOLOGY AND COME TO THE VIEW THAT IT DIDN'T WORK; RIGHT?
BRIAN GROSSMAN: WE -- YES.
BRIAN GROSSMAN: THAT WAS THE INFORMATION THAT WE HAD FROM VIVEK KHANNA'S CONTACT AT BLUE CROSS BLUE SHIELD ILLINOIS.
MR. WADE: OKAY. AND AGAIN, THIS IS ABOUT A WEEK BEFORE YOU'RE MAKING THE INVESTMENT DECISION; RIGHT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: OKAY.
BRIAN GROSSMAN: I DO.
BRIAN GROSSMAN: I DO, YES.
MR. WADE: AND DO YOU RECOGNIZE THIS TO BE A COMMUNICATION RELATING TO YOUR OWN TEST AT THERANOS?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: WELL, THE TOP EMAIL IS. THE REST OF THE EMAIL CHAIN IS NOT RELATED TO THAT.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
MR. LEACH: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED.
(DEFENDANT'S EXHIBIT 14057 WAS RECEIVED IN EVIDENCE.)
BY MR. WADE:
MR. WADE: AND IN THIS EMAIL, DO YOU RECALL THAT THERE WAS ACTUALLY A DELAY THAT RESULTED FROM YOU GETTING YOUR TEST RESULTS BACK FROM THE COMPANY?
BRIAN GROSSMAN: YES, I DO.
BRIAN GROSSMAN: I DON'T, I DON'T RECALL IF IT WAS SEVERAL DAYS, BUT I DO RECALL THAT IT WAS NOT FOUR HOURS.
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. AND DO YOU RECALL LEARNING THAT THAT WAS BECAUSE A CONTROL HAD FAILED ON ONE OF THE ASSAYS THAT YOU HAD TESTED?
BRIAN GROSSMAN: I BELIEVE THAT, YEAH, WE -- I THINK WE COVERED THAT YESTERDAY, YES.
BRIAN GROSSMAN: YES.
MR. WADE: AND IF I JUST LOOK AT YOUR EMAIL AT THE TOP, YOU RECOGNIZED, AND YOUR TEAM RECOGNIZED, THAT THIS IS THE REAL WORLD AND THINGS LIKE THIS CAN HAPPEN IN THE PATIENT EXPERIENCE; CORRECT?
BRIAN GROSSMAN: I -- I'M NOT SURE WHAT I WAS REFERRING TO THERE. I GUESS IT -- OKAY. YES. YES. YEAH.
MR. WADE: AND, AGAIN, THIS IS IN THAT WINDOW JUST ABOUT A WEEK BEFORE YOUR INVESTMENT DECISION; CORRECT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: I DO.
BRIAN GROSSMAN: IT APPEARS TO BE, YES.
MR. LEACH: YOUR HONOR, 802. I DON'T MIND THIS COMING IN FOR STATE OF MIND.
JUDGE DAVILA: STATE OF MIND OF THIS WITNESS?
JUDGE DAVILA: IN REGARDS TO THE INVESTMENT DECISION?
JUDGE DAVILA: ALL RIGHT. LADIES AND GENTLEMEN, THIS IS ADMITTED NOT FOR THE TRUTH OF THE MATTER ASSERTED IN THE DOCUMENT, BUT ONLY AS TO THE ISSUE OF THE STATE OF MIND OF MR. GROSSMAN IN REGARDS TO THE INVESTMENT DECISION. AND IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 14054 WAS RECEIVED IN EVIDENCE.)
BY MR. WADE:
BRIAN GROSSMAN: YES.
MR. WADE: AND DR. RABODZEY REPORTS ON A CALL THAT HE HAD WITH A SCIENTIST WHO DEVELOPS LAB DEVELOPED TESTS. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
MR. WADE: AND HE SAYS THAT THAT SCIENTIST'S VIEW WAS THAT CLIA APPROVAL IS ENOUGH FOR AS LONG AS YOU HAVE MACHINES INSIDE OF THE CLIA LAB. THERE IS NO NEED FOR FDA APPROVAL. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
MR. WADE: AND THEN HE SAID THAT IF YOU WANT TO PUT A MACHINE IN A WALGREENS LOCATION, IT HAD TO BE FDA CLEARED. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT.
MR. WADE: OKAY. AND HE -- THIS PERSON ALSO EXPRESSED THE VIEW, IF YOU LOOK AT THE "ADDITIONALLY" SENTENCE THERE. "HE DID BELIEVE THAT WHILE MINIATURIZING" -- LH, IS THAT LABCORP?
BRIAN GROSSMAN: LH IS REFERRING TO LABCORP.
MR. WADE: OKAY. -- "LABCORP TEST MENU IS POSSIBLE, IT WILL BE VERY HARD TO DO ON SOME TESTS AND ACCURACY WILL DETERIORATE (BUT WE ALREADY KNOW THAT)." DO YOU SEE THAT?
BRIAN GROSSMAN: I SEE THAT.
MR. WADE: AND IF YOU LOOK AT THE NEXT, IT SAYS, "OVERALL, I THINK ACROSS THE 3 REGULATORY/SCIENCE CALLS I FEEL THAT THERE IS SMALL RISK TO IMPLEMENTATION IF THE FDA CHOOSES TO EXERCISE THEIR AUTHORITY, BUT THIS WOULD BE UNUSUAL. SO, I WOULD STICK TO MY LOW 10 TO 20 PERCENT CHANCE THAT THE IMPLEMENTATION GETS DERAILED BY THE FDA DEMANDING MORE REGULATION AND A DECENT CHANCE THAT SOME OF THE TESTS MAY NOT PASS THE FDA 501K REVIEW." DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT.
MR. WADE: AND THIS IS, AGAIN, DR. RABODZEY DOING HIS JOB ABOUT A WEEK OUT FROM THE INVESTMENT; IS THAT FAIR?
BRIAN GROSSMAN: AND I CONTINUE -- AND HE CONTINUES TO BELIEVE THAT THIS IS AN ACCEPTABLE RISK FOR A PRIVATE INVESTMENT AS LONG AS WE BELIEVE UP SIDE OF THE BASE CASE SCENARIO.
BRIAN GROSSMAN: YES.
MR. WADE: LET'S GO TO 14055. DO YOU RECOGNIZE THIS TO BE ANOTHER EMAIL RELATING TO THE THERANOS DUE DILIGENCE PROCESS RELATING TO DR. RABODZEY'S PATIENT EXPERIENCE DUE DILIGENCE?
BRIAN GROSSMAN: YES.
MR. LEACH: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 14055 WAS RECEIVED IN EVIDENCE.)
BY MR. WADE:
MR. WADE: AND THIS EMAIL -- DO YOU RECALL THAT DR. RABODZEY WENT IN AND GOT HIS BLOOD TESTED AT WALGREENS? I BELIEVE YOU TESTIFIED TO THAT.
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: I RECALL THAT NOW, YES.
MR. WADE: AND DO YOU RECALL THAT BEING AS A RESULT OF THE EMR SYSTEM NOT FUNCTIONING PROPERLY YET?
BRIAN GROSSMAN: I WOULD NEED TO READ THIS TO REFRESH MY MEMORY OF THAT.
MR. WADE: WELL, DO YOU RECALL THAT IT WAS AN ISSUE RELATING TO THE ELECTRONIC CONNECTIVITY BETWEEN THE PHARMACY AND HIS DOCTOR'S OFFICE?
BRIAN GROSSMAN: IT, IT -- IN READING THIS, IT SEEMS THAT THEY DIDN'T HAVE THE RIGHT FAX NUMBER, BUT MAYBE I'M MISSING SOMETHING.
MR. WADE: WELL, THAT THEY DIDN'T HAVE -- THEY WEREN'T YET CONNECTED ON ELECTRONIC MEDICAL RECORDS; IS THAT RIGHT? IF YOU LOOK AT THE SECOND PARAGRAPH OF THE FIRST EMAIL?
BRIAN GROSSMAN: WELL, IT SOUNDS LIKE THEY SENT THE RESULTS TO A FAX NUMBER, BUT THERE WAS A SECONDARY FAX NUMBER BASED ON THE EMAIL. BUT I DON'T KNOW EXACTLY WHAT MR. BLICKMAN FROM THERANOS WAS -- I DON'T, I DON'T -- SO I'M NOT SURE.
MR. WADE: WELL, LET ME, LET ME JUST FOCUS YOU ON THE SENTENCE ON THE SCREEN. YOU RECOGNIZE AT THE TIME THAT THAT WALGREENS LOCATION WAS NOT CONNECTED VIA ELECTRONIC MEDICAL RECORDS TO DR. RABODZEY'S MEDICAL PRACTICE?
BRIAN GROSSMAN: IT'S HARD FOR ME TO ANSWER THAT QUESTION. THEY MAY HAVE BEEN AND THE PHYSICIAN MAY HAVE STILL WANTED THE FAX BECAUSE THAT'S HOW THEY RECEIVED IT. IT'S HARD FOR ME TO REALLY ANSWER THAT. I DON'T KNOW.
BRIAN GROSSMAN: OKAY.
MR. WADE: AND IS THIS ANOTHER EMAIL RELATING TO DR. RABODZEY'S TEST RESULTS AS PART OF THAT DUE DILIGENCE PROCESS?
BRIAN GROSSMAN: YES, IT APPEARS TO BE.
MR. LEACH: 802, YOUR HONOR.
JUDGE DAVILA: WHAT LIMITED PURPOSE?
JUDGE DAVILA: DOES THIS RELATE TO YOUR LAST QUESTION ABOUT THE FAX MACHINE?
MR. WADE: I BELIEVE THE SECOND EMAIL IN THE CHAIN REFLECTS THE STATE OF MIND WITH RESPECT TO A TIMING ISSUE, AND THEN THE TOP EMAIL WOULD BE RELEVANT TO THE STATE OF MIND WITH RESPECT TO PERFORMANCE OF THE TEST.
JUDGE DAVILA: ALL RIGHT. LADIES AND GENTLEMEN, THIS WILL BE ADMITTED NOT FOR THE TRUTH OF ANYTHING ASSERTED IN THE EMAILS, BUT ONLY AS TO ANY ISSUE AND THE STATE OF MIND OF MR. GROSSMAN AS TO ANY DECISION AS TO INVESTMENT. AND IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 14029 WAS RECEIVED IN EVIDENCE.)
