Steven Burd — Direct
675 linesDIRECT EXAMINATION BY MR. LEACH:
MR. LEACH: MR. BURD, IF YOU'RE VACCINATED AND COMFORTABLE, WITH THE COURT'S PERMISSION, YOU'RE FREE TO REMOVE YOUR MASK.
JUDGE DAVILA: YES.
STEVEN BURD: THANK YOU.
JUDGE DAVILA: YOU'RE WELCOME.
BY MR. LEACH:
MR. LEACH: GOOD AFTERNOON. HOW ARE YOU, SIR?
STEVEN BURD: I'M TERRIFIC.
MR. LEACH: GREAT. WAS THERE A TIME WHEN YOU SERVED AS THE CHIEF EXECUTIVE OFFICER, OR CEO, OF SAFEWAY?
STEVEN BURD: YES, FOR A TOTAL OF 20 YEARS.
MR. LEACH: OKAY. WHEN WERE YOU THE CEO OF SAFEWAY?
STEVEN BURD: IT WOULD HAVE BEEN MAY OF 1993 AT THE ANNUAL SHAREHOLDER'S MEETING, RETIRING 20 YEARS LATER IN 2013 AT THAT SAME ANNUAL SHAREHOLDER'S MEETING.
MR. LEACH: AND SAFEWAY IS THE SUPERMARKET CHAIN WITH THE LARGE PRESENCE HERE IN THE NORTHERN DISTRICT OF CALIFORNIA?
STEVEN BURD: THAT'S CORRECT.
MR. LEACH: OKAY. WAS SAFEWAY A PUBLIC COMPANY WHILE YOU WERE THE CEO?
STEVEN BURD: IT WAS A PUBLIC COMPANY.
MR. LEACH: OKAY. AND WHAT DOES THAT MEAN, TO BE A PUBLIC COMPANY?
STEVEN BURD: IT MEANS YOU HAVE A LARGE NUMBER OF SHAREHOLDERS AND YOU HAVE OBLIGATIONS TO REPORT YOUR EARNINGS AND DISCUSS THE DETAILS OF THOSE EARNINGS ON A QUARTERLY BASIS. AND YOU OPERATE, I THINK, UNDER A SLIGHTLY DIFFERENT REGULATORY AND SECURITY STRUCTURE THAN A PRIVATELY HELD COMPANY.
MR. LEACH: OKAY. AND YOU STEPPED DOWN AS THE CEO OF SAFEWAY IN ABOUT MAY OF 2013?
STEVEN BURD: THAT'S CORRECT.
MR. LEACH: OKAY. CAN YOU GIVE US A BALLPARK OF WHAT SAFEWAY'S ANNUAL REVENUES IN THAT 2013 TIME PERIOD WERE?
STEVEN BURD: SURE. IT WOULD HAVE BEEN IN THE RANGE OF $45 BILLION IN SALES. WE OPERATED IN 22 U.S. STATES, FIVE CANADIAN PROVINCES. THOSE STATES INCLUDED ALASKA AND HAWAII. AND WE HAD A 49 PERCENT INTEREST IN A MEXICAN RETAILER, THE COMPANY WAS CALLED CASA LEY, C-A-S-A, L-E-Y.
MR. LEACH: AND WOULD YOU BRIEFLY DESCRIBE YOUR EDUCATIONAL AND PROFESSIONAL BACKGROUND BEFORE YOU BECAME THE CEO OF SAFEWAY?
STEVEN BURD: SURE. TWO DEGREES IN ECONOMICS, ONE FROM CARROLL UNIVERSITY IN WAUKESHA, WISCONSIN; A GRADUATE DEGREE AND MASTER'S DEGREE IN ECONOMICS FROM THE UNIVERSITY OF WISCONSIN IN MILWAUKEE. I TOOK MY FIRST JOB IN SAN FRANCISCO WITH WHAT I WOULD CALL A MINI CONGLOMERATE CONTROLLED BY A RAILROAD CALLED SOUTHERN PACIFIC. THEY, FOR EXAMPLE, FOUNDED THE COMPANY CALLED SPRINT TODAY, WHICH EVERYBODY KNOWS. I SPENT ABOUT FOUR YEARS THERE; WENT BACK TO WASHINGTON, D.C., SERVED AS AN ECONOMIST FOR THE ASSOCIATION OF AMERICAN RAILROADS; CAME BACK, ENDED UP IN THE FINANCE DEPARTMENT AT THIS RAILROAD; LEFT THERE IN THE EARLY '80S TO JOIN A CONSULTING FIRM, ARTHUR D. LITTLE. I HAD BUILT A REPUTATION OF BEING A BIT OF A TURNAROUND MANAGEMENT LEADER, AND SO I STARTED A STEADY LINE OF TURNAROUND WORK, STUMBLED INTO A PRIVATE EQUITY FIRM CALLED KKR, KOHLBERG, KRAVIS, ROBERTS & COMPANY, AND THEY GAVE ME A STEADY DIET OF WORK. PRIVATE EQUITY IS A TECHNIQUE WHERE YOU BUY COMPANIES, MUCH THE WAY MOST OF US BUY HOMES, AND SO MOSTLY DEBT AND A LITTLE BIT OF EQUITY. AND SAFEWAY WAS ONE OF THOSE INVESTMENTS. THEY INSTALLED ME AS PRESIDENT IN 1992, AND SIX MONTHS LATER I WAS THE CEO.
MR. LEACH: I'D LIKE TO DRAW YOUR ATTENTION, PLEASE, TO THE TIME PERIOD 2010. DO YOU HAVE THAT TIME PERIOD IN MIND?
STEVEN BURD: SURE.
MR. LEACH: IN OR AROUND THIS TIME, DID YOU BECOME FAMILIAR WITH A COMPANY CALLED THERANOS?
STEVEN BURD: I DID.
MR. LEACH: HOW DID YOU BECOME FAMILIAR WITH THERANOS?
STEVEN BURD: I HAD FORMED A COMPANY CALLED SAFEWAY HEALTH, IT WAS FULLY OWNED BY SAFEWAY, BECAUSE WE HAD DONE SOME EXTRAORDINARY THINGS IN HEALTH CARE AND WE DECIDED WE WOULD DO THOSE THINGS FOR OTHERS. SO A COUPLE OF THE FOLKS FROM SAFEWAY HEALTH HAD HAD A MEETING WITH ELIZABETH HOLMES SOMETIME IN I THINK MARCH OF THAT YEAR, AND I DON'T KNOW HOW I LEARNED ABOUT IT, BUT SOMEBODY TOLD ME ABOUT THIS MEETING AND I WAS IMMEDIATELY INTERESTED IN, IN MEETING THERANOS, AND PARTICULARLY THE FOUNDER. SO WE REACHED OUT, SET UP ANOTHER MEETING, AND I CAN RECALL -- I DON'T KNOW THE DATE -- BUT IT WAS THE DAY I WAS LEAVING FOR EUROPE ON VACATION, SO IT REALLY NEEDED TO HAPPEN QUICKLY.
MR. LEACH: WHY WERE YOU IMMEDIATELY INTERESTED?
STEVEN BURD: IT WAS A FASCINATING CONCEPT. YOU KNOW, THE NOTION -- YOU KNOW, I WORKED FOR SAFEWAY FOR 20 YEARS, WHICH IS A LOW MARGIN RETAILER. WE MAKE 1 TO 3 PERCENT ON EACH DOLLAR OF SALES. AND SO THE COST REDUCTION APPEALED TO ME, THE IDEA OF GETTING A BLOOD TEST IN 20 OR 30 MINUTES APPEALED TO ME, THE IDEA THAT IT WAS MINIATURIZED. YOU KNOW, WE MADE A PRACTICE OF PUTTING DIFFERENT BUSINESSES INSIDE OF OUR STORE SO WE COULD CONTINUE TO GROW TOP LINE SALES, WE PUT PHARMACIES IN, WE PUT DELIS IN, WE PUT BAKERIES IN. THIS WAS AN OPPORTUNITY TO DO SOMETHING THAT WOULD BRING EXTRA BUSINESS TO THE STORE. WE BUILT 400-PLUS GAS STATIONS. WHEN I PUT A GAS STATION IN THE PARKING LOT, MY SALES WENT UP 6 PERCENT IN THE STORE. SO I KNEW THIS WOULD HAVE NOT ONLY A PROFIT INTEREST OF ITS OWN, BUT IT WOULD ALSO AFFECT THE ATTRACTION OF SAFEWAY TO SHOPPERS AT LARGE.
MR. LEACH: AND I THINK I HEARD YOU SAY YOU WERE IMMEDIATELY INTERESTED IN MEETING THE FOUNDER. DID I HEAR THAT RIGHT?
STEVEN BURD: CORRECT.
MR. LEACH: WHY WAS THAT?
STEVEN BURD: WELL, THEY WERE STILL A SMALL COMPANY. VISION WAS IMPORTANT TO ME, AND WHO BETTER COULD EXPLAIN THAT VISION THAN THE FOUNDER? AND WHAT I HAD BEEN TOLD ABOUT ELIZABETH HOLMES, I WAS EAGER TO MEET HER.
MR. LEACH: OKAY. AND IN BETWEEN MARCH OF 2010 AND SEPTEMBER OF 2010, DID YOU PURSUE THE POSSIBILITY OF A COMMERCIAL ARRANGEMENT WITH THERANOS?
STEVEN BURD: WE DID. IF I RECALL CORRECTLY, IT WAS SOMETIME IN SEPTEMBER, AFTER MONTHS OF DISCUSSION AND NEGOTIATION, THAT WE ACTUALLY SIGNED A CONTRACT.
MR. LEACH: OKAY. IN BETWEEN THAT MARCH TIMEFRAME AND THE SIGNING OF THE CONTRACT, DID YOU MEET WITH MS. HOLMES?
STEVEN BURD: ABSOLUTELY.
MR. LEACH: AND DID YOU HAVE CONVERSATIONS WITH HER?
STEVEN BURD: I DID.
MR. LEACH: OKAY. ON MORE THAN ONE OCCASION?
STEVEN BURD: MORE THAN ONE OCCASION.
MR. LEACH: AND WERE YOU IMPRESSED?
STEVEN BURD: I WAS VERY IMPRESSED.
MR. LEACH: HOW SO?
STEVEN BURD: WELL, YOU KNOW, THERE ARE VERY FEW PEOPLE THAT I'VE MET IN BUSINESS THAT I WOULD ACTUALLY SAY ARE CHARISMATIC. SHE WAS CLEARLY CHARISMATIC. SHE WAS VERY SMART, OKAY? AND SHE WAS DOING ONE OF THE HARDEST THINGS THAT YOU CAN DO IN BUSINESS, AND THAT'S TO CREATE AN ENTERPRISE FROM SCRATCH. I HAVE DONE SIX STARTUPS ON MY OWN. I'VE CREATED SEVERAL COMPANIES INSIDE OF SAFEWAY. THAT'S EASY. DOING IT ON THE OUTSIDE IS REALLY HARD.
MR. LEACH: AND WHAT WAS THE NATURE OF THE BUSINESS RELATIONSHIP THAT YOU WERE DISCUSSING WITH MS. HOLMES IN OR AROUND THIS TIME PERIOD?
STEVEN BURD: SURE. YOU KNOW, AS SOON AS I HEARD THE STORY, I REMEMBER SENDING AN EMAIL, YOU KNOW, THE NEXT DAY, EVEN THOUGH I WAS IN EUROPE, AND IT WAS -- IT WAS A SOMEWHAT DETAILED EMAIL. I CAN'T GIVE YOU EVERY SPECIFIC, BUT WHEN SOMEBODY NEW COMES IN WITH A PRODUCT OR WHATEVER, FIRST THING I WANT IS I WANT AN EXCLUSIVE. IF I CAN'T GET AN EXCLUSIVE, I WANT IT FOR A YEAR. YOU KNOW, I WANT SOMETHING BECAUSE I WANT TO PUT SOME EFFORT INTO HELPING MAKE THIS HAPPEN, AND SO I WANT TO OWN IT FOR AWHILE. AND WE DID THAT WITH PRODUCE. THERE'S A WATERMELON CALLED A PURE HEART AND IT HAS A VERY SMALL RIND. I MEAN -- AND WE HAD THAT FOR OURSELVES FOR OVER A YEAR. SO THAT WAS ONE THING I WANTED. THE OTHER THING, WE HAD BUILT A COMPANY THAT WE LATER TOOK PUBLIC, IT HAD A VALUATION OF ABOUT $3 AND A HALF BILLION, AND IT WAS A -- IT WAS A FINANCIAL COMPANY THAT IF YOU GO INTO ANY SUPERMARKET IN THE UNITED STATES, YOU'RE LIKELY TO FIND GIFT CARDS THAT WE RESELL. SO WE HAD CREATED A NETWORK INITIALLY THAT DIDN'T COMPETE WITH SAFEWAY, AND THEN LEARNED WE COULD ACTUALLY SELL THEM TO EVERY SUPERMARKET. SO I WANTED TO BUILD A NETWORK FOR THIS NEW, NEW LAB COMPANY THAT WOULD GIVE ME ANOTHER STREAM OF INCOME, NOT JUST THE INCOME FOR HAVING A LAB IN OUR STORES.
MR. LEACH: OKAY. YOU TALKED A LITTLE BIT ABOUT EXCLUSIVITY, A LITTLE BIT ABOUT HAVING THE NETWORK. LET'S TAKE A STEP BACK, AND DESCRIBE FOR ME WHAT WAS IT YOU THOUGHT THERANOS COULD OFFER SAFEWAY?
STEVEN BURD: WELL, YOU KNOW, THEY WERE TALKING ABOUT REPLACING A FULL SCALE LAB, WHICH MEANT THAT YOU COULD DO ALMOST EVERY BLOOD TEST IMAGINABLE. I MEAN, EVEN, EVEN SOME OF THE NAME BRAND LABS OUT THERE WILL GO TO A REFERENCE LAB FOR SOME VERY UNIQUE THINGS. AND SO WE THOUGHT, THAT'S A NICE CONNECTION TO THE PHARMACIST. WE WERE ALREADY DEEPLY INTO THE VACCINATION BUSINESS, SO IT WAS AN ADD-ON INCOME STREAM. IMAGINE COMING IN WITH A SCRIPT FOR HAVING A BLOOD TEST, GETTING YOUR BLOOD DRAWN, AND WHILE SHOPPING -- IF YOU'RE DOING YOUR WEEKLY SHOPPING, YOU'RE GOING TO BE IN THAT STORE FOR MORE THAN 30 MINUTES. AND BEFORE YOU LEAVE, YOU KNOW THE RESULTS OF THAT BLOOD TEST -- THAT WAS THE OFFERING -- AND YOU COULD THEN GO BACK TO THE PHARMACY AND, AFTER HAVING CALLED YOUR DOCTOR ON YOUR CELL PHONE, YOU COULD GET A PRESCRIPTION. SO THAT WAS AN INCREDIBLE PROCESS THAT WAS APPEALING TO US.
