, ,

Short answer: Whether they like it or not, Theranos and Holmes’ fates seem to now be in the hands of federal regulators. Theranos is bleeding money and apparently has been for a while. Meantime, having lost its major partner, Walgreens, it needs a new partner fast. New partnership is unlikely so long as it’s under investigation by Centers for Medicare and Medicaid Services (CMS), the federal regulator overseeing blood tests, not to mention there are also news reports of criminal investigations by the United States Department of Justice (US DOJ) and the U.S. Securities and Exchange Commission (US SEC). The only thing it has is its proprietary technology. Investors may push for a fire sale to recoup their investments but who will buy something that has no evidence it even works? Meantime, lawsuits against it are piling up thick and fast. Dealing with them will take massive attention of all its stakeholders, not to mention its erstwhile partner, Walgreens, may also be pulled in and will likely be none too pleased to be dragged into such a legal mess. Thus, if regulators deliver a slap on the wrist, Theranos will get a lease of life to lie low and continue working on its technology with a much better appreciation of what it takes to get it ready for prime time. Slap on the wrist may also help it deal better with the lawsuits and make it attractive enough for new partners. If regulators deliver more serious charges, more serious outcomes including potential jail time may be on the cards. In that case, it’ll likely be the end of the road for Theranos.

Longer answer: The Domino Effects That Limit Theranos’ Options

Walgreens Severed Its Partnership With Theranos Even As The Latter’s Been Bleeding Money

On Sunday, June 12, 2016, Walgreens announced it had shuttered its partnership with Theranos, effective immediately (1).

‘“In light of the voiding of a number of test results, and as the Centers for Medicare and Medicaid Services (CMS) has rejected Theranos’ plan of correction and considers sanctions, we have carefully considered our relationship with Theranos and believe it is in our customers’ best interests to terminate our partnership,” said Brad Fluegel, Walgreens Senior Vice President and Chief Health Care Commercial Market Development Officer.’

Theranos’ immediate revenue stream has thus stopped. Theranos has obviously been bleeding money on its operations ever since Wall Street Journal’s first explosive investigative piece late last year brought it unwanted and unwelcome regulatory scrutiny. Regulators found several counts of serious deficiencies in its operations. As more of its operations shuttered as a result of these investigations, it kept providing test results by outsourcing samples to other labs at huge cost to itself, meaning burning through investor money to make up the difference (see below).


‘The lab at the University of California, San Francisco, used to process a handful of rare tests every six months for Theranos, but starting in November that number jumped to a few hundred, and 500 in December, including generic tests that any hospital could do, UCSF lab director Tim Hamill said.

His lab charges Theranos a lot more than Theranos is charging patients, Hamill said. ARUP Laboratories in Salt Lake City has also been doing some of Theranos’ work.’


‘Since mid-November, Theranos has sent more than 1,200 test orders to UCSF, according to lab records. Theranos hadn’t outsourced any tests to that lab since at least July, the records show.

Tests done on behalf of Theranos by UCSF include some of the most common blood tests ordered during routine doctor visits, such as blood counts and screening for prostate-specific antigen, or PSA, the same lab records show.

UCSF charges Theranos more than $300 for a comprehensive metabolic panel, said a person familiar with the matter. Theranos’s website shows that patients who get the same test at one of the company’s blood-draw sites pay just $7.19. A comparison of all the tests done by UCSF for Theranos shows that the company appears to be incurring losses on many of those tests.’

Meantime, Theranos is still bleeding money since it has ~1000 employees on its payroll (2).

‘It has 1,000 employees, up from an estimated 500 in June 2014.’

Federal Investigations Including Criminal Against Theranos Are Ongoing

Clearly, to gain back access to customers and start making money off of blood tests again, Theranos needs to find another partner and soon. How likely is that? Even if Theranos now does what it doesn’t seem to have ever done with prior partners, that is, share details of its proprietary technology in order to secure their partnership, what’s the likelihood they will sign? Practically nil at least as long as federal investigations are ongoing, not just investigations by the federal regulatory body that oversees Clinical Laboratory Improvement Amendments-regulated blood tests, CMS (4) but also criminal investigations by the DOJ and the SEC (5) as to whether it misled investors and regulators about its technology (see below from 6).

‘Investigators are also examining whether Theranos misled government officials, which can be a crime under federal law’

Who knows how long these investigations will take? Not Theranos nor its investors nor potential new partners.

Lawsuits Against Theranos Are Starting To Pile Up

In May 2016, Theranos voided thousands of test results. It’s obvious that doing so would open it up for lawsuits (7) and indeed that has come to pass. So why did it void so many test results? One obvious possibility is this was done under duress from CMS. Thus, it looks like regulators control Theranos’ fate for the foreseeable future.

Meantime, Theranos has to prep and pay for the lawsuits piling up against it. Wall Street Journal’s John Carreyrou lists at least five lawsuits seeking class action status as of June 18, 2016 (see below from 8).

To survive, Theranos has to prevail against these lawsuits. Can it? Theranos may well have a solid corporate insurance plan to fund the costs of these lawsuits but wouldn’t such insurance be automatically null and void if fraud is involved? No short-cuts, no easy answers, Theranos and Holmes’ fates seem to be in the hands of federal regulators.


1. Walgreens, June 12, 2016. Walgreens Terminates Relationship with Theranos; Will Be Closing Operations at All 40 Theranos Wellness Centers in Arizona

2. Politico, Darius Tahir, Feb 11, 2016. Troubled health start-up Theranos faces Washington reckoning

3. The Wall Street Journal, John Carreyrou, Christopher Weaver, Michael Siconolfi, Jan 24, 2016. Deficiencies Found at Theranos Lab

4. The Wall Street Journal, John Carreyrou, Dec 20, 2015. U.S. Probes Theranos Complaints

5. The New York Times, Reed Abelson, Andrew Pollack, April 18, 2016. Theranos Under Federal Criminal Investigation, Adding to Its Woes

6. The Wall Street Journal, Christopher Weaver, John Carreyrou, Micahel Siconolfi, April 18, 2016. Theranos Is Subject of Criminal Probe by U.S.

7. Wired, Nick Stockton, May 20, 2015. Theranos’ Voided Tests Could Make It a Magnet for Lawsuits

8. John Carreyrou on Twitter