BY MR. WADE:
MR. WADE: OKAY. AND IT'S A SIMILAR EMAIL -- SAME EMAIL FROM MR. BLICKMAN DOWN BELOW. AND YOU NOTED IT TOOK A LONG TIME?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
MR. WADE: BUT YOU ALSO LEARNED THAT, FROM MR. RABODZEY'S POINT OF VIEW, THE RESULTS WERE CONSISTENT WITH PREVIOUS TESTS; RIGHT?
BRIAN GROSSMAN: THAT IS -- YES, THAT IS WHAT MR. RABODZEY COMMUNICATED TO ALL OF US ON THE DUE DILIGENCE TEAM.
MR. WADE: OKAY. AND DO YOU RECALL THAT, IN PART, AS SOME OF THESE CONCERNS WERE COMING TO LIGHT IN THIS WINDOW, THAT ONE OF THE THINGS THAT YOU DID IS YOU PLACED A SECOND CALL TO DR. ROBERTSON?
BRIAN GROSSMAN: I DO BELIEVE I SPOKE TO HIM AGAIN BEFORE THE INVESTMENT.
MR. WADE: AND DO YOU RECALL THAT YOU WANTED TO MAKE SURE, IN LIGHT OF SOME OF THESE CONCERNS, THAT YOU WERE, YOU WERE COMFORTABLE WITH HIS VIEWS WITH RESPECT TO THE TECHNOLOGY; RIGHT?
BRIAN GROSSMAN: THAT'S A LONG QUESTION. MAYBE YOU COULD TRY TO -- COULD YOU ASK THAT ONE MORE TIME?
MR. WADE: WELL, LET ME ASK THIS, DO YOU RECALL THAT YOU CALLED HIM AND JUST POINT-BLANK SAID, DOES THE TECHNOLOGY WORK? AND HE SAID YES?
BRIAN GROSSMAN: I BELIEVE WE TALKED ABOUT THE TECHNOLOGY IN THAT SECOND CONVERSATION, YES.
MR. WADE: AND DO YOU RECALL WHAT HE CONVEYED TO YOU ABOUT THE TECHNOLOGY IN THAT SECOND CONVERSATION?
BRIAN GROSSMAN: I -- WHAT I REMEMBER WASN'T REALLY ANY DIFFERENT FROM THE FIRST CONVERSATION.
BRIAN GROSSMAN: YES.
MR. WADE: -- AND THAT GAVE YOU ASSURANCE? BUT YOU, YOU WENT BACK TO HIM LATE IN THE DUE DILIGENCE PROCESS FOR A SECOND CALL AFTER SOME OF THESE ISSUES CAME UP; IS THAT RIGHT?
BRIAN GROSSMAN: I DON'T -- I MEAN, WE WERE -- OFTEN IN AN INVESTMENT LIKE THIS WHERE THERE'S A DEADLINE, THERE'S A LOT OF WORK THAT GETS DONE IN THE LAST DAY, TWO, THREE DAYS. WE HAD A NUMBER OF ITEMS THAT WE HAD TO GET THROUGH, AND AS PART OF OUR DUE DILIGENCE PROCESS, IT INCLUDED CIRCLING BACK TO MR. ROBERTSON, IN ADDITION TO OTHER ITEMS THAT WE HAD, OPEN ITEMS THAT WE HAD.
BRIAN GROSSMAN: SORT OF A NORMAL PART OF A PROCESS LIKE THIS.
MR. WADE: OKAY. AND AS YOU PUSHED THIS FORWARD, DO YOU RECALL THAT YOUR TEAM PREPARED, YOUR ANALYST TEAM PREPARED A POWERPOINT FOR THE PEOPLE WITHIN PFM WHO WERE CONSIDERING AN INVESTMENT?
BRIAN GROSSMAN: YES, I DO REMEMBER THAT.
BRIAN GROSSMAN: I DO.
MR. WADE: AND IS THIS THE POWERPOINT THAT YOU GAVE, OR THAT WAS GIVEN TO THE PEOPLE WHO MIGHT BE INTERESTED IN INVESTING IN THERANOS?
BRIAN GROSSMAN: THIS WAS THE POWERPOINT THAT AT THAT POINT IN TIME WE PRODUCED. I'M NOT SURE HOW IT WAS DISTRIBUTED OR SHARED, BUT THIS IS A DOCUMENT THAT INTERNALLY WE PRODUCED AT OUR FIRM.
MR. WADE: AND DO YOU RECALL WHETHER YOU WERE PRESENT FOR THE PRESENTATION TO POTENTIAL -- PEOPLE WHO WERE INTERESTED IN POTENTIALLY INVESTING?
BRIAN GROSSMAN: I DON'T -- I DO RECALL. I WAS NOT PRESENT. I WAS NOT IN SAN FRANCISCO THE DAY OF THIS PRESENTATION.
BRIAN GROSSMAN: MY MEMORY IS THAT WE HAD MULTIPLE ITERATIONS OF THIS, SO I DO -- I WOULD HAVE EXPECTED IT WOULD BE UNUSUAL IF I DIDN'T GET A COPY OF THIS. BUT I DON'T REMEMBER SPECIFICALLY.
MR. LEACH: THAT'S CORRECT, YOUR HONOR.
JUDGE DAVILA: ARE THERE ANY REDACTIONS THAT WILL BE MADE TO THIS?
JUDGE DAVILA: THERE'S -- THE BATES NUMBERS IN THE RIGHT-HAND CORNER SEEM TO HAVE SOME IDENTIFIERS.
(DISCUSSION AMONGST DEFENSE COUNSEL OFF THE RECORD.)
JUDGE DAVILA: THANK YOU.
(DEFENDANT'S EXHIBIT 7411 WAS RECEIVED IN EVIDENCE.)
BY MR. WADE:
MR. WADE: -- LET ME JUST ASK A COUPLE OF QUESTIONS TO REMEMBER WHERE WE STARTED ON CROSS-EXAMINATION. THERE ARE A GROUP OF PEOPLE WITHIN PFM WHO HAVE THE DECISION TO INVEST THROUGH PFM IN SOME OF THESE INVESTMENTS; CORRECT?
BRIAN GROSSMAN: THERE'S -- I'M SORRY. COULD YOU REPEAT THE QUESTION?
MR. WADE: YEAH. DO YOU RECALL THAT ONE OF YOUR FUNDS ALLOWS CERTAIN SENIOR MEMBERS OF YOUR FIRM TO INVEST ALONGSIDE THE HEDGE FUND?
BRIAN GROSSMAN: YES.
MR. WADE: AND SOMETIMES WHEN YOU DO THAT, DO YOU GIVE A PRESENTATION OF THE INTERNAL ANALYSIS TO THOSE PEOPLE WHO ARE CONSIDERING THAT SIDECAR INVESTMENT?
BRIAN GROSSMAN: WE WOULD PREPARE AN ANALYSIS. WE MAY OR MAY NOT DO A PRESENTATION.
MR. WADE: OKAY. AND IS THE IDEA THAT YOU'LL GIVE THEM AN OVERVIEW OF THE INVESTMENT AND ASSESSMENT OF THE RISKS AND HOW THE FIRM SEES THE INVESTMENT AT THE TIME?
BRIAN GROSSMAN: YES.
MR. WADE: AND THEN ULTIMATELY THE DECISION IN THAT CASE IS UP TO THE INDIVIDUALS AS TO WHETHER OR NOT THEY WISH TO INVEST?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
MR. WADE: BUT DO YOU DO YOUR BEST TO FULLY INFORM THEM OF THE RELEVANT INFORMATION WHEN YOU GIVE PRESENTATIONS?
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. IF WE CAN PUBLISH THAT AND FOCUS ON -- THIS IS DATED JANUARY 30TH, 2014. DO YOU SEE THAT, THE EMAIL THAT TRANSMITS THIS?
BRIAN GROSSMAN: I DO. SORRY. YES.
MR. WADE: AND IF WE JUST GO TO THE FIRST PAGE OF THE POWERPOINT. DO YOU SEE THERE THERE'S A THERANOS LOGO; RIGHT?
BRIAN GROSSMAN: I DO.
BRIAN GROSSMAN: I DON'T RECALL.
MR. WADE: WERE YOU TRYING TO CREATE THE IMPRESSION WITH THE PEOPLE THAT THIS WAS INFORMATION THAT WAS BEING CONVEYED BY THERANOS?
BRIAN GROSSMAN: I, I, I DON'T BELIEVE THAT WAS WHAT WE WERE TRYING TO CONVEY, BUT I DID NOT PREPARE THIS SLIDE, SO I DON'T -- I CAN'T SPEAK FOR THE THOUGHT PROCESS BEHIND IT.
MR. WADE: LET'S GO TO, LET'S GO TO THE NEXT PAGE, AND THE NEXT PAGE. THIS -- THAT WAS JUST A TRANSITION PAGE. THIS MARKET OVERVIEW, THIS IS THAT ANALYSIS FROM YOUR MODEL THAT WE WERE LOOKING AT EARLIER; IS THAT RIGHT?
BRIAN GROSSMAN: YES.
MR. WADE: AND THIS WAS AN INDEPENDENT ANALYSIS THAT YOUR TEAM HAD DONE AS PART OF YOUR MODELING?
BRIAN GROSSMAN: THESE FIGURES I BELIEVE WERE LESS THAN THE MARKET FIGURES THE COMPANY HAD SHARED WITH US.
BRIAN GROSSMAN: SO, YES, I THINK WE, WE BELIEVE WE ARRIVED AT THESE MARKET SIZES INDEPENDENTLY.
BRIAN GROSSMAN: IN WHICH PART OF THE BUSINESS?
BRIAN GROSSMAN: IN THE TOTAL U.S. LAB MARKET. WE DIDN'T, WE DIDN'T MODEL THE COMPANY BASED ON A TOPS DOWN VIEW OF THE WHOLE U.S. LAB MARKET. SO, I'M SORRY, I CAN'T REALLY ANSWER THE QUESTION THE WAY YOU WANT.
MR. WADE: WELL, I'M JUST WONDERING IF YOU RECALL. DO YOU RECALL THAT WHEN YOU DID YOUR MODELING THAT YOU PROJECTED THAT THERANOS WOULD HAVE 19 PERCENT OF THE U.S. LAB MARKET BY 2017?
BRIAN GROSSMAN: WE HAD DIFFERENT SCENARIOS, SO I THINK IT DEPENDED ON WHICH SCENARIO YOU'RE REFERRING TO.
MR. WADE: I'M JUST -- DO YOU RECALL GENERALLY WHAT PERCENTAGE OF THE U.S. MARKET YOU RECALL THEM OBTAINING IN YOUR FINANCIAL MODELING, BASE CASE?