MR. LEACH: AT ANY POINT IN TIME, DID MS. HOLMES SHOW YOU THE DEVICE WITH WHICH SHE WOULD REPLACE THE CENTRAL LAB?
STEVEN BURD: SHE DID. SHE ACTUALLY BROUGHT IT TO ONE OF OUR BOARD MEETINGS. I HAD HER PRESENT TO THE BOARD. WE HAD A BOX IN THE BACK OF THE ROOM. A BOARD MEMBER OFFERED TO BE A TEST CASE AND WE SAID, YOU KNOW, JUST DO A PSA TEST, WHICH IS A PROSTATE SPECIFIC ANTIGEN THAT YOU WANT TO KEEP AN EYE ON AS YOU GROW OLDER BECAUSE IT COULD BE AN INDICATOR POSSIBLY OF EARLY PROSTATE CANCER. AND SO THE BLOOD WAS DRAWN IN THE FINGERSTICK, IT WAS PUT INTO THE MACHINE, THE MACHINE MADE A BUNCH OF NOISE -- IT WASN'T REAL LOUD, BUT YOU COULD HEAR SOMETHING GOING ON -- AND WE NEVER GOT A RESULT. AND LATER, AS THIS BOARD MEMBER REACHED OUT TO FIND OUT WHAT HIS PSA WAS -- AND IT WASN'T THE PSA HE WAS INTERESTED IN, HE WANTED TO MAKE SURE THAT THERE WAS SOME CONFIRMATION THERE -- HE WAS APPARENTLY TOLD --
MR. DOWNEY: YOUR HONOR, JUST OBJECTION, HEARSAY, THE NATURE OF THE TESTIMONY.
STEVEN BURD: I'M SORRY.
JUDGE DAVILA: WHY DON'T YOU ASK ANOTHER QUESTION?
STEVEN BURD: YEAH.
JUDGE DAVILA: ASK ANOTHER QUESTION.
BY MR. LEACH:
MR. LEACH: WAS THERE SOMETHING ABOUT THE SIZE OF THE DEVICE THAT WAS ATTRACTIVE TO YOU?
STEVEN BURD: IT WAS QUITE SMALL.
MR. LEACH: WHY WAS THAT OF INTEREST TO SAFEWAY?
STEVEN BURD: IT WAS OF INTEREST BECAUSE IF IT WAS GOING TO TAKE 20 OR 30 MINUTES TO PROCESS A CARTRIDGE, I COULDN'T HAVE 12 PEOPLE IN THE WAITING ROOM AND JUST IMAGINE SIX HOURS FROM NOW WE'LL GET TO YOU. AND SO THE CONCEPT WAS TO STACK SIX OF THESE ON TOP OF ONE ANOTHER AND PUT ANOTHER SIX NEXT TO IT, SO WE CREATED A SPACE MUCH THE SIZE OF A LARGE REFRIGERATOR.
MR. LEACH: YOU ALSO TALKED ABOUT THE TIME PERIOD WITHIN WHICH RESULTS COULD BE RETURNED, POSSIBLY WHEN SOMEBODY WAS SHOPPING. WHY -- WAS THERE SOMETHING ABOUT THE SPEED OF THE DEVICE WHICH WAS OF INTEREST TO YOU?
STEVEN BURD: YEAH. IT WAS -- YOU KNOW, IF YOU HAVE A REALLY GOOD LAB, YOUR DOCTOR MIGHT GET THE RESULTS IN 24 HOURS. THEY MIGHT DRIBBLE IN TO YOU A BIT AFTER THAT. BUT AS I SAID EARLIER, THIS NOTION OF GETTING THE RESULTS AND GETTING A PRESCRIPTION POSSIBLY BEFORE EVEN LEAVING THE STORE, WE KNEW THAT WOULD BE APPEALING TO CUSTOMERS.
MR. LEACH: AND DID MS. HOLMES MAKE REPRESENTATIONS TO YOU IN THIS PRELIMINARY PERIOD ABOUT THE SPEED WITH WHICH THERANOS COULD TURN AROUND RESULTS?
STEVEN BURD: YES. IT WAS DESCRIBED AS A RANGE OF 20 TO 30 MINUTES.
MR. LEACH: DID SHE ALSO DESCRIBE FOR YOU THE ACCURACY OF THE RESULTS THAT COULD BE PRODUCED BY THE DEVICE?
STEVEN BURD: IN ONE OF HER PRESENTATIONS, THERE WAS A -- THERE WAS -- THERE WAS SOME COMMENT ABOUT THE ACCURACY, YOU KNOW, BEING EVEN MORE ACCURATE THAN, YOU KNOW, TRADITIONAL, TRADITIONAL TESTING UNITS. BUT IT WAS NEVER -- WE NEVER GOT ANY DEEP INFORMATION ABOUT THAT. AND I'D BE HAPPY IF IT WERE JUST AS ACCURATE.
MR. LEACH: WAS ACCURACY RELEVANT TO YOU?
STEVEN BURD: OF COURSE.
MR. LEACH: WHY DO YOU SAY OF COURSE?
STEVEN BURD: WELL, WE -- YOU KNOW, WHEN YOU PUT ANOTHER BRAND IN YOUR STORE -- AND WE PUT MANY OF THEM, YOU'LL FIND WELLS FARGOS AND OTHER BRANDS IN OUR STORE, MAYBE A PANDA EXPRESS HERE AND THERE -- OUR BRAND IS ON THE FRONT, THEIR BRAND IS INSIDE. PEOPLE ARE GOING TO COME BACK TO US IF THEY GOT A NUMBER THAT DIDN'T MAKE ANY SENSE TO THEIR PHYSICIAN. AND, YOU KNOW, WE MUCH PREFER THEY COME BACK TO THERANOS, BUT WE KNOW IT HAPPENED IN OUR STORE. AND SO I THINK IT'S ALWAYS TRUE IN BUSINESS THAT YOU WANT TO ALWAYS DEAL WITH FIRST RATE COMPANIES, PARTICULARLY WHEN YOU ARE IN THE SAME ENVIRONMENT. AND SO THAT WAS IMPORTANT TO US.
MR. LEACH: DID MS. HOLMES ALSO DESCRIBE FOR YOU THE NUMBER OF TESTS THAT THE DEVICE COULD PERFORM?
STEVEN BURD: IT WAS DESCRIBED VARIOUS DIFFERENT WAYS. SOMETIMES REPLACING A TRADITIONAL LAB. THAT WOULD IMPLY WELL OVER 300 DIFFERENT TESTS. I REMEMBER ONE OF HER CARTRIDGE WAS DESCRIBED AS CAPABLE OF DOING 95 PERCENT OF ALL TESTS. THAT WAS IMPORTANT TO US BECAUSE WE HAD TO INVENTORY THE CARTRIDGES AND WE HAD A LIMITED AMOUNT OF SPACE. SO WE WERE CONSISTENTLY TOLD THAT IT ESSENTIALLY REPLACES A TRADITIONAL, FULL BLOWN LAB.
MR. LEACH: MAY I APPROACH THE WITNESS, YOUR HONOR?
JUDGE DAVILA: YES.
MR. LEACH: (HANDING.)
STEVEN BURD: THANK YOU.
BY MR. LEACH:
MR. LEACH: MR. BURD, I'VE PLACED BEFORE YOU A BINDER OF DOCUMENTS AND I'D LIKE TO DRAW YOUR ATTENTION, PLEASE, TO WHAT WE HAVE MARKED AS EXHIBIT 336.
STEVEN BURD: YES, I SEE IT.
MR. LEACH: DO YOU SEE THERE'S SOME HANDWRITING ON THE FIRST PAGE OF 336 UP IN THE TOP RIGHT CORNER?
STEVEN BURD: YES.
MR. LEACH: DO YOU RECOGNIZE THE HANDWRITING?
STEVEN BURD: IT'S MY HANDWRITING.
MR. LEACH: OKAY. AND DO YOU SEE A DATE DOWN IN THE BOTTOM LEFT CORNER WHERE IT SAYS "BOARD MEETING, MAY 19TH, 2010"?
STEVEN BURD: I DO.
MR. LEACH: DO YOU RECOGNIZE THIS DOCUMENT?
STEVEN BURD: YES.
MR. LEACH: IS THIS A TRUE AND CORRECT COPY OF A POWERPOINT THAT YOU PRESENTED TO THE SAFEWAY BOARD IN OR AROUND THIS TIME PERIOD?
STEVEN BURD: THAT'S CORRECT.
MR. LEACH: OKAY. AND DID YOU PREPARE THIS AT OR NEAR THE TIME OF THE BOARD MEETING?
STEVEN BURD: IT WOULD HAVE BEEN PREPARED VERY CLOSE TO THE BOARD MEETING. YOU KNOW, I ALWAYS WAS IMPROVING THINGS, SO THESE DID NOT GET HANDED OUT IN ADVANCE OF THE BOARD MEETING. THIS WAS PRESENTED LIVE TO THE BOARD MEMBERS FOR THE FIRST TIME.
MR. LEACH: OKAY. AND DID YOU KEEP POWERPOINTS SUCH AS THIS IN THE ORDINARY COURSE OF BUSINESS?
STEVEN BURD: WE USED THEM ALL THE TIME.
MR. LEACH: OKAY. IT WAS YOUR REGULAR PRACTICE TO CREATE PRESENTATIONS FOR THE BOARD ABOUT POSSIBLE OPPORTUNITIES FOR THE COMPANY?
STEVEN BURD: IT WAS THE WAY WE CONDUCTED OUR BOARD MEETINGS, SO ALL THE OTHER MATERIAL WAS IN A PRESENTATION FORMAT.
MR. LEACH: OKAY. AND DID YOU DO YOUR BEST TO ACCURATELY REPORT THE OPPORTUNITY THERANOS PRESENTED HERE TO SAFEWAY'S BOARD?
STEVEN BURD: ABSOLUTELY.
MR. LEACH: OKAY. AND DOES THIS REFLECT YOUR UNDERSTANDING OF THE POSSIBLE ARRANGEMENT FOR SAFEWAY?
STEVEN BURD: THAT'S CORRECT.
MR. LEACH: YOUR HONOR, I OFFER EXHIBIT 336.
MR. DOWNEY: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 336 WAS ADMITTED IN EVIDENCE.)
MR. LEACH: AND, MS. HOLLIMAN, IF WE COULD PLEASE GO TO PAGE 2 OF THIS EXHIBIT.
MR. LEACH: DO YOU SEE UP AT THE TOP, MR. BURD, WHERE IT SAYS DISRUPTIVE TECHNOLOGY OPPORTUNITY?
STEVEN BURD: CORRECT.
MR. LEACH: AND BENEATH THAT, THERE'S A BULLET, "CREATE A NEW IN STORE PHARMACY SERVICE WITH A MINI-DIAGNOSTIC LAB." IS THAT A TERM THAT MS. HOLMES USED WITH YOU, MINI-DIAGNOSTIC LAB?
STEVEN BURD: YES.
MR. LEACH: I DIDN'T MEAN TO CUT YOU OFF.
STEVEN BURD: WELL, I WAS GOING TO TELL YOU THAT IT WOULD BE -- IT WOULD BE COMMON PRACTICE FOR ME TO REVIEW THIS, YOU KNOW, WITH ELIZABETH BEFORE I PRESENTED IT BECAUSE I'M OUT OF MY POWER ALLEY, YOU KNOW, IN PRESENTING THESE THINGS. SO I CAN'T -- I CAN'T TELL YOU FOR CERTAIN I DID, BUT THAT WAS MY PRACTICE.
MR. LEACH: OKAY. IS IT FAIR TO SAY THE INFORMATION RELATING TO THERANOS IN THIS POWERPOINT CAME IN ONE FORM OR ANOTHER FROM MS. HOLMES?
STEVEN BURD: CORRECT.
MR. LEACH: OKAY. AND THAT TERM, "MINI-DIAGNOSTIC LAB," WHAT DID THAT MEAN TO YOU?
STEVEN BURD: IT DOES WHAT A BIG LAB DOES.
MR. LEACH: AND WAS THAT ATTRACTIVE TO YOU AT THE TIME?
STEVEN BURD: VERY MUCH SO.
MR. LEACH: OKAY. LET ME DRAW YOUR ATTENTION TO PAGE 3. AND IF WE COULD ZOOM IN ON THE FOUR BULLETS. DO YOU SEE WHERE IT SAYS "FULL DIAGNOSTIC BLOOD, SALIVA AND URINE LAB IN A BOX"?
STEVEN BURD: CORRECT.
MR. LEACH: IS THAT LAB IN A BOX SYNONYMOUS WITH MINI-DIAGNOSTIC LAB?
STEVEN BURD: CORRECT.
MR. LEACH: THE NEXT BULLET SAYS "BLOOD TEST SAMPLES RESULT FROM A FINGERSTICK." IS THAT YOUR UNDERSTANDING OF WHAT THERANOS WAS OFFERING?
STEVEN BURD: CORRECT.
MR. LEACH: THERE'S THE TEST RESULTS IN 20 MINUTES. IS THAT A REFERENCE TO GETTING THE TEST WHILE FOLKS WERE GETTING THEIR GROCERIES?
STEVEN BURD: YES.
MR. LEACH: AND WAS THAT TIMING IMPORTANT TO YOU?
STEVEN BURD: IT WAS IMPORTANT, SURE.
MR. LEACH: AND WHY WAS THAT?
STEVEN BURD: BECAUSE THEY'LL GET THE RESULTS BEFORE THEY LEAVE THE STORE.
MR. LEACH: THE LAST BULLET SAYS, "RETAIL PRICE IS 40 TO 70 PERCENT LOWER THAN TWO DOMINANT COMPETITORS." DO YOU SEE THAT LANGUAGE?
STEVEN BURD: YES.
MR. LEACH: WAS THAT RELEVANT TO YOU?
STEVEN BURD: YES, IT WAS.
MR. LEACH: HOW SO?
STEVEN BURD: IT'S MUCH EASIER TO TAKE MARKET SHARE FROM EXISTING COMPETITORS IF YOUR PRICE POINT IS CONSIDERABLY LOWER. AND THAT WOULD ALSO BE ATTRACTIVE TO ALL OF THE INSURANCE COMPANIES THAT WOULD BE, YOU KNOW, ADJUDICATING THESE CLAIMS FOR ANYBODY THAT GOES TO A LAB.
