Back in January, I was invited to a J.P. Morgan reception hosted by 23andMe, the storied gene testing company that Anne Wojcicki runs as co-founder and CEO.
Standing on the topmost floor of the Salesforce tower with 360-degree views of the city below — far from the tents and the grime of the downtown sidewalks — I was struck by how sparkling San Francisco is on a clear, fogless night. I wordlessly thanked whoever put me on the invitee list affording me the chance to savor the view and talk to Wojcicki, a prominent and pioneering healthcare executive in Silicon Valley and beyond.
While the view outside was mind-blowing, the scene indoors was decidedly underwhelming. Unlike the busy receptions held by other JPM event organizers, the large space atop Salesforce seemed empty with just a few people milling around. And I kept thinking — is 23andMe relevant anymore?
The company’s $6 billion market cap has vanished into thin air. It’s stock could be on the cusp of being delisted from the NASDAQ having fallen to less than a dollar. Recently Wojcicki has been talking about splitting the company, which has three distinct businesses — the consumer testing and virtual care business, the research database that pharma companies can mine for insights in drug development and its own, nascent therapeutics business with two drug candidates in early stages of clinical trials.
But on Thursday, 23andMe announced that Wojcicki wanted to buy out all outstanding shares she doesn’t already own and take it private. Apparently that’s the outcome she wants the board to consider and not any other strategic alternatives. To which Steven Mah, a Wall Street analyst with TD Cowen issued a research note with the following comments:
Shares of 23andMe have faced pressure as some biotech investors would be interested in their therapeutics business but don’t want involvement in a DTC platform business while others are looking for a near-profitable and mature platform healthcare business without having to support the cash burn of their therapeutics business. A potential business split, which has been previously discussed, remains on the table in our view and addresses the central dilemma of 23andMe shares, but beyond that options are seemingly limited, in our view. We view the company turning private from Ms. Wojcicki’s proposal as the new most likely outcome which should be welcomed by investors.
“Options are seemingly limited” — that’s quite far to fall for a company that was once a media darling known for holding spit parties.
Did it have to be this way? Were there missed opportunities when it came to innovation? What if another co-founder and Wojcicki’s co-president from back in the day — Linda Avey — had been anointed CEO instead of being ousted in 2009? Most recently, the Wall Street Journal did a historical review of the dizzying fall of 23andMe in which it described Avey’s exit as an ouster. Avey herself confirmed it in her phone interview with me. However, at the time, both Avey and Wojcicki cast it as a voluntary departure. 23andMe ignored my requests for a confirmation of the board’s actions surrounding Wojcicki’s ascent as CEO.
Where would Avey have taken 23andMe if she had been named CEO? Without knowing the angle that I was taking in reporting on 23andMe — frankly I didn’t know what story I would write until well after I finished interviewing both Avey and Wojcicki — Avey laid out a vision quite different than the one Wojcicki has pursued.
The Google of personalized health
“There’s obviously so much more to a person’s health than genetics. It’s just one layer of information and it’s very static,” Avey said. “And so I wanted to just go beyond that and start collecting additional information, allowing people to track symptoms or adverse responses to drugs, which EMR systems don’t enable. By giving our customers a place to gather all that data together, I think we could have ended up being the Google of personalized health.”
It’s important here to understand the different kinds of molecular gene testing out there, including the type offered by 23andMe. The latter offers mainly genotyping, which looks at specific locations in human DNA and identifies variations. The variations are responsible for ancestry, health conditions and specific traits. 23andMe tests are not meant as a replacement for any kind of clinical diagnosis. Other types of molecular gene testing can range from single gene tests that look for variants in a single gene, single variant test, gene panels and whole genome sequencing that analyzes the bulk of a person’s DNA to detect mutations. Whole genome sequencing is time consuming and more expensive than genotyping, the type that 23andMe honed in on as it rode its way into mainstream consciousness.
Late last year, 17 years after it was founded, 23andMe announced a new membership program called Total Health that would offer exome sequencing that analyzes the protein-coding regions of the genome that is known to contain the variants causing many diseases. So now consumers can opt for both genotyping and exome sequencing through 23andMe
Avey explained that gene testing was always the starting point, but the goal was not to limit it to a person’s genetic make up alone.
“My idea was that we could start adding in dynamic data like microbiome testing, or wearables,” she said in a recent phone interview. “If a person had a family history for heart disease, we could go in and do deeper sequencing of specific genes. So sort of single gene tests would be something that would be just a no-brainer to add in.”
