NEW YORK (360Dx) – With its available funds dwindling and with the firm unable to find new investors, Theranos is preparing to shut down, CEO and General Counsel David Taylor reported in an email to its existing shareholders yesterday.
In the email, Taylor said that Theranos — faced with an "imminent cash shortage" since April — had approached shareholders and others about possibly making new investments into the firm. At the same time it had engaged investment bank Jefferies to pursue a sale to liquidate its assets.
Since then, it has reached out to more than 80 potential buyers, including large healthcare companies, as well as smaller niche firms focused on purchasing intellectual properties. "Unfortunately, none of those leads has materialized into a transaction," Taylor wrote, and Theranos is in default of its credit facility with Fortress Investment Group.
In addition to the money owed to Fortress, Theranos owes unsecured creditors at least $60 million, Taylor added. The company has begun negotiating a settlement for Fortress to take ownership of Theranos' "interests in the special purpose subsidiary and the intellectual property therein," in return for Theranos' remaining cash, he said.
As part of the proposed settlement being negotiated, about $5 million that would not be paid to Fortress would be distributed to Theranos' unsecured creditors. "We believe that this result would benefit the company's creditors more than any other achievable one, including a bankruptcy, in which we believe no material assets would be available for distribution to creditors," Taylor noted in his email.
Later this week, the company will seek approval from its board and the shareholders for the Fortress settlement, for an assignment for benefit of the creditors, and for the dissolution of the firm, he added. If approved, all actions to begin shutting down the company will begin on Sept. 10.
The latest development marks an inglorious downfall of a company that some saw as a potentially disruptive force in healthcare. Founded in 2003 by Elizabeth Holmes, Theranos rose to prominence on its blood analyzer technology that she claimed could test for a number of indications based on a finger prick. By 2014, Theranos had raised more than $400 million, and the company was valued at about $9 billion. It also attracted to its board such notables as former US Secretaries of State George Shultz and Henry Kissinger, former US Senate Majority Leader William Frist, and current US Secretary of Defense James Mattis.
A few years ago, The Wall Street Journal published a series of stories alleging Theranos' technology provided inaccurate test results, and the US Centers for Medicare & Medicaid Services notified the company about deficiencies it found in its tests that it said posed threats to patient safety, as well as other concerns.
The WSJ first reported the impending dissolution of the troubled blood testing firm today.
A deal to offer Theranos' testing in a limited number of Walgreens stores was also nixed by the retail pharmacy chain after it grew weary of Theranos' numerous regulatory issues.
In July 2016, CMS barred Holmes from owning or operating a clinical laboratory, and this past March the US Securities and Exchange Commission charged Theranos, Holmes, and former Theranos President Ramesh Balwani with fraud, saying they raised more than $700 million from investors by exaggerating the company's technology, as well as its business and financial performance.
In June Holmes and Balwani were indicted on federal charges of wire fraud schemes.