Theranos, scandal-plagued blood testing startup, to shut down

FILE- In this Nov. 2, 2015, file photo, Elizabeth Holmes, founder and CEO of Theranos, speaks at the Fortune Global Forum in San Francisco. The publisher of an investigative book on Theranos has moved up the release date from October to this spring. �Bad Blood: Secrets and Lies in a Silicon Valley Startup� was written by Pulitzer Prize winning journalist John Carreyrou, who in The Wall Street Journal first raised questions about the company�s blood-testing technology. Alfred A. Knopf announced Thursday that publication is now scheduled for May 21. (AP Photo/Jeff Chiu, File) less FILE- In this Nov. 2, 2015, file photo, Elizabeth Holmes, founder and CEO of Theranos, speaks at the Fortune Global Forum in San Francisco. The publisher of an investigative book on Theranos has moved up the ... more Photo: Jeff Chiu, Associated Press Photo: Jeff Chiu, Associated Press Image 1 of / 3 Caption Close Theranos, scandal-plagued blood testing startup, to shut down 1 / 3 Back to Gallery

Theranos is going out with barely a whisper. Once heralded as a revolutionary new way to conduct a blood test to detect myriad diseases, all with a single finger prick, the company is making preparations to close its operations, according to a letter sent to shareholders.

“We are now out of time,” David Taylor, the company’s CEO and general counsel, informed investors in an email that was first reported Tuesday by the Wall Street Journal, whose in-depth investigation unraveled the company’s claims. Taylor declined to comment further, saying the letter speaks for itself.

Theranos is now focusing its efforts on avoiding bankruptcy.

MBA BY THE BAY: See how an MBA could change your life with SFGATE's interactive directory of Bay Area programs.

It is in default under a credit agreement reached last year with Fortress Investment Group, Taylor told shareholders. The company is negotiating a settlement with Fortress, which would then own the company’s intellectual property and allow Theranos to distribute its remaining cash — an estimated $5 million — to unsecured creditors.

“Because the company’s cash is not nearly sufficient to pay all of the creditors in full, there will be no distribution to shareholders” under the plan, Taylor said in the letter.

The Theranos board is expected to meet Friday, and the process of dissolving the company is expected to take six to 12 months.

Founded in 2003 by Elizabeth Holmes, a 19-year-old Stanford University dropout, Theranos promised to shake up the entire lab industry, making blood tests much easier and less expensive than traditional methods.

A charismatic executive who wore black turtlenecks and spoke passionately about giving people control over their health information, Holmes attracted high-profile investors and assembled a Who’s Who of directors, including two former secretaries of state and two former U.S. senators. Jim Mattis, the current secretary of defense, also served on the board.

At its peak, the privately held company was valued at a lofty $9 billion, and Holmes was promoted as one of the nation’s most successful female entrepreneurs. But questions emerged about the accuracy of the company’s testing, and federal regulators barred Holmes from owning and operating a laboratory for two years in 2016.

In March, the Securities and Exchange Commission charged Holmes with widespread fraud, accusing her of exaggerating — even lying — about her technology. In announcing the charges, the SEC said Theranos and Holmes agreed to a settlement.

Then in June, Holmes was indicted on criminal charges, and she has pleaded not guilty.

The company’s travails are the subject of a book by Wall Street Journal reporter John Carreyrou called “Bad Blood: Secrets and Lies in a Silicon Valley Startup,” and a forthcoming movie.

Lawyers for the company and Holmes did not respond to requests for comment.

Ramesh Balwani, the company’s former president who continues to fight the civil and criminal charges against him, issued a statement through a representative: “As an investor who put millions of dollars of his own money and nearly seven years of his life into Theranos, Mr. Balwani was saddened to see the letter from Theranos to investors yesterday.”

Reed Abelson is a New York Times writer.