Dive Brief:

• Walgreens attorneys argued in a Delaware court this week that the drugstore retailer's board acted quickly when learning of fraudulent claims by Theranos, a blood-testing startup (now dissolved) that Walgreens partnered with starting in 2012, according to reports in Bloomberg Law and Law360. Theranos has been accused of fraud by the federal government and consumers who lodged suits against it.
• On Wednesday, Walgreens asked the Delaware court to toss out a shareholder's lawsuit against it, the retailer's attorneys said the plaintiff failed to prove the board overlooked warnings of Theranos' fraud, according to Bloomberg Law. Walgreens also faces ongoing consumer class action suits over its deal with Theranos. Walgreens declined to comment on the suit.
• The shareholder lawsuit, filed Oct. 9 in Delaware's Court of Chancery, notes that Walgreens reportedly invested more than $140 million in its partnership with Theranos to bring the startup's blood testing technology to wellness centers at the retailer's stores. "The partnership had a problem: Theranos's revolutionary system was a blatant fraud," the suit alleges.

Dive Insight:

Walgreens' experience with Theranos is a stark reminder of the pitfalls of a hasty response to competitive pressures.

The retailer, along with its rivals in the space, including CVS, have looked to healthcare and wellness for growth. Those efforts have only intensified in recent years. CVS transformed itself into a major healthcare force with the $69 billion acquisition of insurer Aetna and launch of its HealthHub store concepts that include medical help, among several other efforts. Walgreens has also added primary care clinics to some stores.

But investigative reporting from the Wall Street Journal detailed how in recent years Walgreens' efforts to leapfrog competitors by offering Theranos' blood testing technology — purportedly able to test for diseases with a pin-prick — and building out wellness centers exposed it to steep financial and legal risks. In 2016, with its relationship with Theranos "in tatters," Walgreens represented "an extreme case study of what can go wrong when an established company that craves growth decides to gamble on an exciting and unproven startup," the newspaper wrote at the time.

According to the Journal's reporting, some Walgreens executives and advisers had raised doubts about the startup and its technology, especially as Theranos shied from attempts by Walgreens to investigate its technology in detail. "Again and again, Walgreens moved forward anyway, partly because executives worried Theranos would choose a different drugstore chain as partner if they pressed (Theranos Founder Elizabeth Holmes) too hard," the Journal reported.

The Delaware lawsuit, brought by shareholder James Hays, argues that Walgreens, along with Theranos, continued "touting their wellness centers" even after reports that Theranos only used its proprietary technology to test a small fraction of its blood samples, instead relying on other conventional technology and sometimes third-parties.

Moreover, the suit alleges that Walgreens' initial agreement with Theranos, signed in 2012, came "on the heels of grossly inadequate due diligence and in the face of massive red flags" that Theranos was engaged in fraud. Grocer Safeway had also partnered with Theranos to puts its technology in stores. Hays' suit notes that Safeway pulled out of its deal when due diligence raised questions about test accuracy.

An official with the Delaware court mulled staying the shareholder lawsuit while the consumer class actions against Walgreens play out, Bloomberg Law reported.