In spite of plummeting valuation, 23andMe still aims to pivot into biotech
If there were such a thing as Silicon Valley royalty, Anne Wojcicki, CEO of 23andMe, would be it. She is the sister of former YouTube CEO Susan Wojcicki and University of California, San Francisco professor Janet Wojcicki. The trio was featured last year as a set of barbie dolls.
Anne met her now ex-husband, Sergey Brin, when he and Larry Page rented her sister’s garage as the first office for what was at the time a new startup called Google. They got married in 2007, right around the time Anne co-founded 23andMe, which promised the keys to your ancestry with little more than some spit in a test tube.
But after touching a $6 billion valuation not long after going public three years ago, the 23andMe is now valued at next to nothing, and the Nasdaq has threatened to delist the company, whose stock is trading for less than a dollar.
Rolfe Winkler has been writing about what happened for The Wall Street Journal. The following is an edited transcript of his conversation with Marketplace’s Lily Jamali.
Rolfe Winkler: They had gotten hundreds of thousands of people to spit into one of their test tubes to give a DNA sample, then all of a sudden, the stories are spreading of people finding new parents or finding siblings they never knew about. And it becomes this very viral holiday gift. The problem was, the business by itself never made money. You only need to take their DNA test once, but they were getting your data on the back end. And the hope was — the hope still is — use that data in research in particular, to develop drugs. But that’s a long road, it takes a lot of money and they’re losing, they’re still losing a lot of money. And after interest rates went up, small, risky stocks went out of favor, and that sort of knocked them down.
Lily Jamali: Yeah. And it sounds like 23andMe is approaching drug development in a somewhat different way than a lot of its competitors. Can you talk about that, how they’re actually trying to do a lot more at once, perhaps?
Winkler: That was the idea, and it got them into a little bit of financial trouble. They were so thrilled with the breadth of the data that they have. So they brought in a big pharmaceutical partner to codevelop. But the plan, as it developed was, we’re going to have our own drug development team: it grew to 150 people, and they are looking for possible treatments for diseases across dozens of different kinds of diseases. And normally, a small biotech company would focus on two, three, a handful of areas at most, and they just went really, really wide.
Jamali: Yeah, you say they’re looking at 50 different drugs that they’re trying to develop?
Winkler: Well, what they’ve identified, they say they’ve identified 50-plus drug candidates, which are possible drugs that if their research continues to go in the right direction, could eventually get into human trials, then after human trials maybe to a drug approval. Two of those 50-plus are already in human trials. The problem is, it takes a lot of money, and a lot of time to get even one drug through that pipeline all the way to an FDA approval. And they don’t have a lot of money to support that effort.
Jamali: I mean, you make this very clear: hundreds of millions of dollars. And you can expect this can take a decade just to develop one of those drugs, of course, they’d be doing more than one, I presume. But that is going to require burning through a lot of cash. And it sounds like Anne Wojcicki has already burned through quite a bit of cash.
Winkler: Yeah, it’s a company that over its life has raised on the order of $1.4 billion, and they have around $250 million left. What ended up happening, the problem, they went really broad with this effort to develop lots of different kinds of drugs. The problem was, after their partner pharmaceutical company, GSK, after that deal expired, they were going to need funding to support this big effort. And Wojcicki’s plan was, “OK, we’re going to have a couple of drugs in human trials by that point, we’ll be able to raise new money again on the strength of those programs after our deal with GSK expires.” The problem was, interest rates have gone up, knocking all of these stocks down to Earth. And when your stock is selling at a really low price, you can’t sell more of it to raise more money. That’s the way a lot of companies raise money to continue their development efforts, they sell more shares of stock to investors who are excited about the future. Not a lot of investors were excited about the future here, so they can’t sell more stock. So what they had to do is lay a lot of people off. They ended up cutting about a quarter of their staff through three rounds of layoffs last year and a subsidiary sale, including half of that drug development team.
Jamali: You know, as you’re learning about where 23andMe is now, by reading your piece, it’s hard not to think of WeWork, which is another company that was once flying high and is really in a really difficult spot. Now they’ve actually filed for Chapter 11. What do you think is the difference, if you don’t mind doing a little bit of comparative analysis for us? I mean, are there similarities? Is it right to draw that comparison, or are these really two different cases?
Winkler: You know, I think when you step back and you look at Silicon Valley, there are a lot of companies through the history of Silicon Valley that have grown very fast, very large, selling a product for less than it costs to provide. You get investors to just fund losses for a long period of time, you get charismatic CEOs who can raise a lot of capital. Adam Neumann certainly qualified in that bucket, the WeWork CEO, and he could grow an office space company to a size in valuation that just didn’t make sense based on other companies. The problem for companies like that in Silicon Valley: eventually the money runs out. Eventually the investors say, “OK, well, there’s got to be a profit or some way for us to exit the stock somewhere.” And then those companies can very quickly spiral down. The difference for 23andMe is that, yeah, the spit tests have always been a loss leader. But there’s something on the back end, which is this database. They weren’t giving away the tests just to give them away. They were doing that so they could collect this database of DNA, for research, and to power this drug development business, which could ultimately work. We’re going to get some data later this year that will show whether one of these drug candidates is working. And this is to treat cancer. I mean, WeWork was office space. I don’t think there’s anyone who would root against 23andMe at this point. I think that’s the key difference is, Anne Wojcicki, she’s never sold a share of stock. And she really sincerely believes in the mission of this company. And she really wants to use genetic data to not only develop drugs, but also change the way we deliver healthcare.
Jamali: So a couple of months ago, there was news that millions of accounts were compromised in a data breach. And [23andMe is] now facing dozens of lawsuits from victims of that breach. How big of a concern is that to the future of this company?
Winkler: Yeah, there’s some folks who think they fumbled out a little bit by saying, “Look, people are reusing passwords for other websites, and that’s what allowed them to get in to 23andMe.” But you’re not going to get too far blaming your customers. But Americans are just privacy concerned folks. And there are people out there that have always been a little wary of doing a DNA test, because where’s this ultimately going to go?
A piece from Wired recently spotlighted Wojcicki, noting she has managed to turn the company around after near-disaster before. In 2013, the FDA ordered 23andMe to stop marketing its health risk assessments to customers until the company could validate them, a process that ended up taking several years.
23andMe is currently facing more than 30 lawsuits from that data breach, by Wired’s count. Wojcicki told the magazine it’s introduced two-factor authentication and has had all customers reset their passwords.
She also acknowledged the space 23andMe has been playing in has gotten a lot more competitive in recent years.
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