Photograph by Daniel Acker — Bloomberg/Getty Images

Pharmacy giant wrapped up in blood testing upstart's woes

By Sy Mukherjee
May 26, 2016

Walgreens wba reportedly failed to adequately verify that embattled blood lab startup Theranos’ proprietary Edison finger prick testing technology worked as advertised, saddling the pharmacy giant with a business partner staring down mounting troubles.

The drugstore chain struck its Theranos deal in 2013 under the leadership of former CEO Greg Wasson, who was reportedly eager to invest in a potentially revolutionary new technology to grow sales prior to the completion of Walgreen’s merger with Switzerland’s Alliance Boots. The partnership was a big win for Theranos, which was seeking a respected pharmacy ally to boost its brand and technology.

Less than three years later, Walgreens has halted its expansion plans for using Theranos’ blood testing services beyond the 41 “Wellness Centers” in Arizona and California where they currently operate and is reportedly looking to dump its partner altogether in the wake of reports that its technology doesn’t work as advertised and growing scrutiny from both federal regulators and federal prosecutors. Walgreens operates about 8,000 pharmacies across the country.

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According to the Wall Street Journal, researchers at Johns Hopkins University who were paid to test the Edison device on Walgreens’ behalf back in 2011 were unable to do so because Theranos never delivered it to them. The publication also claims that a device provided directly to Walgreens for validation came with relatively unconventional blood tests that couldn’t be easily compared against other tests. Despite Theranos’ reported efforts to stymie Walgreens’ verifications efforts, the company struck the deal anyway, and has poured at least $50 million into the venture already.

Walgreens declined to comment on the claims to Fortune, and Theranos has not yet responded, although a spokeswoman told the Journal, “We value our partnership with Walgreens and look forward to continuing to work together.”

It’s unclear whether or not Walgreens can successfully back out of its Theranos alliance without brushing up against a breach of contract suit. But there’s a chance the deal could wind up collapsing beneath the weight of Theranos’ struggles.

On Thursday, an Arizona plaintiff filed a class action consumer fraud lawsuit against the company on the heels of Theranos’ announcement earlier this month that it had voided two years’ worth of blood testing results from the Edison machine. A Theranos spokesperson told Fortune that the suit “is without merit.”

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