Theranos restitution status: Holmes’ defense claims $250/month repayment *after* release is unfair

Is this thinking ahead or a high-priced legal exercise in futility? The US District Court decisions by Judge Edward Davila pertaining to restitution were clear: $452 million is owed jointly by Elizabeth Holmes and Sunny Balwani to 14 victims, including Safeway and Walgreens [TTA 31 May]. The question is how it will be repaid. The original order by the District Court for Holmes stated only a $25 per month payment while she is at the Bryan FPC. The Justice Department has now requested that the error be amended to now stipulate a $250 per month payment, or at least 10% of her income, after completion of sentence. Holmes’ legal counsel has now filed papers objecting to this assessment, which will take place at least nine years in the future. They cite her “limited financial resources”.

It seems that Holmes will have more trouble paying the $25/month from Bryan, as her financial resources will be even more limited. By some estimations, $25 per quarter is the average earning from prison work. What’s also apparent: her legal counsel is costing her much more than that just for the filing.

Balwani, on the other hand, has been ordered to pay $1,000 per month after his release. The District Court also fined him $25,000 for reasons not disclosed in news sources. Holmes has not been fined. 

One wonders how the lenders will be repaid–proportional checks for pennies? Monthly or quarterly? This Editor is sure that the Murdoch family interests will be waiting eagerly for the payment, while the investments for Murdoch and most others were written off years ago. The small investors whose investment advisors bought shares on the secondary (resale) market get not even that penny.

Much has been made of her net worth circa 2015 when her Theranos stock was valued on the bubble at $4.5 billion, but that was then and this is now. The Feds continue to search for hidden assets held by both Holmes and Balwani. CBSNews, NY Post

Theranos, The Trial of Elizabeth Holmes, ch. 6: the decision maker was Holmes–and she was ‘cagey’

Judge Davila is speeding up the trial, adding hours and days–perhaps because the damning testimony has become depressingly similar. Were the investors sloppy, or did Theranos–and Holmes–deliberately deceive?

Maybe…both.

Documents and slideshows from Theranos glowed.

  • The company faked memos and reports from both Pfizer and Schering-Plough, which was in the process of being acquired by Merck. Schering-Plough’s Constance Cullen said she found CEO Elizabeth Holmes’ answers to technical questions “cagey” and she was blocked by Holmes from asking questions of other Theranos employees.
  • Presentations describing the Theranos lab capabilities were written in present, not future, tense. Example from the prosecution reading from an investor deck: “Theranos proprietary technology runs comprehensive blood tests from a finger stick.” Another slide was 10-Pinocchio-worthy: “Theranos has been comprehensively validated over the course of the last seven years by 10 of the 15 largest pharmaceutical companies, with hundreds of thousands of assays processed.”

These were good enough for investors like Lisa Peterson of the DeVos family office, who testified last week about their decision to put in $100 million. In fact, investors were Social Networking right to Theranos’ door. The well-connected Daniel Mosley, who invested “a little under $6 million” in Theranos, after his client and friend Henry Kissinger, a Theranos board member and $3 million investor, asked him to evaluate the company, in 2014 recommended it to his other clients–the DeVos, Walton ($150 million), and Cox ($10 million)  families. Black Diamond Ventures founder Chris Lucas invested $7 million in Theranos. He believed that Theranos’ analyzers were being used by the military in the Middle East. Presumably, his uncle Don Lucas, who sat on the Theranos board, backed up the claim. They were additionally impressed by Holmes’ intensity and insistence that the company was on a mission to revolutionize blood testing. Risk can be fashionable for ‘high-quality families’ who aren’t hands-on with their money and won’t experience hardship if the investment doesn’t pan out.

