Theranos Avoids Bankruptcy by Snagging a $100M Lifeline From Fortress
Many people will be surprised to learn that Theranos is still open and doing business, let alone to be able to acquire a $100 million loan. But that’s exactly what the Wall Street Journal is reporting, that Theranos secured a loan from Fortress Investment Group.
The loan is being used to avoid a bankruptcy filing. The company’s chief executive officer, Elizabeth Holmes, emailed company shareholders, indicating the loan is “subject to achieving certain product and operational milestones.”
The Wall Street Journal ran a series of investigative articles about the company in late 2015 on its business practices and questioning the effectiveness and reliability of the company’s core technology. One of Theranos’ blood-testing labs was shut down. The U.S. Attorney’s office and the Securities and Exchange Commission (SEC) are currently investigating whether it misled investors. Theranos is being sued by former partner Walgreens for $140 million, as well as by a Bay Area hedge fund.
And yet, somehow, Holmes remains as head of the company.
CNBC notes, “An investigation by the Journal in October 2015 sparked a wave of scrutiny about Theranos’ practices, at a time when the company had a valuation of around $10 billion. Holmes has continued to lead Theranos through settling multiple lawsuits. However, investigations opened by both the Justice Department and the Securities and Exchange Commission are ongoing.”
As part of the loan deal, Fortress, which specializes in distressed asset investing, acquires 4 percent of Theranos’ equity. The loan is backed by the Theranos’ patent portfolio. Holmes indicated in her email to shareholders that the loan will provide enough liquidity for operations through 2018.
In July 2016, the Centers for Medicare and Medicaid Services (CMS) banned Holmes from operating laboratories. Theranos agreed to abandon the blood testing business until April 2017 in exchange for reduced penalties and fines.
Gizmodo writes, “The company has at least partially moved away from its original selling point—running tests on extremely tiny amounts of blood from a single pin-prick—and is instead betting all on the miniLab, a small device which it says combines the capabilities of a whole array of traditional diagnostic instruments. But scientists remain skeptical the minilab is anywhere near as revolutionary as claimed, and the prototype first revealed in 2016 didn’t contain any features not previously demonstrated by other companies’ products. miniLab’s predecessor, Edison, was a colossal disaster that saw two years of blood tests retroactively voided, risking the health of 890,000 patients who used Theranos testing services.”
Theranos, in the past, touted high-level political connections. One of its previous board members was General James “Mad Dog” Mattis, currently Secretary of Defense in the Trump Administration. Another was Thomas Schultz, the grandson of former U.S. Secretary of State George Schultz. Thomas Schultz was, in fact, the whistleblower who alerted the media over the problems with the company’s technology. One of the current board members, William Foege, was a former director of the U.S. Center for Disease Control and Prevention (CDC).
Holmes, for her part, has never completely taken responsibility for Theranos’ problems. She indicated that the problem at the blood-testing laboratory was leadership, although she was the person who hired them.