Elizabeth Holmes Hones Her Defense in Day 2 of Testimony

SAN JOSE, Calif. — After weathering months of accusations that she lied to get money for her blood testing start-up, Theranos, Elizabeth Holmes, the embattled Silicon Valley entrepreneur who is on trial for fraud, sharpened her defense on Monday.

In just under two hours of testimony, Ms. Holmes pushed back against accusations that she had lied about Theranos’s work with drug companies. She also pointed the blame at the scientists and doctors who had worked at her start-up, saying she believed what they had told her about Theranos’s technology.

And throughout it all, Ms. Holmes’s defense bolstered the idea it has been pushing since the start of the trial: She may have made mistakes, but failure is not a crime.

“We thought this was a really big idea,” Ms. Holmes said about Theranos’s machines, which she once promised could run a long list of medical tests from just a few drops of their blood.

It was her second day of testimony in a trial that has gripped Silicon Valley and become a referendum on start-up culture and just how far entrepreneurs will take their hubristic claims of changing the world. For her lawyers, the idea on Monday was to show the kernel of truth that may have existed in some of the most blatant misrepresentations that prosecutors attributed to her.

Ms. Holmes, 37, has been charged with 11 counts of fraud and conspiracy to commit fraud. She has pleaded not guilty. If convicted, she faces up to 20 years in prison.

Her testimony has been the star attraction at a trial where more than 30 witnesses have been called over the past three months into a San Jose, Calif., courtroom to testify. Ms. Holmes had watched the proceedings quietly, her expression obscured behind a medical mask. On Friday, the prosecution had rested its case.

Ms. Holmes is the rare Silicon Valley executive to be tried on fraud charges. While the world of tech start-ups is known for its culture of hustle and hype, few have risen as high or fallen as dramatically as Theranos — and even fewer of their leaders have been indicted on accusations that they lied to investors. Over 13 years, Theranos raised nearly $1 billion in funding, valuing it at $9 billion. After The Wall Street Journal revealed in 2015 that Theranos’s technology did not work as advertised, the company unraveled. It shut down in 2018.

Ms. Holmes’s decision to testify is a risky one that shocked the courtroom out of its Friday afternoon lull last week. She has opened herself up to cross-examination by prosecutors and also risks perjury.

But experts have argued that she had no choice but to defend herself, given the evidence presented by prosecutors. That has included text messages that showed Ms. Holmes was aware of Theranos’s technology problems and testimony about faked demonstrations of its abilities. Prosecutors also revealed that after an employee, Erika Cheung, spoke to regulators about problems in the Theranos lab, the start-up hired a private detective to follow her.

“They think they are behind, and they have a smart, likable, young, attractive witness,” Neama Rahmani, the president of the West Coast Trial Lawyers and a former federal prosecutor, said of Ms. Holmes. “And she thinks she’s going to talk her way out of it.”

One key point made by prosecutors was that Theranos could never conduct more than 12 different blood tests on its own machines. It secretly used blood analysis machines from companies like Siemens to run most of its tests, but proclaimed it could do hundreds or thousands at various times.

Ms. Holmes’s lawyers have for weeks tried complicating the prosecution’s narrative. They have pointed to patents created by Theranos. They have hammered investors for not doing enough diligence on the start-up before eagerly writing checks to fund it. And they painted Ms. Holmes as inexperienced and unqualified to run a lab, directing blame for Theranos’s failure at those who were experienced and qualified.

But on the stand, Ms. Holmes presented herself as an impressive and ambitious chief executive when describing the early days of Theranos. She detailed a patent that bore her name for an early concept of the company, as well as the help she got from Channing Robertson, a respected scientist and Stanford University professor who joined Theranos’s board. She was relaxed and confident, smiling widely and nodding before answering questions.

On Monday, her direct examination continued in chronological order. Her lawyers walked through the details of preliminary studies that Theranos had done with a number of drug companies in 2008, 2009 and 2010. They also noted that Theranos’s technology had performed well in those early studies with Merck, AstraZeneca, Centocor, Bristol Myers Squibb and others.

Representatives from Pfizer and Schering-Plough testified earlier that they had evaluated Theranos’s technology and had come away unimpressed.

But the point of Monday’s testimony was to show that Theranos did work with drug companies rather than not at all. Ms. Holmes testified not only about the clinical studies but also about a study published in a peer-reviewed journal.

That strategy allowed her to focus on Theranos’s early successes and the conversations she had with each potential partner, while glossing over the outcomes of those conversations.

Ms. Holmes also tried to shift the blame, noting that she learned about Theranos’s technology from the scientists and doctors who worked in the company’s lab. She testified that she believed them when they said the technology worked. The implication: Ms. Holmes could not have intended to deceive investors if she believed the technology was real.

Prosecutors face a challenge in proving that Ms. Holmes intended to defraud investors. The push-pull between showing that she was aware of Theranos’s problems and that she simply relied on what others told her has been a recurring theme in testimony.

Emails between Ms. Holmes and Ian Gibbons, a former chief scientist at Theranos, also painted a rosy picture of Theranos’s technology.

“I understood that the four series could do any blood test,” Ms. Holmes said, referring to a version of Theranos’s machines, described by Mr. Gibbons.

Judge Edward J. Davila of U.S. District Court for the Northern District of California instructed jurors that many exhibits, including the emails between Ms. Holmes and her lab workers, should be taken as an indication of her “state of mind” rather than the truth of the situation.

Monday’s court session ended with Judge Davila again rebuking spectators over the volume of their typing, reminders of the many interruptions and delays that have plagued the trial since it began in August.

Direct testimony of Ms. Holmes is expected to last through Tuesday. She will then face cross-examination from prosecutors.