Incumbent pharmacy chain operator Walgreens Boots Alliance (NASDAQ:WBA) is cutting and running from a high-profile partner. The company said it has informed Theranos that it is terminating its partnership with the privately held blood testing company, effective immediately. Theranos services will no longer be available at the 40 Walgreens locations that offer them.
Theranos was a Silicon Valley "unicorn" that had the potential to disrupt the medical testing segment by using Edison, a proprietary technology that apparently required only several drops of blood for its analysis. However, this past November the Centers for Medicare and Medicaid Services conducted an inspection of the company's facilities that indicated numerous deficiencies in its testing regime. Last month, Theranos voided all results from Edison tests in 2014 and 2015, issuing thousands of corrected reports.
In the wake of those events, the company is currently under investigation by the Justice Department and the Securities and Exchange Commission. Neither Theranos nor those agencies have detailed the exact nature of the probes.
Does it matter?
It certainly matters a great deal to Theranos, as the Walgreens partnership produced most of its revenue and solidified its status as a hot Silicon Valley property. It'll have less impact on Walgreens, although the publicly traded company will benefit to some degree from cutting a controversial partner loose. This will help protect its reputation.
Divorcing the troubled Theranos might also make it somewhat more competitive in the growing in-store health clinic segment of the pharmacy market. It's fighting in that segment against other incumbents, notably CVS Health and Rite Aid. According to recent tallies, CVS Health had over 1,000 of its MinuteClinics in operation, more than double the 400 operated by Walgreens (although both far outpaced RiteAid's 90 RediClinics).
CVS Health and RiteAid, meanwhile, did not collaborate with Theranos on blood testing.
Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends CVS Health. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.