MR. LEACH: AND WAS IT YOUR IMPRESSION, BASED ON YOUR DIALOGUE WITH MS. HOLMES, THAT THIS WAS SOMETHING THERANOS COULD DO PROFITABLY?
STEVEN BURD: YES. THEY WEREN'T IN THE BUSINESS FOR CHARITY. THEY OBVIOUSLY MADE MONEY ON IT SOMEHOW.
MR. LEACH: OKAY. LET ME DRAW YOUR ATTENTION TO THE NEXT PAGE, PAGE 4. DO YOU SEE WHERE IT SAYS PHYSICAL DEVICE AND CARTRIDGES?
STEVEN BURD: UM-HUM.
MR. LEACH: AND THERE'S AN IMAGE --
STEVEN BURD: YES.
MR. LEACH: -- OF THE DEVICE?
STEVEN BURD: YES.
MR. LEACH: OKAY. AT ANY POINT, DID YOU SEE A DEVICE LIKE THAT?
STEVEN BURD: I SAW A SIMILAR DEVICE. I USED TO DESCRIBE IT AS A, THE SIZE OF A LARGE BAGEL TOASTER, YOU KNOW? SO I DIDN'T SEE THIS EXACT DEVICE. IT WAS GOING THROUGH A SERIES OF CHANGES, AND IT CONTINUED TO GO THROUGH CHANGES ALL DURING OUR DISCUSSIONS BECAUSE THIS WOULD NOT HAVE BEEN STACKABLE IN THE SAME WAY THAT I HAD TALKED ABOUT EARLIER.
MR. LEACH: OKAY. BUT YOUR UNDERSTANDING WAS IT WAS A DEVICE, SOMETHING THE SIZE OF A BAGEL TOASTER, THAT COULD RUN A LARGE VOLUME OF TESTS?
STEVEN BURD: YES. I SAW PICTURES OF OTHER GENERATIONS OF THIS, AND SO I'VE SEEN IT EVOLVE.
MR. LEACH: OKAY. AND TO THE RIGHT THERE'S SOMETHING CALLED CARTRIDGE. WHAT WAS YOUR UNDERSTANDING OF THE CARTRIDGE?
STEVEN BURD: THE CARTRIDGE LOOKED TO ME LIKE IT WAS MADE OUT OF SOME PLASTIC MATERIAL, AND THE EXTRACTED BLOOD SAMPLE WOULD GO SOMEWHERE INTO THAT CARTRIDGE AND THE CARTRIDGE WOULD GO INTO THE MACHINE.
MR. LEACH: WE'LL COME BACK TO THE CARTRIDGE IN A MINUTE. BUT LET'S LOOK AT PAGE 5, IF WE COULD. UP AT THE TOP, DO YOU SEE WHERE IT SAYS TECHNOLOGY PARTNER - THERANOS?
STEVEN BURD: I DO.
MR. LEACH: OKAY. I WANT TO DRAW YOUR ATTENTION TO THE SECOND BULLET WHERE IT SAYS, "CURRENTLY CASH FLOW NEUTRAL WITH A CLIENT BASE OF PHARMACEUTICAL COMPANIES." IS THAT SOMETHING MS. HOLMES TOLD YOU?
STEVEN BURD: YES, IT IS.
MR. LEACH: OKAY. WAS THAT RELEVANT TO YOU?
STEVEN BURD: IT IS, BECAUSE IF THEY'RE CASH NEUTRAL AND WE'RE ABOUT TO CREATE SOMETHING MUCH LARGER, IT SUGGESTS THAT WE CAN EASILY GET THE PROFITABILITY, WHICH WOULD MAKE IT EASIER FOR HER TO SHARE A MARGIN WITH US.
MR. LEACH: IF THERANOS WERE NOT CASH FLOW NEUTRAL, WOULD THAT HAVE BEEN A DETERRENT TO YOU GOING FORWARD?
STEVEN BURD: IT WOULDN'T HAVE NECESSARILY PREVENTED US, BUT IT WOULD HAVE BEEN CONSIDERED BECAUSE THEN THE ISSUE IS, WELL, HOW CLOSE ARE YOU? HOW MUCH MORE CAPITAL DO YOU NEED? WHEN IS THIS GOING TO GET DONE? BUT THE FACT THAT THEY WERE CASH FLOW NEUTRAL SUGGESTED THAT THEY HAD A REVENUE STREAM.
MR. LEACH: OKAY. AND THEY WERE READY TO SCALE UP RIGHT NOW? IS THAT FAIR?
STEVEN BURD: THEY WERE READY TO GO.
MR. LEACH: OKAY. YOUR HONOR, THIS IS -- WOULD THIS BE A CONVENIENT TIME FOR A BREAK?
JUDGE DAVILA: I THINK IT WOULD. THANK YOU. WE'RE GOING TO TAKE A BREAK JUST NOW, LADIES AND GENTLEMEN. LET'S TAKE ABOUT 15 MINUTES, PLEASE, 15 MINUTES. YOU CAN STAND DOWN, SIR, AND WE'LL CONTINUE IN 15 MINUTES.
(RECESS FROM 1:38 P.M. UNTIL 1:59 P.M.)
(JURY IN AT 1:59 P.M.)
JUDGE DAVILA: ALL RIGHT. WE'RE BACK ON THE RECORD. OUR JURY IS PRESENT. ALL COUNSEL AND MS. HOLMES ARE PRESENT. AND YOU CAN CONTINUE YOUR EXAMINATION.
MR. LEACH: THANK YOU, YOUR HONOR.
MR. LEACH: MR. BURD, WE WERE, BEFORE THE BREAK, ON EXHIBIT 336, AND I'D LIKE TO NOW DRAW YOUR ATTENTION, PLEASE, TO PAGE 16. THIS IS YOUR POWERPOINT PRESENTATION TO THE SAFEWAY BOARD ABOUT THE THERANOS OPPORTUNITY.
STEVEN BURD: OKAY. YOU SAY 16. I'M NOT SURE WHERE I WOULD FIND THAT. SO I'M JUST PAGING THROUGH TO MATCH WHAT YOU HAVE ON THE SCREEN.
MR. LEACH: DOWN AT THE BOTTOM OF THE DOCUMENT --
STEVEN BURD: OH, OKAY, IN THE FAR RIGHT. I WAS LOOKING FOR 1-6 AND I WASN'T LOOKING FOR 0-0-1-6.
MR. LEACH: OKAY. WE DO IT TO MAXIMIZE CONFUSION.
STEVEN BURD: OKAY.
MR. LEACH: ARE YOU NOW ON PAGE 16, AND YOU SEE IT ON THE SCREEN?
STEVEN BURD: YES, I AM.
MR. LEACH: OKAY. AND THIS IS A SLIDE TITLED ROLLOUT STRATEGY?
STEVEN BURD: YES.
MR. LEACH: OKAY. AND THIS WAS WHAT YOU WERE ENVISIONING AT THE TIME FOR A POTENTIAL ROLLOUT OF THE THERANOS DEVICE WITHIN SAFEWAY STORES?
STEVEN BURD: CORRECT.
MR. LEACH: OKAY. THE FOURTH BULLET, "BUILD A NETWORK OF MINI-LABS AND PREPARE FOR LAUNCH," WHAT DID THAT REFER TO?
STEVEN BURD: THAT REFERRED TO GETTING OUR SUPERMARKETS TO ULTIMATELY PARTICIPATE IN PUTTING MINI LABS IN THEIR STORES, AND BECAUSE WE HAD BUILT A NETWORK FOR THIS OTHER COMPANY CALLED BLACK HAWK NETWORK, WE THOUGHT WE COULD DO IT HERE.
MR. LEACH: LET'S LOOK AT THE NEXT PAGE, PAGE 17. DO YOU SEE WHERE IT SAYS, ANTICIPATED PROGRAM ROLLOUT?
STEVEN BURD: I DO.
MR. LEACH: AND IS THIS YOUR DESCRIPTION OF THE TIMELINE YOU AND MS. HOLMES HAD BEEN DISCUSSING ABOUT A POTENTIAL ROLLOUT OF THE THERANOS MINI LAB?
STEVEN BURD: YES, AT THAT TIME, AND THIS WAS IN MAY OF 2010, THAT WAS THE SCHEDULE.
MR. LEACH: OKAY. AND DID THAT CHANGE AT SOME POINT?
STEVEN BURD: IT CONTINUOUSLY CHANGED.
MR. LEACH: OKAY. TO THE LEFT, THERE'S A COLUMN ACTIVITY/WORK STEPS, AND THERE'S ROW, CLOSE DEAL. DO YOU SEE THAT?
STEVEN BURD: I DO.
MR. LEACH: OKAY. AND THAT WAS ANTICIPATED FOR THE SECOND QUARTER OF 2010?
STEVEN BURD: YES, AND THAT'S THE -- CLOSE DEAL MEANT THE CONTRACT WHICH WAS DONE IN SEPTEMBER.
MR. LEACH: OKAY. CAN YOU EXPLAIN FOR US WHAT IS MEANT BY THE OTHER ROWS, REIMBURSEMENT NEGOTIATIONS, UNDER-THE-RADAR TEST, NORTHERN CALIFORNIA PILOT, AND SO FORTH?
STEVEN BURD: SURE. REIMBURSEMENT NEGOTIATIONS MEANT THAT THERANOS NEEDED TO HAVE DISCUSSIONS WITH ALL THE KEY INSURANCE COMPANIES TO MAKE SURE THAT THEY WOULD ACCEPT THEM AS A LAB AND THEY WOULD AGREE TO A CERTAIN LEVEL OF PAY. SO THAT WAS NOT -- THAT WAS NOT SAFEWAY'S BURDEN, THAT WAS THE BURDEN OF THERANOS. UNDER-THE-RADAR TEST, YOU KNOW, THERANOS WAS ALWAYS CONCERNED ABOUT SECRECY, AND SO RATHER THAN DO THIS IN THE BAY AREA -- WHICH I WOULD HAVE ENJOYED, BUT I UNDERSTOOD THE SECRECY ASPECTS -- WE WOULD DO IT IN A REMOTE LOCATION WHERE THERE WAS NOT EITHER A LABCORP OR QUEST, AND THOSE ARE THE TWO LARGEST LABS IN THE NATION. THEY EACH HAVE ABOUT 8,000 LABS.
MR. LEACH: AND THEN THE NORTHERN CALIFORNIA PILOT, WHAT DID THAT MEAN?
STEVEN BURD: AT SOME POINT, ONCE WE CONFIRMED THAT EVERYTHING WAS WORKING, THAT, YOU KNOW, OUR COSTS AND MARGINS WERE, YOU KNOW, NEAR WHAT WE EXPECTED, WE WOULD CONSIDER A NORTHERN CALIFORNIA PILOT. NORTHERN -- SAFEWAY WAS ORGANIZED BY DIVISIONS, AND SO NORTHERN CALIFORNIA, WHICH YOU CAN CONSIDER FROM ABOUT FRESNO NORTH, THAT WAS NORTHERN CALIFORNIA. SO SOMEWHERE IN THAT GEOGRAPHY WE WOULD, WE WOULD DO A PILOT.
MR. LEACH: OKAY. AND YOU WERE TELLING THE SAFEWAY BOARD, BASED ON YOUR CONVERSATIONS WITH MS. HOLMES, THAT THIS WAS CONTEMPLATED FOR THE FIRST QUARTER OF 2011?
STEVEN BURD: THAT'S -- THAT'S CORRECT.
MR. LEACH: OKAY. THE NEXT ROW IS SWY CHAIN ROLLOUT. IS SWY AN ACRONYM FOR SAFEWAY?
STEVEN BURD: YES, IT IS.
MR. LEACH: AND THAT'S A ROLLOUT WITHIN SAFEWAY STORES AS OPPOSED TO THE BLACK HAWK NETWORK THAT YOU'VE DESCRIBED?
STEVEN BURD: IT -- YES. IT WAS SAFEWAY ONLY. BLACK HAWK WAS JUST A VEHICLE WE'D USED ONCE BEFORE. THIS WOULDN'T BE BLACK HAWK. THIS WOULD BE A NETWORK THAT WE CREATED, BUT WE WOULD BEGIN IN SOME OF THOSE MARKETS AT THE SAME TIME WE ROLLED OUT, BUT IT WOULD TAKE US LONGER TO COMPLETE.
MR. LEACH: SO THIS IS IN MAY OF 2010, MR. BURD. I'D LIKE TO MOVE FORWARD IN TIME TO JULY OF 2010 AND DRAW YOUR ATTENTION TO WHAT HAS BEEN MARKED AS EXHIBIT 370. AND I OFFER 370 INTO EVIDENCE.
MR. DOWNEY: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 370 WAS ADMITTED IN EVIDENCE.)
MR. LEACH: AND, MS. HOLLIMAN, IF WE COULD PLEASE ENLARGE THE SUBSTANCE OF THE EMAIL IN THE FIRST HALF, WITH THE HEADER. IF WE COULD CAPTURE THE NAME AT THE TOP, TOO, PLEASE, THAT WOULD BE GREAT. THANK YOU.
MR. LEACH: MR. BURD, DOES THIS APPEAR TO BE AN EMAIL FROM MS. HOLMES TO YOU AND SOMEONE NAMED ROBERT EDWARDS WITH A COPY TO SUNNY BALWANI?
STEVEN BURD: THAT'S CORRECT.
MR. LEACH: OKAY. WHO IS ROBERT EDWARDS?
STEVEN BURD: ROBERT EDWARDS AT THE TIME WAS THE CHIEF FINANCIAL OFFICER OF SAFEWAY.
MR. LEACH: AND UP IN THE LEFT, THERE'S THE NAME BOB GORDON. DO YOU SEE THAT?
STEVEN BURD: I DO.
MR. LEACH: WHO IS BOB GORDON?
STEVEN BURD: BOB GORDON WAS THE GENERAL COUNSEL OF SAFEWAY AT THAT TIME.
MR. LEACH: OKAY. AND THE SUBJECT OF THIS IS THERANOS FINANCIAL PROJECTIONS. DO YOU SEE THAT?
STEVEN BURD: I DO.
MR. LEACH: AND DO YOU SEE THERE'S AN ATTACHMENT, THERANOS PRO FORMA STATEMENTS.XLS?
STEVEN BURD: YES.
MR. LEACH: AND DO YOU SEE WHERE MS. HOLMES WROTE, "DEAR STEVE, ROBERT, AS PROMISED, PLEASE FIND HIGH LEVEL PROJECTIONS ATTACHED TO THIS EMAIL." WHAT'S YOUR UNDERSTANDING OF WHY MS. HOLMES WAS SENDING THIS TO YOU?
STEVEN BURD: WE HAD ASKED FOR IT.
MR. LEACH: OKAY. WHY DID YOU ASK FOR THIS?
