23andMe, the genetics testing startup that’s been trading fun facts about people’s heritage for saliva-covered swabs since 2006, will soon be a $3.5 billion publicly traded company, thanks to an SPAC merger with British billionaire Richard Branson’s Virgin Group.
Branson says he sees 23andMe as a company with “enormous growth potential.” No — home DNA kits weren’t some kind of “pandemic winner.” Rather, the once-booming DTC genetics industry has hit a lull in the past few years, as a result of growing concerns around privacy, accuracy and value.
23andMe’s DNA tests have shrunk to become one small (albeit core) piece of their more lucrative business as a data company and increasingly, a drugmaker. What Branson is really investing in — and what the public will soon be able to invest in — is 23andMe’s 10 million customers’ genetic data and the drugs it might help discover.
23andMe has been selling customer data to big pharma companies Pfizer and Genentech for years. In 2018, the company signed a $300 million deal with GlaxoSmithKline that included access to their database for drug discovery, as well as support for an in-house 23andMe drug making business. “We have always seen health as a much bigger opportunity” than DNA ancestry, CEO Anne Wojcicki told WSJ.
The rise of consumer DNA testing
There were a couple tests on the market when 23andMe launched its first DNA kit, a $999 swab that tested for 90 traits ranging from blindness to baldness in 2007. But the company put direct-to-consumer genetics on the map, with the help of a publicity-driven tech-world hype machine. TIME named 23andMe’s test the 2008 invention of the year, executives invited celebrities like Naomi Campbell highly photographed “spit parties,” and heartwarming 23andMe ads documented people connecting with long-lost relatives.
Within five years, 23andMe’s swab cost just $99, could test for over 200 traits, and had been used by 100,000 customers. Ancestry.com, now 23andMe’s biggest rival, had existed as a family history research service since the 90s. The company launched its own test in 2012, converting its 20-year-old audience into test customers and riding 23andMe’s DNA testing trend, along with a new class of startup rivals.
23andMe became famous for family history reveals, but Wojcicki always had ambitions in healthcare. She hit a roadblock when an FDA probe caused her company to pull its health-related test in 2013. 23andMe’s following release of its FDA-approved health test then kicked off the consumer DNA testing boom. Between 2017 and 2019, 23andMe saw its sales quintuple and its customer base grow from 2 million to 10 million people.
23andMe also grew a massive online following over the last few years. Since 2017, 23andMe’s Facebook likes have ballooned 74%, outpacing Ancestry.com’s 25% uptick. (The latter, which has recently started doubling down on social media opportunities, has the bigger following overall, 2.36 million compared to 23andMe’s 500,000).
The steepest period of growth in Facebook followings for both companies was between mid-2017 and mid-2018, with numbers leveling off in 2019 and 2020. Interestingly, those years coincided with the personalized, direct-to-consumer healthcare explosion, led by companies like Oscar, hims, Nurx, Care/Of, PillPack and SmileDirectClub.
Although people are increasingly comfortable getting healthcare from startups, the genetics testing retail boom was short and sweet. By summer 2019, DNA test sales started to fall rapidly — 23andMe’s revenue declined from $441 million in 2019 to $305 million in 2020. Last January, 23andMe laid off 14% of their workforce, around 100 people. The number of people who listed 23andMe as their employer on LinkedIn dropped throughout 2020 and only began growing again around December, in the months leading up to the announcement of their SPAC merger.
The decline affected the entire industry. A month after 23andMe’s layoffs, Ancestry.com cut its staff by 6%. Arivale, a 2014-founded DNA testing company, shut down in April 2019. Everlywell Inc, an at-home lab testing service that had raised $50 million, shuttered its DNA-testing product in December that year.
After Ancestry and 23andMe layoffs, eulogies were being written for consumer DNA testing, a fading fad. The consensus was that, since customers only need one DNA test in a lifetime, the industry had burned through the population of enthusiasts and trend-followers interested in paying $100 for fun facts about their health and family.
23andMe argues that the company offers much more than fun facts. "We've seen many customers learn important, and potentially lifesaving, information about themselves" 23andMe spokesman Andy Kill told Bloomberg. But even with this expansion, concerns have mounted about tests’ accuracy and decisiveness, since 23andMe only “genotypes” or checks specific DNA locations for mutation, rather than fully sequencing it, which is more comprehensive and expensive. The panic mounted to the point that in February of 2019, the New York Times editorial board felt the need to publish an op-ed warning consumers about missed mutations and inconclusive results.
Revelations that the FBI used GEDMatch, an open-source genetics database, to ID the Golden State Killer also fueled caution. Although 23andMe wasn’t involved, and have repeatedly stated the company doesn't share data without consent, people have become cautious about where their spit could end up, like in the hands of health insurance agencies who could up premiums based on risk of Alzeheimers or heart disease. While 80% of 23andME’s customers — about 8.5 million of their 10.7 million — do consent to having their data used for research, the company has been criticized for not being more transparent that “research” means multi-million dollar deals with big pharma companies.
"The genetic journey is incredibly personal and meaningful."— Prof Gina Neff (@ginasue) February 8, 2021
Which is why we at 23 and Me are thrilled to announce our upcoming IPO that is based on the value of your data.
The future of 23andMe
23andMe’s plans for the future won’t do much to quell consumer concern. A pitch deck secured by WSJ reveals Branson’s Virgin Group’s “investment thesis” for 23andMe, claiming it will “disrupt the healthcare experience” with its “vast proprietary dataset” and by unlocking “revenue streams across digital health, therapeutics and more.” A bar chart in the deck shows both companies view therapeutics as the biggest growth area by far.
23andMe is hiring accordingly. Based on LinkedIn listings, 23andMe’s staff is still not back to pre-layoff numbers, but the company’s job listings have already doubled, going from around 20 to over 40 since January. All year, the vast majority of job listings have been concentrated in the therapeutics department.
Despite the privacy debate and dwindling test sales, 23andMe undeniably has plenty of data to fuel its therapeutics program, which is where Branson sees the biggest growth opportunity. The company already has 30 in-house therapeutic trials in the works across oncology, respiratory and cardiovascular diseases.
23andMe has diversified their revenue — and data — streams in a few different ways. The company launched a health app last year that already has over 75,000 subscribers. 23andMe also collects 30,000 health-related surveys daily from its users. 23andMe receives 50% of the profits from any GlaxoSmithKline drug for a target identified using their data. Early in 2020, 23andMe licensed its first in-house drug to another company, Spanish pharma company Almirall SA.
23andMe and the Virgin Group’s merger is expected to close, opening the firm for trading, in the second quarter of 2021. It’s clear that 23andMe isn’t making its market debut as a genetics testing company. 23andMe is in the business of drugs and data now. What’s less clear is how consumers will feel about it, and the looming effects of a privacy backlash and dwindling test sales.
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