(CN) — Former Safeway CEO Steven Burd testified Wednesday that Theranos misled his company about the health of its revenue streams before the large grocery store chain signed a contract with the blood-testing company.
Theranos' former CEO Elizabeth Holmes faces slate of fraud charges that include allegations that she misled investors about her company’s financial condition while misleading patients about the accuracy of her purportedly innovative testing machines.
Burd, who served as the CEO of Safeway from 1993 until his retirement in 2013, said Holmes personally assured him Theranos was in sound financial condition and was turning a profit. Prior testimony by former Theranos employees in charge of the blood-testing company’s finances has shown the company was hemorrhaging money.
According to Burd, Holmes suggested her company was cash-flow neutral during negotiations that led to Safeway signing a contract with Theranos in September 2010.
“The fact that they were cash-flow neutral suggested to me that they had a revenue stream,” Burd said.
The testimony is particularly harmful given that Burd interacted almost exclusively with Holmes in discussions leading up to the two companies entering into a formal agreement.
“Elizabeth appeared to be negotiating completely on her own, probably talking to counsel online but I had never seen that done,” Burd testified.
This differs from some of the previous testimony by former Theranos employees, including Erika Cheung who, despite being one of the most prominent whistleblowers at Theranos that led to the company’s downfall, testified she did not have much personal interaction with Holmes herself.
Adam Rosenblatt, the lab director at Theranos who wrapped up six days of laborious and detailed testimony on Wednesday, seemed to have some of the most problematic interactions with Holmes' right-hand man Sunny Balwani. In fact, he testified at times that Holmes encouraged him not to do anything he was not comfortable with and seemed to be more receptive to his qualms at the company.
The government is going to have to prove that Holmes and not Balwani perpetrated the fraud she is accused of, so some of those exculpatory facts have played in her favor. Burd’s testimony Wednesday presented some bad facts for Holmes.
If she did in fact portray the company as having revenue streams that did not exist, it might convince the jury that she personally defrauded investors, rather than just passively participated in a fraudulent scheme perpetrated by her business partner and erstwhile mentor.
"If they weren’t going to be profitable, the business relationship wouldn’t last long,” Burd said under questioning by U.S. Attorney Robert Leach.
Burd called Holmes charismatic and said when he met with her and Balwani, Holmes appeared to be in charge.
“She never looked over at Sunny to see what he might be thinking, she answered these questions herself,” Burd said.
Burd also said that Safeway was extremely excited about the potential for the Edison 3.0, the handheld blood tester Theranos developed, to displace other blood-testing equipment traditionally done in a lab that is typically more expensive and time-consuming.
"This notion of getting results and getting a prescription before leaving our store, we knew it would be appealing to customers,” he said. He added his impression was that the Edison could do any test that a traditional blood-testing lab could perform, saying Theranos likened it to a full-blown lab.
Rosenblatt and others had testified that toward the end of the company’s viability in 2013 and 2014, the Edison device could perform about 12 tests, as opposed to the approximately 200 performed in traditional labs. Even the tests that had cleared the research and development phase and were ready for clinical performance had reliability issues, Rosenblatt confirmed, a consistent theme with many of the witnesses in the trial thus far.
But Holmes' attorney Lance Wade badgered Rosenblatt throughout his six days of testimony, imputing that Rosenblatt — not Holmes — was responsible for the administration of the lab and he that should bear the brunt of responsibility for inaccurate test results.
While the prosecution’s questioning of Burd marks one of the first times so far that Holmes has been implicated of directing the scheme without plausible deniability, Wade has proven to be very skilled at raising doubts — making the upcoming cross-examination of the Safeway CEO one of the most pivotal moments of the trial so far.
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