Theranos was once considered a superstar startup in Silicon Valley, attracting a number of hotshot venture capitalists to its board. Founded in 2003 by Elizabeth Holmes, the company's mission was to develop a solution for quick blood testing that required only a drop or two of blood. The idea was great, and that, along with all the attention and board expertise, got the company a valuation of around $9 billion.
Walgreen Co., operator of the second largest chain of pharmacy stores in the U.S., appeared to be moving quickly to swap out old-fashioned blood testing services and replace them with Theranos. In 2015, however, a series of negative articles by the Wall Street Journal questioned whether Theranos' proprietary technology even worked as described. Either way, federal officials sanctioned the company over its testing methods.
In January, Walgreens halted lab testing services at its Palo Alto location that were operated by Theranos. In June, Walgreens ended its partnership with Theranos altogether -- closing 40 blood-draw sites in Arizona that were operated using Theranos. On Tuesday, Walgreens filed suit in U.S. federal court, claiming that Theranos breached its contract and cost Walgreens $140 million.
Details of Walgreens' claims are unavailable as the companies have a confidentiality agreement and the suit was filed under seal. That was also the case when one of Theranos' investors, Partner Fund Management, filed suit against the blood-tester in the Delaware Court of Chancery.
However, Partner Fund did send a letter to its investors, which was reviewed by the New York Times. The letter accuses Theranos, Holmes and former Theranos president Sunny Balwani, of using "a series of lies, material misstatements and omissions" to induce Partner Fund to make an investment. The investor claims to have meticulously detailed evidence of statements and conduct by Theranos that Partner Fund calls securities fraud.
Theranos is expected to file a countersuit in the Walgreens case, at least, and promises to fight the lawsuit brought by Partner Fund, which Theranos accuses of "engaging in revisionist history."
The Securities and Exchange Commission is also investigating whether Theranos violated any securities laws. Theranos declined any statement on the investigation.
Sometimes a bad business deal can get worse quickly, cascading into problems with other investors and customers, or even regulators. As soon as you sense a potential breach of contract, contact your company counsel right away. Quick action may keep a misstep or an irritation from moving to the courts.