Public Mediation:

Investors vs. Theranos

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Opening Statement View
Opening Statement View
Theranos, Elizabeth Holmes and Ramesh Balwani

Case Issues

Choose an Issue, suggest a resolution.
Regulators? Walgreens? Management? Silicon Valley? Theranos board of directors?
What were investors promised? What were they expecting? Was there a gap? How was due diligence done? What information did investors rely on to make their investment decisions? Were "red flags" ignored?
Was Edison's "one drop of blood" technology abandoned prematurely due to regulatory pressure? Is the concept still viable with more development? How much is known about miniLab's capabilities and performance? How much of an advancement does it represent?
Can it be funded? What is its salvage value? Is the technology marketable? Does management have credibility with investors and partners, and their support? 

How should the parties settle this matter?

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Contributed Resolutions

    Matt K., Neutral
    There is no path back to what was a ridiculous valuation in the first place for Theranos. The notion that they will be able to recoup anything near the money put in is ludicrous. At most, I would value Theranos at $2M, that includes the incredibly bloated infrastructure, staffing, and financial obligations the firm assembled. They are now just another biotech with an unproven concept is a sea of startups.

    Unfortunately, the only resolution to this matter is for the investors to lose their shirts, less whatever assets the officers and directors will contribute as relates to their personal liability. Several members of the management team will be convicted and likely serve a comfortable, white collar jail sentence. They will all likely be out in 3-5 years. SEC penalties will mean many people involved in this debacle will be barred from participation in securities for an extended period of time, possibly even a lifetime ban given the severity of this case.

    If there is a saving grace, it is that the company was not public. That would make the penalties potentially far more severe. The real losers in this whole mess are all of the unfunded biotech companies who could have (past) or would have (present, future) made an actual impact with good returns for investors. However, looking at the $1B raise for companies like Grail and Freenome (the latter clearly fitting the bill of Theranos 2.0), some offers are too good (high valuation, all the right buzzwords) for alpha-male investors to pass up to JPMorgan.

    Here's looking forward to the movie!
      Kim F., Neutral
      recalibrate the equity and grant management- old or new an earn back on a portion of it. Give investors significant warrents to buy shares a year or two out once the company has enough breathing room to get out of defense and back to offense in terms of revolutionizing testing

      I like most of the suggested resolutions here. Most however hinge on 1) whether there's value in the technology- that will determine and 2) how strong the investor case is- which in itself depends upon what disclosures were made> we don't seem to have enough visibility on either issue. Shame the parties aren't participating here yet. We could get this thing resolved in a week with some company and plaintiff feedback
        Jim W., Moderator

          Francisca V., Neutral
          Sue Walgreens for cash then,redistribute Theranos equity from founders to make up any cash not recovered from Walgreens. Walgreens should have known better. Maybe Theranos' board should kick in $50-100MM too for being asleep at the wheel. Presumably they have D&O insurance.
            Ed V., Neutral
            The offer by Theranos as reported March 24 by the Wall Steet Journal and other news sources: investors from Theranos's most recent funding round (2015) will receive two times their shares for each share they purchased in that round if they promise not to sue the company. A portion of Elizabeth Holmes's own shares are to be used for this purpose.
            Elizabeth Johns
            Points this trial: 106
            Lifetime points: 440
            David Herrerias
            Points this trial: 84
            Lifetime points: 160
            Matt Muprhy
            Points this trial: 82
            Lifetime points: 160
            Ed Vansickle
            Points this trial: 65
            Lifetime points: 80
            Francisca Vera
            Points this trial: 63
            Lifetime points: 100
            Kim Fox
            Points this trial: 62
            Lifetime points: 222
            Jim Wicks
            Points this trial: 45
            Lifetime points: 825
            Michael Skoletsky
            Points this trial: 41
            Lifetime points: 60
            Mark Deuitch
            Points this trial: 26
            Lifetime points: 40
            Points this trial: 23
            Lifetime points: 110


            March 24, 2017

            In a proposed deal with Theranos shareholders, Elizabeth Holmes offers to give up her majority stake if investors agree to drop their lawsuits against the company, according to a Wall Street Journal report.