STEVEN BURD: WE WANTED TO UNDERSTAND HOW THEY WERE PROJECTING THE FUTURE AND HOW FAST THE BUSINESS MIGHT RAMP UP, AND THIS MIGHT BE HELPFUL. HIGH LEVEL MEANS NOT A FULL INCOME STATEMENT LINE BY LINE, VERY HIGH LEVEL.
MR. LEACH: WAS THIS RELEVANT INFORMATION FOR YOU ASSESSING TO ENTER INTO THE POSSIBLE OPPORTUNITY WITH THERANOS?
STEVEN BURD: YES, IT WAS.
MR. LEACH: HOW SO?
STEVEN BURD: WELL, THE REVENUE PROJECTIONS, YOU KNOW, WERE VERY STRONG, AND THE OPERATING EXPENSES, YOU KNOW, WERE OBVIOUSLY LESS, SAYING THAT WE'D BE PROFITABLE, THERANOS WOULD BE PROFITABLE. AND, YOU KNOW, WHEN YOU HAVE A PARTNER IN BUSINESS AND YOU NEGOTIATE AS BEST YOU CAN FOR YOUR MARGIN, YOU HAVE TO MAKE SURE YOU'VE LEFT ENOUGH MARGIN FOR THEM THAT THEY ALSO MAKE MONEY. OTHERWISE YOU DON'T HAVE A PARTNERSHIP.
MR. LEACH: YOU'VE USED THAT TERM "MARGIN" A COUPLE TIMES, MR. BURD.
STEVEN BURD: YES.
MR. LEACH: CAN YOU JUST EXPLAIN TO US WHAT MARGIN IS?
STEVEN BURD: SURE. SO MARGIN, IT'S USED IN LOTS OF DIFFERENT WAYS. IN THIS PARTICULAR CASE, I'M TALKING ABOUT YOU GET, YOU GET $10 IN REVENUE AND YOU'VE GOT $7 IN COST, YOUR MARGIN WOULD BE $3. AND OUT OF THAT MARGIN YOU HAVE TO PAY -- YOU KNOW, THAT'S PER TEST. YOU HAVE TO PAY SALARIES AND RENT ON THE STORES AND A BUNCH OF OTHER THINGS.
MR. LEACH: SO LOW MARGIN MEANS YOU'RE MAKING A SMALL AMOUNT ON ANY GIVEN SALE, AND A HIGH MARGIN MEANS YOU'RE MAKING A LARGE AMOUNT ON ANY GIVEN SALE?
STEVEN BURD: THAT'S CORRECT.
MR. LEACH: OKAY. LET'S LOOK AT THE PROJECTIONS THAT ARE ATTACHED. IF WE COULD PLEASE GO TO PAGE 2, AND IF IT'S POSSIBLE TO HIGHLIGHT THE SUBSTANCE, ALL THE WAY DOWN. GREAT. DO YOU SEE WHERE IT SAYS PRO FORMA STATEMENT OF INCOME, MR. BURD?
STEVEN BURD: YES, I DO.
MR. LEACH: AND TO THE RIGHT, THERE'S DIFFERENT YEARS, 2010, 2011, 2012, AND 2013?
STEVEN BURD: YES.
MR. LEACH: OKAY. WHY WERE YOU INTERESTED IN A PRO FORMA STATEMENT OF INCOME FROM THERANOS?
STEVEN BURD: WELL, IF THEY WEREN'T GOING TO BE PROFITABLE, THEN THIS PARTNERSHIP WASN'T GOING TO LAST LONG. SO WE WANTED TO SEE HOW THEY WERE GOING TO PROJECT THEIR OWN RESULTS HERE.
MR. LEACH: OKAY. IN THE COLUMN 2011, THERE'S A ROW FOR U.S. REVENUE, REVENUE FROM SAFEWAY NETWORK. DID YOU UNDERSTAND THAT TO BE THE REVENUE THERANOS ANTICIPATED EARNING FROM A RELATIONSHIP WITH SAFEWAY? LET ME ASK A BETTER QUESTION.
STEVEN BURD: YEAH.
MR. LEACH: WHAT DID YOU UNDERSTAND THAT TO MEAN?
STEVEN BURD: YOU KNOW, LOOKING AT THIS THING 11 YEARS LATER, IT'S NOT CLEAR TO ME -- IT'S LABELED REVENUE FROM SAFEWAY NETWORK. THAT WOULD SUGGEST IT'S THE NETWORK REVENUE ONLY.
MR. LEACH: OKAY.
STEVEN BURD: RIGHT? AND THEN THE ALL OTHER REVENUE, IT'S ANYBODY'S GUESS. IS THAT OTHER CLIENTS PLUS SAFEWAY? OR IS THAT JUST SAFEWAY? I CAN'T TELL YOU.
MR. LEACH: OKAY. I DRAW YOUR ATTENTION TO -- WHAT WAS THE TOTAL U.S. REVENUE THAT WAS PROJECTED BY THERANOS FOR 2011?
STEVEN BURD: 223 MILLION.
MR. LEACH: OKAY. AND THEN BENEATH THAT, THERE'S OPERATING EXPENSES AND COST OF REVENUE AND THERE'S 167 MILLION IN PARENTHESES. WHAT DID YOU UNDERSTAND THAT TO BE?
STEVEN BURD: THAT WOULD BE -- YOU KNOW, ALL OF THE -- I'M NOT SURE WHY THEY SAY COST OF REVENUE, BUT IT WOULD BE ALL THE OPERATING EXPENSES OF THE BUSINESS.
MR. LEACH: OKAY. AND WAS IT ATTRACTIVE TO YOU THAT THERANOS WAS PROJECTING 223 MILLION IN REVENUE WITH OPERATING EXPENSES OF 167 MILLION?
STEVEN BURD: YES.
MR. LEACH: OKAY. HOW SO?
STEVEN BURD: WELL, IT SAYS THEY'RE PROFITABLE. IF YOU LOOK DOWN ONE LINE FURTHER, IT'S CALLED EBITDA, IT'S IN THE SECOND BOX, THEY HAVE CASH FLOW POSITIVE, AFTER PAYING ALL EXPENSES, OF $56 MILLION. THAT'S A GOOD RESULT.
MR. LEACH: AND WAS THIS CONSISTENT WITH STATEMENTS MS. HOLMES HAD MADE TO YOU ABOUT THERANOS BEING CASH FLOW NEUTRAL?
STEVEN BURD: WELL, YOU KNOW, THIS WAS 2010, SO THERE'S REALLY NOTHING ON THE INCOME SIDE OF THIS STATEMENT THAT SAYS ANYTHING ABOUT 2010. SO WE DIDN'T GET ANY CONFIRMATION THAT THEY WERE CASH FLOW NEUTRAL IN 2010.
MR. LEACH: OTHER THAN WHAT MS. HOLMES HAD TOLD YOU PREVIOUSLY?
STEVEN BURD: CORRECT.
MR. LEACH: THIS WASN'T GIVING YOU CONFIRMATION OF THAT?
STEVEN BURD: IT DIDN'T GIVE US ANY NUMBERS.
MR. LEACH: OKAY. HOW ABOUT THE FUTURE PERIODS, THE REVENUE OF 464 MILLION IN 2012 AND 934 MILLION IN 2013? WAS THAT ATTRACTIVE TO YOU?
STEVEN BURD: YES.
MR. LEACH: OKAY. HOW SO?
STEVEN BURD: WELL, IT SAYS THE BUSINESS IS CONTINUING TO BUILD AND CASH FLOW AND INCOME WOULD CONTINUE TO RISE, AND SO WE'RE NOT JUST THREE YEARS AND IT'S OVER. YOU KNOW, THERE'S SOME SUSTAINABILITY HERE.
MR. LEACH: OKAY. LET ME DRAW YOUR ATTENTION, PLEASE, TO EXHIBIT 378. DO YOU HAVE THAT IN FRONT OF YOU, SIR?
STEVEN BURD: I BELIEVE I DO. AUGUST 24TH?
MR. LEACH: YES.
STEVEN BURD: YES.
MR. LEACH: DO YOU SEE SOME HANDWRITING IN THE, I GUESS IT'S THE UPPER LEFT CORNER IF IT'S ONE WAY, THE UPPER RIGHT CORNER IF YOU'RE --
STEVEN BURD: YES.
MR. LEACH: OKAY. AND DO YOU SEE THE FOOTER, BOARD MEETING UNDERSCORE AUGUST 24TH, 2010?
STEVEN BURD: I DO.
MR. LEACH: OKAY. IS THIS ANOTHER POWERPOINT RELATING TO THERANOS THAT YOU PRESENTED TO THE SAFEWAY BOARD?
STEVEN BURD: YES, IT IS.
MR. LEACH: OKAY. YOUR HONOR, I OFFER EXHIBIT 378 INTO EVIDENCE.
MR. DOWNEY: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 378 WAS ADMITTED IN EVIDENCE.)
MR. LEACH: AND MS. HOLLIMAN, IF WE COULD PLEASE GO TO PAGE 2.
MR. LEACH: DO YOU SEE WHERE IT SAYS, THERANOS MINI BLOOD LAB DEAL, MR. BURD?
STEVEN BURD: I DO.
MR. LEACH: OKAY. AND IS THAT A REFERENCE TO THE MINI LAB DEVICE THAT YOU UNDERSTOOD THERANOS WANTED TO PUT IN SAFEWAY STORES?
STEVEN BURD: YES, IT IS.
MR. LEACH: OKAY. AND THERE ARE FOUR BULLETS, THE NETWORK; FEE STRUCTURE; SAFEWAY'S FINANCIAL COMMITMENT; AND FINANCIALS. DO YOU SEE THAT?
STEVEN BURD: YES.
MR. LEACH: I WANT TO DRAW YOUR ATTENTION, PLEASE, TO THE SLIDE FOR THE THERANOS FEE STRUCTURE. IT'S ON PAGE 4. DO YOU SEE THE FIRST BULLET, "WALGREENS AND SAFEWAY WILL BE GUARANTEED TO HAVE THE LOWEST COST OF GOODS"?
STEVEN BURD: YES.
MR. LEACH: WHAT DID THAT MEAN?
STEVEN BURD: WE HAD BEEN TOLD THAT WALGREENS WAS ALSO GOING TO CARRY THIS MINI LAB, AND IT WAS IMPORTANT TO US THAT THEY NOT GET OUT AHEAD OF US. AND SO THIS SAID THAT, ON THE COST SIDE OF THE EQUATION, THEY WOULDN'T HAVE A COST ADVANTAGE. WE'D HAVE -- YOU KNOW, BOTH COMPANIES WOULD HAVE THE LOWEST COST, WHICH GAVE THEM THE FREEDOM TO CHARGE NEW RETAILERS A HIGHER PRICE IF THEY CHOSE TO DO SO.
MR. LEACH: OKAY. AND THEN THE NEXT BULLET SAYS, "SAFEWAY WILL BE GUARANTEED AN AVERAGE $10 GROSS MARGIN PER TEST." WHAT DID THAT REFER TO?
STEVEN BURD: WHENEVER YOU DRAW BLOOD, HOWEVER YOU DRAW IT, IT CAN BE -- YOU CAN OFTEN GET SEVERAL DIFFERENT BLOOD TESTS FROM A SINGLE VIAL OR A SINGLE SAMPLE. AND SO IF YOU HAD A CHOLESTEROL TEST, THAT'S ONE TEST. IF YOU HAD A PSA TEST, THAT'S A SECOND TEST. IF YOU HAD AN HBA1C, ET CETERA.
MR. LEACH: OKAY. LET ME DRAW YOUR ATTENTION TO THE NEXT PAGE, PAGE 5, AND FOCUS ON SAFEWAY'S FINANCIAL COMMITMENT. AT A HIGH LEVEL, MR. BURD, CAN YOU DESCRIBE FOR US WHAT'S DEPICTED HERE?
STEVEN BURD: WELL, WE INDICATED A POSSIBLE INVESTMENT IN THERANOS THAT WOULD BE $55 MILLION. THAT WOULD COME IN TWO EVENTS. ONE IS A PRE-PURCHASE OF INVENTORY WHEN CERTAIN MILESTONES WERE HIT, AND THE 25 WOULD COME LATER. AND THEN WE -- EARLY ON, WE ANTICIPATED SPENDING $30 MILLION OF MONEY REMODELING OUR STORES. THAT NUMBER TURNED OUT TO BE VERY LOW BECAUSE WE PUT A BATHROOM IN EACH FACILITY, WHICH MEANT WE DUG UP THE STORE AND THE CONCRETE.
MR. LEACH: OKAY. SO I THINK YOU'RE REFERRING TO THE, AT FIRST, THE FIRST BULLET, 55 MILLION CASH INVESTMENT. DO YOU SEE THAT LANGUAGE?
STEVEN BURD: YES.
MR. LEACH: AND THEN IT SAYS, "25 MILLION IN NOTES CONVERTIBLE TO EQUITY." DO YOU SEE THAT?
STEVEN BURD: YES.
MR. LEACH: WHAT ARE NOTES CONVERTIBLE TO EQUITY?
STEVEN BURD: NOTES ARE BASICALLY A LOAN, YOU KNOW, LIKE A MORTGAGE OR SOMETHING. BUT YOU COULD CONVERT THAT INTO EQUITY AT SOME POINT IN THE FUTURE IF THAT MADE GOOD SENSE TO YOU.
MR. LEACH: AND WHY WAS SAFEWAY INTERESTED IN DOING THAT?
STEVEN BURD: WELL, IF THE COMPANY WAS GOING TO BE A HIGH FLIER, YOU KNOW, WE WOULDN'T WANT TO JUST HOLD DEBT. WE WOULD WANT SOME EQUITY IN THE COMPANY.
MR. LEACH: AND THEN THERE'S A "30 MILLION FOR PRE-PURCHASE OF INVENTORY." WHAT IS INVENTORY IN THIS CONTEXT?
STEVEN BURD: IN THIS CONTEXT, IT WAS THE CARTRIDGES. SO AT THIS POINT, I'M NOT SURE WE HAD AN AGREEMENT ON THE PRICE OF THE CARTRIDGE, BUT WE HAD TO WAREHOUSE THESE CARTRIDGES AND WE HAD TO KEEP THEM IN OUR STORES.
MR. LEACH: LET'S LOOK AT THE NEXT PAGE, PLEASE, PAGE 6. DO YOU SEE WHERE IT SAYS PILOT TESTS?
STEVEN BURD: YES.
MR. LEACH: AND THE FIRST BULLET, "JANUARY 2011 SCHEDULED FOR INITIAL TEST."
STEVEN BURD: CORRECT.
MR. LEACH: WAS THAT YOUR UNDERSTANDING OF THE TIMING THAT YOU WERE LOOKING FOR FOR THIS DEAL?
