23andMe’s fall from $6 billion to almost $0 – main points from The Wall Street Journal article

The Wall Street Journal published a large article about 23andMe, a DNA testing company that was one of the founders of the industry but is now going through a rough patch. We highlighted the main points from the article about the rise and fall of 23andMe.

Five years ago, 23andMe was one of the most popular startups in the world. Millions of people spit into its tubes to find out their ancestry. TV presenter and writer Oprah called the kit one of her favorite things; singer and rapper Lizzo dressed up as a test tube for Halloween; actor Eddie Murphy mentioned the company in the Saturday Night Live entertainment program. 23andMe went public in 2021, and its value briefly exceeded $6 billion. Forbes called Anne Wojcicki, 23andMe CEO and Silicon Valley celebrity, “the newest self-made billionaire.”

Now Wojcicki’s self-made billions are gone. The value of 23andMe has fallen 98% from its peak, and Nasdaq has threatened to delist its shares worth less than $1. Last year, Wojcicki cut her staff by a quarter through three waves of layoffs and the sale of a subsidiary. The company no longer made a profit and is spending money so fast that it could run out of money by 2025.

The fortunes of Silicon Valley were built on the high ambitions of entrepreneurs who gave it their all-even if most of them failed. Wojcicki, on the other hand, is not giving up. She is sticking to her goal of transforming 23andMe from a provider of simple ancestry and health data into a comprehensive healthcare company that develops drugs, offers medical care, and sells subscription health reports.

She still has to prove that the business can be viable. Wojcicki raised about $1.4 billion for 23andMe and spent about 80% of it. But with 23andMe shares trading at just 74 cents, the company likely won’t be able to raise money by selling more shares. And the company’s early-stage drug development programs are so expensive that it has sought investor partners for some of them, so far without success, and has divested itself of stakes in others.

There are two fundamental challenges at the heart of 23andMe’s DNA testing business. Customers need to take the test only once, and some of them get life-changing results.

Wojcicki’s most ambitious bet is to develop drugs using 23andMe’s data, which includes more than 10 million DNA samples that can be used for research with the consent of test participants. But bringing new drugs to market is expensive and takes years.

In another blow to the 23andMe brand, a data breach that exposed the non-genetic information of 6.9 million customers highlighted the same privacy concerns and led to a class action lawsuit against the company that was filed last Friday.

Early years

The daughter of a former chair of the Stanford University physics department and a journalism teacher, Wojcicki grew up in the center of Silicon Valley. She attended Yale University, where she played hockey, and after college worked at hedge funds and private equity firms analyzing healthcare companies.

During this period, two defining events took place. She witnessed the collapse of healthcare stocks and how companies responded by doling out pennies for innovation. She said she decided she wanted to help consumers take more control of their health.

She also met Sergey Brin. In 1998, she and Larry Page rented her sister Susan’s garage, which became the first office of their new company called Google. Susan would become the head of the company’s advertising department, and a few years later, she would become the head of YouTube.

The idea for a direct-to-consumer DNA testing business came from Wojcicki’s co-founder, Linda Avey, a genetics expert. Breen was interested in Avey’s previous work, so in 2005 she shared her idea with him. That’s how Avey met Wojcicki, Brin’s then-girlfriend, who told her she wanted to join the company.

Wojcicki was smart and driven, Avey said, and Breen could be a powerful sponsor. “I could see the stars aligning. If we wanted to get Google’s support, Anne could help solidify that support through her relationship with Sergey. That’s what I thought at the time,” said Avey.

Brin provided the company with its first capital and selected some of its first employees. Google also invested, announcing its investment two weeks after Brin and Wojcicki were married in 2007 (the couple divorced in 2015).

Overnight, Wojcicki went from a little-known former financial analyst to a Silicon Valley star. She helped build the 23andMe brand by hosting “spit parties” where guests donated DNA samples. They collected celebrity saliva at the World Economic Forum in Davos in 2008 and again at New York Fashion Week the same year, where Barry Diller, Rupert Murdoch, Harvey Weinstein, and Diane von Furstenberg headlined a 23andMe party after meeting Wojcicki at an Allen & Co. conference she attended with Brin.

The parties received press coverage but didn’t do much for the business. At the time, the 23andMe test cost $399, too expensive to attract consumers.

As of 2009, Wojcicki wanted to run 23andMe herself, according to people familiar with her wishes. She convinced the two independent board members to fire her co-founder, which they did in a surprise meeting. A person familiar with the board’s deliberations said they went along with Wojcicki because of her money and connections through Brin, which they believed could be crucial to the company’s future.

