PALO Alto, Calif. – More questions have arisen about the leadership structure at Theranos, following a Forbes column questioning decisions over stock splits and how much of a say shareholders in the private company have regarding company direction.

Forbes columnist Peter Cohan cites a 2013 letter to shareholders asking support for the creation of two classes of common stock that would give Holmes voting control of Theranos. According to the letter, Holmes, the youngest self-made female billionaire, would have been eligible to swap her Class A common stock, which had one vote per share, to Class B common stock, which had 100 votes per share, giving her control of the company. The stock plan was an effort to raise capital for the company, which now has an estimated value of about $9 billion.

“We are completing a series of financial transactions with strategic partners that provide access to additional capital in order to accelerate our growth. We are also completing equity transactions with strategic entities who had previously invested in Theranos and had the option to invest additional equity in the company through the end 2013,” Forbes reported the letter as saying.

Cohan argued that the plan should raise red flags for investors because the 2013 letter left out crucial details of how much control Holmes would take on compared to how much she held at the time.

“After raising new capital, would her Class B shares give her enough votes to pick directors and decide whether to sell Theranos? Did Holmes have these powers before the creation of the new classes of common (stock) or would that change grant her new powers,” Cohan argued.

In October, Theranos announced it would shake up the size of its board of directors, by eliminating members including Henry Kissenger and George Schultz. Theranos has reduced its board of directors from 12 to five members and renamed it the board of governors. Those former board members such as Kissenger and Schultz will now serve on a “board of counselors” to provide advice to the board.

Following that change, the board issued a statement in support of Holmes and Theranos’ management.

Cohan said Theranos announced in 2014 unanimous support for the stock plan, yet one shareholder told him he never consented to the notion, so he questioned how the support could be unanimous. Theranos told Cohan it is a private company and “does not comment on our investors, our communication with them, or fundraising.”

This letter Cohan cites is part of a string of concerns raised around Theranos and its blood-testing kits. Theranos has been under fire over its finger-prick blood tests, which the company says could be used to perform a variety of medical tests and be conducted cheaper and faster. In October, the U.S. Food and Drug Administration called Theranos’ proprietary Nanotainer tubes an uncleared medical device in inspection reports released Tuesday night. The FDA said Theranos’ Nanotainer blood specimen tubes are not properly filed as a Class II medical device, but are instead being identified as a Class I medical exempt device. As a result, the FDA said Theranos is “currently shipping this uncleared medical device in interstate commerce between California, Arizona and Pennsylvania.” Theranos, a $9 billion company, received inspections from the FDA between Aug. 25 and Sept. 16 of this year. Following the visits, federal regulators provided the company with Form 483s, which notifies the company of any problems investigators may have found. In total, the FDA listed 13 different concerns.

In addition to the FDA’s reports, Holmes and Theranos have been under fire since a Wall Street Journal report alleged the company only performs 10 percent of its blood tests on its proprietary technology and opts to perform the majority of its blood tests using technology acquired from other companies, including Siemens (SI). In the article the Journal cited several former Theranos employees, as well as the medical records of patients who had used the Theranos blood test.

According to the article, the former employees allege the company split testing between its own proprietary Edison machines and technology acquired from other companies. The use of the two separate technologies yielded different results “when testing for vitamin D, two thyroid hormones and prostate cancer.”

Because of the scrutiny over the blood tests, Walgreens announced it will hold off on expanding blood testing centers throughout its chain of stores until the California-based Theranos can answer allegations out the viability of its Edison blood-testing systems. There are currently 41 Walgreens stores that have Theranos blood testing centers, with most of them being located in Arizona, The Verge reported. Walgreens had plans to roll out the blood centers to a large number of its 8,200 stores.


November 4, 2015
By Alex Keown, Breaking News Staff

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