Theranos: Not Long for the Business World?

It won’t be long now.

With a skeleton staff, dwindling finances, a sullied reputation, and a disgraced leader under criminal investigation, embattled blood testing firm Theranos Inc. seems veritably destined for a terrible, miserable, no good, very sad ending.

In mid-April, The Wall Street Journal reported the company furloughed most of its remaining workforce in a desperate attempt to stave off bankruptcy, leaving roughly two dozen employees (at most) to run the business. The downsizing is the latest setback in a series of damning headlines, U.S. government probes, and failed pivots that have precipitated the firm’s self-implosion over the last few years.

The most recent round of layoffs occurred in the wake of fraud allegations against Theranos CEO Elizabeth Holmes and former president Ramesh “Sunny” Balwani. A U.S. Securities and Exchange Commission (SEC) complaint filed on March 14 accuses the pair of misleading investors by raising more than $700 million through “exaggerated or false statements” about the company’s technology and financial performance. Holmes quickly settled with the SEC without admitting any wrongdoing, agreeing to pay a $500,000 penalty; surrender most of her Theranos stock; and accept a decade-long ban on corporate board service. Theranos’ independent directors released a brief statement when the settlement was announced, declaring, “The company is pleased to bring this matter to a close and looks forward to advancing its technology.”

Balwani, contrarily, is fighting the SEC charges. He became company president in 2009 after guaranteeing a line of credit for the financially struggling Holmes, according to the SEC complaint.

Theranos’ fairy tale-like existence began to unravel in October 2015 with a Journal expose that questioned the authenticity of the company’s proprietary technology, an iMedicine vision, of sorts, for blood testing. Its miniLab blood analyzer (the size of a desktop computer) purportedly could run hundreds of different diagnostic tests on just a few drops of blood, thereby eliminating the need for long needles and multiple vials. Holmes boasted that the technology would be “faster, cheaper, and more accurate” than alternatives, and claimed the U.S. Department of Defense had used the tests on Afghanistan battlefields. Neither assertion was true though, the SEC contends.

The deception, however, extended beyond the corner office: The SEC charges that Theranos employees wrote flattering reports about the firm’s own products and affixed pharmaceutical company logos to them to make it appear as if the drugmakers endorsed Theranos’ technology.

One of the most flagrant examples of Theranos’ deceit involved claims the blood analyzer could process more than 1,000 Current Procedural Terminology codes and that Theranos had developed a technological solution for an additional 300 codes. “But Theranos’ analyzers never performed comprehensive testing or processed 1,000 CPT codes in its clinical lab,” the SEC countered in its complaint. “In fact, as far as Holmes knew, or was reckless in not knowing, Theranos’ clinical lab used the TSPU [Theranos Sample Processing Unit] only to perform 12 of the tests offered to patients.”

Since its exposure as a fraud, Theranos has voided nearly 1 million blood test results in Arizona and California, and shut two laboratories where its blood analyzers were producing unreliable data. Late last year, the company secured a $100 million loan from private equity firm Fortress Investment Group LLC but received only $65 million up front, the Journal reported.

To access the rest of the funding, Theranos must meet certain product and operational milestones, including obtaining U.S. Food and Drug Administration approval for a Zika blood test. Such approval could prove difficult, however, due to unreliable test results.

The layoffs announced last month should keep Theranos afloat through July, but Holmes is hoping to secure the company’s long-term future with additional investments. In an April 10 email detailed by the Journal, Holmes appealed to investors for additional funding, offering to sell a large stake of the firm at a favorable price. She may have trouble, though, finding financiers who are willing to forgive (and forget) her past sins so quickly.

“If what she’s been charged with is true, she’s a criminal who should be in prison,” one tech investor told Vanity Fair in March. “I highly doubt Elizabeth Holmes set out to be a fraud—much in the same way that I don’t think Bernie Madoff’s business plan from day one was to run a Ponzi scheme. Does that even matter? All founders are faced with difficult choices, and the vast majority of them make the right call, erring on the side of transparency and honesty. To dismiss her wrongdoing is to discount all the founders who, knowing they had the wrong answer for an investor, made the hard choice to tell the truth, knowing it might be the final nail for their company.”

Some venture capitalists blamed Theranos’ downfall partly on a business model that “encourages” companies to raise massive amounts of money without ever developing a product or proving market need. One investor even faulted the stockholders themselves.

“It’s on her [Holmes], it’s on the company, it’s on the investors, and the board members who didn’t ask any of the right questions,” one Silicon Valley financier noted to Vanity Fair. “Or, evidently, any questions at all.”