The investors like Peterson and Mosley believed what they were shown was steak, not marshmallow, like projected revenue of $140 million in 2014 after zero revenue in the two prior years. They didn’t examine the books, other key corporate records, or make a technical evaluation of the labs. Why? “We were very careful not to circumvent things and upset Elizabeth,” Peterson of the DeVos office said. “If we did too much, we wouldn’t be invited back to invest.” Ooof. But on their side, in 2014-2015, the winds of hype were blowing fair, the skies were blue on CNBC, and Walgreens plus Safeway were lashed to the mizzenmast. The Verge, CNBC, KTVU Fox 2

The defense keeps pinning blame on the investors for being naïve, which is taken up by the NY Times. With 20/20 hindsight and infinite wisdom, the article blames the investors for not being scrupulous in their due diligence. A fair point made is that in ‘hot’ startup markets, no one looks too closely for the Fear Of Missing Out (FOMO)–something we see this very day.

Holmes’ chances of pinning the blame on president/boyfriend ‘Sunny’ Balwani and evading any lengthy time are low at best.

  • The defense sub-strategy of painting Holmes as controlled by Balwani appears to be augering in. CNBC uncovered a 27 June 2018 videotaped deposition in an investor lawsuit, eventually settled, where Holmes, in between taking the Fifth Amendment, also claimed she was the ultimate decision-maker at Theranos.
  • An analysis published in the Mercury News (PDF), through the paywall, is not sanguine about Holmes beating the odds and walking free, or with minimal time. However, juries do strange things in assessing fraud, even when piled high and wide by the prosecution, out of sheer boredom or cussedness. Holmes is also surrounded by family, friends, baby on breaks, and baby papa, all of which can sway some jurors.

So as the trial passes the halfway corner, we observers are waiting for a final bombshell–or two.

TTA’s earlier coverage: Chapter 5, Chapter 4 (see new comment from Malcolm Fisk)Chapter 3Chapter 2Chapter 1

To be continued….

Theranos, The Trial of Elizabeth Holmes, ch. 4: we deceive those who want to believe

The Theranos Cave apparently has no bottom. Reportedly at the halfway mark, Tuesday’s trial focused on the testimony of former Theranos product manager Daniel Edlin. Recommended by his college friend Christian Holmes in 2011, he soon stepped into frontline work, assembling presentations sent to investors such as Rupert Murdoch, conducting VIP tours with demonstrations of the Edison labs, coordinating with the press, and with Elizabeth Holmes, plumping for Department of Defense and pharmaceutical company business. 

According to Mr. Edlin’s testimony, Theranos executives and staff staged demos and blood tests for investors and VIPs. Sometimes the blood tests worked fine, sometimes they didn’t (as in Rupert Murdoch’s case). Investors and reporters often were more interested in seeing Edison and MiniLab machines “work” without seeing any test results. All routine for an early-stage technology company. What was not routine was that other test results others were “corrected” (for Walgreens executives), reference ranges changed, or tests removed on the direction of Dr. Daniel Young, a Theranos VP.  The MiniLab never was used for patient blood testing as it had trouble performing general chemistry or ELISA tests adequately.

Rupert Murdoch’s (listed as a witness) investor presentation binder was entered into evidence. According to CNBC, one section of the binder read: “Theranos offers tests with the highest level of accuracy.” Another section said the blood-testing technology “generates significantly higher integrity data than currently possible.” Mr. Edlin testified that Ms. Holmes vetted every investor deck and binder, including the ones shown to DOD. The website, overseen by Ms. Holmes, made statements such as “At Theranos we can perform all lab tests on a sample 1/1000 the size of a typical blood test.” However, even Theranos’ general counsel advised against using these superiority claims:

  • “Please remove reference to “all” tests and replace with statements such as “multiple” or “several.” It is highly unlikely that the laboratory can perform every conceivable test, both from a logistical standpoint and because the CLIA certification designates specific specialties of test the lab performs.
  • For a similar reason, replace “full range” with “broad range.”
  • Replace “highest quality” with “high quality”
  • What substantiation do you have for “have results to you and your doctor faster than previously possible?”
  • Remove “unrivaled accuracy.”

To be fair, some of this language did change over time. The defense, for instance, had a try at shifting blame to one of Theranos’ marketing agencies.

