The Theranos Story, ch. 43: Walgreens settles, $54 M in cash draining away

[grow_thumb image=”” thumb_width=”150″ /]While your Editor was on leave last week, it appears that Theranos may have grasped the thorn of Walgreens Boots Alliance’s lawsuit and settled. The Wall Street Journal (subscriber access only, largely reported on Fox Business) reported that Theranos told investors of a tentative settlement with Walgreens for less than $30 million. 

Walgreens’ lawsuit, filed last year, was intended to recoup their $140 million investment in the company and store location payments. It surprised many observers that Walgreens would be content with 21 cents returned for every dollar of its investment, but since the original contribution took place over several years from 2010, much of this has likely been written down on Walgreens’ books as adjustments for bad debt. 

But this seeming win for Theranos further rips the veil off their dire financial situation. Theranos also told investors recently that it is down to $54 million in cash, according to the WSJ/Fox Business. This is much reduced from their last report of $150 million in March [ch. 41]. With a monthly burn of $10 million a month, this would leave $120-130 million if the March estimate was correct. Part of the settlements, including Walgreens, may be covered by insurance policies. However, what has transpired since then may further account for the discrepancy.

  • In May, Theranos settled with Partner Fund Management (PFM) for an undisclosed amount which WSJ sources estimated at $40-50 million. They sought to claw back their $96 million investment.
  • In April, they settled with the state of Arizona for $5 million. Another investor settled for $10 million around that time.
  • There was the 2-for-1 share offer that closed for the C-1 and C-2 investors in May, which may have involved some kind of payment to Elizabeth Holmes for her controlling shares, though reports in April indicated she owed the company $25 million  [ch. 42

Add to this the expenses for the ongoing SEC and DOJ investigations, plus the Colman/Taubman-Dye suit in California…yes, all those lawyers do want to be paid. 

Theranos is inevitably heading to a place where many medical startups wind up–Flat Brokedom. For Walgreens, a public company, shouldering an over $100 million loss, putting $30 million on the books this year looks far better than $0. Perhaps it was they who grasped the thorn?

It is increasingly difficult to see a future for Theranos without Chapter 11 or 7 in it. The WSJ/Fox Business report stated that Theranos plans to ask current investors for a loan of $50 million. While investors in C-1 and C-2 rounds gave the company a small but generous reprieve by accepting a 2-for-1 share offer that also closed off further lawsuits, without any reports of wunderweapons in the lab, it would be surprising if even the most sympathetic investors like Draper Fisher Jurvetson would toss more funds into it.  

Ms. Holmes may have powerful friends and well-connected family, but the Books Must Balance, and some Silicon Valley Dreams turn into Nightmare Alley. Ars Technica, Fierce BiotechBusiness Insider

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