Ultimately, it was the accountants, not the scientists, who were left with no choice but to deliver the bitter pill to the Theranos board: The company had even less money than time.
Getting a handle on the numbers was less important than publicity to founder and CEO Elizabeth Holmes, until she was forced to mortgage all of Theranos’s assets to Fortress Investment Group in return for a desperately needed $100 million loan in December 2017. The terms of the loan agreement included the requirement to finally produce audited financial statements, something that had not been attempted since at least 2009, according to Theranos’s last chief financial officer.
There was an attempt by KPMG to audit and provide an opinion about a decade ago, but the process was not completed, and there was no final report, said Philippe Poux, who served as Theranos’s final CFO. A spokeswoman for KPMG declined to comment, citing client confidentiality.
MarketWatch reported early this year that none of the Theranos investors, who invested more than $700 million with Holmes between late 2013 and 2015, had ever requested audited financial statements or asked whether the company even used an outside accountant to verify the financial information that was distributed.
Details: The investors duped by the Theranos fraud never asked for one important thing[1]
This past spring, Poux, in the CFO post for mere months, and a brand-new outside accounting firm had no alternative but to deliver the bad news when they saw the audit result: Theranos didn’t have sufficient cash to survive long enough for its heavily hyped product to secure regulatory approval.
Elizabeth Holmes founded Theranos in 2003 after dropping out of Stanford University as a 19-year-old sophomore. Her goal was to revolutionize the diagnosis and treatment of disease. She said the company name was created by combining the words “therapy” and “diagnosis.” But Theranos also turned out to have a lot in common with Thera, a volcano whose eruption in ancient times covered a Greek island in smoldering ash.
Holmes’s tragic error was touting financial projections that never materialized based on technology that she never delivered.
Theranos’s failings, and Holmes’s, reached an apex with a flawed and ultimately unsuccessful rollout of a strategic partnership with Walgreens Boots Alliance Inc. The screw-up resulted in several regulatory investigations and lawsuits against the company, Holmes and her former chief operating officer, Ramesh “Sunny” Balwani, including suits filed by Walgreens WBA, +1.01%[2] and the Securities and Exchange Commission. Holmes and Balwani now also face criminal indictments for fraud.
After Holmes burned through executives, cash, investor goodwill and regulatory patience, nothing of value was left but the company’s patents.
A bright beginning
Less than three years after starting the...