By Jef Feeley and Caroline Chen, Bloomberg News
Blood-testing startup Theranos Inc. is under legal siege.
After being sanctioned by U.S. regulators, the company now faces at least eight lawsuits filed in federal courts in California and Arizona by patients who claim that faulty blood tests led to heart attacks or other issues. It’s also facing fraud claims in state court in Delaware from one of its investors.
The lawsuits are the latest challenge to the once high- flying startup, which claimed it could run multiple lab tests on a few drops of blood. In July, Chief Executive Officer Elizabeth Holmes was banned from owning or operating a clinical laboratory in the U.S., a sanction that Theranos is appealing. This month, the Palo Alto, California-based company said it would shut down its patient-testing labs and fire 340 workers.
Theranos has said that the investor lawsuit is “without merit” and that the firm behind it, Partner Fund Management, “is engaging in revisionist history.” Patrick Ryan, a spokesman for Theranos at Hill & Knowlton Strategies, didn’t immediately have a comment on the patient cases.
In one of the suits, a male patient said he got a Theranos test related to heart issues in February 2015, which returned results indicating things were normal. The next month, the patient said he’d had a heart attack. Theranos’s tests for the patient had initially come back normal, according to the suit, only to be invalidated by the company later.
Theranos, which is closely held, touted its blood analysis technology as “fast, easy, and the highest level of quality” testing for hundreds of diseases and conditions, according to one of the patient suits. The company, and partner Walgreens Boots Alliance Inc., became the target of the legal claims after Theranos said in April that federal prosecutors and the U.S. Securities and Exchange Commission were investigating whether it misled consumers about the validity of the tests.
In January, U.S. regulators released a letter to the company saying that conditions at Theranos’s lab in Newark, California, posed “immediate jeopardy to patient health and safety.” Then, in May, Theranos said it was voiding or correcting data from thousands of test results. Walgreens terminated its partnership with Theranos in June, and shut down testing sites in the pharmacy chain’s Arizona stores.
Michael Polzin, a spokesman for Walgreens, declined to comment.
As the number of suits against Theranos grows, Holmes and the other executives may consider filing for Chapter 11 bankruptcy protection for the company to deal with the claims, said Hank Greely, a Stanford law professor who teaches about health law and biomedical technologies.
“These kinds of litigation eats up a lot of C-suite time, so a bankruptcy filing would be a way to limit damage,” Greely said Friday in an interview. “That’s certainly not outside the realm of possibility for this kind of startup.”
Ryan, the Theranos representative, declined to comment on a potential bankruptcy.
Federal judges in California and Arizona have consolidated suits accusing both Theranos and Walgreens of fraud and breach of contract to speed up pretrial information exchanges.
Theranos also faces securities fraud claims from Partner Fund Management, a large investor that contends it was duped into sinking nearly $100 million in the firm.
“This is not a case about a startup that missed targets or failed to succeed,” lawyers for the San Francisco-based fund said in the suit, unsealed in state court in Delaware on Thursday. “This is a case about repeated lies, misrepresentations, misleading statements and failure to disclose material information.”
The consolidated cases in Arizona federal court are Toy v. Theranos, No. 16-cv-2138, U.S. District Court, District of Arizona (Phoenix). The California cases are In Re Theranos Consumer Litigation, No. 16-2810, U.S. District Court, Northern District of California (Oakland). The Delaware case is Partner Investments LP v. Theranos, CA 12816, Delaware Chancery Court (Wilmington).
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