Lessons Learned from the Theranos Dissolution
November 15, 2018
A senior manager in EisnerAmper’s Technology and Life Sciences practice, talks about the rise and fall of Theranos. He explains what took them from biotech unicorn to dissolution, the fallout, and how companies and investors can mitigate risk.
DP: Prior to all of the chaos, Theranos was once the darling of the tech world, was it not?
DK: A true unicorn, as they say. The company claimed it pioneered a cheaper, more efficient blood testing system called The Edison. There was even a deal in place to put one in every Walgreens. That, along with high-powered investors, helped the company reach a valuation of approximately $9 billion dollars.
DP: What happened?
DK: Reporters, particularly from The Wall Street Journal, started questioning the efficacy of the technology, which led to allegations of financial improprieties. Ultimately, the technology didn't do what the company had portrayed.
DP: What was the fallout?
DK: The former CEO and the president are both facing federal wire fraud charges. The company put itself up for sale, but there were no takers. And, in the final fall from grace, the current president has initiated the corporate dissolution process.
DP: Where does that leave investors?
DK: They've lost as much as $1 billion. The company's assets and intellectual property are going to credit and investment firm Fortess. And approximately $5 million dollars will go to creditors.
DP: So there's a lot to unpack here, Dave. As a business advisor, what would you try to instill in the founders and leaders of a tech startup like Theranos so that they don't wind up in this situation?
DK: To me, it goes to internal controls. Having the right tone at the top, doing the right thing. Just build a company with unimpeachable professionals. You want people in it for the long term, not necessarily the short-term gain. That's easier said than done when you're a company with a $9 billion valuation.
DP: Looking at it from the other side, what would you caution investors who may think that they're investing in the next big thing?
DK:It comes down to due diligence. As an investor, have I reached out to thought leaders who know the industry? Have I or someone in the know reviewed the scientific publications? Do I understand the challenges facing the company, and have I asked probing questions? As auditor say, you need to trust, but you need to verify. I think more will come out in the future on what truly went wrong, and until then we can only speculate and try to learn from it. That's the unfortunate part of this whole thing.
DP: Well, Dave, thanks for your thoughts on this.
DK: Thanks for having me, Dave.
DP: And thank you for listening to TechTalk as part of the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics, and join us for our next EisnerAmper podcast when we get down to business.