But overstatements were a way of ‘fake it till you make it’ life at Theranos. The infamous Fortune article (later retracted by the author), the glowing 8 September 2013 Wall Street Journal article by Joseph Rago made at the time of the Walgreens pilot were felt to be overstatements by Theranos insiders, but never corrected. Walgreens and Safeway executives previously testified that they were told that Theranos devices were in use in Army medical evacuation units. But the truth was, according to Mr. Edlin who managed the DOD relationship, that AFRICOM (US Army African Command) deployed the Edison device in Cameroon, Uganda, and South Sudan to run as an experiment to test the viability of the machine. It was never deployed in the Middle East (CENTCOM). The Edison 4.0 was deemed too heavy and put off until lighter-weight units were developed. Nonetheless, Theranos received a 12-month service contract. 

The prosecution strategy here is to show that Ms. Holmes was hands-on when it came to marketing and investor communications, approved the overstated claims, and was not “controlled” by Sunny Balwani as the defense maintains. If anything, he deferred to her. 

CNN Business, KTVU Fox 2 running commentary, Daily Mail, California News Times  Unfortunately, the Mercury News, Bloomberg, and WSJ are paywalled.

TTA’s earlier coverage: Chapter 3, Chapter 2, Chapter 1

To be continued….

Theranos, The Trial of Elizabeth Holmes, ch. 3: Safeway, Walgreens execs testify to deception, frustration with Holmes, failed pilots and labs (updated)

It’s Tuesday, and it’s another court day in Silicon Valley’s Big Trial, this time with the former C-level executives of Safeway and Walgreens who did the partner deals with Theranos–and rued the days Elizabeth Holmes walked in their doors. Updated for additional Tuesday testimony reports.

Former Safeway (supermarket) CEO Steve Burd returned to the stand for more prosecution questions and a turn with the defense. Mr. Burd had formed Safeway Health to introduce Theranos in 2010, after Ms. Holmes personally negotiated a deal with Safeway without attorneys. Ms. Holmes definitely wove a spell on Mr. Burd. “There are very few people I had met in the business that I would actually say are charismatic. She was charismatic, she was very smart, and she was doing one of the hardest things you can do in a business, and that’s to create an enterprise from scratch.” Always decisive, ‘she owned the room’.

From that point, and after an unusually high 100 hours of due diligence (updated, ArsTechnica 13 Oct), it was full speed ahead. But the potholes turned up fast after Ms. Holmes had convinced Safeway to invest in the company, claiming that they could run 95% of tests on one cartridge and that they could handle the volume from hundreds of store testing sites. During a pitch to the Safeway board, board member Michael Shannon offered his blood draw for a PSA test, the screening test for prostate cancer. The Theranos Edison machine “made a bunch of noise,” but never delivered a result, even after Ms. Holmes said something about getting it later (updated, ArsTechnica 13 Oct).

By the time the pilot started with regular blood draws, from the testimony, “there were results that didn’t make any sense. Samples were lost and samples were not properly cooled. He also said tests took days to come back when other companies could deliver in 24 hours. In an email to Holmes, Burd wrote: “I am genuinely concerned that Safeway’s lab reputation gets worse by the day.” By 2012, Safeway had built out 98% of 960 planned stores to hold Theranos testing sites, but had long since blown past the $30 million estimate. Multiple launch dates were missed over two years. By November 12, Mr. Burd had reached the end of his tether. “I can only recall having been discouraged once in the last 62 years. That said, I am getting close to my second event. ” and “This does not feel like a partnership, I’ve never been more frustrated.”

Theranos never rolled out to the public with Safeway. Mr. Burd retired from Safeway after a long career in May 2013.

Apparently the defense cross conducted by Kevin Downey is concentrating on The Big Chance that Safeway took with Theranos, after all a ‘startup’ that never built out their technology for consumer use, and all the regulatory hurdles the company faced. Mr. Burd confirmed it but he and the board reviewed the agreement and included requirements such as a CLIA waiver to operate the lab devices, negotiating preferred network status with commercial health plans, and a network of partners. Most of all, Safeway negotiated the right to terminate the agreement if the pilot failed and Theranos did not obtain FDA clearance. On the redirect, the government maintains that Theranos started in 2003 and purported to be making money (!!).