STEVEN BURD: YES.
MR. LEACH: OKAY. "RURAL WASHINGTON STATE MARKET SELECTED DUE TO LACK OF RETAIL LAB COMPETITORS." YOU MENTIONED REMOTE LOCATIONS. IS THAT RURAL WASHINGTON STATE?
STEVEN BURD: THAT'S IT.
MR. LEACH: OKAY. THAT'S WHERE YOU WANTED TO DO THE MINI PILOT?
STEVEN BURD: YES.
MR. LEACH: OKAY. THAT'S WHERE THERANOS WANTED TO DO THE MINI PILOT?
STEVEN BURD: YEAH. I THINK WE CALLED IT THE INITIAL TEST.
MR. LEACH: OKAY. LET'S BRIEFLY LOOK AT PAGE 9, PLEASE. AND IS THIS ANOTHER DESCRIPTION OF THE ANTICIPATED PROGRAM ROLLOUT AS YOU SAW IT IN THIS TIME PERIOD?
STEVEN BURD: YES, IT IS.
MR. LEACH: OKAY. THIS IS SIMILAR TO THE SLIDE WE SAW IN THE PRIOR BOARD MEETING?
STEVEN BURD: SIMILAR.
MR. LEACH: OKAY. LET ME PLEASE DRAW YOUR ATTENTION TO WHAT HAS BEEN MARKED AS EXHIBIT 387. AND I OFFER THIS INTO EVIDENCE.
MR. DOWNEY: YOUR HONOR, I HAVE NO OBJECTION TO THIS. I THINK THIS IS THE SAME AS THE SIGNED VERSION OF THE DOCUMENT. THIS VERSION IS NOT FULLY SIGNED, SO MAYBE WE CAN SUBSTITUTE THAT AT THE APPROPRIATE TIME.
MR. LEACH: I THINK IT'S SIGNED IN DIFFERENT PARTS, WHICH I'LL GO THROUGH, YOUR HONOR.
JUDGE DAVILA: OKAY. THIS IS ADMITTED AND IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 387 WAS ADMITTED IN EVIDENCE.)
MR. LEACH: AND IF WE COULD PLEASE HIGHLIGHT THE -- OR ZOOM IN ON THE SUBSTANCE OF THE DOCUMENT, MS. HOLLIMAN, ALL THE WAY DOWN TO SCHEDULE H.
STEVEN BURD: DID YOU SAY A OR 8?
BY MR. LEACH:
MR. LEACH: I WAS GIVING MS. HOLLIMAN, OUR PARALEGAL, SOME DIRECTIONS ON WHAT TO HIGHLIGHT ON THE SCREEN.
STEVEN BURD: OKAY.
MR. LEACH: SO I'M GOING TO STAY ON PAGE 1 FOR NOW, AND YOU CAN EITHER LOOK ON THE SCREEN OR AT THE HARD COPY, WHATEVER YOU PREFER, MR. BURD. DO YOU SEE AT THE TOP WHERE IT SAYS THERANOS MASTER PURCHASE AGREEMENT?
STEVEN BURD: I DO.
MR. LEACH: OKAY. AND IS THIS THE WRITTEN AGREEMENT BETWEEN SAFEWAY AND THERANOS THAT WE'VE BEEN -- THAT YOU WERE CONTEMPLATING UP UNTIL THIS POINT?
STEVEN BURD: YES.
MR. LEACH: OKAY. AND YOU HAD A HAND IN NEGOTIATING THIS?
STEVEN BURD: I DID.
MR. LEACH: WHO DID YOU NEGOTIATE WITH FROM THERANOS?
STEVEN BURD: IT WAS ALMOST EXCLUSIVELY WITH ELIZABETH HOLMES. SUNNY BALWANI WAS INVOLVED IN A COUPLE OF DISCUSSIONS, BUT MOST OF IT WAS WITH ELIZABETH.
MR. LEACH: OKAY. WAS THAT UNUSUAL?
STEVEN BURD: WHAT WAS UNUSUAL ABOUT IT IS THAT WE NEVER SAW AN ATTORNEY. AND YOU KNOW IT'S CUSTOMARY, WHEN YOUR GENERAL COUNSEL IS IN THE ROOM, THEIR GENERAL COUNSEL'S ON THE PHONE. SO ELIZABETH APPEARED TO BE NEGOTIATING THIS COMPLETELY ON HER OWN, PROBABLY TALKING TO COUNSEL OFFLINE. BUT I'VE NEVER SEEN THAT DONE.
MR. LEACH: THE DATE OF THIS AT THE TOP IS SEPTEMBER 20TH, 2010. IS THAT CONSISTENT WITH YOUR MEMORY?
STEVEN BURD: YES.
MR. LEACH: OKAY. AND THIS AGREEMENT CONSISTS OF DIFFERENT SCHEDULES A THROUGH H. DO YOU SEE THAT IN THE BOTTOM RIGHT?
STEVEN BURD: I DO.
MR. LEACH: OKAY. AND IF WE LOOK AT PAGE 2, PLEASE. DO YOU SEE MS. HOLMES'S SIGNATURE?
STEVEN BURD: I DO.
MR. LEACH: OKAY. AND IF WE COULD PLEASE GO TO PAGE 54. IS THAT YOUR SIGNATURE?
STEVEN BURD: YES, IT IS.
MR. LEACH: OKAY. AND YOU THINK THIS MAY HAVE BEEN -- OR COULD IT HAVE BEEN THIS WAS SIGNED AT DIFFERENT TIMES BY THE DIFFERENT PARTIES?
STEVEN BURD: IF IT WAS, IT WAS, YOU KNOW, ONE DAY AND THEN THE NEXT.
MR. LEACH: OKAY. LET'S LOOK AT THE SCHEDULE A, PROGRAM OVERVIEW, ON PAGE 3. AND IF WE COULD ZOOM IN ON THE TOP HALF OF THE DOCUMENT, PLEASE, MS. HOLLIMAN. MR. BURD, DO YOU SEE THE FIRST PARAGRAPH UNDER THE HEADING 1, BACKGROUND?
STEVEN BURD: YES.
MR. LEACH: OKAY.
STEVEN BURD: YES.
MR. LEACH: AND THIS SAYS, "THERANOS HAS DEVELOPED, AND IS DEVELOPING, GENERATIONS OF 'MINI-LAB' DEVICES THAT CAN RUN ANY BLOOD TEST IN REAL-TIME FOR LESS THAN THE TRADITIONAL COST OF CENTRAL LAB TESTS." IS THAT SOMETHING THAT MS. HOLMES HAD SAID TO YOU PREVIOUSLY?
STEVEN BURD: YES, SHE DID.
MR. LEACH: OKAY. AND WAS THAT RELEVANT TO YOU IN DECIDING TO ENTER INTO THIS AGREEMENT AND PURCHASE THE NOTES?
STEVEN BURD: IT WAS ESSENTIAL.
MR. LEACH: OKAY. "THE THERANOS SYSTEMS WILL RUN ROUTINE LABORATORY TESTS AND PROPRIETARY TESTS THAT DETECT THE APPEARANCE OF DISEASES, ENABLING EARLY INTERVENTION AND INITIATION OF TREATMENT LONG BEFORE COMPLICATIONS EMERGE." WAS THAT SOMETHING MS. HOLMES DESCRIBED TO YOU?
STEVEN BURD: YES.
MR. LEACH: OKAY. AND WAS THAT RELEVANT TO YOU?
STEVEN BURD: YES.
MR. LEACH: WHY WAS THAT?
STEVEN BURD: I THINK THIS WAS PART OF THE VISION THAT, YOU KNOW, CONSUMERS WOULD SOME DAY BE ABLE TO DO THIS ON THEIR OWN AND OBVIOUSLY GET IT INTERPRETED BY A PROFESSIONAL. BUT THAT WOULD SAY THAT IT WOULD BE HIGH DEMAND, YOU KNOW, FOR THIS KIND OF SERVICE.
MR. LEACH: TO THE RIGHT THERE'S AN IMAGE OF WHAT LOOKS LIKE A MOBILE DEVICE AND THEN ANOTHER DEVICE IN THE MIDDLE AND SOMETHING TO THE RIGHT. DOES THAT APPEAR TO BE THE CARTRIDGE AND THE DEVICE THAT WAS IN SOME OTHER BOARD SLIDES WE'VE LOOKED AT?
STEVEN BURD: IT DOES.
MR. LEACH: OKAY. AND IS THIS WHAT YOU WERE CONTEMPLATING WOULD BE USED IN SAFEWAY STORES?
STEVEN BURD: YOU KNOW, IT OR SOME VERSION OF IT. YOU KNOW, AS I SAID, IT CONTINUED TO EVOLVE.
MR. LEACH: OKAY. IF WE COULD PLEASE ZOOM OUT, MS. HOLLIMAN, AND GO TO THE BOTTOM TWO PARAGRAPHS. MR. BURD, DO YOU SEE WHERE IT SAYS, "THE ABILITY TO RUN BLOOD TESTS FROM A FINGER-STICK IN 30 MINUTES OR LESS AT SAFEWAY'S STORES CREATES A NEW WORKFLOW AND A NEW DIAGNOSTIC PARADIGM FOR HEALTH CARE"? IS THAT CONSISTENT WITH REPRESENTATIONS THAT MS. HOLMES MADE TO YOU?
STEVEN BURD: YES.
MR. LEACH: AND WAS THAT RELEVANT TO YOU?
STEVEN BURD: YES.
MR. LEACH: AND WAS THAT SOMETHING YOU BELIEVED THERANOS COULD DO AT THE TIME?
STEVEN BURD: I SURE DID.
MR. LEACH: OKAY. LET ME DRAW YOUR ATTENTION TO PAGE 5. WE'VE TALKED A LITTLE BIT ABOUT THE CONVERTIBLE NOTES, MR. BURD. AND IF WE COULD PLEASE HIGHLIGHT THE ENTIRETY OF 6A AND B? DOWN A LITTLE BIT MORE, PLEASE. A LITTLE BIT MORE. THAT'LL DO, MS. HOLLIMAN. THAT'S GREAT. THANK YOU. DO YOU SEE IN NUMBER 6 WHERE IT SAYS CONVERTIBLE NOTES, MR. BURD, UP IN THE TOP LEFT?
STEVEN BURD: YEAH, UP IN THE TOP LEFT. IN THE FIRST PARAGRAPH, SMALL A?
MR. LEACH: WELL, I WAS TALKING JUST ABOUT THE HEADING, 6?
STEVEN BURD: OH, IN THE HEADING. OKAY. I WAS A LITTLE LOWER THAN YOU.
MR. LEACH: OKAY. AND I WANTED TO DRAW YOUR ATTENTION TO 6B?
STEVEN BURD: YES.
MR. LEACH: 1, 2, 3. DOES THIS PROVIDE FOR SAFEWAY ACQUIRING -- HAVING THE OPTION TO ACQUIRE A CONVERTIBLE NOTE IN THE AMOUNT OF $10 MILLION?
STEVEN BURD: YES.
MR. LEACH: OKAY. AND THERE ARE CERTAIN CONDITIONS ON SAFEWAY'S ABILITY TO DO THAT?
STEVEN BURD: CORRECT.
MR. LEACH: AND WHEN YOU SAY CONVERTIBLE NOTE, AT SOME POINT THAT CAN BE CONVERTED INTO EQUITY?
STEVEN BURD: CORRECT.
MR. LEACH: IS THAT WHAT YOU SAID EARLIER? OKAY. LET'S START -- LET ME DRAW YOUR ATTENTION TO THE BOTTOM PART. AND DO YOU SEE WHERE IT SAYS ADDITIONAL CONVERTIBLE NOTE?
STEVEN BURD: I DO.
MR. LEACH: AND DOES THIS PROVIDE FOR -- GIVE SAFEWAY THE ABILITY TO ACQUIRE AN ADDITIONAL NOTE CONVERTIBLE INTO EQUITY, INTO THERANOS EQUITY?
STEVEN BURD: YES, IT DOES.
MR. LEACH: OKAY. LET ME DRAW YOUR ATTENTION, PLEASE, TO PAGE 8. AND IF WE COULD ZOOM IN ON THE TOP PORTION OF THIS, ALL THE WAY DOWN TO 3B. MR. BURD, DO YOU SEE WHERE IT SAYS SCHEDULE B, PURCHASING TERMS AND CONDITIONS?
STEVEN BURD: YES.
MR. LEACH: AND DOES THIS SCHEDULE LAY OUT ADDITIONAL TERMS OF THE PURCHASE OF CARTRIDGES, THE PILOT PROGRAM, AND OTHER DETAILS RELATING TO THE POTENTIAL LAUNCH IN SAFEWAYS?
STEVEN BURD: YES.
MR. LEACH: OKAY. PARAGRAPH 2 INCLUDES SOMETHING CALLED BEST PRICE GUARANTEE. DO YOU SEE THAT?
STEVEN BURD: YES, I DO.
MR. LEACH: OKAY. AND THIS SAYS, "FOR ALL CARTRIDGES DEFINED AS AVAILABLE CARTRIDGES, THERANOS AGREES THAT NO UNITED STATES RETAILER OR ENTITY OPERATING IN A RETAIL ENVIRONMENT SELLING THERANOS SYSTEMS OR ANY DOCTOR," AND THEN IT CONTINUES. IS THIS THE -- WHAT IS THIS PARAGRAPH GETTING AT?
STEVEN BURD: IN SOME CONTEXTS, THIS IS REFERRED TO AS KIND OF A FAVORED NATIONS CLAUSE. IT BASICALLY SAYS THAT WE WILL ALWAYS HAVE THE LOWEST PRICE OFFERED IN THE MARKET.
MR. LEACH: OKAY. AND WAS THAT IMPORTANT TO YOU?
STEVEN BURD: YES.
MR. LEACH: OKAY. IF WE CAN PLEASE ZOOM OUT, MS. HOLLIMAN, AND I WANT TO FOCUS ON 3B, THE PRE-PILOT PERIOD. ALL THE WAY DOWN, YES. DOES THIS PORTION LAY OUT SOME OF THE RESPONSIBILITIES OF THE PARTIES RELATING TO THE PRE-PILOT PERIOD, MR. BURD?
STEVEN BURD: YES, IT DOES.
MR. LEACH: OKAY. AND IN 3B1, IT SAYS, "THERANOS WILL SECURE THE REGULATORY APPROVALS AND SAFEWAY WILL SECURE ANY APPROVALS REQUIRED FOR THE PILOT OF THE PROGRAM UNDER CLIA AND OTHER APPLICABLE LAWS, RULES AND REGULATIONS." WAS THAT RELEVANT TO YOU?
STEVEN BURD: YES.