BRIAN GROSSMAN: I DON'T REMEMBER SPECIFICALLY THE THREE SCENARIOS, BUT I DO KNOW THAT WE LOOKED AT -- THAT'S EXACTLY HOW WE LOOKED AT IT. WE SAID, WITH A TECHNOLOGY LIKE THIS THAT WAS EASIER TO USE, WAS CHEAPER FOR THE CONSUMER, MORE CONVENIENT, ALL OF THE GREAT ASPECTS OF FINGERSTICK TECHNOLOGY, WHAT SHARE OF EACH ONE OF THESE METROPOLITAN AREAS WOULD THIS TECHNOLOGY, WHAT SHARE OF THE MARKET WOULD THEY HAVE OVER THE NEXT COUPLE YEARS.
MR. WADE: AND IF WE JUST -- LET'S JUST JUMP QUICKLY, WHILE WE'RE ON THIS POINT, TO PAGE 8. DO YOU SEE HERE A 19 PERCENT MARKET PENETRATION BY 2017?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: WELL, I'M SORRY, THAT'S OF THOSE 18 MARKETS.
MR. WADE: OKAY. OF THE 18 MARKETS THAT THEY WERE GOING TO BE IN. OKAY. AND IF WE CAN GO TO THE NEXT SLIDE. HERE YOU PROVIDED THE BUSINESS REVIEW. THIS IS JUST A QUICK OVERVIEW OF THE COMPANY; RIGHT?
BRIAN GROSSMAN: YES.
MR. WADE: AND DO YOU SEE IN THE THIRD BULLET YOU NOTE A MODEST NUMBER OF CURRENT TESTS REQUIRE VENOUS BLOOD DRAW. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO.
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. AND IF YOU GO TO THE NEXT SLIDE, THIS IDENTIFIES ALL OF THE RISKS. IS THAT FAIR?
BRIAN GROSSMAN: WELL, I WANT TO ANSWER YOUR QUESTION. I THINK THIS IS REALLY MORE DESCRIBING THE SCENARIOS, NOT -- IT'S NOT A RISK. IT'S NOT A -- IT'S NOT A PAGE IN THE PRESENTATION THAT JUST ADDRESSES RISK.
MR. WADE: OKAY. WELL, DID YOU WANT INVESTORS TO KNOW ABOUT THE REGULATORY RISKS THAT DR. RABODZEY IDENTIFIED?
BRIAN GROSSMAN: I MEAN, I -- THE GOAL WAS TO GIVE INVESTORS A PICTURE OF WHAT WE THOUGHT THE BUSINESS WAS -- WHAT WE THOUGHT OF THE BUSINESS AND WHAT THE DIFFERENT SCENARIOS WERE.
MR. WADE: RIGHT. MY QUESTION IS -- WAS SLIGHTLY DIFFERENT. DID YOU WANT THEM TO KNOW ABOUT THE RISKS THAT WERE IDENTIFIED DURING THE DUE DILIGENCE PROCESS?
BRIAN GROSSMAN: YES, SURE.
MR. WADE: OKAY. DO YOU BELIEVE THAT YOU FULLY INFORMED THEM OF ALL OF THOSE RISKS THAT YOU IDENTIFIED IN THIS PRESENTATION?
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. DO YOU SEE ANYWHERE HERE WHERE YOU DISCUSS THE ACCURACY CONCERNS THAT WERE EXPRESSED BY DR. RABODZEY?
BRIAN GROSSMAN: WE -- I DON'T -- WELL, MAYBE I CAN REVIEW THIS.
(PAUSE IN PROCEEDINGS.)
BRIAN GROSSMAN: YEAH, I DON'T THINK THAT WAS -- THAT WAS NOT A RISK THAT WE FELT WAS A MAJOR RISK AT THIS POINT IN THE INVESTMENT GIVEN THAT THEY WERE OPERATING THEIR CLIA LAB AND HAD SUCCESSFULLY PASSED PROFICIENCY TESTING REQUIREMENTS FOR ALL OF THEIR MENU OF TESTS. AS IT RELATES TO ACCURACY, I THINK THAT WAS MUCH MORE OF AN FDA APPROVAL ISSUE, WHICH REALLY WAS ABOUT THE UP SIDE SCENARIO LONGER TERM. I DO THINK WE TALKED ABOUT THE FDA MAY REGULATE TESTING MORE AGGRESSIVELY. SO I MEAN, I THINK WE DO HIGHLIGHT THAT. AND THIS WAS A DOCUMENT THAT WAS PART OF A CONVERSATION, A PRESENTATION. SO THOSE TYPES OF QUESTIONS AND ANSWERS WOULD HAVE BEEN VERY TYPICAL WITHIN THE MEETING ITSELF.
BY MR. WADE:
MR. WADE: OKAY. DID YOU FEEL IT WAS APPROPRIATE TO COMMUNICATE TO YOUR INVESTORS SORT OF THE LIMITED EXPERIENCE THAT THERANOS HAD OPERATING IN THE RETAIL ENVIRONMENT GIVEN I THINK YOU SAID IT WAS A TOUGH ENVIRONMENT?
BRIAN GROSSMAN: THE INDUSTRY CAN BE HARD AS A RETAIL PHARMACY. THAT'S A DIFFICULT BUSINESS TO OPERATE OVER TIME. BUT AS IT RELATES TO THERANOS, I THINK WE, WE TRIED TO -- I DON'T -- I GUESS THE ANSWER TO YOUR QUESTION IS I'M NOT SURE EXACTLY WHAT WE DISCUSSED IN THIS MEETING. I WASN'T AT THIS MEETING, SO --
BRIAN GROSSMAN: YES, THIS WAS A COLLABORATIVE EFFORT.
MR. WADE: OKAY. AND I ASSUME YOU WANTED TO TRY AND INFORM THEM OF ALL OF THE RISKS THAT YOU IDENTIFIED; IS THAT RIGHT?
BRIAN GROSSMAN: I THINK THERE'S AN EFFORT TO SUMMARIZE THE INVESTMENT, BOTH THE POSITIVES AND THE NEGATIVES. I DON'T THINK A MEETING LIKE THIS WE HAVE TIME TO GO THROUGH EVERY PIECE OF DUE DILIGENCE, ALL OF THE DIFFERENT PEOPLE WE TALKED TO. SO THE GOAL OF A MEETING LIKE THIS IS TO ACTUALLY GIVE THEM AN OVERVIEW, A HIGH LEVEL SUMMARY OF THE INVESTMENT OPPORTUNITY, THE POSITIVES, THE NEGATIVES. THAT'S REALLY THE GOAL OF A MEETING AND DOCUMENT LIKE THIS. IT'S NOT, IT'S NOT SUPPOSED TO BE A DETAILED REVIEW OF EVERY SINGLE PIECE OF DUE DILIGENCE THAT WE DID.
BRIAN GROSSMAN: YES.
MR. WADE: AND IT'S UP TO THE INVESTORS ON AN INDIVIDUAL BASIS TO FOLLOW UP IF THEY HAVE QUESTIONS; RIGHT?
BRIAN GROSSMAN: CORRECT.
MR. WADE: OKAY. LET'S GO TO THE NEXT SLIDE. THE NEXT SLIDE. SORRY. IN THIS YOU WERE CONVEYING TO THEM -- YOU WERE CONVEYING TO THE POTENTIAL INTERNAL INVESTORS THE FINANCIAL MODELING IN THE BASE CASE; CORRECT?
BRIAN GROSSMAN: THAT'S CORRECT.
MR. WADE: AND WERE YOU COMFORTABLE INCLUDING THESE NUMBERS WITHOUT INDICATING THAT THEY ONLY HAD $25 MILLION IN REVENUE IN 2013?
BRIAN GROSSMAN: THIS WAS A FORECAST OF FUTURE REVENUE GROWTH, SO WE WEREN'T -- 2013 WASN'T REALLY RELEVANT TO THE OUTLOOK OVER THE NEXT COUPLE OF YEARS.
MR. WADE: RIGHT. BUT YOU WERE GOING -- THERANOS -- YOU HAD PROJECTED THERANOS GOING FROM 25 MILLION TO 249 MILLION. THAT'S -- YOU ARE THE FINANCE GUY, BUT THAT'S SEVERAL HUNDRED PERCENT RETURN; RIGHT? APPROACHING A THOUSAND PERCENT RETURN?
BRIAN GROSSMAN: YES, THAT SEEMS LIKE MAYBE AN ACCURATE CALCULATION.
BRIAN GROSSMAN: WELL, I THINK THE THING THAT I THINK WE IMPRESSED UPON OUR, OUR -- IN THIS PRESENTATION WAS THAT THESE NUMBERS WERE LOWER THAN THE COMPANY'S FORECASTS, AND WE HAD THOROUGHLY VETTED THEIR FORECASTS AND HAD DONE AN EXTENSIVE AMOUNT OF DUE DILIGENCE ON THE COMPANY, THE TECHNOLOGY, AND ALL OF THE DIFFERENT PIECES OF THIS BUSINESS THAT WE FELT WERE IMPORTANT TO UNDERSTAND IN BUILDING A MODEL LIKE THIS.
MR. WADE: OKAY. AND IF WE GO TO THE NEXT PAGE. I'M SORRY, IF WE CAN GO TO THE NEXT PAGE. THIS IS THE BULL CASE, AND THIS IS THE -- THIS IS THE OPTIMISTIC SCENARIO; CORRECT?
BRIAN GROSSMAN: YES.
MR. WADE: AND SO, AGAIN, YOU GAVE THEM THE THREE CASES, AND THEY CAN SORT OF ASSESS THE RISK HOWEVER THEY WISH TO ASSESS IT. FAIR ENOUGH?
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. LET'S GO TO THE NEXT SLIDE. AND HERE YOU PROVIDE THEM THE COMPARISON TO OTHER HIGH GROWTH COMPANIES SO THAT THEY HAVE THAT INFORMATION IN CONNECTION WITH THEIR ANALYSIS; RIGHT?
BRIAN GROSSMAN: HOW THE PUBLIC MARKET VALUES OTHER OPEN ENDED DISRUPTIVE COMPANIES, YES.
MR. WADE: AND YOU FELT LIKE THIS WAS AN APPROPRIATE PEER GROUP BASED UPON YOUR DISCUSSIONS WITH MR. JAMES AND OTHERS?
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. LET'S GO TO THE NEXT SLIDE. AND YOU CONVEYED TO THE INTERNAL PFM PEOPLE CONSIDER AN INVESTMENT $20.3 BILLION VALUATION THAT YOU CAME UP WITH; CORRECT?