Up next for the prosecution was Wade Miquelon, former CFO of Walgreens. Walgreens was the only Theranos partner to put Theranos centers in their store. He testified to the presentation he received in 2010 which was similar to those received by investors. It included claims that Theranos’ technology could “run comprehensive blood tests” from a finger stick in real time and that it had partnerships with major pharmaceutical companies and military organizations–some of which were semi-true, the rest fictional. Apparently, some of the validation reports from pharmaceutical companies were false–while they had logos, there was one from Schering-Plough where its name was misspelled and never noticed by anyone at Walgreens. The prosecution had already established to the jury in opening arguments on 8 September that the Pfizer report endorsing the technology had also been faked. It had been written by Theranos, with a Pfizer logo added. 

Mr. Miquelon testified that he was never told that third-party labs were being used.“My understanding is, the blood would be tested on the [Theranos] Edison device,” adding later, “My understanding was that the base level testing would be able to do 96 percent of the testing done at labs.” He stated that third-party testing would be to check calibrations and accuracy. Relying on such testing would be beside the point of cost and time savings. 

Mr. Miquelon’s testimony will continue on Wednesday.

KTVU2’s coverage is nearly all tweets so it’s assembling a picture from many fragments. Ars Technica on Mr. BurdUpdated: Additional information on Mr. Miquelon: Fortune, Washington Post

Walgreens sued Theranos in 2016 for $160 million invested [TTA 9 Nov 2016]. The company was one of the few able to claw back substantial funds, a paltry $25 million, in August 2017. Safeway settled in June 2017 for an undisclosed amount. They had built out 800 centers and cost the company $360 million before the agreement was axed (updated for cost, ArsTechnica 13 Oct).

If you have access to the WSJ, their coverage details a trail of forged documents, massive fundraising–and losses, and partner deception. The NY Times ran an interesting ‘color’ article on the atmosphere in the San Jose courtroom. The trial is settling into a groove. Two court artists (complete with art) have interesting impressions of Ms. Holmes and the participants. The spectators appear to be primarily retirees with the time to line up for the 34 seats in the courtroom and 50 in an overflow room, though the testimony goes over the head of many. Ms. Holmes’ family and partner accompany her daily. And two jurors have departed, one a Buddhist who became uncomfortable with the idea of punishing Ms. Holmes. Judge Davila has already extended trial hours one hour to get through the stack of witnesses a little faster.

Our previous coverage: Chapter 1, Chapter 2

To be continued….

The Theranos Story, ch. 66: Walgreens and Safeway aren’t investors, they’re business partners!

The difference is not hair-splitting in the defense effort to have charges tossed. In Federal District Court on Tuesday (6 October) in San Jose, Elizabeth Holmes’ defense made the case to Judge Edward Davila on dismissing some of the prosecution’s charges against her. As petitioned in late August, the defense maintains that two of the entities, Walgreens Boots and Safeway (a Western regional supermarket chain), were unfairly classified as investors versus ‘business partners’. As investors, the prosecution could charge Holmes with fraud crimes with a longer statute of limitations. If they were to be classified as business partners and ‘transactions’, while there were crimes committed, the statute of limitations has expired.

The prosecution’s rebuttal is that Walgreens and Safeway could be considered as both investors and partners. The defense response was that the government took too much time to file the charges and failed to get the proper consent, which may be the hair that splits the ability of the prosecution to use these charges.

Let’s look back at both companies’ involvement with Theranos

  • Walgreens reportedly invested over $140 million in Theranos. This consisted of direct funding (a $40 million loan convertible into equity), and an “innovation fund’ designed to fund the rollout of Theranos Wellness Centers in Walgreens US locations starting in 2013. Walgreens filed suit against Theranos in November 2016 to recoup that investment based on breach of contract, after civil lawsuits were filed against them jointly, halted development, and settled for $25 to 30 million in late July 2017 when Theranos assets were dwindling to barely breathing status [TTA 3 Aug 17]. More details on their Partnership from Hell are recapped here from the 2016 lawsuit.
  • Safeway’s involvement as the exclusive supermarket partner was planned to be even more extensive. Their 2012 deal was $350 million for building 800 clinic locations in Safeway stores. This was dropped in November 2015 [TTA 20 Nov 15], around the same time as Walgreens halted the expansion of the Theranos Centers. According to reports at the time, Safeway had already built out the 800 locations, later repurposing them for flu shots and similar. Direct investment was estimated at $10 million (WSJ). Safeway settled with Theranos for $30 million in June 2017. 