MR. LEACH: WHY WAS THERANOS SECURING REGULATORY APPROVALS RELEVANT TO YOU?
STEVEN BURD: YOU CAN'T OPERATE A LAB ANYWHERE IN THIS COUNTRY THAT'S NOT CLIA APPROVED, AND SO THEY NEEDED THAT TO GET SANCTIONED TO HAVE A LAB AT ALL.
MR. LEACH: FURTHER DOWN IN 3B5, IT SAYS, "THERANOS WILL MEET AGREED UPON SERVICE STANDARDS, INCLUDING THE PROVISION OF BLOOD TEST RESULTS IN 30 MINUTES OR LESS, AND SATISFACTORY SERVICE AND SUPPORT OF THE DELIVERABLES." DO YOU SEE THAT LANGUAGE?
STEVEN BURD: YES.
MR. LEACH: AND WAS THAT 30 MINUTES OR LESS RELEVANT TO YOU?
STEVEN BURD: YES, THAT'S WHY IT WAS PUT HERE.
MR. LEACH: OKAY. LET'S MOVE AHEAD TO PAGE 26. AND DOES THIS SCHEDULE, MR. BURD, LAY OUT SOME OF THE DEFINITIONS THAT ARE USED IN THIS AGREEMENT?
STEVEN BURD: YES.
MR. LEACH: OKAY. IS THIS AN IMPORTANT PART OF THE AGREEMENT FOR YOU?
STEVEN BURD: YOU KNOW, DEFINITIONS ARE IMPORTANT. THEY'RE IN EVERY CONTRACT REGARDLESS OF WHO YOU'RE SIGNING IT WITH.
MR. LEACH: OKAY. I'D LIKE TO DRAW YOUR ATTENTION TO NUMBER 8, DEVICE. DO YOU SEE WHERE IT SAYS, "'DEVICE' MEANS THERANOS'S READER CAPABLE OF RUNNING CARTRIDGES," AND THEN CONTINUING ON?
STEVEN BURD: YES, I SEE THAT.
MR. LEACH: OKAY. IS THAT CONSISTENT WITH YOUR IDEA OF THE MINI LAB THAT WAS GOING TO BE PUT IN SAFEWAY STORES?
STEVEN BURD: YES, IT IS.
MR. LEACH: AT ANY POINT IN TIME, DID YOU DISCUSS WITH MS. HOLMES THE IDEA OF PUTTING THIRD PARTY MACHINES IN SAFEWAY STORES?
STEVEN BURD: MEANING ANOTHER LAB?
MR. LEACH: CORRECT.
STEVEN BURD: NO.
MR. LEACH: HOW ABOUT MACHINES MANUFACTURED BY SOME PARTY OTHER THAN THERANOS?
STEVEN BURD: NO.
MR. LEACH: WERE YOU AT ALL INTERESTED IN THAT?
STEVEN BURD: NO.
MR. LEACH: WHY NOT?
STEVEN BURD: IT DIDN'T -- WHEN YOU CREATE A NEW BUSINESS LIKE THIS AND A NEW OPPORTUNITY FOR A PARTNER, IT HAS TO BE SUFFICIENTLY DIFFERENT FROM EVERYBODY ELSE IN THE MARKET. IT HAS TO BE LOWER COST, IT HAS TO BE QUICKER, IT HAS TO BE BETTER. THOSE ARE FEATURES THAT ARE ATTRACTIVE TO NEW CONSUMERS.
MR. LEACH: SO SAFEWAY SIGNS THE AGREEMENT WITH THERANOS IN OR AROUND SEPTEMBER OF 2010?
STEVEN BURD: CORRECT.
MR. LEACH: OKAY. SUBSEQUENT TO THAT TIME PERIOD, DID YOU HAVE MEETINGS AND CONVERSATIONS WITH MS. HOLMES ABOUT THE ONGOING RELATIONSHIP?
STEVEN BURD: WE, WE HAD LOTS OF PHONE CALLS, EMAILS. WE WORKED -- WE BOTH WORKED VERY HARD ON THIS, AND THIS WAS -- IT WAS STRATEGIC TO SAFEWAY, WHICH IS WHY THE CEO OF SAFEWAY IS INVOLVED IN THIS. IT'S A BIG DEAL.
MR. LEACH: THAT'S WHAT I WANTED TO GET AT, MR. BURD. WHO AT THERANOS DID YOU HAVE CONTACT WITH?
STEVEN BURD: MY CONTACT WAS ELIZABETH HOLMES.
MR. LEACH: OKAY. DID YOU HAVE CONTACT WITH OTHERS AT THERANOS?
STEVEN BURD: SOME. I HAD CONTACT WITH SUNNY BALWANI. HE WOULD HAVE BEEN THE SECOND MOST CONTACTED. I HAD CONTACT WITH ELIZABETH'S BROTHER, I THINK HIS FIRST NAME WAS CHRISTOPHER, BUT MUCH MORE LIMITED. AND THEN I MET A FEW PEOPLE FROM THERANOS, BUT ONLY WHILE DOWN AT THERANOS.
MR. LEACH: OKAY. DID YOU MEET WITH THEM ONE ON ONE, OR WAS MS. HOLMES INVOLVED IN THOSE CONTACTS?
STEVEN BURD: WE HAD A -- WE HAD A SMALL TEAM AT SAFEWAY THAT HAD A BIT MORE INTERACTION WITH ELIZABETH'S BROTHER. I WAS INVOLVED IN A COUPLE OF THOSE PHONE CALLS. WHEN ELIZABETH CAME UP TO THE COMPANY, MORE OFTEN THAN NOT IT WAS JUST HER. WHEN I WENT DOWN TO THERANOS -- I HAVE TO THINK ABOUT IT. I THINK IT WAS COMMON FOR THE MEETING TO BE MOSTLY ELIZABETH AND SHE WOULD BRING PEOPLE IN MAYBE FOR DIFFERENT THINGS.
MR. LEACH: OKAY. WERE THERE OCCASIONS WHERE YOU MET WITH MS. HOLMES AND MR. BALWANI TOGETHER?
STEVEN BURD: YES.
MR. LEACH: IN THOSE MEETINGS, WHO WAS IN CHARGE?
STEVEN BURD: ELIZABETH.
MR. LEACH: WHY DO YOU SAY THAT?
STEVEN BURD: I SAY THAT BECAUSE SHE NEVER HESITATED -- OR SHE NEVER LOOKED OVER AT SUNNY TO SEE WHAT HE MIGHT HAVE BEEN THINKING. SHE ANSWERED THESE QUESTIONS HERSELF. YOU KNOW, SHE'S THE KIND OF LEADER -- YOU KNOW, IN MANY WAYS, I'M THAT KIND OF LEADER. I'M INTO THE DETAILS AND I CAN ANSWER ALL OF THE QUESTIONS THAT YOU WOULD ASK ME ABOUT A SUPERMARKET.
MR. LEACH: SO AS THE CEO OF SAFEWAY, I TAKE IT YOU'VE HAD INTERACTIONS WITH CEO'S OF OTHER COMPANIES?
STEVEN BURD: YES.
MR. LEACH: AND YOU'VE HAD INTERACTIONS WITH POLITICIANS OR REGULATORS RELEVANT TO SAFEWAY'S BUSINESS?
STEVEN BURD: IN BOTH CATEGORIES, HUNDREDS.
MR. LEACH: OKAY. AND HOW WOULD YOU COMPARE THOSE INTERACTIONS TO YOUR INTERACTIONS WITH MS. HOLMES?
STEVEN BURD: I WOULD SAY THAT NOT ALL CEO'S ARE ALIKE, AND SHE WOULD RISE TO THE TOP OF THE PILE IN TERMS OF, IN TERMS OF VISION, IN TERMS OF COMMAND OF THE INFORMATION, CLEARLY IN TERMS OF DELIVERY. THERE WAS NOTHING ABOUT ELIZABETH HOLMES THAT WAS -- SHE WAS ALWAYS DECISIVE.
MR. LEACH: HOW ABOUT HER COMMAND WITHIN A PARTICULAR MEETING? WOULD YOU COMPARE IT TO ANYBODY ELSE?
STEVEN BURD: YOU KNOW, I'VE SOMETIMES USED THE TERM "OWNS THE ROOM," OKAY? SO WHEN SHE PRESENTED TO OUR BOARD, WHEN SHE WAS TALKING, SHE OWNED THE ROOM. WHEN SHE -- WHENEVER SHE WAS TALKING, SHE OWNED THE ROOM. I'VE HAD THE, I GUESS THE PRIVILEGE OF MEETING FOUR U.S. PRESIDENTS. WHEN THE PRESIDENT IS IN THE ROOM, LET ME JUST TELL YOU, THE PRESIDENT OWNS THE ROOM. NO ONE TALKS UNLESS SPOKEN TO. BUT I WOULD TELL YOU THAT HER STYLE WAS VERY -- IT WAS WARM, IT WAS FRIENDLY, IT WASN'T DICTATORIAL. I ALWAYS THOUGHT SHE WAS A GOOD LISTENER.
MR. LEACH: WERE YOU AWARE AT ANY POINT -- OR PRIOR TO 2015, WERE YOU AWARE THAT MS. HOLMES HAD A ROMANTIC RELATIONSHIP WITH MR. BALWANI?
STEVEN BURD: NO. NO, I WAS NOT.
MR. LEACH: OKAY. WOULD THAT HAVE BEEN RELEVANT TO YOU?
STEVEN BURD: YES.
MR. LEACH: WHY?
STEVEN BURD: IT WOULD HAVE SAID THAT -- I MEAN, IF I FOUND OUT MID-WAY, I WOULD HAVE SAID, YOU KNOW, WHY DIDN'T I KNOW THIS BEFORE? YOU KNOW? IT JUST RAISES A QUESTION OF WHAT ELSE IS HIDDEN FROM VIEW.
MR. LEACH: LET ME MOVE FORWARD IN TIME. SO THE AGREEMENT IS SIGNED IN SEPTEMBER OF 2010. I WANT TO DRAW YOUR ATTENTION TO WHAT WE'VE MARKED AS EXHIBIT 423. DO YOU HAVE THAT IN FRONT OF YOU, SIR?
STEVEN BURD: I DO.
MR. LEACH: OKAY. AND DO YOU SEE AN EMAIL FROM MS. HOLMES TO YOU DATED MARCH 15TH, 2011?
STEVEN BURD: YES.
MR. LEACH: AND IS THE SUBJECT PRESENTATION FOR TOMORROW? OR IT LOOKS LIKE IT MIGHT BE A MISSPELLING?
STEVEN BURD: I'M GOING TO HAVE TO LOOK AT THIS A LITTLE BIT. PLEASE SEE ATTACHED. YES, WHAT SHE'S REFERRING TO IS THE PRESENTATION AT THE UPCOMING SAFEWAY BOARD MEETING, WHICH SHE WILL PRESENT. MUCH THE WAY I WOULD SHARE MY MATERIALS, SHE SHARED HERS.
MR. LEACH: YOUR HONOR, I OFFER EXHIBIT 423.
MR. DOWNEY: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 423 WAS ADMITTED IN EVIDENCE.)
MR. LEACH: AND IF WE COULD ZOOM IN ON THE TOP. PERFECT, MS. HOLLIMAN. THANK YOU.
MR. LEACH: SO THE ATTACHMENT, MR. BURD, SAYS THERANOS SWY BOD MEETING. YOU BELIEVE THAT TO BE A REFERENCE TO A SAFEWAY BOARD MEETING WHERE MS. HOLMES PRESENTED?
STEVEN BURD: YES, IT IS.
MR. LEACH: OKAY. AND YOU TESTIFIED EARLIER ABOUT A MEETING WHERE A BOARD MEMBER'S FINGER WAS PRICKED AND TESTED ON THE THERANOS DEVICE.
STEVEN BURD: YES.
MR. LEACH: OKAY. AND WHAT HAPPENED WHEN -- DESCRIBE THAT FOR US, NOT WHAT WAS -- NOT WHAT WAS REPORTED TO YOU LATER, BUT WHAT HAPPENED IN THE BOARD MEETING WHEN THAT HAPPENED.
STEVEN BURD: WE LOOKED FOR A VOLUNTEER. MIKE SHANNON SAID HE WOULD VOLUNTEER. AND HE WENT THROUGH THE FINGER PRICK, WHICH IS NOT A BIG DEAL, AND THE SAMPLE WAS EXTRACTED AND ULTIMATELY PUT INTO A CARTRIDGE.
MR. LEACH: AND WAS A RESULT GENERATED?
STEVEN BURD: A RESULT WAS NOT GENERATED WHILE WE WERE IN THE ROOM.
MR. LEACH: OKAY. DID MS. HOLMES SAY ANYTHING?
STEVEN BURD: SHE SAID SOMETHING THAT MADE US THINK WE WOULD GET IT LATER.
MR. LEACH: OKAY. TO YOUR KNOWLEDGE, DID SAFEWAY GET IT LATER?
STEVEN BURD: NO.
MR. LEACH: LET'S LOOK AT THE POWERPOINT, PLEASE. IF WE COULD DRAW YOUR ATTENTION TO PAGE 2. DO YOU SEE WHERE IT SAYS THERANOS AT SAFEWAY, EXECUTIVE BRIEFING 03.2011?
STEVEN BURD: I'M ALWAYS ONE AHEAD OF YOU HERE. I SEE THAT, YES.
MR. LEACH: OKAY. AND YOU BELIEVE THIS TO BE A POWERPOINT THAT MS. HOLMES PRESENTED TO THE SAFEWAY BOARD?
STEVEN BURD: YES, I DO.
MR. LEACH: OKAY. LET'S LOOK AT PAGE 3, PLEASE. AND I WANT TO DRAW YOUR ATTENTION, MR. BURD, TO THE FIRST BULLET ON THIS POWERPOINT WHERE IT SAYS, "THERANOS'S PROPRIETARY, PATENTED TECHNOLOGY RUNS COMPREHENSIVE BLOOD TESTS FROM A FINGER-STICK AND TESTS FROM MICRO-SAMPLES AND OTHER MATRICES IN REAL-TIME OUTSIDE THE TRADITIONAL LAB SETTINGS AND GENERATES SIGNIFICANTLY HIGHER INTEGRITY DATA THAN CURRENTLY POSSIBLE." DO YOU SEE THAT LANGUAGE?
STEVEN BURD: I DO.
MR. LEACH: AND WAS THAT CONSISTENT WITH WHAT MS. HOLMES HAD BEEN SAYING TO YOU FOR THE BETTER COURSE OF A YEAR IN CONNECTION WITH THE SAFEWAY ARRANGEMENT?
