By Christopher Weaver
A seven-year relationship between Theranos Inc. and Walgreens
that soured into a costly feud for the drugstore giant will soon
come to a close.
Theranos has told its investors it has reached an agreement in
principle to settle a lawsuit by Walgreens Boots Alliance Inc. that
had alleged the embattled laboratory startup breached the
companies' contract, people familiar with the matter said.
Walgreens' stores once hosted about 40 Theranos blood-testing
centers, providing a main conduit to consumers.
The pact would mean Walgreens' alliance with Theranos cost the
drug retailer well over $100 million. In its suit, Walgreens had
sought to recover the full $140 million it put into the
partnership, including a $40 million convertible-debt note and a
separate payment as part of an effort to expand the
partnership.
The tentative agreement calls for Theranos to pay Walgreens less
than $30 million, according to some of the people familiar with the
matter. The pact hadn't been completed as of late Tuesday and terms
could change, the people said.
Representatives for Walgreens and Theranos declined to
comment.
In its November 2016 suit, Walgreens alleged Theranos misled it
about the state of the lab firm's technology as they formed their
partnership, and about the firm's growing legal and regulatory
challenges throughout 2016. Theranos has called the allegations
"unfounded."
Separately, Theranos told investors in a series of recent
meetings that it had about $54 million in cash left as it sought to
resolve claims, people familiar with the matter say. The Walgreens
pact would further bite into that remaining supply of money.
Theranos also carries insurance policies that could cover certain
claims, court records show.
Theranos has been burning through its cash. In January, it had
about $187 million, according to an investor document made public
last month in a court filing. The firm has been spending about $10
million a month since, much of it on legal costs, as it cut staff
to about 170 from around 900 late last year, according to people
familiar with the matter and the court filing.
The company also spent about $5 million to settle allegations by
the Arizona attorney general that it had misled consumers, and $10
million in connection with an agreement with another investor,
legal records show. It settled a lawsuit by former investor Partner
Fund Management for an undisclosed amount in May, the company said.
People familiar with that confidential agreement said the amount
was between $40 million and $50 million.
Theranos has said the lawsuits against it were without merit and
it has denied the Arizona attorney general's allegations.
Theranos still faces a civil investigation by the Securities and
Exchange Commission and a criminal investigation by the Justice
Department, according to court filings.
In a series of meetings with investors in recent days, Theranos
said it planned to ask some existing shareholders to loan it an
additional $50 million, people familiar with the discussions said.
As of Monday, that planned deal hadn't been completed, one of the
people said.
It isn't clear which investors may have been approached about
the offer or whether any had agreed to do so. Theranos also plans
to seek to raise $150 million to $200 million in a funding round
next year, some of the people said.
Theranos has retracted nearly one million medical-test results
since regulators found problems early last year with its lab
practices that they said put patients in danger, a court filing
shows. After lab regulators barred Theranos from running medical
labs for two years last summer, the company said it developed new
blood-testing devices to sell to third-party lab operators. It
hasn't yet sought regulatory approval for these devices.
Walgreens had once viewed the partnership as a key pillar of its
strategy to use its brick-and-mortar footprint to diversify into
more areas of health-care services. Theranos had claimed it could
do dozens of tests on a few drops of blood and Walgreens hoped to
one day put its devices in its stores.
Walgreens kicked off its relationship with Theranos in 2010,
including with an internal party at the drugstore corporation's
Deerfield, Ill., headquarters, company documents show.
At the gathering, one Walgreens executive recited, to the tune
of the John Lennon song "Imagine," lyrics urging listeners to
imagine a world where blood tests could be done without pain, a
person who was there recalled.
The relationship became strained as both parties blamed the
other for delays, and Walgreens managers became frustrated that
Theranos repeatedly limited their access to its labs, data or
devices, people familiar with the matter have said. The two
companies finally rolled out their Phoenix-area pilot in late
2013.
After The Wall Street Journal first raised questions about
Theranos's technology and capabilities in October 2015, Walgreens
said it would halt the nationwide expansion of the partnership.
But it kept the Theranos testing centers at its Phoenix stores
open for months and patients continued to receive blood tests
there. Some Theranos patients later alleged that both Theranos and
Walgreens misled them about their tests' accuracy. The cases are
pending in an Arizona federal court. The companies are fighting the
suits and have said they are without merit.
In June 2016, Walgreens abruptly ended its partnership with
Theranos after executives grew frustrated they were learning of
regulators' concerns from news reports, according to people
familiar with the matter.
Write to Christopher Weaver at christopher.weaver@wsj.com
(END) Dow Jones Newswires
June 21, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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