But Wojcicki had a different take. When asked if 23andMe could have offered any other kind of tests, she mentioned and then dismissed microbiome testing almost instantly.
“I mean I would love to rewind, do all kinds of things. No, I think that I wouldn’t add on. There’s nothing else that’s as fundamental as genetics that you can also return to consumers. If you think about what we’re really good at, we return a very meaningful product back to customers,” Wojcicki said. ” So, when I think about … all these startups doing microbiome or other types of tests, it’s not as robust what you can get back to customers.”
Avey seems to believe that reliance on gene tests alone may have been shortsighted from a consumer point of view.
“There were so many opportunities to gather all kinds of data, but starting with the genetics was really great because it engaged people at a certain level and they would open up their reports and piqued their curiosity,” she said. “But then the comments I got from a lot of people, maybe three or four years later after I’d left were like, ‘I don’t ever log in. There’s no reason for me to log back into my account.’ “
We used a sperm donor to conceive you
A customer referred to me by 23andMe actually logs on two-three times a month. Ann Melinger, who runs her own corporate communications agency said in a phone interview that 23andMe has played a pivotal role in her life. She noted that she is not paid by 23andMe.
When Melinger was around 30 her parents gave her some startling news.
“As an adult, my parents sat me down and said, ‘You’ve never known this your whole life, but we used a sperm donor to conceive you,’” she recalled.
It was around the time that 23andMe was becoming a thing, and before the FDA came down on it for selling an unregulated test.
“And so I had that knowledge going into my early thirties and then started hearing about 23andMe and thought, ‘Oh, well this is really cool because there’s this whole 50% of my DNA and my health history that I don’t know about,’” Melinger said. “Because also when you’re in your 30s, you’re starting to get asked questions at the doctor about, do you have a history of breast cancer? Do you have a history of colon cancer? All these things. And I just was like, ‘I don’t know.’”
She went ahead and took the health and ancestry test. The results were life-altering. She found out that she was a BRCA1 carrier, which put her at much higher risk for all different sorts of cancers, primarily breast and ovarian.
“And so when I got those results from 23andMe, I also jumped to the conclusion that probably [this] comes from my father’s side of the family because there isn’t a lot in my [mother’s side that I knew about],” she said. “But my mother and two sisters decided to also get tested and they all tested positive for the mutation as well. So basically through me doing 23andMe, my entire side of my family that I do know about learned this information that just by coincidence we learned.”
Melinger added that learning she was a BRCA1 carrier prompted her to do a prophylactic double mastectomy, and at the age of 45, she has already done two colonoscopies. Basically, that first 23andMe test galvanized her to take these steps to maintain her health and lower her risk for developing certain cancers.
While that knowledge of being BRCA1 carrier is significant, she described that the other information that 23andMe provides does not always rise to that level.
“There are things that are not that high impact, like cheek dimples. Am I likely to have cheek dimples? Well, I can look in the mirror and see that I have one cheek dimple, so I don’t really need [these types of reports],” she declared.
Through 23andMe, Melinger also found a brother and she logs on to her account two to three times a month to see if any other family/biological connections have been made. If 23andMe users consent to share their information, the company can match their profiles to others that they may be related to.
But despite the fact that Melinger credited 23andMe with changing the trajectory of her life as it relates to certain health decisions she made, she is not a paid subscriber — in fact she had to check both her 23andMe accounts (created twice because she took 2 tests) to say she doesn’t have a subscription. Nor has she ever felt the need to get an appointment with any of the virtual health coaches and physicians that are now part of 23andMe through its $400 million Lemonaid acquisition in 2021.
Moving towards a genetics-based primary care preventive service
To Wojcicki though, the capability that Lemonaid clinicians and pharmacy offer is a key differentiator — and it’s not about Lemonaid treating UTIs, erectile dysfunction or sore throats — the sort of low-grade maladies that can be addressed remotely. What Lemonaid clinicians can do is offer primary care for sure, but with a real wellness focus driven by data gleaned from DNA tests the company does. These clinicians are being trained by 23andMe to understand genes and how they impact health.
“And the goal of Lemonaid was to have access to a care team to be able to direct it really on genetics-based primary care or preventative care, and have a pharmacy as well where you could actually integrate pharmacogenetics,” she explained. “No pharmacy today uses your genetics.”
