Theranos to shut down: Investors lose US$1B

By @chelean on
Elizabeth Holmes, founder and CEO of Theranos
Elizabeth Holmes, founder and CEO of Theranos, arrives on stage at the Wall Street Journal Digital Live (WSJDLive) conference at the Montage hotel in Laguna Beach, California, October 21, 2015. Reuters/Mike Blake

Trouble-ridden Theranos Inc is closing down, according to a new report. The blood-testing company reportedly sent an email to its shareholders, telling them that the company would formally dissolve.

The Wall Street Journal has obtained a copy of the email, which was sent by CEO David Taylor to shareholders. Taylor became CEO after Elizabeth Holmes was indicted for fraud in June. The confirmation that the company would be closing down wouldn’t have been a surprise to investors as Theranos has lost millions of dollars since its authenticity was questioned in 2015.

Taylor said in the email that they had reached out to over 80 potential buyers, but none materialised into transaction. The company is also in default of its loans under Fortress, which has the right to foreclose and take ownership of all of Theranos’ assets under the terms of their agreement. Theranos also owes at least US$60 million (AU$84 million) to creditors.

With little choice left, Taylor said they have begun new negotiations with Fortress, under which Fortress would take ownership of Theranos’ interests but relinquish its rights to the company’s remaining cash. This would allow Theranos to distribute its remaining funds — approximately US$5 million (AU$7 million) — to its unsecured creditors.

The liquidation process could take from six to 12 months, Taylor said in the email. “Because the Company’s cash is not nearly sufficient to pay all of its creditors in full, there will be no distribution to shareholders. After the Assignment, the Company intends to file a certificate of dissolution under Delaware law,” the email reads.

He continued, “Following these actions, the Company will send a letter to stockholders confirming that there will not be a liquidating distribution to stockholders, and providing a copy of the certification for dissolution, for use for tax loss purposes.”

Theranos investors have reportedly lost nearly US$1 billion (AU$1.4 billion).

Theranos fraud

Holmes, who founded the company in 2003 when she was 19, had claimed that its Edison blood-testing device could test for conditions requiring only a few drops of blood from a finger-prick. She touted the invention as an innovation that would change the health industry. However, it was reported that Theranos conducted on traditional blood-testing machines rather than its own Edison machines because the latter gave inaccurate results.

Following a series of exposes from WSJ, the credibility of Theranos was questioned by investors, federal agencies and medical authorities. The company lost its partnerships and other contracts.

Holmes once had a reported net worth of US$4.5 billion (AU$6.3 billion) in 2015, becoming the world’s youngest self-made billionaire in the same year. A year later, her net worth plunged to nothing.

She and the company’s former president, Ramesh “Sunny” Balwani, are currently facing criminal charges that could land them decades in prison. They two allegedly made a series of false and misleading statements to lure in investors and defraud doctors and patients. They both pleaded not guilty.

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