Walgreens ($WBA) has issued beleaguered Theranos an ultimatum. The diagnostics company has 30 days to fix the violations of the so-called CLIA rules detailed in a letter from federal inspectors, or else the drugstore may sever their alliance altogether, cutting off Theranos from its main source of revenues and threatening its consumer-focused business model.
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| Theranos CEO Elizabeth Holmes |
The Wall Street Journal reports that the warning was issued in a letter to Theranos received in late January. It apparently followed a Jan. 28 phone conversation during which Walgreens asked embattled Theranos CEO Elizabeth Holmes to suspend all blood testing, a suggestion which she declined and said might be a breach of the companies' contract, according to the article.
Walgreens runs 40 Theranos "wellness centers" in Arizona, where Holmes successfully lobbied the state legislature to pass a law allowing consumers to order blood tests without a prescription, a sign of the influence she once enjoyed.
Walgreens has already frozen its plans to take the wellness centers nationwide and no longer sends blood samples to the Newark, CA, lab that was found in violation of federal regulations.
The WSJ reports that the wellness centers haven't generated any revenue for Walgreens and claims that the drugstore has lent Theranos at least $50 million in convertible debt. But association with a questionable company that is fast becoming a symbol of poor transparency and misplaced faith in celebrities (being Holmes and its board of big names, many of whom aren't experts in science) must surely be on Walgreens officials' minds as well.
No other company is as closely linked to Theranos as Walgreens, and the others are making moves as well. Following the letter from the feds (which was only the latest in a string of setbacks), Pennsylvania health insurer Capital BlueCross asked Theranos to suspend lab draws at its Harrisburg, PA-area retail store.
The WSJ also reports that despite their "long-run strategic alliance," Theranos and the Cleveland Clinic haven't agreed to the terms of a proposed study that would compare Theranos' technology, which can supposedly diagnose with just a drop of blood, to traditional blood tests like venous blood draws.
The WSJ says that three Cleveland officials were shown the company's devices but not told how they work, making them the latest in a long of line of potential partners to report confusion about the company, including some Big Pharma companies, that once sought to partner with Theranos. Those deals never came to fruition because of unanswered questions about the technology.
Following the WSJ's October expose of Theranos, reports have emerged of consumers who were surprised that the technology used at the company's wellness centers was similar to that deployed elsewhere.
Theranos has a valuation of about $9 billion, putting it in the club of "unicorns," which are private companies valued north of $1 billion.
Now it is at risk of becoming a real unicorn--that is, a legendary company with ideas that are the stuff of fantasy, but also one that does not exist in a real life.
- read the WSJ article (sub. req.)