Quote:
Theranos Had $200 Million in Cash Left at Year-End
Blood-diagnostics company had no material revenue in 2015 and 2016, sources say
By CHRISTOPHER WEAVER
Updated Feb. 16, 2017 3:59 p.m. ET
2 COMMENTS
Theranos Inc., the embattled blood-diagnostics firm, is on life support.
The Silicon Valley company had $200 million of cash on hand at the end of 2016, people familiar with the matter said, less than a quarter of the funding it raised from investors and partners.
The number was disclosed in a conference call with investors last month. Investors also were told the firm didn’t generate any material revenue in 2015 and 2016 and hasn’t set aside funds for any potential liability that could arise from its pending legal challenges. The firm has yet to receive regulatory approval for a new business line it said it is pursuing.
The financial predicament facing Theranos shows how vulnerable it is to any adverse judgments from multiple lawsuits, as well as civil and criminal investigations and pending federal regulatory actions against it.
A large, unplanned expense could cripple the firm, which once sought to upend the medical lab business by offering cheap tests done on small samples of blood.
Theranos declined to comment.
Theranos investor Partner Fund Management and the blood-diagnostics company’s former retail partner Walgreen Co., a unit of Walgreens Boots Alliance Inc., have both sued the company. They seek to recover a total of around $240 million from Theranos. Partner Fund alleges Theranos made misleading statements in connection with its investment and Walgreens alleges it breached a contract.
Theranos has said the suits are without merit and is fighting them.
After The Wall Street Journal raised questions about Theranos’s technology and practices, federal health regulators last year investigated and revoked the testing license from Theranos’s main lab and banned founder Elizabeth Holmes from the lab industry for at least two years. The Securities and Exchange Commission and Justice Department also opened probes into the company.
Theranos said it is cooperating with the probes and appealing the regulatory sanctions, which are on hold pending the outcome of those proceedings. It exited the lab business in October, saying it was retrenching to focus on developing new miniaturized testing technology.
Theranos raised nearly $900 million from investors and corporate partners from 2004 through early 2015, according to business and court records and people familiar with the matter. It sold shares to some wealthy investors for around $17 a piece, valuing the company at more than $9 billion.
In the January call, the company also told investors it had no debt, excluding $40 million in debt held by Walgreens that is convertible into equity.
A spokesman for Walgreens, which pulled out of its partnership with Theranos in June, declined to comment.
To execute on its current strategy and generate cash flow to sustain the company, Theranos will have to get any new diagnostic equipment it plans to sell to customers, including a platform it calls the miniLab, approved by the Food and Drug Administration.
Companies need to collect and submit data to the FDA that shows their equipment performs similarly to other approved devices to get such approval. The process can take many months.
Theranos has said it plans a submission and added a new technology-advisory board to help it prepare medical-journal articles and scientific-meeting presentations in January.
The FDA said it couldn’t comment on potential product applications.
People familiar with the matter said Theranos spent as much as $20 million a month at points last year.
The firm has significantly downsized in recent months, shedding more than 300 workers when it closed its two labs last year, and another 155 in January as part of what it described as a re-engineering of its operations.
Now, it is spending far less, the people said, amid cost-cutting.
On Thursday, a Delaware judge scheduled a June trial in the Partner Fund suit. The appeal of the regulatory sanction is set to begin next month.
Quote: