23andMe files for bankruptcy, putting its hoard of personal health information at risk

Even for Silicon Valley, the land of multibillion-dollar “unicorn” startups, the launch of 23andMe in 2006 attracted special attention.

Formed to offer genetic testing services directly to consumers, who spit into a receptacle and mailed it to the company for DNA analysis, its founders included Anne Wojcicki, who was married to Google co-founder Sergei Brin at the time. Google soon invested nearly $4 million in seed money.

The company went public in 2021 by merging with a blank-check company sponsored by British billionaire Richard Branson, and soon boasted a market valuation of some $6 billion.

The highflying high-tech company has since come crashing to Earth. On Sunday it announced that it has filed for Chapter 11 bankruptcy protection, with plans to find a buyer. Wojcicki resigned as its chief executive, announcing that she hoped to bid on what’s left of the company. Its shares, which peaked in February 2021 at $363, were down to $1.79 just ahead of the bankruptcy announcement, and closed at 65 cents in Tuesday’s trading on Nasdaq.

The apparent denouement of this 19-year saga raises a number of questions for investors and consumers — including about Silicon Valley’s predilection for pouring money into what may be pie-in-the-sky healthcare claims, and about what may happen to the personal information that customers have turned over to 23andMe and that might now be sold to the highest bidder.

The company said that in its search for a bidder it will “look to secure a partner who shares in its commitment to customer data privacy.” Leaving aside that in 2023, 23andMe disclosed a data breach that exposed the personal information of 6.9 million customers, there’s obviously no guarantee that any potential buyer will share its purported commitment to privacy.

So let’s take a look at the saga.

At first the company’s product was focused on giving customers information about their ancestry. Stories abounded about users’ discoveries of heretofore unknown ethnic backgrounds or even discovering unknown relatives.

It was promoted by Oprah Winfrey, and its retail DNA test was ranked first among the “Best Inventions of 2008” by Time, which named Warren Buffett, Rupert Murdoch, Ivanka Trump and Harvey Weinstein (in his pre-MeToo days) as members of its glittering customer base. Its $99 test kits became popular gifts for Christmas, Mother’s Day and Father’s Day; seasonality is still an important element of sales, the company has disclosed.

But cracks were already emerging in the company’s business plan at the time it went public. As it expanded the claims for its product from helping people suss out their ancestry to giving them information about their genetic predispositions to certain diseases, it attracted the notice of the Food and Drug Administration. In 2010, the FDA warned the company that it might be breaking the law by failing to provide evidence of “the analytical or clinical validity of its tests” to the agency for its approval.

The agency followed up in November 2013, ordering the firm to “immediately discontinue marketing” its test kit until it got FDA approval. The agency was especially concerned about a TV commercial 23andMe had been running, implying that its tests could help alert customers to their predispositions to heart disease, arthritis, gallstones and many other conditions; the agency also groused that the company had not been entirely cooperative with its regulatory review.

The company acknowledged that “we have not met the FDA’s expectations regarding timeline and communication.” Wojcicki, then the CEO, said in a blog post that 23andMe would cease offering customers “health-related” analyses until it could get right with the FDA. The agency finally approved the company’s marketing of tests to determine genetic dispositions to 10 health conditions, including Parkinson’s, Alzheimer’s and certain blood clotting disorders, in 2017.

But even then the FDA warned that “genetic risk” could be overinterpreted by lay consumers — it’s “just one piece of the bigger puzzle,” the agency said; “it does not mean they will or won’t ultimately develop a disease.”

That issue was raised by medical experts from the very beginning. “We are notoriously poor at estimating risk and communicating relative and absolute risk,” Harvard epidemiologist David Hunter told me in 2013 for my first report on 23andMe.

That’s especially true in genetics, where the effect of a single gene or mutation can be vanishingly incremental, especially when measured against environmental or behavioral factors, but the revelation that you carry it can sound like the tolling of a bell.

Those cautionary words didn’t keep direct-to-consumer genetic testing from becoming something of a craze, bolstered by publicity about celebrities responding to genetic indicators. Wojcicki said inquiries poured into 23andMe in 2015 after actor Angelina Jolie disclosed that she’d undergone a precautionary double mastectomy upon learning she carried a gene that predisposed her to breast cancer.

The company long struggled to map out a trajectory to black ink, but it has never reported a quarterly profit. One oft-cited drawback of its marketing plan is that customers only have to submit their saliva once, which works against repeat business. It charges $99 for its entry-level “ancestry service” and $199 for its upgraded “Health + Ancestry” analysis, which includes FDA-authorized reports on disease-related genetics.

The company has tried pivoting to a subscription model, but that has proven to be a hard sell. The company disclosed in its most recent annual report that subscriptions for its 23andMe+ Premium membership declined last year to 562,000 from 640,000 in fiscal 2023. The service costs $199 for the first year and $69 for subsequent annual renewals.

It also has tried aggressive price-cutting. It launched its Total Health plan as a top-of-the-line “membership” service including extensive blood work twice a year and telehealth consultations for $99 a month, payable at $1,188 annually in advance, in 2023. That plan is now available for $499 for the first year, renewable for $199 annually.

Perhaps most ambitiously, the company tried to exploit its database of genetic information from some 15 million customers by collaborating with pharmaceutical companies in the search for new drugs, notably through a partnership with GSK, which invested $50 million in 23andMe in 2022. But that deal expired in 2023. To the extent the company tries to continue its therapeutic research on its own, it acknowledges that that business is fraught with costly risks.

“We do not have any experience in successful drug development or commercialization,” it noted in its most recent annual report. “Drug development is expensive, takes years to complete, and can have uncertain outcomes. Failure can occur at any stage.” For the present, the company indicated, drug development would be an expense, not a revenue item.

It also depends on customers remaining willing to allow their data to be used for research purposes. The bankruptcy filing, and advice from state regulators that customers should withdraw their data from 23andMe, is almost certain to reduce that willingness.

The company’s bankruptcy underscores the value of state-level privacy protection laws. By that we mean chiefly California’s laws, which are the strongest in the nation — specifically the California Consumer Privacy Act signed by then-Gov. Jerry Brown in 2019 and the Genetic Information Privacy Act signed by Gavin Newsom in 2021. Both have been followed by other states.

Taken together, these laws give consumers the right to know what personal information businesses collect about you, the right to demand that they delete it, the right to opt out of its sale or sharing, and the right to limit how they use it. Consumer companies such as 23andMe have to obtain opt-in consent from consumers to collect, hold and share genetic information, whether for research or commercial purposes, and to obtain consent to transfer it to others. Consumers have the right to demand that their genetic information be deleted and that their biological samples be destroyed.

All those rights were thrown into high relief by the bankruptcy filing. “Given 23andMe’s reported financial distress,” Atty. Gen. Rob Bonta “urgently” advised Californians on March 21, they should consider “directing 23andMe to delete their data and destroy any samples of genetic material held by the company.”

In certain respects the trajectory of 23andMe resembles that of another venture investor darling in the healthcare space, Theranos. The latter company collapsed among evidence of fraud in its marketing of a medical device that was pitched as a way to allow people to take charge of their own healthcare decisions. (Its founder, Elizabeth Holmes, is currently serving a nine-year prison sentence.)

To be clear, 23andMe has never been the target of fraud allegations; the products it has been selling are real enough, unlike those of Theranos. But questions about the efficacy and usefulness of its consumer products have followed it almost from the start. There was always buzz surrounding 23andMe during its heyday. The question is: Was there ever anything more than buzz?