Safeway spent $ 367 million to prepare for Theranos tests that never came

The charisma of Elizabeth Holmes, founder of Theranos, may have convinced the CEO of a large grocery chain to form a partnership with the company, but that was not enough to prevent the relationship from deteriorating when the blood testing startup inevitably failed to deliver on its promises. promises.

Yesterday in court for Holmes’ criminal trial, former Safeway CEO Steven Burd described how his admiration for Holmes and his company grew and then declined over the three years, from 2010 to 2013, when He has taken his retirement. Holmes has been charged with 10 counts of wire fraud and two counts of conspiring to commit wire fraud.

When Burd first heard about Holmes’ startup and his promised rapid blood test technology, he said he was “immediately interested in meeting Theranos, especially the founder.” The idea that people could donate a small amount of blood and receive the results quickly “was a fascinating concept.”

Burd had hoped that Theranos’ proprietary diagnostic device would allow shoppers to get a finger prick upon entering the store and, after shopping, leave with their results. The idea aligned with his vision to make healthcare a bigger part of Safeway’s business. During Burd’s two-decade tenure, the company had opened in-store pharmacies and started offering vaccines.

While Theranos’ technology looked impressive, the real draw, he said, was Holmes. “I was very impressed,” Burd said in court. “There are very few people I have met in the industry that I would say are really charismatic. She was charismatic, she was very smart, and she did one of the hardest things you can do in a business, and that is to start a business from scratch.

“She has always been decisive”

Burd said he met Holmes in early 2010. “Not all CEOs are the same,” he said. “It would rise to the top of the pile in terms of vision, in terms of information literacy, clearly in terms of delivery. It has always been decisive.

“Every time she spoke, she owned the piece,” Burd told the jury. “I had the privilege of meeting four American presidents. When the president is in the room, let me tell you that the room belongs to the president. No one speaks unless they are spoken to. His style was warm, he was friendly. It was not dictatorial.

Soon Burd and Holmes were working on a deal. As part of the pitch, Holmes prepared presentations for members of the board of directors and executives at Safeway in which she explained the tests on her company’s finger, saying they could return the results of blood, l urine or saliva in 20 minutes at a lower cost than competitors. She also said Theranos was cash flow neutral.

In September 2010, about six months after Burd met Holmes, Safeway had reached an agreement for an $ 85 million partnership with Theranos. Under the deal, Safeway would spend $ 30 million to build labs in its grocery stores. Burd said Holmes, not lawyers, negotiated for Theranos, which he recalled as unusual.

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Safeway and Burd quickly began to regret the deal. The cost of adding labs to its stores was well over $ 30 million, Burd said, and “deadlines continued to be missed, and often we weren’t given an explanation for it.”

Another red flag appeared during a demonstration of the Theranos device in a conference room. Holmes had drawn blood from a board member to perform a prostate antigen test, which looked for prostate cancer, and inserted it into his company’s diagnostic machine, but “we didn’t ‘never got a result,’ said Burd.

Over the months and years, he pleaded with Holmes and Theranos to keep him and the executives at Safeway informed. “I kept asking, ‘Give me some details here,’” he said. “That was the frustrating part. We have always tried to help them in any way we can.

As the delays increased, so did Burd’s frustrations. By the end of 2012, his company had invested $ 367 million in 963 stores for the deployment of Theranos. In January 2013, he sent Holmes an email detailing his concerns, saying, “I don’t like wasting time. It doesn’t look like a partnership.

Despite repeated delays, Holmes sent Safeway an invoice for $ 25 million the following month. (No word if Safeway paid for it.) Burd retired in May 2013, and the partnership was on life support in the years that followed. A planned smooth launch never materialized, and in 2015, after the Wall Street Journal published its investigation into Theranos, Safeway ended its partnership with the company.