BRIAN GROSSMAN: AGAIN, I WASN'T IN THIS MEETING, SO I'M NOT EXACTLY SURE HOW THIS WAS CONVEYED. BUT IT'S CERTAINLY PART OF THE PRESENTATION.
BRIAN GROSSMAN: AND THE DOCUMENT.
MR. WADE: AND I DON'T SEE ANYWHERE IN THE SLIDE WHERE YOU MENTION THAT THEY WERE ONLY IN THREE STORES AT THE TIME OF THE INVESTMENT. DO YOU KNOW WHETHER THAT WAS CONVEYED IN THE MEETING?
BRIAN GROSSMAN: I DON'T.
MR. WADE: OKAY. IN ADDITION -- SO THIS WAS AN INTERNAL DOCUMENT. WOULD YOU SEND THIS DOCUMENT TO PEOPLE OUTSIDE OF THE FIRM WHO WERE CONSIDERING INVESTMENT AS WELL?
BRIAN GROSSMAN: I, I, I WASN'T INVOLVED IN THAT, SO I'M NOT SURE.
MR. WADE: OKAY. AND IN ADDITION TO THAT, THERE WERE SOME ONE OFF CALLS THAT YOU MADE TO PEOPLE WHO MIGHT BE INTERESTED IN INVESTING THROUGH THE PARTNERS VEHICLE; IS THAT RIGHT?
BRIAN GROSSMAN: THAT WOULDN'T BE UNUSUAL IN A SITUATION LIKE THIS. I DON'T RECALL SPECIFICALLY THE CALLS THAT I MADE.
BRIAN GROSSMAN: OKAY.
BRIAN GROSSMAN: I DON'T RECALL, BUT OBVIOUSLY THIS EMAIL HELPS TO REFRESH MY MEMORY.
MR. WADE: AND WAS HE SOMEONE OUTSIDE OF THE FIRM? OR WHAT WAS HIS RELATIONSHIP? HOW WAS HE GOING TO INVEST?
BRIAN GROSSMAN: HE WAS AN INVESTOR IN OUR HEDGE FUND.
BRIAN GROSSMAN: THIS WOULD BE A COINVESTMENT OPPORTUNITY, ABOVE AND BEYOND THE INVESTMENT HE WOULD MAKE THROUGH HIS ALLOCATION TO OUR HEDGE FUND.
MR. WADE: OKAY. AND SO YOU WERE CONVEYING SOME OF THE RISKS TO HIM IN CONNECTION WITH THE INVESTMENT?
BRIAN GROSSMAN: I BELIEVE I WAS -- WE WERE EMAILING ABOUT THE BUSINESS, YES.
MR. LEACH: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(DEFENDANT'S EXHIBIT 13822 WAS RECEIVED IN EVIDENCE.)
BY MR. WADE:
MR. WADE: AND DO YOU SEE IN THIS EMAIL MR. GREER ASKS ABOUT THE VALUATION IN THE SECOND TO THE TOP EMAIL AND ASKS IF IT'S $20 BILLION? DO YOU SEE THAT? AND WHETHER IT'S OFF THE FINANCING, DO YOU KNOW WHAT HE MEANS THERE?
BRIAN GROSSMAN: HE'S ASKING IS THE VALUATION -- HE'S ASKING A QUESTION RELATED TO WHETHER THE VALUE IS 20 BILLION BEFORE OR AFTER INVESTING.
BRIAN GROSSMAN: YEAH. I THINK MR. GREER WAS CONFUSED BETWEEN THE VALUE WE HAD ON THE COMPANY ON THE U.S. OPERATIONS AND THE ACTUAL VALUATION THAT WE WERE INVESTING IN.
BRIAN GROSSMAN: CORRECT.
BRIAN GROSSMAN: WELL, WHAT I SAID WAS THAT THAT'S THE INTRINSIC VALUE, THAT'S THE VALUE OF THIS BUSINESS, THE U.S. PART OF THE BUSINESS THAT WE SEE. BUT IF THIS COMPANY GOES PUBLIC, THE -- IT WILL LIKELY NOT BE VALUED OFF OF A DCF VALUE. IT WILL LIKELY BE VALUED THE WAY THAT THE PUBLIC MARKET GETS EXCITED ABOUT OTHER OPEN ENDED, DISRUPTED BUSINESSES, AND THOSE ARE SOME EXAMPLES THAT I PUT IN THIS EMAIL THAT HE WOULD LIKELY KNOW AND RELATE TO.
BRIAN GROSSMAN: IT DEPENDS.
MR. WADE: OKAY. DID -- I DIDN'T SEE YOU TELL MR. GREER, OR ANY OF THE PEOPLE IN THE PRESENTATION, THAT THERANOS HAD TOLD YOU THAT THEY INTENDED TO GO PUBLIC IN THE NEAR TERM. DID YOU THINK THAT WAS SIGNIFICANT INFORMATION TO CONVEY TO INVESTORS?
BRIAN GROSSMAN: THAT'S NOT WHAT THEY TOLD US.
MR. WADE: DIDN'T THEY TELL YOU THAT YOU WERE LOOKING FOR LONG-TERM INVESTMENT AND THAT'S WHAT MR. JAMES COMMUNICATED BACK?
BRIAN GROSSMAN: YES, THEY DID.
JUDGE DAVILA: BEFORE WE DO THAT, LET'S TAKE OUR AFTERNOON BREAK NOW, PLEASE. WE'LL TAKE 30 MINUTES, LADIES AND GENTLEMEN, 30 MINUTES. SIR, YOU CAN STAND DOWN. PERHAPS THAT EMAIL WILL BE THERE WHEN YOU COME BACK. WE'LL TAKE A BREAK OF 30 MINUTES, PLEASE.
(JURY OUT AT 1:56 P.M.)
JUDGE DAVILA: PLEASE BE SEATED. THANK YOU. SIR, YOU CAN STAND DOWN. ALL RIGHT. THE RECORD SHOULD REFLECT THAT THE JURY HAS LEFT FOR THE AFTERNOON BREAK. THE WITNESS HAS LEFT THE COURTROOM. I JUST WANT TO POINT OUT SOME STATISTICS HERE. THE GOVERNMENT'S DIRECT EXAMINATION OF THIS WITNESS WAS 1 HOUR AND 30 MINUTES. TO DATE THE CROSS-EXAMINATION HAS EXCEEDED 6 HOURS. I THINK MY ESTIMATE YESTERDAY WAS WE PROBABLY WON'T FINISH THIS WITNESS UNTIL FRIDAY IS COMING TO FRUITION, AND THAT COULD PLAY HAVOC WITH OUR TRIAL SCHEDULE, BUT THAT'S ENTIRELY IN YOUR HANDS. WE'LL TAKE OUR BREAK. THANK YOU.
COURT CLERK: COURT IS IN RECESS.
(RECESS FROM 1:57 P.M. UNTIL 2:32 P.M.)
(JURY IN AT 2:32 P.M.)
JUDGE DAVILA: PLEASE BE SEATED. WE ARE BACK ON THE RECORD. ALL PARTIES PREVIOUSLY PRESENT ARE PRESENT ONCE AGAIN. MR. WADE, YOU'D LIKE TO CONTINUE.
MR. WADE: MR. GROSSMAN, JUST A COUPLE MORE QUESTIONS ABOUT THE FOLKS YOU WERE INTERACTING WITH AS PEOPLE WHO WERE POTENTIALLY JOINING THE THERANOS INVESTMENT. THE SLIDE PRESENTATION THAT WE LOOKED AT AT EXHIBIT 7411, WAS THAT SHARED WITH PEOPLE, WITH CLIENTS, IN ADDITION TO PEOPLE INSIDE THE FIRM?
BRIAN GROSSMAN: I DON'T RECALL.
MR. WADE: OKAY. SO, FOR EXAMPLE, THERE WERE A NUMBER OF OTHER PEOPLE WHO DID INVESTMENTS IN THERANOS THROUGH THE PARTNERS VEHICLE; IS THAT RIGHT?
BRIAN GROSSMAN: THERE WERE OTHER INDIVIDUALS THAT INVESTED THROUGH PARTNER INVESTMENTS, THAT IS CORRECT.
MR. WADE: OKAY. AND, FOR EXAMPLE, LIKE STANLEY DRUCKENMILLER INVESTED THROUGH THE PARTNERS INTO THERANOS; CORRECT?
BRIAN GROSSMAN: THROUGH PARTNER INVESTMENTS, THAT IS CORRECT.
MR. WADE: AND WOULD HE HAVE RECEIVED THE PRESENTATION, OR WHAT LEVEL OF INFORMATION WOULD HE HAVE BEEN PROVIDED IN CONNECTION WITH HIS INVESTMENT DECISION?
BRIAN GROSSMAN: I DON'T KNOW.
MR. WADE: OKAY. DID YOU VIEW THERE AS BEING ANY RESTRICTIONS AS A RESULT OF THE CDA ON SHARING INFORMATION WITH THOSE OUTSIDE INVESTORS?
BRIAN GROSSMAN: WE WOULD -- EVERYONE AT OUR FIRM IS, IS TAUGHT THE IMPORTANCE OF COMPLIANCE, CONFIDENTIALITY, SO I WOULD HOPE THAT ALL OF OUR EMPLOYEES WOULD HONOR ALL OF THE AGREEMENTS THAT WE HAVE WITH ALL OF THE DIFFERENT COMPANIES WE INTERACT WITH.
MR. WADE: OKAY. AND DO YOU RECALL THAT IN ADDITION TO SOME OF THE INTERNAL PEOPLE -- LET ME STRIKE THAT. YOU RECALL AS A RESULT OF THAT PRESENTATION MANY INTERNAL PEOPLE AT PFM DECIDED TO INVEST IN THERANOS?
BRIAN GROSSMAN: I DO RECALL THAT THERE WERE INTERNAL PEOPLE THAT INVESTED IN THERANOS.
MR. WADE: OKAY. AND DO YOU RECALL THAT THERE WERE ALSO SOME OF THE FRIENDS AND FAMILY OF THE FIRM WHO INVESTED AS WELL?
BRIAN GROSSMAN: YES, I KNOW -- I DO BELIEVE THAT WE HAD FRIENDS AND FAMILY WHO INVESTED AS WELL.
MR. WADE: AND DID THOSE PEOPLE DO THAT BASED UPON YOUR GENERAL RECOMMENDATION, OR WERE YOU -- DO YOU RECALL IF YOU PROVIDED THEM SPECIFIC INFORMATION ABOUT THERANOS, IF YOU RECALL?
