Safeway thought it was getting Theranos tech. Instead it got a mess.

Former Safeway CEO Steve Burd, who negotiated a key partnership to put Theranos testing in Safeway pharmacies, testified Wednesday at Elizabeth Holmes' fraud trial.

A Safeway store sign

Theranos promoted Safeway as a key partner.

Photo: Smith Collection/Gado/Getty Images

Former Safeway CEO Steve Burd had big visions for how Theranos' blood testing would fit into his grocery store empire. With results promised within 30 minutes, he could imagine customers getting a blood test, doing their grocery shopping and maybe even having a prescription from their doctor filled at the pharmacy based on the readings before they even left the store.

"This notion of getting results and getting a prescription possibly before leaving the store, we knew it would be appealing to customers," the former CEO testified in a San Jose courtroom Wednesday as part of Elizabeth Holmes' ongoing fraud trial.

By the end of 2012, nearly two and a half years after Safeway and Theranos inked a contract and well past the initial January 2011 launch pilot date, there wasn't a single Theranos device inside a Safeway store.

"When I try to envision the Theranos 'to do' list, the work that remains to be done appears nothing short of daunting," Burd wrote in a December 2012 email to Holmes, Theranos' founder and CEO. "I am not sure when or how it gets done."

Ultimately the deal would fizzle out in 2015 with no blood test reportedly ever offered in a Safeway location.

Prosecutors didn't reach the conclusion of Burd's testimony, which will continue next Tuesday. Instead, Burd testified to how he was lured in by Holmes' charisma to invest millions into the company and building clinics inside Safeway labs, only to face a series of delays and growing frustrations.

Holmes is facing 10 counts of wire fraud and two counts of conspiracy to commit wire fraud for her actions as CEO and founder of Theranos. She has pleaded not guilty, and her defense has argued she was a young and naive CEO who surrounded herself with other smarter people.

Burd, though, found Holmes to be competent and in charge and in no way deferential to Sunny Balwani, Theranos' president and also her boyfriend at the time.

"She never looked at Sunny to see what he might be thinking. She answered the questions herself," Burd said.

Burd had wanted to meet with Holmes since 2010 when he first heard that Safeway's health division was talking to the young blood-testing startup, and wanted to strike a deal to make it a key part of Safeway's wellness play.

Prosecutors for the U.S. government displayed slides from a 2010 board meeting deck that described the "disruptive technology opportunity." One slide promised that it was a "full diagnostic blood, saliva and urine lab in a box" with test results in 20 minutes. In another claim, Burd said Holmes had represented that Theranos was "currently cash flow neutral with a client base of pharmaceutical companies." (Earlier testimony from controller Danise Yam showed that Theranos lost money and faced dwindling revenues.)

In its earliest timeline, the company had wanted to launch "under the radar" in rural Washington state by the end of 2010 and roll out an initial pilot in Northern California by January 2011.

Safeway anticipated an $85 million financial commitment, including a $55 million cash investment in Theranos and $30 million to remodel stores. "That number ended up being very low" because they had to do more extensive remodeling, Burd said. (News reports from 2015 peg it at closer to $350 million ultimately spent, although that went unconfirmed in Wednesday's court testimony.)

In September 2010, Burd and Safeway ended up signing a deal with Theranos to install its machines in clinics at its stores. Prosecutors showed that in the paperwork for the agreement, Theranos described itself as having developed "and is developing, generations of 'mini-lab' [sic] devices that can run any blood test in real-time for less than the traditional cost of central lab tests." At the time, Burd said he was not told that a single test hadn't been validated for patient use on the Theranos proprietary devices.

There were signs of concern. At a board meeting, Holmes had brought in a device and took a Safeway board member's blood for a routine prostate test. The machine "made a bunch of noise" but never returned a result.

Theranos also kept delaying the launch. The only technical issue Theranos had raised was that they were trying to work out how to stack devices on top of each other while managing heat. Burd offered up Safeway engineers who knew about heating and cooling as help, but Holmes declined.

Holmes had also at one point blamed the work the company was doing with its Department of Defense contracts as part of the delay, although earlier testimony from General James Mattis revealed that, to his knowledge, Theranos devices had never been used in combat or on helicopters like she had told Burd.

Safeway eventually launched a pilot on its own corporate campus after Theranos kept delaying in-store launches. "We were far into this thing, but we'd never really seen the box work," Burd said.

Even with the pilot on campus, he wasn't aware that Theranos wasn't using any of its devices in the patient blood-testing lab.

"If they were using standard machines only, then all we were testing was the phlebotomist's ability to prick a finger and draw blood," he said.

Holmes would later unveil a version of the device as the Theranos "miniLab" at a 2016 medical convention.

Burd's testimony will continue next week. See Protocol's complete Theranos trial coverage.

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