Wojcicki said she was grateful to Brin for his support during the company’s early development. She declined to comment on the board’s decision to fire her co-founder.

Boom

In 2012, a new round of funding from Russian billionaire Yuri Milner-one of Wojcicki and Breen’s neighbors in Los Altos Hills-allowed 23andMe to lower the price of the DNA test to $99.

23andMe’s first national advertising campaign a few months later attracted the attention of the Food and Drug Administration (FDA), which halted sales of the health test, citing the risk of false data. 23andMe took a lax approach to regulation, typical of Silicon Valley, and failed to obtain FDA approval to sell its test.

Wojcicki said that the company actively engaged with the FDA before stopping sales, but communication was ineffective.

After two years and millions of dollars spent on verifying its health reports, 23andMe has been cleared to sell them again.

Wojcicki says she wasn’t surprised when, after 23andMe received FDA approval, her test became a viral sensation. Stories of people discovering unexpected parents or siblings began to circulate. It took nine years to reach one million customers and another three years to reach eight million.

In 2021, the company went public during the SPAC boom, a time when hundreds of risky companies making bold predictions were selling shares to investors at high prices. The specialized acquisition company that worked with 23andMe was backed by Richard Branson, whom Wojcicki first met more than a decade ago when Branson invited her and Brin to a philanthropic event.

That year, Wojcicki received $33 million, almost all of it in stock, which is much more than executives of large public companies usually receive, although not unusual for startup founders.

Wojcicki’s shares carry a casting vote, giving her effective control over the company. She said she has never sold a single share.

Fall of 23andMe

With such a large number of DNA samples, 23andMe has begun drug development, sharing costs and future profits in a deal with pharmaceutical giant GSK for therapies based on the 23andMe database.

Unlike most small biotech companies that focus on a few areas, 23andMe has been researching treatments for dozens of diseases. The benefits could be great, but any one drug can cost hundreds of millions of dollars and take 10 years to get through clinical trials. 23andMe claims to have found more than 50 “drug candidates.” So far, two of them have reached the early stages of human trials. Later this year, data may be published showing whether one of them works.

By 2022, the drug development effort had grown to a 150-person outpost in South San Francisco, which was to continue research after the cost-sharing agreement with GSK expired.

Wojcicki said she assumed she would be able to raise additional capital to support her development efforts. But when that time came this year, interest rates were high and small pharma stocks were out of favor. Unable to raise money, Wojcicki laid off half of her development team last summer.

To create a recurring revenue stream from the tests, Wojcicki focused on subscriptions. As media companies like Disney launched streaming services with a “+” in the name, Wojcicki launched 23andMe+, offering personalized health reports, lifestyle tips, and unspecified “new reports and features” for an initial $229 with an annual renewal option for $69.

When the company last reported on the number of subscribers a year ago, it had 640,000, less than half of what it had predicted at the time.

When asked about the forecast, Wojcicki initially denied that she had made it. When she was shown the investor presentation that contained it, she looked at the page carefully and after a pause said: “There is nothing more to say except that we were wrong.”

The idea behind 23andMe’s health data is that there may be disturbing information encoded in your genetic code that you should know better. A small percentage of customers have a rare genetic variant that increases their risk of developing breast cancer, for example, and the 23andMe test is a reliable screening tool that can lead to vital follow-up with a doctor. But most people do not have a life-changing disease in their genetic code. It’s not clear that 23andMe has a compelling product worth $69 a year for either of these groups.

In November, 23andMe launched an even more ambitious subscription product. It includes a more comprehensive clinical-grade genetic test, as well as standard blood tests and appointments with 23andMe doctors. It costs $1188 per year, billed upfront without insurance coverage.

The Total Health product is the realization of Wojcicki’s dream of providing genetically-based medical care. Medical institutions have not accepted such testing as a standard procedure. To realize his dream, 23andMe paid $400 million for Lemonaid Health, a struggling company.

Today, Lemonaid still mostly prescribes medications for problems such as erectile dysfunction and hair loss, and lags behind competitors with larger advertising budgets. Wojcicki won’t say how many 23andMe test participants consult Lemonaid doctors, but admits that the number is very small, given that 23andMe hasn’t integrated the telemedicine company into its service.

Rulof Botha, a 23andMe board member and partner at Sequoia Capital, says the company’s big-spending strategy made sense when money was cheap. Now that it’s not, “we’ve had to cut costs and focus on fewer projects.” According to him, Sequoia, which invested $145 million in 23andMe, still owns all of its shares. Today they are worth $18 million.