23andMe is in trouble. Once a hot Silicon Valley startup, the genetic testing company has been in free fall since a major data breach last year that affected roughly half of its customers. The incident led to a class action lawsuit, which the company has agreed to settle for $30 million.
In August, the company shuttered its in-house drug discovery unit. And last month, all of the company’s board of directors resigned en masse over cofounder and CEO Anne Wojcicki’s “strategic direction,” which included a proposal to take the company private at 40 cents per share. Wojcicki had said she would consider third-party takeover offers but reversed course in a regulatory filing this week.
Valued at $6 billion when it went public in 2021, 23andMe’s stock has plummeted from $10 a share three years ago. The company has yet to turn a profit in the 18 years since its founding. Now, it faces an uncertain future as it struggles to make money and remain relevant.
One thing seems clear: Home DNA testing has lost its luster. 23andMe kits just aren’t as popular as they used to be. Declining sales are in part to blame for the company’s slump in revenue, which was $40 million in the first quarter of this year, a 34 percent decrease over the same period in the prior year. Test sales started dropping off back in 2019, a trend Wojcicki previously told WIRED was due to increased competition in the space. That year, rival DNA-testing company Ancestry rolled out its own health testing service, AncestryHealth. It discontinued the service less than two years later.
One explanation for 23andMe’s woes is that it has simply run out of customers. Most people who are interested in learning about their family history and health risks have probably already taken a test at this point. And once that curiosity is satisfied, few come back to keep interacting with 23andMe.
“If you want to build an enduring business, you need to provide an ongoing source of value,” says Khaled Kteily, CEO of Legacy, a company he founded in 2018 that provides at-home male fertility testing and sperm banking. Legacy’s business model involves a standard semen analysis plus add-ons such as nutritional supplements and testing for sexually transmitted infections. The company also offers sperm freezing as a way to retain customers after that initial sperm quality testing.
23andMe has tried to keep customers coming back with a premium service that provides more genetic reports, personalized health recommendations, and historical relative matches for $268 the first year and $69 per year after that. The company launched another membership service in 2023, Total Health, that includes more comprehensive genetic testing, regular blood screening, and access to a clinical care team. It costs $999 for the first year and renews at $499 a year.
But these memberships haven’t yet propelled the company to profitability. It makes sense that many customers can afford the $119 for a stand-alone ancestry test or $199 for an initial test—which is often discounted around the holidays—but aren’t willing to shell out more for a subscription service.
Kteily says by the time the company rolled out these services, it was too late. Customers had already left the platform. “I think they hit on something viral, which was the concept of where you’ve come from. People found that so fascinating. But once you know that information, you’re not going to come back five years later and pay for a subscription,” he says.
Sumit Nagpal, a serial entrepreneur in the health tech space and a self-described early adopter of 23andMe, says he was among the company’s subscribers but eventually stopped logging into the online platform. He says the reports didn’t provide much “actionable” health advice. “It never had any life-changing value,” he says.
Nagpal’s latest company, Cherish, which he founded in 2020, is developing radar-based sensor platforms equipped with AI for health and safety monitoring. He thinks 23andMe could have had more offerings earlier on—for instance, personalized coaching on diet, exercise, and other lifestyle factors on an ongoing basis to keep customers engaged.
In many ways, 23andMe’s conundrum is similar to the Instant Pot problem. Its initial product was so successful that people never needed to come back to buy another one.
23andMe has tried to diversify its revenue streams, making deals to allow pharmaceutical companies to mine its vast genetic database for drug leads. It partnered with Genentech back in 2015, and when that ended, it struck an exclusive deal with GlaxoSmithKline in 2018. The pharma company invested $300 million in 23andMe, but that agreement expired in 2023, with no big partners stepping in to fill Glaxo’s shoes. And while 23andMe recently shut down its drug discovery unit, it is continuing to advance the drug candidates it already has in clinical trials.
Now, the company has turned to growing its telehealth business. In 2021, it acquired telehealth service Lemonaid. Capitalizing on the Ozempic craze, Lemonaid started offering Ozempic, Wegovy, and compounded semaglutide in August through a weight-loss program. After an initial consultation with a clinician, the membership is $49 per month with weight-loss medication starting at $299 a month for compounded semaglutide. “The addition of weight-loss management for our customers fits directly within our strategy of delivering services to approved individuals’ health through preventive actions,” Wojcicki said in an earnings call in August.
But it may not be enough. Estelle Giraud, CEO and founder of Trellis Health, which is building a health app for pregnancy, says the anti-obesity space is already crowded. 23andMe will have to prove that it offers something unique compared to other telehealth providers. “If I’m a customer looking for a telehealth solution, it comes down to brand and trust,” she says.
And establishing trust may be 23andMe’s biggest challenge after last year’s data breach exposed personal information from nearly 7 million customers’ profiles. It doesn’t help that there’s always been confusion among users over the company’s data practices. Customers must give their express consent to share their deidentified genetic data for research purposes, but one survey conducted in 2017 and 2018 by university researchers found that more than 40 percent of customers polled were not aware that using and sharing customer data was part of 23andMe’s business model. When users opted into sharing their data for research, likely many of them didn’t realize that “research” included helping Big Pharma develop new drugs.
“For health care companies, your data is intimately linked with your business model, and with genetics, it’s so personal. You have to be really transparent, and you have to be really clear what that business model is,” Giraud says.
Perhaps customers are just wisening up to all the ways their personal data is being used by third parties and no longer trust tech companies with their data. Wojcicki herself has acknowledged as much. In an interview with WIRED earlier this year, she suggested that the 2018 Cambridge Analytica scandal, in which the personal data of millions of Facebook users was collected without their consent and used for political advertising, has contributed to declining test kit sales.
Does the downfall of 23andMe mean consumer genetics is dead? Wojcicki has always believed in the power of genetics to improve a person’s health trajectory—she fought the US Food and Drug Administration to allow her company’s genetic risk tests to be sold directly to consumers. But the company’s problem has been convincing consumers of the value of that genetic information.
More than 20 years after the Human Genome Project was completed, the promise of personal genetics hasn’t panned out for the average person. “Genetics was supposed to be this thing that unlocked all this information and cured disease. It ended up being way more complicated than that,” says Christina Farr, a health tech investor and former journalist who covered 23andMe for many years.
The next wave of direct-to-consumer companies is trying to figure that out. Nucleus Genomics, a startup founded by college dropout Kian Sadeghi in 2020, is one of a handful of firms offering whole genome sequencing, a more comprehensive kind of testing than the genotyping that 23andMe does. Sadeghi told WIRED his company is considering acquiring 23andMe.
Anarghya Vardhana, a health tech investor at venture capital firm Maverson, says if 23andMe stays in business, the company will likely look different than it does today. “Obviously, they have valuable data and information. They have the genetic composition of several millions of people. There is a valuable asset there. There is a valuable brand there. I think it’s a question of what Anne Wojcicki will want to do.”
Source : Wired