            February 16, 2017

            The Wall Street Journal reports that Theranos had $200 million in cash remaining at year-end 2016, and no "material revenue" in 2015 or 2016.

            January 19, 2017

            The Wall Street Journal reports that in September, 2016, Theranos's Scottsdale, Arizona lab failed a test by the Centers for Medicare and Medicaid Services (CMS) – but that the company failed to divulge the news to investors or patients.

            January 17, 2017

            Theranos announces an eight-member technology advisory board, heavy on bioengineering backgrounds; Channing Robertson, advisor to Elizabeth Holmes since her college days, is co-chair.

            January 06, 2017

            Bloomberg reports Theranos will reduce its workforce by 155 people (approximately 41% of total), leaving just 220 workers.

            January 04, 2017

            Arizona's Attorney General issues RFP disclosing intent to sue Theranos for violating the Arizona Consumer Fraud Act.

            November 28, 2016

            Investor class action filed in U.S. District Court of Northern California against Theranos, Elizabeth Holmes, and Ramesh "Sunny" Balwani for violation of California securities laws, unfair competition laws, and common laws.

            November 08, 2016

            Walgreens sues Theranos in federal court for breach of contract, demands a $140 million settlement.

            October 11, 2016

            Theranos responds to the PFM suit, saying that it is "without merit" and claiming that most of the Theranos statements cited as misleading inducements to invest, were made after the plaintiff had already invested.

            October 10, 2016

            PFM, a hedge fund and major Theranos investor, sues the company over alleged securities fraud.

            October 05, 2016

            Elizabeth Holmes announces closure of lab operations and Wellness Centers in Arizona, California, and Pennsylvania and the loss of 340 employees. The open letter to stakeholders promises "undivided attention" to the new miniLab.

            August 26, 2016

            Theranos announces it has filed an "intent to appeal" the sanctions imposed by the Centers for Medicare and Medicaid Services (CMS) that prohibited Holmes from owning, operating, or directing a lab for two years.

            August 01, 2016

            Elizabeth Holmes presents the prototype miniLab at the American Association for Clinical Chemistry's 68th Annual Scientific Meeting, pivoting from Edison and the past to future possibilities for the new miniLab.

            July 08, 2016

            The Centers for Medicare and Medicaid Services (CMS) follow through on their March 28 warning and bar Elizabeth Holmes and COO Sunny Balmani from owning or operating a laboratory for a minimum of two years. The company's Newark, California lab's certification is revoked.

            June 12, 2016

            Walgreens cuts off its relationship with Theranos, closing all 40 of its Wellness Center locations in Walgreens stores.

            June 11, 2016

            Theranos advises Walgreens that they had sent voided test results to 31,000 Walgreens customers.

            June 09, 2016

            Hollywood smells blood: it is reported that Jennifer Lawrence will play Elizabeth Holmes in an Adam McKay big-screen "biopic" of Theranos's rise and fall.

            June 01, 2016

            Forbes magazine downgrades its estimate of Elizabeth Holmes' net worth: from $4.5 billion in 2015 to "nothing."

            May 11, 2016

            Sunny Balwani, Theranos president and Chief Operating Officer, and Holmes's friend and associate since college days, departs the company.

            April 18, 2016

            Theranos announces to partners that it is under investigation by the Securities and Exchange Commission and the United States Attorney's Office for the Northern Disctrict of California.

            April 13, 2016

            Four months after questioning Theranos's lab practices, the Centers for Medicare and Medicaid Services (CMS) find that not all problems have been corrected.

            March 18, 2016

            The Centers for Medicare and Medicaid Services (CMS) send letter to Theranos warning that Elizabeth Holmes and COO Sunny Balwani will be banned from owning or operating a lab for two years if specified remedial steps are not taken.

            January 25, 2016

            Questions of patient safety are raised for the first time when the Centers for Medicare and Medicaid Services (CMS) release an opinion that patients of a Theranos lab were in "immediate jeopardy."

            November 10, 2015

            The Wall Street Journal reports supermarket chain Safeway Stores will abandon a $350 million deal with Theranos, based on concerns about missed deadlines and reports of test innacuracies.

