23andMe Post Mortem

23andMe was named Invention of the Year by Time Magazine in 2008, and reached a peak valuation of $6 billion in 2021. Last week, Regeneron purchased them, bankrupt for $256 million dollars. The purchase was solely for the genomic data of 23andMe customers, reportedly 15 million DNA profiles, valuing each profile at ~$17.

Given the obvious potential for human genomics, what went wrong for this well funded, once promising company?

Despite many successes throughout its lifetime, it will become clear in the following sections that poor management and a flawed business model were the death knell for 23andMe.

The business model

Initial revenue will include fees for genotyping services and additional bioinformatic consulting fees generated from private label partners (for data analysis and generating personalized summaries, etc.). With the growth of the database and web-based tools, additional customized functionality will be available through subscription fees. Other ways of physically presenting the data will also be available as a potential source of additional revenue.

— Original 23andMe Pitch

The initial idea for 23andMe was to create a two-sided market, where uses pay to have their genome sequenced in return for insights on their health, and big pharma pays 23andMe for access to the data for genomics-informed drug discovery, pharmacogenomics etc. Whilst sounding fantastic on paper, the inability to deliver continual value to consumers meant the subscription fees never materialized.

Early adopters were keen to have their genome sequenced, but given that genomic data is ~immutable, it manifested as a one-off payment. This meant that LTV of customers was static, and as the initial pool of engaged users dried up, CAC continued to climb. 23andMe was acutely aware of this, and over their lifetime attempted a number of remedies to try and increase LTV, namely:

1. Acquisition of LemonAid Health, a promising telehealth company, with the intention of "making personalized healthcare a reality".
2. Addition of Ancestry services, which showed strong pull from the market.
3. Intense R&D to develop therapeutics in-house to capture the lions share of the value. Their final research paper showed that drugs with genetic evidence on the scale of 23andme were 4-5x more likely to be approved.

Disastrous acquisition 

Cognizant of the failing business model, 23andMe acquired Lemonaid Health in an effort to provide consumers with professional health insights informed by their genes. Unfortunately, the clue was in the name, and this turned out to be a lemon. Net loss for FY2024 was $667 million , more than double the $312 million net loss reported in FY2023. The operating loss for FY2024 was reported at $681 million. A significant portion of this net loss was due to $352 million in non-cash goodwill impairment charges from the acquisition.

This acquisition remains the primary reason for the demise of 23andMe.

Data security is non optional

In 2023, 23andMe suffered a catastrophic data breach. The breach affected the data of approximately 6.9 to 7 million customers. Reports indicated that the breach specifically targeted users of Ashkenazi Jewish and Chinese heritage, raising additional concerns about the misuse of such sensitive demographic information.

FY2024 saw a 27% decrease in revenue from the previous year, "driven mainly by lower PGS kit sales volume and telehealth orders".

Conclusion

Despite selling high margin DNA testing kits and sitting on a gold mine of data, 23andMe never managed to build a sustainable business model. Poor management and data security were two blows they could not absorb and spelled the end of the company.

A DTC genomics startup that learns the many painful lessons from 23andme, rides the regulatory grooves they carved out, and pushes to new heights could become a billion dollar business.

Read more in our DTC Genomics 2.0 writeup.