Outcome Health founders Shradha Agarwal, Rishi Shah go on trial

There are plenty of parallels between Theranos and Outcome: young, charismatic founders who dropped out of prestigious private universities and won the confidence of high-profile investors.

But there also are key differences. Theranos tried to create a blood-testing technology that would be used directly by consumers. Its technology was never proven, and Theranos never became a moneymaking business.

Outcome, however, was a real business with most major pharmaceutical companies advertising on screens the company had installed in thousands of doctors’ offices. At its peak, Outcome said it was generating more than $100 million in annual revenue.

Prosecutors claim the company billed customers for more advertising than they received, inflating its revenue by 20% to 25%. Those financials were used to obtain two loans totaling $485 million and to raise $488 million from investors.

Unlike Theranos, Outcome’s founders cashed out along the way. Shah and Agarwal received payouts of more than $260 million from the loans and investment, according to court documents, although they were forced to return some of it in a settlement with investors. Shah retained an 80% stake in the company, which prosecutors say was once worth more than $4 billion. 

That’s what led to Outcome’s downfall. After reading about the big fundraising round, a company employee contacted a Wall Street Journal reporter “to tell him the truth of how business operated at Outcome,” according to court documents. The Journal’s story in October 2017 triggered an investor lawsuit and investigations by the Securities & Exchange Commission and the Deptartment of Justice. 

The money Shah and Agarwal pocketed will make it harder for the defense, says Kevin O’Brien, a former federal prosecutor and partner at Ford O’Brien Landy, a New York-based firm that does white-collar defense. “If the money comes in at trial, it’s pretty devastating because it goes to motive.”

The case involves more than 10 million documents, including email and voice messages. The government expects more than 1,000 exhibits and more than three dozen witnesses.