The Theranos Story, ch. 39: good news, bad news, and the ugly lawsuit news

click to enlargeIt’s that darn well again! Theranos‘ News of the Week ran the gamut from cheap, to expensive, to potentially business terminating.

Cheap was the settlement of the Center for Medicare and Medicaid Services (CMS) civil penalty against the company for a pinprick of $30,000. What remains: that Theranos cannot own or operate any labs for the next two years. As the company has downsized and done the Silicon Valley pivot to developing labs and testing platforms, the settlement is the barn door closing after the horse has exited and crossed the state line. Theranos press release,

Expensive was the settlement of the Arizona legal action brought by the state Attorney General, Mark Brnovich. $4.65 million settled matters, providing full refunds for 175,940 Arizona consumers who ordered between 2013 and 2016 approximately 1.5 million blood tests and 7.8 million results. Also on the tab are $200,000 in civil penalties, $25,000 in attorneys’ fees, and a claims administrator to dole out the refunds. While it was estimated that only 10.5 percent of tests were inaccurate, the consumer fraud charges were easier for Theranos to settle without admitting wrongdoing. A solid win for the AG as well. Background on this in Ch. 33. Ars Technica, Bloomberg, Theranos press release

Potentially disastrous is the go-ahead given to one of the many lawsuits against Theranos, also charging Elizabeth Holmes and former CEO Ramesh ‘Sunny’ Balwani. The US District Court for the Northern District of California ruled in the case brought by two shareholders, Robert Colman and Hilary Taubman-Dye, represented by Hagens Berman (Ch. 27), that most of the claims of investor fraud would proceed. Theranos’ sole success was having the charge of misrepresentation of securities under the California Corporations Code dismissed on the technicality of purchase from a third party seller. The more damning claims of direct misrepresentation by Ms Holmes and Mr Balwani, mentioning news articles and their advertising campaign, were upheld. Interestingly, the plaintiffs must now show cause why the third party sellers (Lucas Venture Group, Celadon Technology Fund, SharePost), should not be included as defendants. The stage is now set for a class-action lawsuit with potentially thousands of other investors. Theranos page on Hagens Berman website, District Court ruling document.

The final countdown is at the bank. In March, Theranos reported $150 million in cash (ch. 38), down from $200 million in January. Subtract $30,000 to CMS, $4.65 million to Arizona, legal fees, pending lawsuits, and running expenses–with no investors and revenue in–and a burn of about $50 million a quarter, it will be Taps for Theranos before end of year.

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