The Strategist

Theranos agrees to take a break

04/19/2017 - 11:53

American biotech company Theranos agreed not to carry out laboratory blood tests for two years in exchange for a smaller fine from the healthcare sector regulation authorities, Reuters reports.

Steve Jurvetson via flickr
Steve Jurvetson via flickr
Under the agreement’s terms, Theranos blood testing labs will be shut down for 2 years, and the fine imposed on the company by the Medicare and Medicaid Service Centers (CMS) will be reduced to $ 30,000. In addition, CMS will cancel its decision to withdraw Theranos laboratories’ license.

Theranos has been under scrutiny since October 2015, when The Wall Street Journal raised an issue of the company's ability to perform laboratory blood tests using only a few drops of material. Then CMS withdrew the license from a laboratory in Newark, California and imposed a fine on the company.

In the meantime, it turned out that founder of the medical start-up Elizabeth Holmes owes her company about $ 25 million, writes The Wall Street Jornal with reference to sources familiar with the situation. Earlier, Holmes’ stake in the project was estimated at $ 5 billion.

Information about the debt is contained in an agreement of Theranos with a group of investors. Theranos promised additional shares to the investors, including at the expense of Holmes’ share in exchange for refusing to file legal claims against the company.

According to the WSJ, the arrears arose within the framework of an internal arrangement whereby the company allowed Holmes to exercise options to purchase a large number of Theranos’ shares without prepayment. She could pay for them later, the source explained.

One of the WSJ’s interlocutors noted that Holmes has not received any money from the companies. Theranos can free her from paying the debt or cancel the shares, he added. Holmes has never sold her shares, confirmed several sources of the publication.

Representatives of Theranos declined to comment on the information about Holmes's debt to the company. According to the WSJ, the founder’s stake in the project exceeds 50% of the shares.

Theranos, which dealt with clinical tests, has faced problems in early 2016 when the US government became interested in the company's activities. During the audit, regulators found that the company purchased research devices from competitors for research starting in the summer of 2015, instead of using their own laboratory equipment, and thereby misled its customers and investors. 

In the summer of 2016, US authorities revoked the license from Theranos Clinical Laboratory in California, and Holmes has been suspended from her duties in management of medical laboratories for two years.

Now, claims to Theranos total $ 240 million. In particular, the Partner Fund Management LP, which has invested nearly $ 100 million in the project, accuses the company's management of deceiving potential investors for the sake of attracting financing. At the same time, Theranos had only $ 150 million of funds, a source close to the company told WSJ.