The publicly available history shows that both funded Theranos directly in addition to being business partners. Both took substantial additional risk investments from building out facilities to showcase Theranos’ services for their customers. Both settled civilly for amounts far below the fair recoupment of their investment.

While this sounds like legal nitpicking, the defense strategy, in this Editor’s layperson’s calculation, is to erode the number of charges against Holmes and their seriousness so that her inevitable sentence becomes lighter. Another move in this vein is the mental defect defense [TTA 18 Sept] alleging Holmes’ psychic inability to discern right from wrong in her business dealings. Start with something over the top like ‘insanity defense lite’, and then chip away at the rest of the charges. Fox Business, Mercury News

The Theranos Story, ch. 55: ‘Bad Blood’s’ altered reality on ‘Mad Money’; it was all Bad Blitzscaling

[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2018/07/Rock-1-crop-2.jpg” thumb_width=”150″ /]

She lied and the lies got bigger and bigger and eventually the lies got so big relative to reality that it became a pretty massive fraud. 

The hyperbolic Jim Cramer of CNBC’s ‘Mad Money’ settled down for a chat with John Carreyrou, the author of ‘Bad Blood’, to dissect what Mr. Cramer touted as ‘the best business book since Phil Knight’s book about starting Nike, ‘Shoe Dog”. Mr. Carreyrou outlines Elizabeth Holmes and Sunny Balwani went ‘live’ with fingerstick tests far too prematurely, burned through money, lied to the board, and (schadenfreude alert!) lied to attack dog David Boies, her attorney. There was also a real lack of ‘due diligence’–real diligence–on the part of companies like Safeway and Walgreens. A reveal coming out of this interview is that Walgreens hired a lab consultant, Kevin Hunter, as early as 2010, who ‘smelled a rat’ even then–and Walgreens executives ignored him, frightened that Ms. Holmes would go to CVS. Wrapping Ms. Inexplicable Me up, Mr. Carreyrou attributes her mindset to ‘noble cause corruption’; she really did believe that her blood testing machine would do good because the outcome would be good for society. Thus every corner cut was justified….which explains a lot, but really excuses nothing. The ten-minute video is over at ValueWalk (the transcript is only partial).

LinkedIn’s hyperbolic co-founder Reid Hoffman, like him or not, does have a way with words, and this article in Fast Company is a decent discussion of a new term that he actually coined, ‘blitzscaling’ which is pursuing rapid growth by prioritizing speed over efficiency in the face of uncertainty. It’s quite a lure he sets out to his classes at Stanford, that the only way to have a successful business in winner-take-all (or most) markets is to do this, and if you do it right you’ll have the next Google, completely ignoring the fact that 99.99 percent of businesses don’t need to change the world, just to get to breakeven, get to profitability, and endure (or get bought out). He springboards off this to where Ms. Holmes and Mr. Balwani Went All Wrong. The answer? Product failure=Mortal Risk–to the patient. They needed to meet a Walgreens deadline thus went out prematurely with their nanotainer testing knowing it did not work. The best quote in the article?

There’s a big difference between being embarrassed and being indicted.

The Theranos Story, ch. 38: take our shares, but don’t sue us; Murdoch writes it off

[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2016/11/jacobs-well-texas-woe1.jpg” thumb_width=”150″ /]What? They’re not toast yet? Far from it. We’ve missed the impossibly twisty soap opera called Theranos, and our latest episode holds to the previous high standard.