BRIAN GROSSMAN: I DON'T RECALL.
MR. WADE: OKAY. AND IF I CAN ASK YOU A COUPLE OF QUESTIONS, IF I COULD TURN YOUR ATTENTION -- I THINK I SET YOUR BINDER TO EXHIBIT 4077.
BRIAN GROSSMAN: OKAY.
MR. WADE: DO YOU SEE THAT? AND THIS IS THE, THIS IS THE SLIDE PRESENTATION THAT MR. LEACH SPENT SOME TIME WITH YOU ON DIRECT TESTIMONY. DO YOU RECALL THAT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: I DON'T REMEMBER THE NUMBER, BUT I ASSUME THAT'S RIGHT.
BRIAN GROSSMAN: YEP.
MR. WADE: AND ABOUT 150 PAGES OF THIS ARE THE DATA. IS THAT FAIR? IF YOU LOOK AT AROUND PAGE 100, YOU SEE THE CLINICAL DATA STARTS AROUND PAGE 99 OR 100?
BRIAN GROSSMAN: YES.
MR. WADE: AND IS IT FAIR TO SAY THAT THOSE 267 SLIDES WERE NOT GONE THROUGH SORT OF SLIDE BY SLIDE AT ANY OF THE MEETINGS THAT YOU HAD AT THERANOS; CORRECT?
BRIAN GROSSMAN: I DON'T, I DON'T RECALL GOING THROUGH EVERY SINGLE SLIDE WITH THE COMPANY.
MR. WADE: THEY WERE JUST SORT OF BROUGHT UP, YOU KNOW, WITH RESPECT TO DIFFERENT POINTS THAT WERE UNDER DISCUSSION?
BRIAN GROSSMAN: WELL, I WANT TO ANSWER YOUR QUESTION. SO THE MEETINGS WE HAD WITH THE COMPANY WERE -- AFTER THE FIRST MEETING WE HAD SPECIFIC QUESTIONS THAT WE WANTED TO ADDRESS. THE COMPANY SENT US THIS PRESENTATION SO THAT WE COULD REVIEW ON OUR OWN THE MATERIAL IN HERE.
MR. WADE: FAIR ENOUGH. YOU HAD THIS -- I DIDN'T MEAN TO SUGGEST OTHERWISE. YOU HAD THIS SLIDE DECK AND YOU COULD GO THROUGH THE WHOLE THING; CORRECT?
BRIAN GROSSMAN: YES.
MR. WADE: AND I'M JUST TRYING TO SUGGEST THAT IN THE MEETINGS YOU HAD, YOU DIDN'T GO THROUGH THE WHOLE THING AND TALK ABOUT EACH AND EVERY ITEM IN THE MEETING; CORRECT?
BRIAN GROSSMAN: WHICH MEETINGS ARE YOU REFERRING TO?
MR. WADE: THE TWO MEETINGS IN -- THE ONE IN DECEMBER OF 2013 AND THE FIRST MEETING IN JANUARY OF 2014.
BRIAN GROSSMAN: OKAY. YES, WE DID NOT GO THROUGH EVERY SLIDE IN THESE TWO MEETINGS.
MR. WADE: OKAY. AND I TAKE IT, GIVEN THE PASSAGE OF TIME, IT WOULD BE IMPOSSIBLE FOR YOU TO GO THROUGH AND PICK OUT WHICH SLIDES YOU WENT THROUGH DURING THOSE MEETINGS. IS THAT FAIR?
BRIAN GROSSMAN: I DON'T REMEMBER WHICH SLIDES WE WENT THROUGH.
MR. WADE: OKAY. AND WITH -- CAN I ASK YOU A COUPLE OF QUESTIONS ABOUT THE SLIDES IN PARTICULAR. IF YOU CAN TAKE A LOOK AT PAGE 4, AND WE'LL TRY TO PULL THESE UP ON THE SCREEN IF THAT'S EASIER FOR YOU. DO YOU SEE THE SLIDE THERE THAT SAYS, "GOODBYE, BIG BAD NEEDLE"?
BRIAN GROSSMAN: I DO.
MR. WADE: AND YOU'VE SEEN SOME VERSION OF THIS SLIDE MAYBE ON OTHER PROMOTIONAL MATERIALS RELATING TO THERANOS?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
MR. WADE: IF WE CAN GO FROM THERE TO PAGE 48 WHICH I BELIEVE IS A SLIDE THAT MR. LEACH ASKED YOU ABOUT. DO YOU RECALL THAT?
BRIAN GROSSMAN: I THINK THAT'S SLIDE 46.
MR. WADE: WELL, LET'S ASK ABOUT SLIDE 48. DO YOU SEE SLIDE 48? MAYBE MR. LEACH DIDN'T ASK YOU ABOUT THAT. DO YOU HAVE THAT ONE IN FRONT OF YOU?
BRIAN GROSSMAN: YES.
MR. WADE: AND I'M FOCUSSED -- THERE'S SOME CONFUSION IN THESE SLIDE DECKS. I'M FOCUSSING ON THE NUMBERING IN THE BOTTOM IN CASE YOU WANT TO LOOK ON YOUR OWN. AND THIS TALKS ABOUT THE TRANSFORMATION OF THE CLINICAL CARE; CORRECT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: IT'S A NEEDLE, YES.
BRIAN GROSSMAN: YES.
MR. WADE: AND LET'S GO TO, LET'S GO TO THE NEXT SLIDE. AND DO YOU SEE HERE THEY TALK ABOUT ANOTHER TRANSFORMATION WHERE THEY GO FROM THAT BIG NEEDLE ON THE LEFT TO THAT SMALL BUTTERFLY NEEDLE ON THE RIGHT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: I DO.
MR. WADE: OKAY. AND DO YOU SEE, DO YOU SEE THAT TUBE OF BLOOD THAT'S HOOKED ON TO THAT DEVICE THERE?
BRIAN GROSSMAN: I DO.
MR. WADE: AND THAT'S NOT ONE OF THOSE LITTLE -- THAT'S NOT ONE OF THOSE LITTLE NANOTAINERS, IS IT?
MR. WADE: OKAY. AND IF WE CAN GO -- DO YOU RECALL, WHEN YOU WERE TALKING ABOUT THESE SLIDES IN THE MEETING, WHETHER THERE WAS ANY EFFORT TO DIFFERENTIATE WHICH SLIDES RELATED TO PHASE I OF THERANOS'S BUSINESS MODEL AND WHICH SLIDES RELATED TO PHASE II, OR IF THEY RELATED TO BOTH?
BRIAN GROSSMAN: I DON'T.
MR. WADE: OKAY. AND DO YOU RECALL RECOGNIZING AT THE TIME THAT YOU REVIEWED THESE MATERIALS -- DID YOU ACTUALLY -- DO YOU THINK YOU REVIEWED THESE SLIDES AT SOME POINT?
BRIAN GROSSMAN: AT THE TIME, YES.
MR. WADE: OKAY. AND DO YOU RECALL RECOGNIZING THAT MANY OF THEM ARE SORT OF ASPIRATIONAL IN NATURE?
MR. WADE: OKAY. LET'S TAKE A LOOK AT PAGE 11. AND JUST THERE, FOR EXAMPLE, YOU SEE -- DID YOU RECOGNIZE THIS TO BE SORT OF A MOCK-UP OF AN ADVERTISEMENT?
BRIAN GROSSMAN: I SUPPOSE.
MR. WADE: AND YOU KNEW AT THE TIME THAT THERANOS WASN'T SOON GOING TO BE NATIONWIDE; RIGHT? THAT IT WAS GOING TO TAKE A WHILE FOR THEM TO UNROLL?
BRIAN GROSSMAN: WE HAD A ROLLOUT FORECAST FROM THE COMPANY, SO WE KNEW THAT THEY WOULD BE ROLLING OUT ACROSS DIFFERENT REGIONS OVER 2014 AND '15, AND, YES, THEY WOULD ROLL OUT NATIONWIDE.
MR. WADE: AND IF YOU GO TO PAGE 16 OF THE EXHIBIT, YOU SEE THIS SLIDE TALKS ABOUT THERANOS'S PROXIMITY TO CONSUMERS. YOU SEE THAT; RIGHT?
BRIAN GROSSMAN: I DO.
BRIAN GROSSMAN: I'M NOT SURE IT'S A PART OF HER VISION. IT SEEMS TO BE A SLIDE THAT'S DESCRIBING THEIR PATIENT SERVICE CENTERS AND ACCESS.
MR. WADE: RIGHT. AND YOU RECOGNIZE THAT THEIR GOAL THERE WAS TO BE -- HAVE GREATER THAN 90 PERCENT WITHIN A FEW MILES OF PEOPLE; RIGHT?
BRIAN GROSSMAN: I'M SORRY, MAYBE YOU CAN ASK THE QUESTION AGAIN.
MR. WADE: WELL, YOU SEE THIS CHART REFLECTS THAT THERANOS'S GOAL IS TO HAVE GREATER THAN 95 PERCENT OF PATIENTS WITHIN A MILE OR ONE TO FIVE MILES OF A TESTING LOCATION. DO YOU SEE THAT?
BRIAN GROSSMAN: I SEE ON THE SLIDE THAT THERANOS HAS GREATER THAN 95 PERCENT, AND IT APPEARS TO RELATE TO WALGREENS AND OTHER RETAIL PHARMACIES.
MR. WADE: RIGHT. BUT YOU KNEW AT THE TIME THAT YOU WERE LOOKING AND YOU GOT THESE SLIDES THAT THEY DIDN'T HAVE THAT KIND OF FOOTPRINT OUT THERE IN THE FIELD; RIGHT?
BRIAN GROSSMAN: WE KNEW AS OF JANUARY 2014 THEY WERE NOT -- THIS TECHNOLOGY HAD NOT BEEN ROLLED OUT NATIONALLY TO WALGREENS, ALL WALGREENS AND OTHER RETAIL PHARMACIES, YES.
MR. WADE: ALL RIGHT. AND IF WE CAN GO TO 19 OF THE EXHIBIT. THIS TALKS ABOUT "FASTER RESULTS. FASTER ANSWERS." DO YOU SEE THAT IN FOUR HOURS OR LESS?
BRIAN GROSSMAN: I DO.
BRIAN GROSSMAN: WELL, FROM MY OWN TEST I KNEW THAT IT WASN'T, BUT THIS IS WHAT THEY TOLD US THE TECHNOLOGY WAS CAPABLE OF DOING IN THE RETAIL SETTING.
