The decision means Walgreens will no longer offer Theranos blood-collection services at any of its stores, a move that is expected to cut Theranos’ income sharply because the lab testing company would no longer have a significant source of medical laboratory test volume
Walgreens Boots Alliance (NASDAQ:WBA) is ending its relationship with Theranos Inc. and closing all 40 Theranos Wellness Centers at its stores in Arizona, effective immediately, the national pharmacy chain store company announced on Sunday, June 12. It means that Theranos will no longer be able to collect medical laboratory specimens at pharmacies owned by Walgreens.
This move follows a decision by Walgreens in January that Theranos could no longer send clinical laboratory tests collected at Walgreen’s Wellness Centers to the Theranos lab in Newark, Calif. In the fall, the federal Centers for Medicare and Medicaid Services (CMS) cited the Newark lab as the source of serious deficiencies that risked patient harm, CMS said. (See Dark Daily, “CMS Notifies Theranos of CLIA Sanctions That Include Revoking Clinical Laboratory’s CLIA License and a Two-Year Ban on Holmes, Balwani, and Dhawan,” April 14, 2016.)
Theranos Can’t Collect Clinical Laboratory Specimens at Walgreens Pharmacies
This announcement on Sunday, along with Walgreens’ earlier decision in January to end Theranos’ medical laboratory testing services at the Walgreens store on University Avenue in Palo Alto, Calif., means Walgreens will no longer offer Theranos services at any of its stores. The loss of this source of lab test volume is expected to cut Theranos’ income sharply, The Wall Street Journal (WSJ) reported.
“The move is a significant blow to Theranos,” the WSJ wrote Monday. “The 40 Theranos blood-draw sites inside Walgreens stores in Arizona, which the company calls ‘wellness centers,’ have been the primary source of revenue for Theranos and its conduit to consumers, analysts say.”
What’s more the partnership between Walgreens and Theranos, announced in September 2013, had given Theranos some credibility, the WSJ reported.
To regain customers, Theranos would need to find a new retail partner, sell its medical laboratory testing services directly to physicians, or open its own patient-service centers, the WSJ suggested. The problem with each of these options is Theranos would need to duplicate the same lab infrastructure and the same cost structure that conventional clinical laboratories use.
Need to Build a Network of Lab Test Collection Centers
Increased costs might force Theranos to raise what it asks customers to pay well above the 50% of Medicare Part B clinical laboratory test prices that it currently charges. In effect, it would have substantially less income per test than conventional medical labs have, yet must operate at the same infrastructure cost level.
The WSJ reported that Theranos already has taken steps to open a blood-testing center in Arizona and has been exploring the possibility of a partnership with another pharmacy or supermarket chain store. Theranos spokeswoman Brooke Buchanan told Matthew Herper at Forbes that the clinical lab company in Palo Alto has plans to expand.
In his story, Herper noted that Walgreens’ cancellation of its deal with Theranos created two problems for the lab company in Palo Alto:
• First, Walgreens’ loss dramatically reduces the size of Theranos’ retail operations, leaving only one location in California and five in the Phoenix valley, Buchanan said. The company’s revenue is said to be less than $100 million, Herper wrote, adding, “That figure will drop.”
• Second, the announcement demonstrates that Walgreens executives are confident Theranos’ problems will get worse, Herper added. Walgreens execs had been worried that its contracts with Theranos would allow Theranos to sue Walgreens. “That Walgreens has backed out means that it is now confident that it can protect itself if that happens,” he wrote.
Ongoing Flow of Bad News Is Problem for Executives at Theranos
The steady drip, drip, drip of bad news about Theranos will cause investors and potential business partners to hesitate to commit to entering any new deals with the lab company, Herper added. “Just as hype and an aura of innovation once worked in Theranos’ favor, now the general sense that the company cannot succeed will be a headwind that makes accomplishing anything extremely difficult,” Herper wrote.
Walgreens execs were frustrated at their inability to get details and documentation from Theranos about why the company was correcting thousands of blood tests, including those performed on blood taken from Walgreens customers, the WSJ reported. The threat of severe sanctions from CMS is another serious concern.
In the announcement Sunday, Brad Fluegel, Walgreens’ Senior Vice President and Chief Healthcare Commercial Market Development Officer, said, “In light of the voiding of a number of test results, and as the Centers for Medicare and Medicaid Services has rejected Theranos’ plan of correction and considers sanctions, we have carefully considered our relationship with Theranos and believe it is in our customers’ best interests to terminate our partnership.”
Also in January, Walgreens told Theranos that specimens collected at Walgreens stores in Arizona must be sent only to Theranos’ CLIA-certified lab outside Phoenix or to an accredited third-party lab for analysis. “No patient samples were to be sent to the Newark lab until all issues raised by CMS have been fully resolved,” Walgreens said.
Dark Daily’s sister publication, The Dark Report has additional coverage about Theranos, and further analysis about these developments, in its June 13, 2016, issue.