Safeway severs ties with Theranos as $350M deal collapses

Theranos' Palo Alto, CA, headquarters--Courtesy of Theranos

The fallout over Theranos' proprietary blood testing has been enough to drive away one of its partners, with Walgreens Boots Alliance ($WBA) saying last month that it would freeze its relationship with the company until more questions were answered about its technology. Now Theranos is losing another partner amid growing pushback, as grocery store giant Safeway ($SWY) is severing its ties with the company after a $350 million deal fizzled out.

Neither side has ever revealed their project, dubbed "T-Rex," to the public, but Theranos and Safeway's relationship dates back to at least 2011, well before Theranos struck its deal with Walgreens, The Wall Street Journal reports. In 2012, Safeway's then-CEO Steven Burd told investors and analysts that the grocery chain was "contemplating a significant … wellness play." Former Safeway execs told the WSJ that Burd was talking about Theranos. Safeway funneled $350 million into building clinics in more than 800 of its supermarkets to offer Theranos' blood tests.

But the testing never started. Theranos missed deadlines for its blood testing rollout and the clinics are now used mostly for flu shots and travel-related vaccines, current and former Safeway execs told the newspaper. The Palo Alto, CA-based company also decided not to put its blood analyzers in Safeway's clinics so patients could get quick results, opting instead to ship blood samples collected at the clinics to a central lab for analysis.

After Burd retired from Safeway in 2013, Theranos CEO Elizabeth Holmes put Theranos President and COO Sunny Balwani in charge of handling the relationship between the companies and cut off her interactions with Safeway execs. The project has been largely dormant for more than a year, the WSJ reports.

An initial phase of the partnership also raised some eyebrows among Safeway executives. Safeway had Theranos carry out blood testing at a clinic at its Pleasanton, CA, headquarters, and Theranos often drew the same employee's blood twice, first with a finger prick and then through a traditional needle-in-the-arm method, a former Safeway exec told the newspaper. Some employees also got varying test results, including one exec who got a high result that suggested he had prostate cancer. When the result was sent for retesting by another lab, it came back normal, according to the WSJ story.

A Safeway spokesman declined to comment on the deal and Theranos is taking a similar tack, declining to comment on the claims by former Safeway execs. "We don't comment on discussions with other companies. The questions and information you have presented … are inaccurate and defamatory," Theranos' general counsel Heather King told the WSJ in an email.

The failed deal with Safeway tops a turbulent couple of months for Theranos, as it continues to deal with pushback over its technology after a series of WSJ articles called its testing into question. One article showed that Theranos' proprietary lab tool handled only a small portion of the tests sold to consumers at the end of 2014. Another story said that Theranos stopped collecting tiny vials of blood from finger pricks for all but one of its more than 200 tests after the FDA found that "nanotainers" manufactured and used by the company to collect samples were uncleared medical devices.

Theranos CEO Elizabeth Holmes

The stories were enough to spook Walgreens, which said last month that it would not expand its partnership with Theranos beyond 41 stores in Arizona and California that have Theranos "wellness centers" until the company answers questions regarding its technology. The companies originally teamed up in 2013.

Still, Holmes is sticking by the company's testing and is brushing off talk that Theranos' relationship with Walgreens is on the rocks. "They haven't said that to us. We're talking with them. We completed our rollout with them in Phoenix. They've been a great partner with us there," Holmes said earlier this month.

- read the WSJ story (sub. req.)

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