MR. WADE: RIGHT. BUT YOU KNEW THAT -- YOU HAD PERSONAL EXPERIENCE BEFORE THE INVESTMENT DECISION THAT IT TOOK MORE THAN FOUR HOURS; CORRECT?
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: YES.
MR. WADE: AND THAT AT THE TIME THAT YOU MADE THE INVESTMENT DECISION, THEY WERE, THEY WERE TRANSPORTING THOSE SPECIMENS TO CALIFORNIA FOR TESTING; RIGHT?
BRIAN GROSSMAN: YES.
MR. WADE: SO YOU KNEW AT THE TIME THAT THEY WEREN'T DOING TESTS, ALL OF THEIR TESTS IN FOUR HOURS OR LESS?
BRIAN GROSSMAN: AS OF JANUARY 2014, YES.
BRIAN GROSSMAN: I BELIEVE IT IS ONE OF THE COLLECTION DEVICES.
BRIAN GROSSMAN: THAT'S CORRECT.
MR. WADE: OKAY. AND LET'S GO TO PAGE 27. THIS TALKS ABOUT THE SEAMLESS INTEGRATION WITH PHYSICIAN PRACTICES. DO YOU SEE THAT?
BRIAN GROSSMAN: I DO SEE THAT.
MR. WADE: WELL, YOU KNEW DR. RABODZEY'S PRACTICE WAS NOT SEAMLESSLY INTEGRATED WITH THERANOS AT THE TIME THAT YOU MADE YOUR INVESTMENT DECISION; RIGHT?
BRIAN GROSSMAN: DR. RABODZEY'S -- I DON'T KNOW HOW DR. RABODZEY'S PRACTICE, PHYSICIAN PRACTICE WAS INTEGRATED WITH THE LABORATORY OR THE RETAIL PHARMACY THAT PERFORMED HIS TEST.
MR. WADE: WELL, YOU RECALL THAT THEY -- THERE WAS THE EMAIL THAT YOU REVIEWED ABOUT HIM RECEIVING FAX RESULTS?
BRIAN GROSSMAN: I DON'T BELIEVE HE RECEIVED THE FAX RESULTS.
BRIAN GROSSMAN: I THINK IT WAS HIS PHYSICIAN.
BRIAN GROSSMAN: CORRECT.
BRIAN GROSSMAN: WELL, I GUESS -- SORRY, I GUESS I'M ANSWERING THE WRONG -- A DIFFERENT QUESTION. I DON'T KNOW HOW DR. RABODZEY'S PRACTICE PHYSICIAN OFFICE WAS ELECTRONICALLY CONNECTED TO THAT WALGREENS LOCATION.
MR. WADE: ISN'T IT FAIR TO SAY THAT YOU KNEW THAT THIS WAS A WORK-IN-PROCESS AT THE TIME AND THAT YOU MADE THE INVESTMENT DECISION THAT THIS WAS ASPIRATIONAL AS WELL?
BRIAN GROSSMAN: AT THE TIME OF THE INVESTMENT THEY TOLD US I BELIEVE THEY HAD ELECTRONIC CONNECTIONS TO MANY OF THE LARGEST ELECTRONIC MEDICAL RECORD PROVIDERS, BUT I DON'T REMEMBER SPECIFICALLY WHAT NUMBER THAT WAS, BUT IT WAS A FOCUS OF THEIR SOFTWARE DEVELOPMENT ACTIVITIES. AND THAT'S A MARKET THAT IS VERY CONCENTRATED AT THE TOP IN TERMS OF PHYSICIAN OFFICE SOFTWARE, SO IT SHOULDN'T TAKE LONG TO ELECTRONICALLY CONNECT TO THE MAJORITY OF PHYSICIAN PRACTICES, ESPECIALLY LARGER PHYSICIAN GROUPS.
MR. WADE: OKAY. AND IF I CAN CALL YOUR ATTENTION TO PAGE 34 OF THE EXHIBIT. YOU RECOGNIZE THAT THE DESCRIPTION OF THE NATIONAL RETAIL FOOTPRINT THROUGHOUT THE UNITED STATES WAS AT THIS TIME ASPIRATIONAL; CORRECT?
BRIAN GROSSMAN: THEY HAD NOT YET ROLLED IT OUT NATIONALLY, CORRECT.
BRIAN GROSSMAN: YES, THEY HAD NOT YET, THEY HAD NOT YET -- WELL, IF THE QUESTION IS WAS THIS ASPIRATIONAL, THE ANSWER IS NO.
MR. WADE: WELL, YOU UNDERSTOOD THAT THEY WEREN'T IN 8100 WALGREENS LOCATIONS AT THE TIME THAT YOU MADE THE INVESTMENT DECISION; RIGHT?
BRIAN GROSSMAN: WE DID UNDERSTAND THAT, YES.
MR. WADE: AND IF WE GO TO SLIDE 5 -- EXHIBIT PAGE 53. DO YOU RECALL WITH RESPECT TO SOME OF THESE DEPLOYMENTS THAT THOSE WERE DISCLOSED TO YOU AS PHASES III AND IV OF THEIR ROLLOUT PLAN?
BRIAN GROSSMAN: I DON'T RECALL PHASES III AND IV.
MR. WADE: OKAY. YOU DON'T RECALL BEING TOLD THAT THE ER AND SOME OF THE PEDIATRIC APPLICATIONS WERE PHASES III AND IV IN THAT MEETING?
BRIAN GROSSMAN: I DON'T RECALL SPECIFICALLY THAT PART OF -- WHICH MEETING ARE YOU REFERRING TO?
BRIAN GROSSMAN: I DON'T RECALL THAT.
MR. WADE: OKAY. THE -- IF YOU CAN GO TO SLIDES, SLIDES -- PAGE 66 AND THEN 67. MR. LEACH ASKED YOU ABOUT SOME OF THESE SLIDES; RIGHT?
BRIAN GROSSMAN: YES.
MR. WADE: AND YOU WERE AWARE AT THE TIME THAT YOU MADE YOUR INVESTMENT DECISION AS A RESULT OF YOUR TOUR THAT THERE WAS SOME OF THEIR TECHNOLOGY THAT WAS PATENT PENDING OR TRADE SECRET WITHIN THEIR LAB AND THAT THEY TOLD YOU THAT THEY WOULDN'T SHOW IT TO YOU; CORRECT?
BRIAN GROSSMAN: THAT'S WHAT THEY TOLD US. I DON'T KNOW WHETHER THERE WAS OR THERE WASN'T.
BRIAN GROSSMAN: YES.
MR. WADE: OKAY. AND SO YOU, YOU RECOGNIZE THAT, YOU KNOW, SOME OF THESE DIFFERENT SLIDES WERE NOT NECESSARILY THE PRESENT STATEMENT OF WHAT THE COMPANY COULD DO BUT WERE RATHER THE GOAL OF WHAT IT HOPED TO DO ONCE IT WAS FULLY OPERATIONAL; RIGHT?
MR. WADE: YOU DIDN'T RECOGNIZE THAT WITH RESPECT TO SOME OF THESE SLIDES THAT WE JUST LOOKED AT?
MR. LEACH: OBJECTION. ASKED AND ANSWERED.
JUDGE DAVILA: SUSTAINED.
BY MR. WADE:
BRIAN GROSSMAN: YES.
BRIAN GROSSMAN: WE HAD -- OVER THE COURSE OF THE LAST 15 OR SO YEARS, THERE HAD BEEN PERIODS OF TIME WHERE WE HAD INVESTED IN WALGREENS, YES.
MR. WADE: AND WAS PART OF THE REASON WHY YOU WERE INTERESTED IN INVESTING IN THERANOS, A DESIRE TO GET INFORMATION THAT WOULD HELP INFORM YOUR INVESTMENT DECISIONS IN WALGREENS?
MR. WADE: DO YOU RECALL THAT ALMOST IMMEDIATELY AFTER THE CLOSING YOU STARTED TRADING WALGREENS STOCK?
MR. LEACH: OBJECTION. 401, 403.
JUDGE DAVILA: SUSTAINED.
(DISCUSSION AMONGST DEFENSE COUNSEL OFF THE RECORD.)
JUDGE DAVILA: REDIRECT?
MR. LEACH: YES, YOUR HONOR, BRIEFLY. /// /// ///
REDIRECT EXAMINATION BY MR. LEACH:
MR. LEACH: GOOD AFTERNOON, MR. GROSSMAN.
BRIAN GROSSMAN: GOOD AFTERNOON.
MR. LEACH: YOU WERE ASKED A NUMBER OF QUESTIONS ON CROSS-EXAMINATION ABOUT VENOUS DRAWS AT THERANOS?
BRIAN GROSSMAN: YES.
MR. LEACH: AND WHAT DID THERANOS TELL YOU ABOUT THE EXTENT OF VENOUS DRAWS?
BRIAN GROSSMAN: THEY TOLD US FROM THE VERY BEGINNING THAT IT WAS A TINY FRACTION OF THE TESTS IN THE VERY BEGINNING OF THE ROLLOUT. IT WAS LESS THAN 1 PERCENT, 1 PERCENT, 2 PERCENT, AND THAT THEY HAD A PLAN TO VERY QUICKLY BRING THAT NUMBER BACK DOWN TO WHERE IT WAS SOMETHING, YOU KNOW, VERY, YOU KNOW, WELL BELOW 1 PERCENT OF PEOPLE THAT WOULD WALK IN AND WOULD HAVE TO REQUIRE A VENOUS DRAW.
MR. LEACH: WERE YOU EVER TOLD IT WAS IN THE NEIGHBORHOOD OF 40 PERCENT?
BRIAN GROSSMAN: NEVER.
MR. LEACH: WAS THE FACT THAT IT WAS LIMITED TO 1 TO 2 PERCENT OR A SMALL NUMBER REASSURING TO YOU?
BRIAN GROSSMAN: YES.
MR. LEACH: HOW SO?
BRIAN GROSSMAN: WELL, IT, IT WAS PART OF THE CORE TECHNOLOGICAL ADVANTAGE THIS COMPANY HAD COMPARED TO THE EXISTING LABORATORY INFRASTRUCTURE AND SERVICE OFFERINGS AND WAS A BIG PART OF WHY WE FELT THIS WOULD TAKE A SIGNIFICANT SHARE OF THE MARKET, EACH OF THE MARKETS THAT THIS PRODUCT WAS INTRODUCED INTO FOR THE OBVIOUS REASONS, CHEAPER, MUCH MORE CONVENIENT, IT COULD -- MUCH LESS INVASIVE, OPENED UP TESTING OPPORTUNITIES FOR PEOPLE THAT WERE AFRAID OF NEEDLES, AND THEN POPULATIONS THAT REALLY STRUGGLE WITH, YOU KNOW, HAVING A GOOD VEIN TO ACCESS. SO FOR ALL OF THOSE REASONS, THAT WAS A REALLY IMPORTANT PART OF OUR UNDERSTANDING OF THE BUSINESS AND THE COMPANY AT THE TIME THAT WE INVESTED.
