Theranos Is Shutting Down – The New York Times

The Silicon Valley startup is expected to shutter its operations after it failed to deliver revolutionary lab-testing amid allegations of fraud.

Elizabeth Holmes, founder and chief executive of Theranos in 2015. She has been barred from serving as an officer or director of any public company for 10 years.CreditCreditDavid Paul Morris/Bloomberg via Getty Images
Reed Abelson

Theranos is going out with barely a whisper. Once heralded as a revolutionary new way to conduct a blood test to detect myriad diseases, all with a single finger prick, the company is making preparations to close its operations, according to a letter sent to shareholders.

“We are now out of time,” David Taylor, the company’s chief executive and general counsel, informed investors in an email first reported on Tuesday by The Wall Street Journal, whose in-depth investigation unraveled the company’s claims. Mr. Taylor declined to comment further, saying the letter spoke for itself.

Theranos’s efforts are now focused on avoiding bankruptcy.

It’s in default under a credit agreement reached last year with Fortress Investment Group, Mr. Taylor told shareholders. The company is negotiating a settlement with Fortress, which would then own the company’s intellectual property and allow Theranos to distribute its remaining cash — some $5 million — to unsecured creditors.

“Because the company’s cash is not nearly sufficient to pay all of the creditors in full, there will be no distribution to shareholders” under the plan, Mr. Taylor said in the letter.

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The Theranos board is expected to meet on Friday, and the process of dissolving the company is expected to take six to 12 months.

Founded in 2003 by Elizabeth Holmes, a 19-year-old Stanford University dropout, Theranos promised to shake up the entire lab industry, making blood tests much easier and less expensive than traditional methods.

A charismatic executive who wore black turtlenecks and spoke passionately about giving people control over their health information, Ms. Holmes attracted high-profile investors and assembled a Who’s Who of directors, including two former secretaries of state and two former United States senators. Gen. Jim Mattis, the current secretary of defense, also served on the board.

At its peak, the privately held company was valued at a lofty $9 billion, and Ms. Holmes was promoted as one of the nation’s most successful female entrepreneurs. But questions emerged about the accuracy of the company’s testing, and federal regulators barred Ms. Holmes from owning and operating a laboratory for two years in 2016.

In March, the Securities and Exchange Commission charged Ms. Holmes with widespread fraud, accusing her of exaggerating — even lying — about her technology. In announcing the charges, the S.E.C. said that Theranos and Ms. Holmes agreed to a settlement.

Then in June, Ms. Holmes was indicted on criminal charges, and she has pleaded not guilty.

The company’s travails are the subject of a book by The Wall Street Journal reporter, John Carreyrou, called “Bad Blood: Secrets and Lies in a Silicon Valley Startup,” and a forthcoming movie.

Lawyers for the company and Ms. Holmes did not respond to requests for comment.

Ramesh Balwani, the company’s former president who continues to fight the civil and criminal charges against him, issued a statement through a representative: “As an investor who put millions of dollars of his own money and nearly seven years of his life into Theranos, Mr. Balwani was saddened to see the letter from Theranos to investors yesterday.”

Reed Abelson covers the business of health care, focusing on health insurance and how financial incentives affect the delivery of medical care. She has been a reporter for The Times since 1995. @ReedAbelson