Diagnostics, Policy

Report: Theranos to dissolve

The company is negotiating with creditor Fortress to keep $5 million that it will distribute to creditors, to whom it owes $60 million.

Sorry We are CLOSED sign on storefront

A blood-testing company that was once the toast of Silicon Valley will soon shut down.

The Wall Street Journal reported Wednesday that Theranos would formally dissolve, citing an email to the company’s shareholders from David Taylor, the company’s CEO and general counsel. Company founder Elizabeth Holmes and former COO and president Ramesh “Sunny” Balwani were indicted in June on federal charges of defrauding investors out of hundreds of millions of dollars, along with physicians and patients. Both have denied the charges.

The company, founded in 2003, became a darling of investors with its promise to perform tests on only a tiny amount of patients’ blood, eventually scoring a partnership with Walgreens, the nation’s largest drug store chain, even though it had to void or correct thousands of inaccurate test results. It also remained conspicuously secretive about the inner workings of its technology. In April, as the company faced multiple lawsuits, and the Securities and Exchange Commission had banned Holmes from serving as an officer or director of a business for 10 years as part of a civil fraud settlement, Theranos was forced to reduce its staff from more than 100 employees to about two dozen.

The move to dissolve the company follows a failed effort to raise new capital and sell off the company’s assets. In April, as the company faced a cash shortage, it hired investment bank Jefferies to help liquidate its assets. But in four months, it failed to find a buyer, leaving Theranos in default to creditor Fortress, according to the letter, in addition to owing $60 million to unsecured creditors. Under an agreement it is negotiating with Fortress, the creditor would be able to take control of a “special purpose subsidiary” that holds Theranos’ intellectual property, but relinquish rights to its remaining $5 million in cash, which Theranos would distribute to the unsecured creditors. That choice is preferable to any other option, including bankruptcy, as that would leave it unable to distribute any material assets to creditors, Taylor wrote.

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