MR. LEACH: YOU WERE ALSO ASKED A NUMBER OF QUESTIONS ABOUT THE MODEL THAT PFM PUT TOGETHER. DO YOU RECALL THOSE QUESTIONS?
BRIAN GROSSMAN: YES.
MR. LEACH: AND BEFORE PUTTING TOGETHER PFM'S MODEL, IT RECEIVED PROJECTED INCOME FORECASTS FROM THERANOS?
BRIAN GROSSMAN: YES.
MR. LEACH: AND DID YOU RELY ON THOSE INCOME PROJECTIONS FROM THERANOS?
BRIAN GROSSMAN: WE, WE USED THOSE AS INPUT TO BUILD OUR MODEL FOR 2014 AND 2015. WE DIDN'T USE EXACTLY THEIR FORECAST, BUT IT WAS AN IMPORTANT PART OF UNDERSTANDING THE MARGIN STRUCTURE OF THE BUSINESS, THE CASH FLOW, CHARACTERISTICS OF THE BUSINESS, AND THEIR ABILITY TO OBVIOUSLY MAKE ENOUGH EQUIPMENT, MINILABS, TO MEET THE REVENUE FORECAST THAT THEY PROVIDED US.
MR. LEACH: AND WHO WAS IN A BETTER POSITION TO UNDERSTAND THERANOS'S PROJECTED REVENUE FOR 2014 AND 2015, YOU OR THE COMPANY?
BRIAN GROSSMAN: THE COMPANY.
MR. LEACH: OKAY. YOU WERE SHOWN EXHIBIT 7411. AND I DON'T KNOW, MS. HOLLIMAN, IF WE CAN BRING THAT UP. 7411.
BRIAN GROSSMAN: OKAY.
MR. LEACH: MS. HOLLIMAN -- OR, MS. KRATZMANN, MAY I USE THE ELMO?
MR. LEACH: MR. GROSSMAN, DO YOU RECALL BEING ASKED QUESTIONS ABOUT THIS POWERPOINT PRESENTATION THAT WAS PROVIDED TO SOME PFM INVESTORS?
BRIAN GROSSMAN: ON CROSS-EXAMINATION?
MR. LEACH: YES.
BRIAN GROSSMAN: YES.
MR. LEACH: OKAY. AND I THINK YOU TESTIFIED THAT YOU DIDN'T ATTEND THIS MEETING?
BRIAN GROSSMAN: NO. THAT'S CORRECT, I DID NOT ATTEND THIS MEETING.
MR. LEACH: OKAY. AND I WANT TO DISPLAY FOR YOU PAGE 7 OF THE POWERPOINT. YOUR HONOR, I'M SORRY. I MADE SOME NOTES ON MY COPY. I DON'T MEAN TO DISPLAY THOSE. IN FACT, I CAN USE PAGE 6. DO YOU SEE WHERE IT SAYS KEY FINANCIALS -- PFM BEAR CASE?
BRIAN GROSSMAN: YES.
MR. LEACH: AND WHAT IS THE BEAR CASE?
BRIAN GROSSMAN: THAT REFLECTED OUR LOW -- THE LOW FORECASTS, THE LOWER FORECASTS OF THE THREE SCENARIOS THAT WE CONSTRUCTED FOR THE BUSINESS OVER THIS FIVE YEAR PERIOD OF TIME.
MR. LEACH: SO THIS IS THE CASE IF THINGS GO BADLY?
BRIAN GROSSMAN: THIS WAS THE CASE IF THINGS GO SLOWER THAN WE EXPECTED ON THE COMMERCIAL ROLLOUT.
MR. LEACH: OKAY. AND YOUR ESTIMATED INCOME FOR THERANOS'S REVENUE FOR 2014 IS 249 MILLION?
BRIAN GROSSMAN: MILLION.
MR. LEACH: AND THAT'S SLIGHTLY LESS THAN THE 261 MILLION THAT THERANOS HAD PROVIDED YOU?
BRIAN GROSSMAN: YES, THAT'S CORRECT.
MR. LEACH: OKAY. AND YOUR BEAR CASE FOR 2015 IS 1.4 MILLION, OR 1.4 BILLION?
BRIAN GROSSMAN: YES.
MR. LEACH: AND THAT'S SLIGHTLY LESS THAN THE 1.6 BILLION THAT THERANOS WAS FORECASTING TO YOU?
BRIAN GROSSMAN: I BELIEVE IT WAS AROUND 15 PERCENT OR MORE BELOW THE COMPANY'S FORECAST, YES.
MR. LEACH: OKAY. HAVE YOU EVER SEEN A COMPANY MISS ITS REVENUE PROJECTIONS BY OVER A BILLION DOLLARS?
BRIAN GROSSMAN: IT'S UNUSUAL.
MR. LEACH: WAS THAT A RISK THAT YOU THOUGHT YOU WERE TAKING WITH THIS INVESTMENT?
BRIAN GROSSMAN: NOT IN THE, IN THE 2014 AND '15 PERIOD, NO.
MR. LEACH: YOU WERE ALSO ASKED SOME QUESTIONS ABOUT THE ASSUMPTIONS THAT THERANOS PROVIDED YOU WITH RESPECT TO ITS REVENUE PROJECTIONS AND ITS, ITS NET INCOME AND COST CONSIDERATIONS. DO YOU RECALL THAT?
BRIAN GROSSMAN: YES.
MR. LEACH: AND I THINK YOU DESCRIBED IT AS VERY DETAILED?
BRIAN GROSSMAN: YES.
MR. LEACH: THE ASSUMPTIONS THAT THERANOS WAS PROVIDING YOU?
BRIAN GROSSMAN: YES.
MR. LEACH: DID YOU SEE ANY ASSUMPTIONS IN THAT VERY DETAILED MODEL RELATING TO THE USE OF THIRD PARTY MACHINES?
MR. LEACH: DID YOU SEE ANYTHING IN THAT VERY DETAILED MODEL ABOUT THE USE OF SIEMENS MACHINES?
MR. LEACH: DID YOU GO THROUGH THOSE ASSUMPTIONS WITH A FINE TOOTH COMB TRYING TO UNDERSTAND EVERY INPUT OF COST THAT WAS GOING INTO THIS COMPANY?
BRIAN GROSSMAN: YES.
MR. LEACH: YOU WERE ALSO ASKED SOME QUESTIONS ABOUT INTERMOUNTAIN. DO YOU RECALL THOSE QUESTIONS?
BRIAN GROSSMAN: I DO.
MR. LEACH: DO YOU KNOW WHETHER THERANOS EVER RECOGNIZED ANY REVENUE FROM INTERMOUNTAIN?
BRIAN GROSSMAN: I DON'T KNOW.
MR. LEACH: AND DO YOU KNOW WHETHER THERANOS EVER RECOGNIZED A SINGLE DOLLAR OF REVENUE FROM HOSPITALS?
BRIAN GROSSMAN: I DON'T KNOW IF THEY DID.
MR. LEACH: YOU WERE ASKED SOME QUESTIONS ABOUT YOUR INITIAL MEETING IN DECEMBER OF 2013 WITH MS. HOLMES. DO YOU RECALL BEING ASKED SOME QUESTIONS ABOUT THAT ON CROSS-EXAMINATION?
BRIAN GROSSMAN: I DO.
MR. LEACH: AND I THINK YOU DESCRIBED THIS AS A POSITIVE RAPPORT BUILD MEETING?
BRIAN GROSSMAN: WELL, IT WAS AN INTRODUCTORY MEETING. SO, YES, IT WAS A POSITIVE MEETING.
MR. LEACH: DID YOU RELY ON THE STATEMENTS FROM MS. HOLMES IN THAT MEETING?
BRIAN GROSSMAN: WE DID RELY ON STATEMENTS FROM MS. HOLMES IN THAT MEETING.
MR. LEACH: DID YOU ACCORD THE STATEMENTS IN THAT MEETING ANY LESSER WEIGHT THAN INFORMATION THAT YOU LEARNED LATER ON IN YOUR INVESTMENT PROCESS?
MR. LEACH: OKAY. WHEN MS. HOLMES TOLD YOU THAT THE THERANOS DEVICE WAS ON MEDEVAC HELICOPTERS, DID YOU RELY ON THAT INFORMATION?
BRIAN GROSSMAN: YES.
MR. LEACH: WAS THAT IMPORTANT TO YOU?
BRIAN GROSSMAN: YES.
MR. LEACH: LET ME DRAW YOUR ATTENTION, PLEASE, TO EXHIBIT 7391. MS. HOLLIMAN -- OR, MS. KRATZMANN, I'LL DISPLAY THAT.
COURT CLERK: OH.
BY MR. LEACH:
MR. LEACH: DO YOU RECALL BEING ASKED QUESTIONS ABOUT 7391, MR. GROSSMAN?
BRIAN GROSSMAN: I DO RECALL, YES.
MR. LEACH: OKAY. AND THIS IS AN EMAIL FROM MR. KHANNA AFTER THE JANUARY 10TH MEETING LAYING OUT SOME OF HIS THOUGHTS ABOUT THERANOS?
BRIAN GROSSMAN: YES, THAT'S CORRECT.
MR. LEACH: IN THE THIRD BULLET UNDER THOUGHTS IT SAYS, "GREAT PARTNERS WAG, SAFEWAY, DOD (STILL TO BE SIZED)."
BRIAN GROSSMAN: YES.
MR. LEACH: AND IS THAT A REFLECTION OF A POSITIVE THAT THERANOS IS STILL DOING WORK WITH DOD?
BRIAN GROSSMAN: YES, IT WAS A BIG VALIDATION OF THE TECHNOLOGY THAT THE DEPARTMENT OF DEFENSE WOULD USE THIS ON ACTUAL SOLDIERS AND OF ALL PLACES AND IN THE TYPE OF AN ENVIRONMENT THAT, HOSTILE ENVIRONMENT THAT YOU WOULD SEE IN BATTLEFIELD CONDITIONS AT THAT POINT IN TIME. AND SO THAT WAS AN IMPORTANT, AN IMPORTANT SUPPORT FOR THE TECHNOLOGY AS IT EXISTED AT THAT POINT IN TIME, THE WORK THAT IT HAD DONE OVER THE TEN YEARS TO DEVELOP IT TO THE POINT THAT IT WAS CAPABLE OF OFFERING ABROAD RETAIL MENU EVERYTHING THAT QUEST OR LABCORP COULD DO.
MR. LEACH: IN THE NEXT BULLET IT SAYS, IN THE SECOND SENTENCE, "THEY CITE MOORE'S LAW AS DRIVING DOWN COGS -- WE NEED TO GET COMFORTABLE WITH THIS TRAJECTORY." DO YOU SEE THAT? IN THE THIRD BULLET WHERE IT STARTS, "PRICING AT 50 PERCENT."
BRIAN GROSSMAN: YES.
MR. LEACH: THEY CITE MOORE'S LAW?
BRIAN GROSSMAN: YES.
MR. LEACH: AND IS THAT A REFERENCE TO INTEL AND SEMICONDUCTORS?
BRIAN GROSSMAN: YEAH. IT'S THE WELL-KNOWN RELATIONSHIP BETWEEN PRODUCTION VOLUME AND THE COST OF PRODUCING SEMICONDUCTOR CHIPS. AND THIS IS A REFERENCE, SPECIFIC FOR THERANOS, IF YOU'RE GOING TO BE OFFERING DISCOUNTED PRICING, THE ONLY WAY THAT WOULD BE ECONOMICALLY VIABLE, IS IF YOU COULD CONTINUE TO DRIVE DOWN THE COST OF THE MINILAB SO THAT IT COULD BE -- IT COULD REACH THE PROFITABILITY TARGETS THAT THEY HAD PRESENTED IN THAT MEETING THAT PRECEDED THIS EMAIL. SO IT SPOKE TO HOW IMPORTANT IT WAS TO BE ABLE TO DELIVER NOT JUST ENOUGH MINILABS, BUT TO BE ABLE TO MAKE THEM AT A COST THAT WOULD ENABLE THEM TO HAVE THIS REALLY POWERFUL DIFFERENTIATED PRICING MODEL TO THE RETAIL CUSTOMER.
MR. LEACH: AND IN THIS DISCUSSION OF THE COST OF THE MINILAB AND BRINGING THEM DOWN CONSISTENT WITH MOORE'S LAW, WAS THERE ANY DISCUSSION OF THIRD PARTY DEVICES OR THE NEED TO ACQUIRE SIEMENS MACHINES?
BRIAN GROSSMAN: NO, AND THERE WOULD BE NO WAY TO COST DOWN THIRD PARTY MACHINES. SO, NO, THERE WAS NO DISCUSSION OF THAT, AND IT WASN'T -- IT WOULDN'T REALLY MAKE ANY SENSE IN THE CONTEXT OF THAT CONCEPT DRIVING DOWN THE COST OF THEIR EQUIPMENT, THEIR PROPRIETARY TECHNOLOGY WITH THAT PRICING STRUCTURE.
MR. LEACH: FURTHER DOWN THERE'S, IN THE CONCLUSION, A -- THE LAST BULLET, "THIS IS ONE OF THE MOST INTERESTING COMPANIES I HAVE MET AND IT ALL COMES DOWN TO EXECUTION." WHAT DID YOU UNDERSTAND "EXECUTION" TO MEAN?
BRIAN GROSSMAN: I THINK MY COLLEAGUE IS EXPLAINING, OR HIS POINT OF VIEW IS THAT THE TECHNOLOGY HAS ALREADY PASSED THE POINT OF, OR LONG PAST THE PROOF OF CONCEPT POINT, THAT THIS WAS A COMPANY THAT OVER THE LAST TEN-PLUS YEARS HAS MADE INCREDIBLE STRIDES TO BUILD THE TECHNOLOGY CAPABILITIES THAT THEY HAD AT THAT POINT. AND FROM HERE THE RISKS WERE REALLY FOCUSSED -- THE RISK TO THE BUSINESS, THE RISK TO THE COMPANY GOING FORWARD WAS REALLY AROUND EXECUTION, AND SO I THINK THAT WAS MR. KHANNA'S VIEW AT THAT POINT IN TIME AFTER THAT FIRST MEETING.
MR. LEACH: DID YOU THINK THERE WAS RISK AROUND THE MINILAB WORKING IN THE CLIA LAB?
BRIAN GROSSMAN: WE DID NOT THINK THERE WAS -- THAT WAS A RISK TO THE COMPANY, NO.
MR. LEACH: YOU WERE ALSO SHOWN EXHIBIT 4089, A LENGTHY EMAIL FROM DR. RABODZEY ABOUT FDA APPROVAL. DO YOU RECALL THAT EXHIBIT?
BRIAN GROSSMAN: WE LOOKED AT A LOT OF MR. RABODZEY EXHIBITS, SO I DON'T REMEMBER SPECIFICALLY WHICH ONE THAT WAS.
MR. LEACH: OKAY. WHY WAS RISK RELATING TO FDA APPROVAL NOT A CONCERN TO YOU?
BRIAN GROSSMAN: THE, THE BUSINESS THAT WE WERE INVESTING IN WAS REALLY A HUB AND SPOKE MODEL USING THESE MINILABS TO BUILD SMALL LABORATORIES. THE EXAMPLE IN THE PHOENIX MARKET, 200 SQUARE FEET, THEY COULD SUPPORT THAT WHOLE OPERATION WITH THE MINILABS. SO ROLLING THOSE OUT TO DIFFERENT URBAN AREAS IN THE U.S., LEVERAGING WALGREENS'S RETAIL FOOTPRINT, SAFEWAY'S RETAIL FOOTPRINT WAS THE WAY WE BUILT THE MODEL AND WAS THE BASIS FOR THE INVESTMENTS THAT WE MADE. THE UP SIDE OF BEING ABLE TO DELIVER THESE, DEPLOY THESE INTO A WALGREENS RETAIL SETTING OR ANOTHER RETAILER WAS, WAS AN UP SIDE SCENARIO ABOVE AND BEYOND, YOU KNOW, HOW WE THOUGHT ABOUT OUR, OUR TRANSLATING THESE CONCEPTS, THESE REPRESENTATIONS, THESE STATEMENTS FROM THE COMPANY INTO AN ACTUAL FINANCIAL FORECAST.
MR. LEACH: SO DID YOU VIEW THE FACT THAT THERANOS HAD CLIA CERTIFICATION FOR ALL OF ITS TESTS AS MITIGATING THAT FDA RISK?
BRIAN GROSSMAN: IT WAS A HUGE ENDORSEMENT OF WHERE THE TECHNOLOGY WAS AT THAT POINT IN TIME. THE FACT THAT THEY TOLD US THAT THEY COULD, AND THEY WERE ABLE TO GET -- MEET CLIA STANDARDS FOR ALL OF THE MENU OF TESTS THAT THEY OFFERED WAS A HUGE STATEMENT THAT SPOKE TO THE QUALITY OF THE UNDERLYING TECHNOLOGY. IT WAS ALSO CONSISTENT WITH WHAT THEY TOLD US ABOUT HOW THEIR MINILABS HAD LESS VARIATION COMPARED TO OTHER CONVENTIONAL ANALYTIC INSTRUMENTS THAT WERE SOLD INTO CUSTOMERS OR COMPETITORS LIKE A LABCORP OR A QUEST DIAGNOSTIC. SO YES FOR ALL OF THOSE REASONS.
MR. LEACH: AND MR. WADE ASKED YOU A NUMBER OF QUESTIONS ABOUT OTHER RISKS ASSOCIATED WITH THE THERANOS INVESTMENT AND INVESTMENTS IN GENERAL. DID YOU THINK ONE OF THE RISKS HERE WAS THAT THE FOUNDER AND CEO OF THE COMPANY WAS NOT BEING TRUTHFUL WITH YOU?
BRIAN GROSSMAN: WE DID NOT THINK THAT WAS ONE OF THE RISKS, NO.
MR. LEACH: MAY I HAVE A MOMENT, YOUR HONOR?
JUDGE DAVILA: YES.
(DISCUSSION AMONGST GOVERNMENT COUNSEL OFF THE RECORD.)
MR. LEACH: NOTHING FURTHER, YOUR HONOR. THANK YOU. THANK YOU, MR. GROSSMAN.
JUDGE DAVILA: MAY THIS WITNESS BE EXCUSED?
MR. LEACH: YES, YOUR HONOR.
JUDGE DAVILA: SIR, YOU'RE EXCUSED.
BRIAN GROSSMAN: THANK YOU.
JUDGE DAVILA: THANK YOU. YOU CAN JUST LEAVE ALL OF THAT THERE. MR. LEACH, DOES THE GOVERNMENT HAVE ANOTHER WITNESS TO CALL THIS AFTERNOON?
MR. BOSTIC: WE DO, YOUR HONOR.
JUDGE DAVILA: MR. BOSTIC? IS HE HERE?
MR. BOSTIC: SHE IS HERE.
JUDGE DAVILA: SHE IS HERE. THANK YOU.
MR. BOSTIC: THE UNITED STATES CALLS ERIN TOMPKINS.
JUDGE DAVILA: GOOD AFTERNOON.
BRIAN GROSSMAN: GOOD AFTERNOON.
JUDGE DAVILA: THERE'S A BIT OF A CONGESTION, BUT AS SOON AS THESE BODIES CLEAR OUT, I'LL ASK YOU TO STAND AND FACE OUR COURTROOM DEPUTY. THANK YOU, ADRIANA. IF YOU COULD FACE OUR COURTROOM DEPUTY WHILE YOU RAISE YOUR RIGHT HAND, SHE HAS A QUESTION FOR YOU.
(GOVERNMENT'S WITNESS, ERIN TOMPKINS, WAS SWORN.)
BRIAN GROSSMAN: YES.
JUDGE DAVILA: I'LL INVITE YOU TO HAVE A SEAT HERE. FEEL FREE TO ADJUST THE CHAIR AND THE MICROPHONE AS YOU NEED. I'LL ENCOURAGE YOU TO SPEAK DIRECTLY INTO THE MICROPHONE. WHEN YOU ARE COMFORTABLE, WOULD YOU PLEASE STATE YOUR NAME AND THEN SPELL IT, PLEASE.
BRIAN GROSSMAN: YES. MY NAME IS ERIN TOMPKINS. E-R-I-N, T-O-M-P-K-I-N-S.
JUDGE DAVILA: THANK YOU. COUNSEL.
MR. BOSTIC: THANK YOU, YOUR HONOR.