Elizabeth Holmes Trial: Former Theranos employee says Edison machine failed frequently

SAN JOSE, Calif. - A former lab associate continued her testimony Wednesday in the federal criminal trial against Elizabeth Holmes, founder and CEO of the blood testing company Theranos.

Erika Cheung told the jury that the Theranos "Edison" machines, supposedly able to deliver multiple blood test results based on a fingerprick's worth of blood, "frequently failed" quality control tests.  

The "QC" procedures entailed running a test on a sample with a known concentration of a particular substance -- Vitamin D, for example -- to see if the machines gave back the correct answer.

But Theranos had a workaround when the QC tests failed. Cheung testified that the company implemented an "Outlier Deletion" system, "picking the best data points to make it appear that the quality" of the results passed muster.

Deleting one or two data points to get around the quality control problems, a process Cheung described as "cherry-picking," was a common practice with "no rules" and "no protocols." 

The failures of the Edison machines were well-documented. Cheung testified that tests run on patient samples inside Theranos showed wide disparities between Edison results and results from traditional, FDA-approved blood-testing machines made by third parties.

Again taking the Vitamin D example, Cheung testified that the Edisons would sometimes show up to three times the levels of Vitamin D in blood samples than those found using traditional testing methods, supporting her testimony with a spreadsheet comparing the results.

The spreadsheet showed that when tests on the same samples were run a second time, the traditional machines would typically achieve an identical result, while the Edisons often offered wildly different results the second time around.

Cheung testified that the faulty results of the Edison tests were not shared with regulators.

Cheung raised her concerns about the company's methods and devices when called into the office of Ramesh "Sunny" Balwani, Holmes second-in-command and alleged co-conspirator. Rather than responding to the concerns, Balwani left Cheung with the impression that "If I wanted to work here I need to process patient samples without question," she said.

Both Holmes and Balwani are charged with 12 counts of wire fraud and conspiracy to commit wire fraud with respect to Theranos' fingerprick tests. Balwani will be tried separately.

Over a heated defense objection, Cheung then testified about an email sent by her Theranos colleague, Tyler Shultz, to his grandfather, former U.S. Secretary of State and Theranos board member George Shultz. 

Tyler showed Cheung the email before the two went to dinner at the former secretary's home to talk about what was going on at the company. In his email, Tyler Shultz expressed concerns similar to those raised by Cheung about the practice of deleting "outliers" in the Edison results. Tyler also challenged public claims made by the company as to the accuracy of Edison tests. 

At the dinner, Cheung told George Shultz that the Edison tests run as demonstrations -- involving a fingerprick followed by the insertion of a cartridge into an Edison -- were a facade.

In fact, three or four employees were standing by to remove the cartridge and take it to the downstairs laboratory at Theranos, known as "Normandy," where the tests were quickly run on third-party machines modified by Theranos to handle the small sample.

Cheung left Theranos in April 2014. In June 2015, she received a "warning" letter from David Boies, the well-known litigator and partner of the Boies Schiller Flexner law firm, telling her to "cease and desist" from disclosing Theranos' trade secrets and from making "false and defamatory" statements about the company. 

Cheung understood the Boies letter to refer to her conversations with a Wall Street Journal reporter about her experience at Theranos, a step she took as a "final resort" to "get the truth out about what was happening to patient samples" at the company.

Earlier in the day, U.S. District Judge Edward Davila handed prosecutors an evidentiary victory when he overruled defense objections to a series of emails detailing the quality control problems in the Theranos lab. 

Holmes' defense lawyer Lance Wade argued that emails that did not show Holmes as a sender or recipient were inadmissible hearsay and prejudicial to their client's case.

Assistant U.S. Attorney John Bostic responded that the emails were "contemporaneous reports from Theranos employees regarding issues they were directly observing in Theranos's clinical lab" and "were under a duty to report and memorialize."

In a lengthy oral ruling from the bench, Davila pointed out that "particularly in Silicon Valley ... the business community has changed the way it practices dramatically" and that the emails were "an electronic record that someone can pull up" to see what happened, akin to a traditional business record. 

Cheung then proceeded to testify to many of the emails that the defense had tried to exclude.