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Former Safeway CEO testifies in trial of Elizabeth Holmes

Tech

(CNN Business)Former Safeway CEO Steven Burd testified Wednesday during the criminal trial of Elizabeth Holmes about his company’s decision to invest heavily in a partnership with her blood testing startup Theranos that ultimately failed to get off the ground.

Burd, who served as CEO of the grocery chain from 1993 to 2013, said he was drawn to Theranos for its promise of being able to conduct blood tests faster, cheaper and without the need of a full laboratory. Burd said he saw the potential for customers to get their blood tests done while shopping and to use that service to bring more customers into Safeway stores.

“It was a fascinating concept,” Burd said in his testimony, saying that the blood testing device he was shown was about the size of a “large bagel toaster” and that he was told the turnaround time on results could be just 20 to 30 minutes. As he put it, “we were consistently told that it essentially replaces a traditional full blown lab.”

    Holmes and Theranos touted the promise of using their proprietary device to test for a conditions like cancer and diabetes with just a few drops of blood taken by a finger stick. Holmes catapulted her startup to a $9 billion valuation and secured key retail partnerships with both Safeway and Walgreens. Then, the dominoes started to fall after a 2015 investigation into its testing methods and capabilities by the Wall Street Journal.

      Safeway invested hundreds of millions of dollars into building out clinics in 800 of its supermarkets to eventually offer Theranos blood tests, but reportedly dissolved its relationship with the company before it ever offered its services.

          Burd is one of the most high-profile names yet to testify in the trial of Holmes, who is being accused of knowingly misleading investors, patients, and doctors about the capabilities of her company in order to take their money. Holmes faces up to 20 years in prison. She has pleaded not guilty.

          “There are very few people that I’ve met in business that I would actually say were charismatic,” Burd said Wednesday. “She was clearly charismatic. She was very smart. And she was doing one of the hardest things you can do in business and that is to create an enterprise from scratch.”

          Burd said, “whenever she was talking, she owned the room.”

          “Not all CEOs are alike and 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,” he testified, adding that he would put her in the same category as the four US presidents he’s met in terms of commanding a room.

          Safeway and Theranos signed a contract in September, 2010, according to Burd, with an anticipated financial commitment of $85 million. Of that, $30 million was earmarked for remodeling its stores — an amount that Burd said “turned out to be very low.” Burd said Holmes “appeared to be negotiating completely on her own,” with no attorney involved in their discussions. “I’ve never seen that done,” he said.

          When it came to the rollout schedule for its partnership, Theranos missed deadline after deadline, Burd testified.

          “We often weren’t given a lot of explanation for that and I kept asking ‘give me some details here. Maybe we can help. We’re a big company with lots of resources.’ That was the frustrating part. We always tried to help them in any way that we could,” said Burd, noting that eventually it launched a pilot at a campus clinic.

          In a December 2012 email to Holmes shown shortly before court recessed for the week, Burd expressed his frustration over the delays. In the email, he mentioned “the newly acquired [Department of Defense] business,” which he testified was one possible reason given for delays. He said that Holmes told him it was “very confidential.”

          “I was bothered by it, I was disappointed,” Burd said. “It seemed plausible. It just seemed like one more delay for us.”

          In anticipation of Burd taking the witness stand, Holmes’ defense attorney Kevin Downey sought to limit prosecutors from specifying the dollar amount that Safeway spent on renovating its stores, noting that it is distracting and that there could have been alternate reasons for spending this money on those renovations. Prosecutor Robert Leach argued that Safeway spent “$300 million” on the renovations and that it was relevant to Holmes’ representations of the company and its capabilities. “There’s a lot of big numbers in this case, your honor,” Leach said.

            Burd, the tenth witness in the trial, took the stand after six days of questioning of Theranos’ former lab director Adam Rosendorff, which concluded earlier Wednesday.

            Deciding Holmes’ fate is a jury of eight men and four women. On Wednesday, another member of the 12 person jury was excused after expressing conflicts with her religious beliefs as a Buddhist pertaining to the issue of forgiveness and any possible sentencing that may result from how she votes on the trial. An alternate juror was tapped to replace her, after there was first some discussion about the juror’s concern regarding possibly sentencing Holmes who is of a youthful age. The juror was reminded by the judge that punishment is not for her to determine and the defense and prosecution opted to have her serve. There are three remaining alternates.