Theranos CEO Gives Up Own Shares to Investors to Avoid Being Sued

Theranos CEO Gives Up Own Shares to Investors to Avoid Being Sued March 24, 2017
By Alex Keown, BioSpace.com Breaking News Staff

PALO ALTO, Calif. – As part of an effort to avoid lawsuits, embattled Theranos founder Elizabeth Holmes is giving away shares of her personal stake in the company she founded in order to avoid lawsuits, according to news reports.

The Wall Street Journal first reported that Holmes offered the deal to investors in Theranos’ latest funding rounds, which includes the most recent one in 2015. According to the report, as cited by CNBC, Theranos investors could get two additional shares for each one bought. Those additional shares would come from Holmes, who will be giving up her majority stake in the company as she doles out her shares. The deal was apparently approved by investors, which includes big names such as Rupert Murdoch and U.S. Secretary of Education Betsy Devos. However, there is no word on how the deal will affect current shareholders, CNBC said. It is also unknown how investors reacted to Holmes’ offering of her own shares for a promise not to file a lawsuit against the company. Were questions raised about how whether or not such a deal is an indication that the company is expecting additional lawsuits? And if so, what was the response of Holmes?

Theranos director Daniel J. Warmenhoven told Techcrunch that Holmes’ decision to dilute her own shares “shows a level of selflessness and grace reflecting her commitment to the company’s success.”

Share prices of the privately-held Theranos were valued at $15 to $17, but with the two-for-one deal, the share prices were effectively lowered to $5, according to the reports. The deal also includes an investor pledge to not sue Theranos—a company that is facing multiple lawsuits over its technologies and business practices. The two biggest lawsuits come from former partner Walgreens, which filed a $140 million lawsuit against Theranos and a $100 million lawsuit filed by a Bay Area hedge fund that alleged the biotech company duped investors about the efficacy of its products in order to attract investments. Additionally, the company is facing legal challenges from patients who used the company’s blood-testing technology. Last year, Theranos announced it was forced to thousands of test results it sent to patients. Many of those patients used the test results to direct their healthcare plans.

At one time, Theranos was reportedly worth about $9 billion, but according to reports the company is in desperate need of cash. The Journal said Theranos has about $150 million or less in cash, excluding debt. That’s about $50 million less than was reported in February, when the Journal reported Theranos had $200 million in its bank accounts. In its last fundraising effort which ended in 2015, prior to the company’s troubles being made known, the company raised about $600 million.

During an investors call in February, Theranos said it had no material revenue in 2015 or 2016. Of what funds Theranos has, the Journal said the company has not set aside any funds for legal liability—which is surprising given the company is facing multiple lawsuits seeking hundreds of millions of dollars in damages.

Theranos has been in a downfall for nearly the past two years after a series of scathing articles from multiple news outlets have highlighted problems associated with the company’s failed blood-testing technologies. After facing criticism over its technology as well as its clinical practices, which led to the company shuttering its clinical laboratories, Theranos pivoted its business focus to the development of a miniaturized and portable laboratory.

Theranos started 2017 with an announcement it was slashing about 41 percent of its workforce, leaving “a core team of 220 professionals to execute on its business plans.” In October, the company terminated 340 people as it shut down its clinical labs and wellness centers following a two-year ban ban from operating a clinical laboratory. The company is appealing the ban.

Back to news