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

Elizabeth Holmes, founder and chief executive officer of Theranos, is on trial for wire fraud.
Enlarge / Elizabeth Holmes, founder and chief executive officer of Theranos, is on trial for wire fraud.
David Paul Morris/Bloomberg/Getty Images

Theranos founder Elizabeth Holmes’ charisma may have convinced the CEO of a major grocery store chain to form a partnership with the company, but it wasn’t enough to prevent the relationship from souring when the blood-testing startup inevitably couldn’t deliver on its promises.

In court for Holmes’ criminal trial yesterday, former Safeway CEO Steven Burd described how his admiration of Holmes and her company rose and then fell over the course of three years, from 2010 until 2013, when he retired. Holmes has been charged with 10 counts of wire fraud and two counts of conspiracy to commit wire fraud.

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

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

Though Theranos’ technology sounded impressive, the real draw, he said, was Holmes. “I was very impressed,” Burd told the court. “There are very few people I had met in the business that I would actually say are charismatic. She was charismatic, she was very smart, and she was doing one of the hardest things you can do in a business, and that’s to create an enterprise from scratch.”

“She was always decisive”

Burd said he met Holmes in early 2010. “Not all CEOs are alike,” he said. “She would rise to the top of the pile in terms of vision, in terms of command of the information, clearly in terms of delivery. She was always decisive.”

“Whenever she was talking, she owned the room,” Burd told the jury. “I’ve had the privilege of meeting four US presidents. When the president is in the room, let me tell you, the president owns the room. No one talks unless spoken to. Her style was warm, it was friendly. It wasn’t dictatorial.”

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

By September 2010, about six months after Burd met Holmes, Safeway had reached an agreement for an $85 million partnership with Theranos. As part of that deal, Safeway would spend $30 million to build labs inside its grocery stores. Burd said that Holmes—not lawyers—did the negotiating for Theranos, something he recalled as unusual.

Mounting delays

Safeway and Burd quickly began to regret the deal. The cost to add labs to its stores was far more than $30 million, Burd said, and “deadlines were continuing to be missed, and we often weren’t given an explanation for that.” 

Another red flag popped up in a boardroom demonstration of the Theranos device. Holmes had taken blood from a board member to run a prostate-antigen test, which screens for prostate cancer, and had inserted it into her company’s diagnostic device, but “we never got a result,” Burd said.

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

As delays mounted, so did Burd’s frustrations. By the end of 2012, his company had invested $367 million across 963 stores in preparation for the Theranos rollout. In January 2013, he sent Holmes an email detailing his concerns, saying, “I do not like wasting time. This does not feel like a partnership.”

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

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