            October 27, 2015

            The FDA releases two reports pointing to deficiencies in Theranos's procedures, including the shipping of an "uncleared medical device," the company's "Nanotainer," a miniature blood vial.

            October 16, 2015

            Theranos announces it is temporarily retiring its proprietary Nanotainer, the pin-prick blood-draw vial, following criticism by the U.S. Food and Drug Administration (FDA) revealed in the previous day's Wall Street Journal.

            October 15, 2015

            The first of John Carreyrou's reports questioning Theranos's technology is published in the Wall Street Journal.

            July 15, 2015

            The U.S. Food and Drug Administration grants Theranos a "CLIA waiver," allowing it to perform blood tests for herpes simplex virus at its Wellness Centers, rather than a dedicated clinical laboratory.

            July 08, 2015

            Theranos and Capital BlueCross of Pennsylviania announce a deal to make Theranos blood testing available in Captial BlueCross health and wellness stores and Theranos Wellness Centers in central Pennsylvania.

            July 02, 2015

            Theranos receives approval by the U.S. Food and Drug Administration (FDA) for a finger-prick test for a single diagnosis: herpes. The company puts its herpes tests on hiatus pending further approvals.

            May 27, 2015

            Forbes puts Elizabeth Holmes in the #1 position in its first list of "America's 50 Richest Self-Made Women, " based on the magazine's $9 billion estimate of Theranos's worth.

            March 09, 2015

            Theranos and Cleveland Clinic jointly announce a "strategic alliance" to pursue "the full potential of Theranos technology at Cleveland Clinic and across the broader healthcare system."

            March 02, 2015

            Elizabeth Holmes makes the Forbes 500 list of the world's richest people (#360, at $4.5 billion), based on 50% ownership of Theranos, valued by Forbes at $9 billion.

            December 31, 2014

            Holmes is said to own 18 US patents, and a total of 84 patents worldwide. Note: This is reported to be true as of some time during 2014; a specific date has not been identified.

            June 30, 2012

            Walgreens and Theranos revise their agreement to encompass development of stand-alone Theranos Wellness Centers to operate within Walgreens stores. Note: This is reported to have happened during the month of June; the specific day has not been identified.

            April 11, 2012

            Mystery new tenant of Newark, California, Pacific Research Center is reported to be Theranos, with plans to move manufacturing and headquarters to a new 220,000 square-foot facility.

            December 31, 2010

            Following most recent funding round, Theranos's valuation is said to be $1 billion. Note: This is reported to have happened during the second half of 2010; a specific day has not been identified.

            July 08, 2010

            Theranos reports raising $45 million in equity and option financing from a single unamed investor in a Securities and Exchange Commission filing. Total VC funding to date: $92 million.

            March 04, 2009

            Elizabeth Holmes makes an early public appearance as guest speaker at Stanford's Entrepreneurial Thought Leaders series, declaring her all-in commitment: “It became clear to me that, if I needed to, I would restart this company as many times as possible to make this thing happen."

            November 30, 2007

            Elizabeth Holmes receives her first patent for a device that can perform multiple tests simultaneously from a single drop of blood and deliver the data wirelessly to a doctor. Note: This is reported to have happened during the month of November; the specific day has not been identified.

            November 13, 2006

            November 13, 2006. Theranos files with the SEC for $28.5 million in Series-C financing; new investors include California venture capital firm Tako Ventures and Continental Properties (Texas).

            February 21, 2006

            A Series-B round nets Theranos another $9.9 million in venture funding, including participation by ATA Ventures, a Silicon Valley VC.

            February 11, 2005

            February 11, 2005. Theranos receives $5.8 milllion in Series-A funding. Silicon Valley venture capital firm Draper Fisher Jurvetson is an investor.

            April 30, 2004

            Theranos is incorporated. Note: This is reported to have happened during the month of April; the specific day has not been identified.

            December 31, 2003

            Elizabeth Holmes, age 19, drops out of her chemical engineering studies at Stanford University to start a venture she calls RealTime Cures. Note: This is reported to have happened during 2003; the specific date has not been identified.

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