Health and Healthcare

Theranos Valuation Could Go to Zero

Douglas A. McIntyre

Published: April 14, 2016 6:43 am

Last Updated: January 13, 2020 10:47 am

Theranos, which had a valuation of $9 billion late last year, may see that number drop to zero. The blood-testing business was identified as the next big thing in the advancement of inexpensive and reliable ways to detect diseases. Its success would have sharply reduced one of medicine’s substantial costs.

As has been the case with other unicorns (private venture-capital-backed companies with $1 billion or more valuations), a stumble in a core business or slowing growth can quickly cause a sharp reduction in valuation. The number of these downward revisions has grown rapidly as investors lose faith in some of the previously white-hot businesses.

Theranos has a unique problem, which is that it may not be able to operate is business at all. According to The Wall Street Journal:

Federal health regulators have proposed banning Theranos Inc. founder Elizabeth Holmes from the blood-testing business for at least two years after concluding that the company failed to fix what regulators have called major problems at its laboratory in California.

In a letter dated March 18, the Centers for Medicare and Medicaid Services said it plans to revoke the California lab’s federal license and prohibit its owners, including Ms. Holmes and Theranos’s president, Sunny Balwani, from owning or running any other lab for at least two years. That would include the company’s only other lab, located in Arizona.

Venture capitalists make money on a batting average. None of them has a portfolio containing 100% winners. A surge in valuation in a few companies hopefully offsets the terrible investments. Theranos may well be one of those investments that gets marked to zero.