Walgreens Terminates Contract With Theranos

For months, Theranos has had to just battle skepticism that its proprietary testing platform was unworkable. Now the fallout from that skepticism has landed in a huge way.

The company’s highly visible business relationship with Walgreens was terminated last month. The Chicago-based pharmacy retail giant said that Theranos’ need to invalidate the results of approximately 70,000 tests conducted on its Edison platform and other lab equipment and the rejection of a correction plan by the Centers for Medicare & Medicaid Services (CMS) for its lab operations moving forward drove the decision.

“We have carefully considered our relationship with Theranos and believe it is in our customers’ best interests to terminate our partnership,” Brad Fluegel, a Walgreens senior vice president, said in a statement.

Walgreens said it was immediately shutting down Theranos testing sites at 40 of its stores in Arizona.

The cancellation of the deal came just 16 months after it had been announced with significant fanfare. Walgreens said at the time it had entered into the pact that “this is the next step in Walgreens’ efforts to transform community pharmacy.”

Walgreens had originally intended to place Theranos testing centers in its stores nationwide. But it had put expansion on hold last year after the Wall Street Journal began a series of reports questioning the viability of its Edison platform. Theranos officials said Edison could perform many bread-and-butter lab tests with just a few drops of blood, which itself could be drawn without using needles.

Theranos’ ability to continue as an ongoing enterprise had previously been questioned. The loss of revenue and visibility from the Walgreens deal brings increasing focus to that question.

Theranos itself said it planned to continue to operate sites independently. “We are disappointed that Walgreens has chosen to terminate our relationship and remain fully committed to our mission to provide patients access to affordable health information and look forward to continuing to serve customers in Arizona and California through our independent retail locations,” the company said in a statement.

Company spokesperson Brooke Buchanan said that Theranos would continue to operate five independent testing centers in California and Arizona. The company did not plan any layoffs as a result of the loss of the Walgreens contract.

Meanwhile, company Chief Executive Officer Elizabeth Holmes, who had dropped out of Stanford University at the age of 19 to start Theranos, was assigned a net worth by Forbes last year of $4.5 billion, making her one of the richest self-made women in the world. Recently, the magazine assessed her net value at zero. Although it still valued Theranos at around $800 million, Holmes’ 50 percent share in the company is in common stock, meaning capital investors in the company would be first in line should Theranos be sold or liquidated.

Holmes, whom had long been known for a culture of secrecy at her company, plans to discuss Theranos’ technology and how it works at the American Association of Clinical Chemistry’s (AACC) annual conference in Washington, D.C. in August. An AACC spokesperson said recently that Holmes’ presentation would go on as scheduled.

Takeaway: The termination of Theranos deal with Walgreens represents a huge obstacle for the company as it tries to correct its testing issues and engage in new business development.