Dissolution: The Final Act of the Theranos Tragedy

Tragedy was a genre invented by the ancient Greeks to portray the fall of not just ordinary but great individuals. And while “Theranos” is not actually a Greek word (it’s actually an amalgamation of the words “therapy” and “diagnosis”), it at least sounds like the name of a Sophocles tragedy. And now the final act has seemingly been written with word that the company once poised to disrupt the blood-testing business is dissolving.

Theranos at its Peak
Just five years ago, Theranos was a Silicon Valley sensation with a valuation of over $9 billion. Venture capitalists, big-name shareholders, and the media embraced the company’s approach and heralded its groundbreaking technology and founder Elizabeth Holmes, a Stanford University dropout who frequently wore black turtlenecks à la Steve Jobs.

At the center of its prominence and future prominence was its finger-stick blood test technology offering not only convenience but accuracy. Thanks to new technology, miniature tests using microscopic volumes would produce the same results as larger samples, Theranos claimed.

It all turned out to be hype.

Faulty Technology
The Theranos technology proved unreliable. In fact, Theranos often used analyzers from other companies to test consumer blood samples.

What’s more, Theranos modified some of those analyzers in ways that were not approved by the manufacturers or consistent with federal health agency guidelines. Because of the modifications, these test results were often inaccurate.

Financial Fallout
As a result of testing issues, an agreement with Walgreens, which had been the company’s steppingstone to the consumer market unraveled. The drugstore chain sued the company for breach of contract and was awarded damages.

In April 2017, Theranos settled charges with CMS agreeing to a $30,000 fine and two-year Medicare exclusion.

Determined to carry on, Theranos refocused its business, shedding its CLIA lab testing and concentrating on technology. Layoffs followed. The company, which once reportedly employed 800, was down to fewer than 25 employees earlier this year.

Criminal Conduct Alleged
Things went from bad to worse.

According to The Wall Street Journal, Holmes and her ex-boyfriend, Ramesh “Sunny” Balwani, who served as Theranos president and chief operating officer until he retired from the company in May 2016, have been indicted on nine counts of wire fraud and two counts of conspiracy to commit wire fraud. (Editor’s note: John Carreyrou, who wrote The Wall Street Journal articles that exposed the fraud, will be a speaker at Lab Institute in Washington, DC Oct. 24 to 26.)

If convicted of charges, which allege that they defrauded investors out of hundreds of millions of dollars, while also defrauding doctors and patients, Holmes and Balwani each faces up to 20 years in prison and a fine of $250,000, plus restitution to those found to have been defrauded—on each count.

Corporate Dissolution
Against this backdrop, it perhaps comes as no surprise that in an email to shareholders the company has now announced it has ceased operations and will formally dissolve.

Theranos indicates that before arriving at this decision, it pursued a sale. However, after reaching out to more than 80 potential buyers, no deal materialized.

The company owes at least $60 million to unsecured creditors, according to the email. As part of its dissolution, Theranos will distribute its remaining cash, estimated to be approximately $5 million, to unsecured creditors.