Wojcicki declined to say how many virtual care interactions have taken place since the Lemonaid acquisition. Not much is known about how well consumers have received the Total Health membership program either, that leverages Lemonaid’s capability. This program includes clinical grade exome sequencing, biannual blood testing and access to Lemonaid clinicians who have been trained by 23andMe in genetics at the cost of $99 per month. In the last earnings call with Wall Street analysts, when Mah, the analyst with Cowen asked how the company is internally measuring the success of the Total Health, Wojcicki responded, “We’re not giving much on Total Health,” according to a transcript of the February earnings call.
She went on to add that “it’s the first real integration with Lemonaid and being able to have on one system access to care, being able to order blood, being able to order medications at some point, being able all in one and all on the 23andMe brands. So I think that is one of the big milestones for us.”
Consumers can be fickle when it comes to paying for healthcare, so it remains to be seen whether consumers will move from “one and done” — in other words do a one-time ancestry or ancestry plus health test — to having a more sustained relationship with the company. The consumer testing business accounts for 96% of overall revenue, while 4% comes from its research database of 15 million de-identified data that pharma companies can license to aid in drug development. GSK had an exclusive license with 23andMe and now has released it from that exclusive license. So 23andMe is free to pursue other pharma clients.
Being free to chase prospects is good for business, but Wokcicki has a more immediate problem: creating a financial structure for the company. From Thursday’s announcement, it’s clear that she just wants to take the company private and wants the Board to give that priority over any other strategic alternatives. What’s not clear is whether she will retain them as one private entity — or run them as separate businesses. A 23andMe spokesman referred me to Wojcicki’s personal public relations agent who didn’t respond to an email query. When Wojcicki and I met in late March she said it was inevitable that the consumer business has to split from the therapeutics business.
“The market has spoken,” she declared with a quiet finality.
Did 23andMe innovate enough?
Mah of TD Cowen characterized the market’s reaction to 23andMe in mild terms: the stock is “pressured” he wrote in his research note on Thursday. That the market views 23andMe’s stock as being worth less than a dollar may not just be a matter of the consumer side weighing down the biotech side or vice versa. After all, the consumer side has never turned a profit and revenue was down 33 percent in the last quarter. Could it be that after a truly innovative product was introduced in the market, no one paid attention to what the next big thing ought to be and how to evolve? A Bay Area health tech and medtech venture capitalist who believes in the value of 23andMe as a testing company had some advice.
“Look, there’s an obsession right now with caregiving solutions, longevity, healthy aging, all this stuff is being exposed. You go look at everything that’s happening in the women’s health space,” said Samir Batra, co-host of the MedCity News vidcast — Debunked and managing partner at HIP, last month. “There’s so much genetics talked about in terms of how the women’s health industry needs to evolve. So I think there’s got to be a little bit of pivoting of marketing that needs to happen. I think there is a lot of value there [in23andMe].
“There’s other sort of testing. So maybe there is a consolidation there. Maybe there’s companies that are going to come together and fold into one or whatever it is to basically bolster you being the consumer, at home [doing] internal testing,” Batra added. “It could be blood and other different parameters … If you don’t continue to innovate, you will get displaced. Happened to GE, happened to GM, happened to Kodak, it happens to everybody.”
True, except that those companies were profitable — something that hasn’t yet occurred at 23andMe. And as the Wall Street Journal article stated, the company is burning through cash and may find itself without any in the next year.
Avey believes the fault may lie in the lack of an understanding in what truly engages people.
“I think the bottom line is that startups are super hard. I’m not going to deny that continually innovating is very challenging, but that’s the Silicon Valley way,” declared Avey, who is currently the founding managing partner at Humain Ventures, a venture capital firm investing in startups at the intersection of artificial intelligence and the biological sciences. “You just keep trying new things. You just keep trying to see what engages people and what gets them to continue to log into your site. I mean, it’s product development 101 ….”
Batra may have summed it up perfectly.
“What Anne did with 23andMe —and other companies have followed suit is they brought to light a very important diagnostic. So you have a lens into who you are, the makeup of who you are, and especially in cancer— and even in other diseases — genetics is a huge indicator of what’s going to happen,” he said. “But there’s other companies popping up that are doing biomarkers and other tests. So look, if you want to be the testing platform, why are you just sitting there doing genetic and DNA tests?”