STEVEN BURD: IT IS. I THINK THE, THE INTEGRITY ELEMENT, MEANING SUPERIOR, WASN'T SOMETHING THAT I LOCKED IN ON. IT MAY HAVE BEEN SAID BEFORE. IT MAY NOT HAVE BEEN.
MR. LEACH: OKAY. IT'S BEING SAID HERE IN THE POWERPOINT TO THE SAFEWAY BOARD?
STEVEN BURD: YES.
MR. LEACH: AND WAS THAT RELEVANT TO YOU?
STEVEN BURD: YOU KNOW, AS LONG AS IT WAS JUST AS ACCURATE, I WAS FINE. BUT THE OTHER ELEMENTS WERE QUITE RELEVANT, YOU KNOW, REAL-TIME, COMPREHENSIVE.
MR. LEACH: OKAY. LET'S LOOK AT PAGE 5, PLEASE. IS THIS ANOTHER DEPICTION OF THE MINI LAB DEVICE AND THE CARTRIDGES THAT WE'VE SEEN PREVIOUSLY?
STEVEN BURD: YES, IT IS.
MR. LEACH: AND WAS THIS CONSISTENT WITH YOUR UNDERSTANDING OF THERANOS'S SYSTEMS?
STEVEN BURD: YES.
MR. LEACH: OKAY. LET ME LOOK -- DRAW YOUR ATTENTION TO PAGE 6. DO YOU SEE WHERE IT SAYS, "VALIDATION OF THERANOS SYSTEMS"?
STEVEN BURD: I DO.
MR. LEACH: AND THE FIRST PARAGRAPH, "THERANOS SYSTEMS HAVE BEEN COMPREHENSIVELY VALIDATED OVER THE COURSE OF THE LAST SEVEN YEARS BY TEN OF THE FIFTEEN LARGEST PHARMACEUTICAL COMPANIES, WITH HUNDREDS OF THOUSANDS OF ASSAYS PROCESSED." WAS THAT INFORMATION RELEVANT TO YOU?
STEVEN BURD: YES.
MR. LEACH: WHY?
STEVEN BURD: WELL, IT, IT MADE A BOLD STATEMENT THAT IT HAD BEEN FIELD TESTED. RESPECTABLE, YOU KNOW, COMPANIES, TECHNOLOGY COMPANIES, YOU KNOW, HAD PROVED THIS TECHNOLOGY TO BE TRUE.
MR. LEACH: LET'S MOVE FORWARD IN TIME TO AUGUST OF 2011, AND I DRAW YOUR ATTENTION, PLEASE, TO EXHIBIT 5426.
STEVEN BURD: YOU SAID 5426?
MR. LEACH: 5426. IT SHOULD BE IN THE BACK.
STEVEN BURD: OH, OKAY.
MR. LEACH: AND I'LL OFFER THIS IN EVIDENCE.
STEVEN BURD: THAT WAS A HELPFUL HINT. I'D HAVE BEEN UP HERE FOR AWHILE. OKAY.
MR. DOWNEY: SORRY, YOUR HONOR. BEAR WITH ME ONE SECOND, PLEASE.
(PAUSE IN PROCEEDINGS.)
MR. DOWNEY: NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 5426 WAS ADMITTED IN EVIDENCE.)
MR. LEACH: IF WE -- IF THERE'S A WAY TO HIGHLIGHT THE SUBSTANCE ALL THE WAY FROM BANK OF AMERICA DOWN, MS. HOLLIMAN.
MR. LEACH: DOES THIS APPEAR TO BE A, A WIRE PAYMENT BETWEEN THERANOS AND SAFEWAY, MR. BURD?
STEVEN BURD: THAT'S WHAT IT APPEARS TO BE.
MR. LEACH: OKAY. AND DO YOU SEE IN THE DEBIT AMOUNT THE VALUE, $30 MILLION?
STEVEN BURD: YES.
MR. LEACH: OKAY. AND IS THAT CONSISTENT WITH YOUR MEMORY OF THE AMOUNT OF MONEY THAT SAFEWAY PAID TO THERANOS IN PART FOR THE CONVERTIBLE NOTES?
STEVEN BURD: YES, IT IS.
MR. LEACH: OKAY. AND DO YOU SEE THE VALID DATE, AUGUST 19TH, 2011?
STEVEN BURD: YES.
MR. LEACH: AND IS THAT CONSISTENT WITH YOUR MEMORY OF THE TIME PERIOD OF SAFEWAY'S PAYMENT OF THE 30 MILLION?
STEVEN BURD: I DON'T ACTUALLY RECALL THE TIMEFRAME.
MR. LEACH: OKAY. LET ME DRAW YOUR ATTENTION, PLEASE, TO EXHIBIT 495. AND I OFFER 495 INTO EVIDENCE.
MR. DOWNEY: NO OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 495 WAS ADMITTED IN EVIDENCE.)
BY MR. LEACH:
MR. LEACH: MR. BURD, DOES THIS APPEAR TO BE A COPY OF ONE OF THE CONVERTIBLE PROMISSORY NOTES THAT SAFEWAY PURCHASED?
STEVEN BURD: YES.
MR. LEACH: OKAY. AND DO YOU SEE THE DOLLAR AMOUNT IN THE LEFT FOR $10 MILLION?
STEVEN BURD: I DO.
MR. LEACH: OKAY. AND TO THE RIGHT, DO YOU SEE THE DATE, DECEMBER 30TH, 2011?
STEVEN BURD: YES.
MR. LEACH: I DRAW YOUR ATTENTION, PLEASE, TO PAGE 6. DO YOU SEE IN PARAGRAPH 3, IT SAYS, "REPRESENTATIONS AND WARRANTIES OF INVESTOR"? DO YOU SEE THAT?
STEVEN BURD: YES.
MR. LEACH: OKAY. AND THE INVESTOR IN THIS CONTEXT IS SAFEWAY?
STEVEN BURD: LET ME JUST READ THIS A LITTLE BIT.
MR. LEACH: YES, PLEASE.
(PAUSE IN PROCEEDINGS.)
STEVEN BURD: CAN YOU ASK YOUR QUESTION AGAIN?
BY MR. LEACH:
MR. LEACH: THE INVESTOR IN THIS CONTEXT, IS THAT SAFEWAY?
STEVEN BURD: YES.
MR. LEACH: OKAY. ONE OF THE REPRESENTATIONS AND WARRANTIES OF INVESTOR IN 3B, THERE'S A HEADING, EXPERIENCE. DO YOU SEE THAT?
STEVEN BURD: YES.
MR. LEACH: AND IT SAYS, "INVESTOR IS EXPERIENCED IN INVESTING IN THE SECURITIES OF DEVELOPMENT STAGE COMPANIES SUCH AS THE COMPANY. INVESTOR IS ABLE TO FEND FOR ITSELF, CAN BEAR THE ECONOMIC RISK." DO YOU SEE THAT LANGUAGE?
STEVEN BURD: I DO.
MR. LEACH: AND THIS REPRESENTATION WAS TRUE AT THE TIME?
STEVEN BURD: YES.
MR. LEACH: FURTHER DOWN, IN F, THERE'S A PARAGRAPH, ACCREDITED INVESTOR.
STEVEN BURD: I DO.
MR. LEACH: DO YOU SEE WHERE IT SAYS, "INVESTOR REPRESENTS THAT IT IS AN 'ACCREDITED INVESTOR'"?
STEVEN BURD: I DO.
MR. LEACH: DO YOU UNDERSTAND THAT TO BE A TERM OF ART UNDER THE SECURITIES LAWS?
STEVEN BURD: YEAH, SOMETHING TO DO WITH SECURITIES LAWS. BUT MY GENERAL COUNSEL WOULD TELL ME THAT WE'RE ACCREDITED.
MR. LEACH: OKAY. THE THRUST IS THAT SAFEWAY IS SOPHISTICATED AND CAPABLE?
STEVEN BURD: CAPABLE, YES.
MR. LEACH: AND AT THE TIME YOU MADE THE DECISION -- DID YOU APPROVE THE PURCHASE OF THE CONVERTIBLE NOTES?
STEVEN BURD: I DID.
MR. LEACH: AT THE TIME, DID YOU RELY ON THE REPRESENTATIONS THAT MS. HOLMES HAD MADE TO YOU OVER THE COURSE OF A NUMBER OF YEARS?
STEVEN BURD: YES.
MR. LEACH: AND DID YOU BELIEVE THEM TO BE TRUE AND ACCURATE?
STEVEN BURD: I DID AT THE TIME.
MR. LEACH: LET'S LOOK BRIEFLY AT PAGE 11. DO YOU SEE MS. HOLMES'S SIGNATURE LINE IN THE CONVERTIBLE NOTE?
STEVEN BURD: YES.
MR. LEACH: LET ME DRAW YOUR ATTENTION TO 496. AND I OFFER EXHIBIT 496 INTO EVIDENCE.
MR. DOWNEY: I'M SORRY, MR. LEACH. I DON'T THINK I HAVE 496.
MR. LEACH: I THINK I SHOWED IT TO YOU THIS MORNING. YOU CAN HAVE MINE (HANDING).
MR. DOWNEY: OBJECTION, YOUR HONOR.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 496 WAS ADMITTED IN EVIDENCE.)
BY MR. LEACH:
MR. LEACH: MR. BURD, IS THIS THE SECOND OF THE CONVERTIBLE NOTES THAT SAFEWAY PURCHASED AT SOME POINT IN 2011?
STEVEN BURD: IT APPEARS TO BE.
MR. LEACH: OKAY. DO YOU SEE THE AMOUNT OF $15 MILLION TO THE LEFT?
STEVEN BURD: I DO.
MR. LEACH: OKAY. AND DO YOU SEE THE DATE OF DECEMBER 30TH, 2011 TO THE RIGHT?
STEVEN BURD: YES.
MR. LEACH: OKAY. AND DO YOU SEE MS. HOLMES'S SIGNATURE ON PAGE 10?
STEVEN BURD: I DO.
MR. LEACH: LET ME MOVE FORWARD IN TIME, MR. BURD, TO THE TIME PERIOD OF 2012. DO YOU HAVE THAT TIME PERIOD IN MIND?
STEVEN BURD: OKAY.
MR. LEACH: OKAY. AT THIS POINT, HAD SAFEWAY ROLLED OUT ANY THERANOS DEVICES IN ITS STORES?
STEVEN BURD: NO.
MR. LEACH: BY THE END OF 2012, HAD THAT HAPPENED?
STEVEN BURD: NO.
MR. LEACH: OKAY. OVER THE COURSE OF TIME, WERE YOU BECOMING FRUSTRATED?
STEVEN BURD: YES.
MR. LEACH: WHY WERE YOU BECOMING FRUSTRATED?
STEVEN BURD: YOU KNOW, DEADLINES WERE CONTINUING TO BE MISSED. WE OFTEN WEREN'T GIVEN A LOT OF EXPLANATION FOR THAT. AND I KEPT ASKING, YOU KNOW, GIVE ME SOME DETAILS HERE, YOU KNOW, MAYBE WE CAN HELP. WE'RE A BIG COMPANY, WE'VE GOT LOTS OF RESOURCES. SO THAT WAS THE FRUSTRATING PART. WE ALWAYS TRIED TO HELP THEM IN ANY WAY THAT WE COULD.
MR. LEACH: DID MS. HOLMES EVER ATTRIBUTE -- EVER ATTRIBUTE DELAYS IN THE LAUNCH TO SOME TECHNICAL ISSUE WITH THE MINI LAB DEVICE?
STEVEN BURD: THE ONLY TECHNICAL ISSUE I GUESS THAT I RECALL WAS I WAS TOLD THAT PART OF THE DELAY WAS THAT IN THINKING THROUGH STACKING, YOU KNOW, SIX OF THESE MACHINES AND SIDE-BY-SIDE -- BECAUSE IF IT TAKES 30 MINUTES, YOU'VE GOT TO HAVE MORE THAN ONE MACHINE -- THAT THERE WAS A LOT OF HEAT GENERATED AND THEY WERE STRUGGLING WITH HOW TO DISSIPATE THAT HEAT SO THAT IT WOULDN'T COMPROMISE THE INTEGRITY OF THE MACHINES. AND I IMMEDIATELY OFFERED UP MY ENGINEERING TEAM BECAUSE WE DEAL WITH HEAT AND COLD A LOT. BUT SHE SAID THEY WOULD, THEY WOULD SOLVE IT.
MR. LEACH: OTHER THAN THIS HEAT ISSUE THAT AROSE FROM STACKING OF THE DEVICES, DID MS. HOLMES EVER ATTRIBUTE THE DELAY TO SOME FORM OF TECHNICAL ISSUE WITH THE MINI LAB DEVICE?
STEVEN BURD: I DON'T RECALL EVER HEARING ABOUT A TECHNICAL ISSUE.
MR. LEACH: OKAY. DID SHE EVER TELL YOU THAT THERANOS HAD YET TO VALIDATE A SINGLE TEST ON ITS MINI LAB DEVICE FOR USE IN THE CLIA LAB?
STEVEN BURD: NO.
MR. LEACH: IN 2012, WOULD IT SURPRISE YOU TO LEARN THAT THERANOS HAD YET TO VALIDATE A SINGLE TEST ON ITS MINI LAB DEVICE FOR USE IN THE CLIA LAB?
STEVEN BURD: YES.
MR. LEACH: WHY WOULD THAT HAVE SURPRISED YOU?
STEVEN BURD: BECAUSE I THOUGHT THE VALIDATION HAD TAKEN PLACE MUCH EARLIER.
MR. LEACH: OKAY. DID MS. HOLMES EVER TELL YOU THAT THERANOS WAS USING ONLY FDA APPROVED MACHINES AND FDA APPROVED TESTS IN THE CLIA LAB IN THIS 2012 TIME PERIOD?
STEVEN BURD: I'M NOT SURE I UNDERSTAND THE QUESTION. ARE YOU -- ARE YOU ASKING IF THEY'RE USING MACHINES THAT THEY DIDN'T DEVELOP?
MR. LEACH: YES.
STEVEN BURD: THAT'S A LITTLE COMPLICATED.
MR. LEACH: LET ME ASK --
STEVEN BURD: I CAN ANSWER IT. WE WANTED THEM TO PUT A LAB ON CAMPUS SO WE COULD HAVE REAL TIME, YOU KNOW, EXPERIENCE, AND WE THOUGHT THAT LAB WAS GOING TO BE A MINI LAB. AND THEN ELIZABETH EXPRESSED CONCERN ABOUT SECRECY BECAUSE ONLY SAFEWAY EMPLOYEES WOULD BE USING THIS LAB. AND SO WE KNEW AT THAT POINT THAT THEY WERE DRAWING BOTH FINGERSTICK WHERE THEY COULD AND FULL VIALS AND THAT THEY WERE, THEY WERE, I THINK, DOING SOME KIND OF VALIDATION, AND I THINK IT WAS DESCRIBED MAYBE AS, YOU KNOW, REFINING. OKAY? AND SO SOME OF THOSE VIALS I BELIEVE WERE USED TO CREATE A NUMBER OF BLOOD SAMPLES TO MAKE SURE YOU GOT CONSISTENT -- I CONSIDERED IT AS A CALIBRATION PROCESS. AND WE ALSO KNEW THAT THEY WERE SENDING SOME OF THOSE OUT TO OTHER LABS.
