Major Investor Sues Theranos Over 'Series of Lies' in $100 Million Suit
October 11, 2016
By Alex Keown, BioSpace.com Breaking News Staff
SAN FRANCISCO – A Bay Area hedge fund has filed a lawsuit against embattled Theranos alleging the biotech company duped investors about the efficacy of its products in order to attract investments of nearly $100 million.
Partner Fund Management, which is based in San Francisco, filed its lawsuit Monday in the Delaware Court of Chancery. Although the lawsuit is sealed, the investment company issued a letter announcing its legal action against Theranos. In the letter the hedge fund claims Theranos, specifically founder and Chief Executive Officer Elizabeth Holmes and former company president Sunny Balwani, lied about the performance of its blood-testing equipment in order to raise funds. In 2014, Partner Fund invested $96.1 million in Theranos, Bloomberg reported late Monday, citing an unnamed person “familiar with the matter.”
“Theranos and its principals knowingly and repeatedly lied that they had developed proprietary technologies that worked, were on the cusp of receiving all necessary regulatory clearances and approvals, and concealed the truth about the commercial viability of their technologies and methods," the hedge fund said in a statement, as reported by Bloomberg and The New York Times.
Theranos said the lawsuit is without merit. In a statement, the company said the assertions made by the plaintiffs are baseless and added that the hedge fund is “engaging in revisionist history.”
“Most of the company statements the plaintiff has cited in its suit were made after the time the plaintiff invested, and could not possibly have been the original basis for investment. This wholesale reliance on post-investment statements, therefore, negates the claim that the plaintiff was misled,” Theranos said in its statement.
The lawsuit came days after Holmes and Theranos pivoted the focus of Theranos from its maligned blood-testing business to focus on the development of its new portable laboratory system, dubbed Edison, which the company unveiled earlier in the summer at the American Association for Clinical Chemistry. As a result, the company said it was shuttering its labs and blood-testing centers and was also terminating about 40 percent of its staff.
The shift in company focus came after a year of bad press highlighted problems with the company’s laboratory in Newark, Calif. that resulted in sanctions from the U.S. Center for Medicare and Medicaid that included a two-year ban from the blood-testing industry. The company was also recently under scrutiny for problems with a possible Zika virus test. The company was forced to withdraw its request for emergency clearance of the test after inspectors with the U.S. Food and Drug Administration found the company did not include proper patient protections in its study.
The lawsuit from Partner Fund Management is not the first legal trouble Theranos has faced. The company has been sued by several patients who underwent medical treatments after receiving blood tests results from Theranos—tests that were later voided by the company as part of a problem with a batch of results spanning two years. Theranos is also the subject of a criminal investigation by the U.S. Department of Justice with investigations centering on whether or not Theranos and its executives misled investors as to the efficacy of its blood-testing products.