CEO and controlling shareholder Elizabeth Holmes is offering shareholders, supposedly from her personal holdings, about two additional shares for each one purchased. This has been offered to the investors in the 2014-2015 $600 million round who bought in at about $15-17/share (ch. 27), such as Cox and Bechtel. The deal dilutes their share cost to about $5. The caveat? Don’t sue Theranos. According to the Wall Street Journal‘s report (Yahoo Finance as WSJ is paywalled), it was approved by Theranos’s board in February, and most investors have ‘signaled that they will sign off on it’. Others are the family of US Education Secretary Betsy DeVos, the Waltons of Wal-Mart Stores Inc. and John Elkann, the Italian industrialist who controls Fiat Chrysler Automobiles NV.

One who is washing his hands is News Corp. executive chairman Rupert Murdoch. He reached a separate settlement for a nominal sum–rumored to be $1–to sell back his shares and legally write off his $125 million investment.

Others are not so lucky. Early investors before that round are not included. (more…)

The Theranos Story, ch. 34: It’s a conspiracy! It’s a vendetta!

[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2016/11/jacobs-well-texas-woe1.jpg” thumb_width=”150″ /]Updated Well, that is what one of her major investors says, and he would know! Just when we thought that a week would go by with not a peep about Theranos, we get three. Peeps, that is.

First, the Conspiracy Theory. This is being propounded by early Theranos investor Tim Draper of Silicon Valley VC Draper Fisher Jurvetson. It was all John Carreyrou’s ‘strange vendetta’ against her, to wit: “Elizabeth is the victim of a witch hunt.” The Wall Street Journal reporter set off a cascade of press coverage that compelled, nay, forced Federal regulators (FDA, CMS, SEC, DOJ) and state counterparts to go after Theranos and CEO Elizabeth Holmes. Mr Draper bluntly accused Mr Carreyrou of doing it for money; “the guy is getting $4 million to continue this charade”, referring to the advance on his book proposal “Bad Blood”. The most nauseating part of the Ars Technica interview is this mock-libertarian rejoinder from Mr Draper: “It’s the press creating a series of events that negatively impact technology, progress and our economy.”

So it was all a mistake, an illusion–there was nothing significantly wrong with the Edison Lab, or Theranos’ business practices! (Hat tip to Bill Oravecz of Stone Health Innovations)

Mr Draper perhaps did not consider that Mr Carreyrou’s reporting blew up the $100 million investment of the WSJ‘s owner, Rupert Murdoch (Ch. 27), not just DFJ’s. And SafewayWalgreens, Larry Ellison, Cox Enterprises, Bechtel Group….

Second, the belated reporting of deficiencies at the Scottsdale lab found by CMS (Centers for Medicare and Medicaid Services) on 29 September. According to the Wall Street Journal report (co-authored by Mr Carreyrou), “Theranos responded to the inspection findings in Arizona with a plan to correct its lab deficiencies, but the lab regulator in November rejected the plan and proposed sanctions for the Arizona lab as well.”  This preceded the closing of all labs and the ‘refocusing’ of Theranos on the miniLab. Their general counsel stated, “After months of careful consideration, and prior to CMS’s unannounced inspection in Arizona, Theranos decided to close its laboratories.” Usually, these CMS reports are issued after 90 days. Theranos is appealing the sanctions arising from the California lab inspection with an administrative law judge, which include lab license revocation and a two-year ban on Ms Holmes from blood-testing operations.

Third, Theranos announced an eight-person Technology Advisory Board (TAB) to be led by Dr. Channing Robertson and Howie Rosen. The academics, executives, and entrepreneurs will be charged with “reviewing specific Theranos technology initiatives associated with product development, design and deployment” as well as four other mandates. Analogies concerning horses, roads and the status of barn doors come to mind. Release.

And finally another Theranos Washington connection, besides new SecDef and ‘Warrior Monk’ James Mattis, now an alumnus. It seems that the vetting of Betsy DeVos, nominee for Secretary of the Department of Education, uncovered that she has an investment in Theranos of more than $1 million. However, the Office of Government Ethics also reported her whopping earnings of less than $201. Since others like Rupert Murdoch, Bechtel, Walgreens, Cox, and others ponied up $50 to $100 million, hers is a mere bag of shells by comparison. MedCityNews, who has dubbed it the ‘As Theranos Turns’ soap opera. Hat tip to Bill Oravecz of Stone Health Innovations.

