Theranos, a Silicon Valley company that claims it developed an incredibly inexpensive blood testing technology which would upend the industry, faces continuing pressure from investors after a series of articles in the Wall Street Journal questioned the effectiveness of Theranos' core technology, the Theranos Edison device. Adding to the companies troubles, in April both the U.S. Department of Justice and the Securities and Exchange Commission have announced investigations of the company for possibly violating laboratory standards and deceiving investors. The Drug Store giant Walgreens Boots Alliance
Currently the blood testing industry is dominated by Quest Diagnostics
Theranos, founded by Stanford University drop-out Elizabeth Holmes in 2002 when she was just 19, claims to have developed a finger-pricking blood test, which was not only less invasive than traditional blood tests but was cheaper and produced results more quickly. In 2013 Walgreens
Beginning last October, Wall Street Journal articles began questioning the effectiveness of Theranos technology which has not been peer-review by scientists. Additionally the FDA ordered Theranos to severely limit the use of its Edison device, calling it "uncleared medical technology." More recently, U.S. authorities have said they are considering revoking Theranos main lab's certification after an investigation revealed substandard practices. Amid this scrutiny, in May Theranos' Chief Operation Officer Sunny Balwani stepped down.
All this negative press has led Walgreens to try distance itself from Theranos. The company has said it will not introduce Theranos technology to any additional stores for the time being. Walgreens management was not told by Theranos about the controversies surrounding the company, learning about Theranos difficulties in the media. But because Walgreens and Theranos signed a contract when they formed their partnership, Walgreens is limited in what it can do to cut ties with Theranos. Any attempt by Walgreens to break to partnership would likely lead to lawsuits. This means that Walgreens will continue to be associated with Theranos even as the blood testing company continues to take hits in the press and is investigated by federal authorities. Theranos's valuation by investors is very dependent upon its relationship with Walgreens, as it would give Theranos access to over 8000 stores across the United States where it could distribute its product. Though that relationship will continue for the time being, Theranos future will remain in doubt as long as its continues to be under criminal investigation and its core technology remains unproven.
All this news has had minimal impact on the stocks of Walgreens and of Quest Diagnostics and the Lab Corporation of America. While Theranos technology got a lot of positive press early on, because it was not in widespread use and remained unproven, markets did not react in any major way. Though Walgreens is stuck partnering with Theranos, the partnership is not a major drag on their bottom line, meaning it has had minimal impact on the stock price.