Drug chain seeks $140 million in damages in federal suit

NEW YORK — Walgreens has filed a breach-of-contract lawsuit against former lab testing partner Theranos Inc., the companies confirmed.

The civil suit was filed Nov. 8 in U.S. District Court in Delaware under seal, because Walgreens was concerned Theranos might claim the action violated the companies’ confidentiality agreement, The Wall Street Journal reported, citing court records.

Walgreens is seeking damages of $140 million, the amount that the drug chain said it invested in the Palo Alto, Calif.-based Theranos.

The Walgreens-Theranos partnership, announced in 2013, involved opening in-store blood testing centers at 40 locations. Theranos said its blood-testing device, called Edison, could perform multiple tests with just a few drops of blood taken via a tiny fingerstick, offering consumers a less invasive and more affordable blood test.

But as concerns began to grow that Theranos’ technology might not live up to the company’s claims, Walgreens began distancing itself from the partnership. Earlier this year, Walgreens said it had stopped sending clinical tests to a Theranos lab in Newark, Calif., while government regulators were reviewing the company. Then in June, Walgreens told Theranos that it would immediately terminate the partnership and close all of the drug chain’s Theranos Wellness Centers in Arizona.

Hype about Theranos’ technology and partnership with Walgreens made it a darling of Silicon Valley venture capitalists. Investments in Theranos helped drive the health care company’s market capitalization to $9 billion and vaulted the company’s chief executive officer, Elizabeth Holmes, atop Forbes magazine’s ranking of America’s richest self-made women, based on her 50% stake in the company. Yet as Theranos’ regulatory problems multiplied, Forbes lowered its estimate of Holmes’ net worth to nothing.

“We are disappointed that Walgreens filed this lawsuit,” Theranos said in a statement released Tuesday. “Over the years, Walgreens consistently failed to meet its commitments to Theranos. Through its mishandling of our partnership and now this lawsuit, Walgreens has caused Theranos and its investors significant harm. We will respond vigorously to Walgreens’ unfounded allegations and will seek to hold Walgreens responsible for the damage it has caused to Theranos and its investors.”

Earlier this year, Theranos moved to reorganize its executive team and board, including the addition of more scientific and medical expertise. In early October, Holmes posted a letter on the company’s website saying that it has decided to close its clinical labs and Theranos Wellness Centers, affecting about 340 staff in Arizona, California and Pennsylvania.

“We will return our undivided attention to our miniLab platform,” Holmes stated in the letter. “Our ultimate goal is to commercialize miniaturized, automated laboratories capable of small-volume sample testing, with an emphasis on vulnerable patient populations, including oncology, pediatrics and intensive care.”