MR. LEACH: SO LET ME TRY TO UNPACK THAT A LITTLE BIT. AT SOME POINT DID SAFEWAY REQUEST FOR SOME FORM OF PILOT TO BE DONE ON ITS CAMPUS TO TEST THE THERANOS PROCESS?
STEVEN BURD: YES.
MR. LEACH: TELL US ABOUT THAT, PLEASE.
STEVEN BURD: WELL, WE WERE FAR INTO THIS THING AND WE'D NEVER REALLY SEEN THE BOX WORK. SO WE HAD A WELLNESS CENTER ON CAMPUS. WE HAD NURSES ON CAMPUS. AND SO THAT BUILDING WAS SEPARATED FROM THE MAIN OFFICE, SO WE THOUGHT IT WAS A PERFECT PLACE TO PUT THIS LAB. AND INITIALLY I THOUGHT WE WERE GOING TO GET THE REAL MINI LAB, AND THEN I WAS TOLD, NO, WE'RE NOT GOING TO GET THE NEW MINI LAB, WE'LL CONTINUE TO DO THOSE ANALYTICS DOWN AT THERANOS.
MR. LEACH: OKAY. AND I GUESS MY QUESTION WAS, DID MS. HOLMES EVER TELL YOU THAT THE ONLY MACHINES THEY WERE USING IN THE CLIA LAB WERE FDA APPROVED MACHINES IN THIS TIME PERIOD?
STEVEN BURD: SEE, I'M NOT SURE WHAT AN FDA APPROVED MACHINE IS, SO I STRUGGLE WITH THAT QUESTION. ARE YOU -- IF YOU'RE SAYING THEY'RE ONLY USING THE CLIA WAVE MACHINES THAT THEY DEVELOPED THEMSELVES, IF THAT'S THE QUESTION?
MR. LEACH: LET ME ASK A BETTER QUESTION. WHEN YOU ENVISIONED WHAT WAS HAPPENING IN THE CLIA LAB, DID YOU ENVISION THERANOS USING THE MINI LAB DEVICES THAT HAD BEEN SHOWN TO YOU?
STEVEN BURD: YES.
MR. LEACH: AND IN 2012, WOULD IT SURPRISE YOU THAT NO MINI LAB WAS USED IN THE CLIA LAB IN 2012?
STEVEN BURD: THAT NO MINI LAB? YES.
MR. LEACH: AND WHY IS THAT?
STEVEN BURD: BECAUSE I THOUGHT THEY WERE USING PREDOMINANTLY THEIR MINI LAB, BUT THAT THEY WERE, YOU KNOW, CALIBRATING THE MACHINE. SO IT DIDN'T BOTHER ME THAT THEY MIGHT HAVE SOME STANDARD EQUIPMENT, YOU KNOW, AS A CALIBRATION DEVICE. BUT IF THEY WERE USING OTHER MACHINES ONLY, THEN ALL WE WERE TESTING WAS THE PHLEBOTOMIST'S ABILITY TO PRICK A FINGER AND DRAW BLOOD, AND WE WANTED TO TEST THE TECHNOLOGY.
MR. LEACH: OKAY. LET ME DRAW YOUR ATTENTION, PLEASE, TO WHAT HAS BEEN MARKED AS EXHIBIT 718. AND I BELIEVE THERE'S A STIPULATION FOR 718. I OFFER IT INTO EVIDENCE.
MR. DOWNEY: YES, YOUR HONOR. NO OBJECTION.
JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.
(GOVERNMENT'S EXHIBIT 718 WAS ADMITTED IN EVIDENCE.)
BY MR. LEACH:
MR. LEACH: MR. BURD, DOES THIS APPEAR TO BE AN EMAIL EXCHANGE BETWEEN YOU AND MS. HOLMES IN OR AROUND DECEMBER 18TH, 2012?
STEVEN BURD: YES.
MR. LEACH: OKAY. AND THE SUBJECT IS PHONE CALL TO DISCUSS SCHEDULE. DO YOU SEE THAT?
STEVEN BURD: YES.
MR. LEACH: AND AT THIS POINT IN TIME, ARE YOU WORKING HARD TO TRY TO GET THE SAFEWAY LAUNCH HAPPENING?
STEVEN BURD: YES.
MR. LEACH: I DRAW YOUR ATTENTION TO THE SECOND PARAGRAPH FROM THE BOTTOM. DO YOU SEE WHERE IT SAYS, "WITHOUT RECOUNTING ALL THE MISSED DEADLINES, IT IS CRYSTAL CLEAR THAT EITHER THE MOST RECENTLY COMMITTED DATES (SEPTEMBER 24TH AND LATER DECEMBER 6TH) WERE FAR TOO AMBITIOUS, OR THERE HAVE BEEN SOME OVERWHELMING SURPRISES ALONG THE WAY. I ALSO WORRY THAT THE DEMANDS OF YOUR CORE BUSINESS OR THE NEWLY ACQUIRED DOD BUSINESS ARE CONSUMING RESOURCES THAT WOULD OTHERWISE BE COMMITTED TO LAUNCH." DO YOU SEE THAT LANGUAGE?
STEVEN BURD: I DO.
MR. LEACH: WHAT DID YOU MEAN BY "THE NEWLY ACQUIRED DOD BUSINESS"?
STEVEN BURD: YOU KNOW, AS I KEPT PRESSING, YOU KNOW, FOR LAUNCH, ALWAYS WANTING TO MAKE SURE THAT WE HAD NAILED EVERYTHING DOWN, I KEPT ASKING WHY, WHAT ARE THE OBSTACLES, WHAT'S IN THE WAY? AND ON -- IT WAS EITHER A PHONE CALL OR AN EMAIL, SHE TOLD ME THAT THEY HAD BEEN DOING SOME WORK FOR THE DEPARTMENT OF DEFENSE, THAT HER DEVICE WAS IN MEDEVAC UNITS AROUND THE WORLD IN PLACES THAT, YOU KNOW, A LOT OF AMERICANS DIDN'T EVEN KNOW WE WERE. AND WHEN I THOUGHT ABOUT THE COMPOSITION OF HER BOARD, THAT WASN'T THAT -- IT WAS DISAPPOINTING, BUT IT WASN'T THAT SURPRISING.
MR. LEACH: WHEN -- YOU MENTIONED SOMETHING ABOUT A MEDEVAC UNIT.
STEVEN BURD: YES.
MR. LEACH: WHAT DO YOU MEAN BY THAT?
STEVEN BURD: THAT MIGHT NOT BE THE RIGHT TERMINOLOGY HERE. BUT, YOU KNOW, THAT'S WHERE YOU HAVE A -- YOU HAVE MEDICAL CAPABILITY IN THE FIELD OF BATTLE THAT IS DEALING WITH INJURIES WHEN PEOPLE THAT HAVE BEEN SHOT, AND OFTEN INFECTION IN THAT FIELD IS A BIG DEAL. AND SO TO BE ABLE TO, IN 20 MINUTES, DETERMINE THE KIND OF INFECTION COULD SAVE SOMEBODY'S LIFE. AND SO IT MADE SENSE THAT THE DOD WOULD WANT THIS UNIT IF IT COULD DO THAT. AND THEN THERE WERE GENERALS AND ADMIRALS AND OTHERS ON THE BOARD, SO, YOU KNOW, I DIDN'T LIKE THE IDEA -- SHE SAID THAT, TRUST ME, YOU KNOW, STRATEGICALLY, THIS WILL HAVE VALUE TO US. I THINK PRESUMABLY SOME KIND OF BRANDING VALUE WHEN YOU COULD MAKE IT AVAILABLE.
MR. LEACH: IN THIS CONTEXT, DID MS. HOLMES TELL YOU THAT THERANOS DEVICES WERE BEING USED ON THE BATTLEFIELD?
STEVEN BURD: I DON'T KNOW ABOUT THE WORD BATTLEFIELD BECAUSE, YOU KNOW, WE'VE HAD THESE SKIRMISHES, YOU KNOW. BUT YOU CAN THINK OF IRAQ OR AFGHANISTAN OR SOMETHING LIKE THAT. BUT I'M NOT SURE THAT BATTLEFIELD IS THE RIGHT DESCRIPTION, YOU KNOW, OF THAT.
MR. LEACH: LET ME ASK A BETTER QUESTION. WHAT -- DESCRIBE THE SUBSTANCE OF WHAT MS. HOLMES SAID TO YOU IN CONNECTION WITH THE DOD.
STEVEN BURD: THE SUBSTANCE WAS WHERE THERE'S A MEDICAL NEED IN THE MILITARY IN A REMOTE OUTPOST WHERE LABS ARE NOT AVAILABLE, WE HAVE THE PERFECT SOLUTION.
MR. LEACH: OKAY. AND SHE WAS USING THIS AS AN EXPLANATION FOR WHY THERANOS WAS UNABLE TO GO FORWARD WITH SAFEWAY?
STEVEN BURD: THAT HAD NOT YET PULLED THE PLUG ON GOING FORWARD.
MR. LEACH: WITH SAFEWAY?
STEVEN BURD: WITH SAFEWAY.
MR. LEACH: OKAY. AND DID SHE MAKE REFERENCE TO A MEDEVAC HELICOPTER?
STEVEN BURD: YES.
MR. LEACH: OKAY. WHAT DID SHE SAY?
STEVEN BURD: I THINK SHE USED THE TERM THAT THEY WERE IN MEDEVAC HELICOPTERS, SO THAT'S EVEN CLOSER THAN, YOU KNOW, HAVING A, YOU KNOW, FACILITY SOMEWHERE IN AFGHANISTAN.
MR. LEACH: DID SHE TELL YOU THAT THIS INFORMATION COULD BE WIDELY SHARED OR DISTRIBUTED WITHIN SAFEWAY?
STEVEN BURD: SHE SAID IT WAS, YOU KNOW, VERY CONFIDENTIAL.
MR. LEACH: AND AT THE TIME, WAS THIS EXPLANATION SATISFACTORY TO YOU?
STEVEN BURD: THAT KIND OF IMPLIES I WAS HAPPY. I WAS BOTHERED BY IT. I WAS DISAPPOINTED. IT SEEMED PLAUSIBLE. IT JUST SEEMED LIKE ONE MORE DELAY FOR US.
MR. LEACH: YOU WERE BOTHERED BY THE DELAY, BUT THE EXPLANATION AT THE TIME MADE SENSE TO YOU? IS THAT FAIR?
STEVEN BURD: IT MADE -- IT MADE SENSE.
MR. LEACH: OKAY. YOUR HONOR, I'M MINDFUL OF THE TIME. THIS MIGHT BE A GOOD TIME FOR A BREAK.
JUDGE DAVILA: ALL RIGHT. LET'S DO THAT. LADIES AND GENTLEMEN, I PROMISED YOU WE'D BREAK AT 3:00 TODAY, 3:00 TODAY. WE'LL HAVE TO RESUME TUESDAY NEXT. TUESDAY AT 9:00 A.M., COUNSEL, WE'LL RESUME. SO, SIR, YOU'LL HAVE TO COME BACK TUESDAY NEXT AT 9:00 A.M. TO CONTINUE YOUR EXAMINATION.
STEVEN BURD: SURE.
JUDGE DAVILA: THANK YOU. LADIES AND GENTLEMEN, IT'S A LONG WEEKEND, AND I JUST WANT TO REMIND YOU AGAIN OF THE ADMONITION. PLEASE DO NOT DO ANY INVESTIGATION ABOUT ANYONE, ANYTHING INVOLVED IN THIS CASE. DO NOT VISIT ANY LOCATIONS. AND PLEASE, AS BEST YOU CAN, AVOID ANY SOCIAL MEDIA, ANY RADIO, TELEVISION, NEWSPAPER, ANYTHING THAT TOUCHES ON THIS ARTICLE. SHOULD YOU INADVERTENTLY COME ACROSS SOMETHING, PLEASE TURN THAT, DISABLE THE DEVICE, TURN AWAY, DON'T OPEN THE PAGE OF THE NEWSPAPER. I DON'T REMEMBER HOW MANY OF YOU READ HARD COPY NEWSPAPERS AS OPPOSED TO YOUR DEVICES, BUT PLEASE DON'T ENGAGE THAT AT ALL. IF DO YOU COME ACROSS THAT, WE'LL TALK ABOUT IT TUESDAY WHEN I ASK YOU WHETHER OR NOT ANY OF THESE THINGS HAVE HAPPENED. THANK YOU FOR THAT. ENJOY YOUR LONG WEEKEND. BE SAFE, BE HEALTHY, AND WE'LL SEE YOU BACK NEXT WEEK. THANK YOU.
STEVEN BURD: EXCUSE ME. I CAN LEAVE THIS RIGHT HERE?
JUDGE DAVILA: YES, JUST LEAVE EVERYTHING THERE, SIR.
STEVEN BURD: THANK YOU.
JUDGE DAVILA: YOU'RE WELCOME.
(JURY OUT AT 3:02 P.M.)
JUDGE DAVILA: AND YOU CAN STAND DOWN, SIR. THANK YOU.
STEVEN BURD: OKAY. THANK YOU.
JUDGE DAVILA: PLEASE BE SEATED. ALL RIGHT. THE RECORD SHOULD REFLECT THAT THE JURY -- OUR JURY HAS LEFT FOR THE WEEKEND. THE WITNESS HAS LEFT THE COURTROOM. ALL COUNSEL AND THE DEFENDANT ARE PRESENT. ANYTHING FURTHER BEFORE WE BREAK FROM THE GOVERNMENT?
MR. LEACH: NO, YOUR HONOR.
MR. DOWNEY: NOTHING FROM THE DEFENSE, YOUR HONOR.
JUDGE DAVILA: ALL RIGHT. THANK YOU. ENJOY YOUR LONG WEEKEND, AND I HOPE YOU CAN SEE FAMILY AGAIN PERHAPS OVER THE WEEKEND. ENJOY. WE'LL SEE YOU TUESDAY NEXT. THANK YOU.
MR. DOWNEY: THANK YOU, YOUR HONOR.
MR. LEACH: THANK YOU, YOUR HONOR.
COURT CLERK: COURT IS ADJOURNED.
(THE EVENING RECESS WAS TAKEN AT 3:03 P.M.)