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How Walgreens says it was scammed by Theranos

How Walgreens says it was scammed by Theranos

It’s become obvious that Walgreens was badly burned by its recently ended relationship with blood-testing startup Theranos.

Now the extent of the problems are out there, too, in a 52-page, $140 million lawsuit Walgreens filed against Theranos in Delaware. (Though Theranos is headquartered in Palo Alto, Calif., it’s incorporated in Delaware.)

Here, a Cliffs Notes version of the partnership and Walgreens’ allegations from the suit, first reported by the Wall Street Journal:

• Theranos first approached Walgreens via email in January 2010. Theranos founder and CEO Elizabeth Holmes and President and COO Sunny Balwani presented to Walgreens’ executive management (then led by former CEO Greg Wasson) that March.

• In the presentation, Holmes and Balwani claimed their finger-prick technology had been “comprehensively validated over the last seven years” and had been used by numerous clients including pharmaceutical and biopharma companies, prominent research institutions, and U.S. and foreign government health and military organizations.

• In late April 2010, Walgreens engaged a team from Johns Hopkins University to perform due diligence. Based on information Theranos provided, the team found “Theranos’ technology ‘novel and sound’ and could ‘accurately run a wide range of routine and special assays.’ ” The team called Theranos’ accuracy a “special strength.”

• Deerfield-based Walgreens entered into an agreement with Theranos in July 2010. Nearly two years later, in June 2012, the two companies struck an amended deal in which Theranos Wellness Centers would operate inside Walgreens stores. The partnership began in March 2013 at a single store in Phoenix. By autumn 2015, Theranos operated 40 centers inside Walgreens in Arizona and one in Palo Alto.

• The Wall Street Journal published a blockbuster story on Oct. 15, 2015, questioning Theranos’ technology and reporting that its proprietary finger-prick technology was not being used. Instead, Theranos was drawing tiny amounts of blood from patients and using dilution methods to test the blood on traditional machines.

• From that point on, Walgreens alleges, Theranos did not cooperate. “Theranos only responded to some of Walgreens’ requests, missed multiple deadlines and delayed for several weeks others and failed to provide any information in response to others.”

• A month later, on Nov. 14, Walgreens learned that the physician in charge of one of two Theranos labs “was a full-time dermatologist” with no lab experience “outside of dermatopathology” who spent one day a week in the lab.

• The Centers for Medicare and Medicaid Services informed Theranos of its failure to meet basic standards on Jan. 25. Walgreens learned of the CMS decision from a Jan. 27 Wall Street Journal article.

• In March, a peer-reviewed study showed that Theranos’ tests were more inaccurate than traditional tests. It found that Theranos’ cholesterol test results were nearly 10 percent lower than those produced by traditional labs.

• Around this time, Theranos hid a letter from CMS that rejected its attempts to correct its failures. Walgreens says it was not informed of the letter for nearly a month, and first learned of it in April media reports.

• In May, the Wall Street Journal reported that Theranos had corrected or voided tens of thousands of blood test reports. Walgreens sent a written letter to Theranos seeking answers on May 23; the questions were not answered by Theranos’ lawyer until June 11, when the company admitted that 31,000 Walgreens customers had received voided results. Walgreens terminated its relationship with Theranos the next day.

• Beginning in late May, Walgreens Boots Alliance was named a co-defendant with Theranos in several class action lawsuits.

• Theranos acknowledged that it had voided the tests and suspended operations at one of its labs, but said it was not in breach of its agreement with Walgreens. The denial “effectively [put] Walgreens on notice that Theranos does not intend to provide the payments to Walgreens that would result from a termination for cause.”

Walgreens wants $140 million from Theranos, which sources told the Journal is the amount the company invested in the startup.

Originally posted on chicagobusiness.com

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