See here for the 33 previous TTA chapters in this Continuing, Consistently Amazing Saga, including Arizona’s lawyering up for a prospective Theranos lawsuit (Ch. 33) the firing of 155 remaining staff (Ch. 32), the resignation of now-DOD Secretary General Mattis from the BOD (Ch. 31), and Theranos’ annus horribilis (Ch. 30).

The Theranos Story, ch. 27: investor ‘whales’ surface in class action lawsuit news

[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2016/11/jacobs-well-texas-woe1.jpg” thumb_width=”150″ /]Don’t jump…you may land on one of them! In the Bottomless Well that is The Unicorn Losing Its Horn, The Transubstantiation of a $9 bn valuation to $9, to mix up a Whole Lotta Metaphors, the latest is that Certain Big Investors (‘whales’ in Vegas Lingo) and at least one minnow have lost their shirts, or maybe their sleeves and cuff links.

The first is via a class action lawsuit filed Monday against Theranos in San Francisco Federal Court by Hagens Berman Sobol Shapiro LLP, seeking to represent potentially hundreds of purchasers of Theranos shares from July 29, 2013, through October 5, 2016 .

According to the Wall Street Journal, the charges relate to “false and misleading claims about its operations and technology while soliciting money from investors.” Hagens Berman is representing Silicon Valley investment banker Robert Colman, who is the retired co-founder of Robertson Stephens & Co. (a legendary, now defunct, investment bank specializing in tech that blew up after the dot-com bust). He invested through a VC fund, Lucas Venture Group, who participated in Theranos’ Series G funding in late 2013. Lucas was invited to invest $15 million, and their principals had personal ties to Elizabeth Holmes, according to TechCrunch. The second plaintiff, Hilary Taubman-Dye, purchased Theranos shares at $19/share on SharesPost Inc., an online exchange for shares of private companies, in August 2015. Her claim is that she tried to cancel it after the Wall Street Journal exposé in October, but the purchase went through in December after Theranos, Elizabeth Holmes and an unidentified third party refused to buy back the shares as a secondary transaction. TechCrunch identified her as a “longtime technical recruiter who now works in investor relations for a TV production company” which means that her investment was likely no bag of shells for her. Their respective investments are not disclosed.

The second, according to a second article in the Journal, comes from the usual ‘sources familiar with the matter’ and papers filed by Theranos in Delaware and Arizona. These include some very atypical startup investors, such as Rupert Murdoch of News Corp. and family-controlled Cox Enterprises, at $100 million each in the 2014-15 round when shares were valued at $17/each, and an undisclosed amount by Riley Bechtel of Bechtel Group, who was later named to the board of directors. Other, more typical Silicon Valley investments date back to when Theranos was the more pedestrianly named Real Time Cures in 2004 and the shares were 15 cents each:

  • Oracle co-founder Larry Ellison
  • VCs from firms such as ATA Ventures and Draper Fisher Jurvetson. The latter’s Tim Draper and his daughter (!) have been quite critical of anyone, especially John Carreyrou of the WSJ, claiming that Ms Holmes was perhaps mistaken in her scientific and business practices. (Partner Jurvetson in reports has expressed a more ‘que será, será’ attitude.) (more…)

Unspinning the Theranos scientific advisory board communications spin

[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2016/04/Yak_52__G-CBSS_FLAT_SPIN.jpg” thumb_width=”150″ /]Spinning oh so flatly…..As reported in MedCityNews (and here) yesterday, Theranos has made a Radio City Rockettes-showy move in opening at least part of its scientific books to a prestigious group of eight academic researchers from top-flight institutions. The Theranos press release is a masterpiece of positive spin to counter the negative results of the CMS report released last Thursday. However, when the fine-spun web is picked apart by Matthew Herper, a staff reporter for Forbes, it embarrassingly falls apart. The clues are all there, of course, in the elided language, the lack of specificity on numbers, the over-the-top quotes from the CEO and one of the advisory board members….

Upon interviewing three members of the scientific and medical advisory board, the glowing statement of Dr Helfet–who had been a co-chair of Theranos’ existing scientific board–was revealed as not quite accurate in the impression it gave.

  • The full advisory board has not met as a group yet. The impression was given in the release that they did.
  • They were split into three groups, each spending about a day at the Palo Alto HQ “viewing data shown to them by the company about its blood tests, examining Theranos’ Edison machines, and asking questions”. They did not visit any working labs, including the two under CMS fire.
  • Drs Ladenson and Spitalnik thought that what they saw looked “promising” and “intriguing” but would not answer questions on whether Theranos’ devices were ready to be used. Eight hours for Dr Spitalnik was, as he stated, was enough to whet the appetite, but not more than that.

It remains that Theranos has not published one peer-reviewed study, despite promises, promises. The company leadership took in a lot of investor money, gained a $9 billion valuation, got Safeway and Walgreens as partners (now rescinded)–never proving that Theranos’ tests would do what they said they would do. Besides being the bottom line and the one proposition that must be proved, they potentially endangered trusting patients in Arizona and California. And gave a black eye and probably a broken nose to innovation in and consumer access to lab testing.

At least the Yak-52 aerobatic aircraft and its pilot are in a planned, recoverable flat spin. Nothing about Theranos’ spin can be. Forbes

Is Theranos’ ‘blood testing for all’ a responsible selling proposition?

Theranos’ recent troubles on their blood testing (Walgreens halting expansion, FDA halting nanotainers as ‘uncleared medical devices’ and last week chain grocery/drugstore Safeway dropping their $350 million deal for 800 locations) have been well covered in media both here and elsewhere. But what if their Unique Selling Proposition–that people should have the ‘basic human right’ to order up their own inexpensive blood tests and then be responsible for their own interpretation–is counter-productive for many patients? After all, it’s what Theranos has been organized and raised $400 million+ on. Dr Robert Wachter of UCSF, who is no top-down Ezekiel-esque ‘nanny stater’, lends a caution: “There are a lot of companies, including Theranos, that have an interest in making you believe that more data will magically make you healthier. It won’t, at least not in the short-term.” When is ’empowerment’ confusing without recourse to interpretation? Some results are easier to read than others. Does having the data make the average person healthier for real? Personally, this Editor would welcome the ability to walk into her local Walgreens and order up a few to see what’s up–but then again she can do her own research and ask a doctor or nurse to help. Who can (inexpensively) close the interpretation gap? Theranos is wrapped in scandal but goes hard to change laws to its advantage (Mashable)

Soapbox: How healthcare disruption can be sidetracked

[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2014/04/Thomas.jpg” thumb_width=”170″ /]Ron Hammerle’s comment on Disruptive innovation in healthcare hasn’t begun yet: Christensen (TTA 31 Mar), posted on LinkedIn’s Healthcare Innovation by Design group, made the excellent point that a potentially disruptive and decentralizing healthcare service–retail clinics–has been sidetracked, at least in the US, leaving an open question on their reason for being. This Editor thought it was worthy of a Soapbox. Mr. Hammerle knows of what he speaks because his Tampa, Florida-based company, Health Resources Ltd., works with retail and employer-based clinics to connect them via telemedicine/telehealth systems with medical centers.

When Clayton Christensen first anticipated that retail clinics would be disruptive to the established healthcare industry, their business model was potentially disruptive. What has subsequently happened, however, is a prime example of how potentially disruptive movements can be sidetracked.

After acquiring MinuteClinic and laying the foundation for taking retail clinics national, CVS Caremark chose to make deals with hospitals, which could easily afford to rent, open and operate such clinics without making money on the front end or facing real disruption. Retail clinics were a loss leader to hospitals in exchange for large, downstream revenues, and slightly-enhanced market share for the retailer’s pharmacy.

After CVS shocked Walgreens with one-two punches involving MinuteClinic and Caremark acquisitions, Walgreens came back with three counter-punches of its own:

1. They doubled the number of their clinics (to 700) in less than two years, thwarted AMA opposition, leapfrogged ahead of CVS in clinic count and totally changed the retail clinic model by setting up politically-invisible, broader service, make-your-profit-up-front, employer-based clinics. (more…)