The genome is an individual’s full set of DNA: the genetic code that determines who we are, from our hair color to our hereditary risk of developing heart disease . 23andMe is the first and only service that provides scientifically valid, FDA-approved reports to consumers that analyze their genome and provide insight into health, ancestry, and wellness factors .
Named for the 23 pairs of chromosomes in a normal human cell, 23andMe has accumulated a user base of over 1M consumers and has raised over $240M in capital since its founding in April 2006 . As of October 2015, 23andMe has yet to turn a profit . However, given the tight alignment between the company’s business and operating models, it is positioned to become one of the greatest success stories in the emerging age of personalized medicine.
What’s in a database?
At the simplest level, 23andMe’s business model is centered on providing consumers access to their genetic data and helping them understand its implications. The cost of a report is $199, and users can choose to contribute their genetic data to research .
However, the consumer is only one of the stakeholders to which 23andMe delivers value. Through the accumulation of the world’s largest genomic database, 23andMe holds a wealth of genetic information that contains clues about (and potentially cures to) some of society’s most pervasive diseases .
Large pharmaceutical companies and biotechs have taken note. Many big names in drug discovery have teamed with 23andMe to not only gain access to users’ genetic and personal information for research purposes (provided with user consent and anonymized), but to assist in recruiting eligible patients into clinical trials . A January 2015 deal with Genentech yielded an upfront payment to 23andMe of $10M, with further milestones of as much as $50M .
Such a deal has the potential to generate the same amount of revenue as would increasing the size of 23andMe’s customer base by half ($299/kit x an additional 500K users = ~$60M), and the Genentech partnership is only one of over ten industry collaborations underway . By leveraging its core asset—a robust genomic database supplemented by user-provided lifestyle information—23andMe has expanded its business model beyond the consumer and captured additional value generated through its operations.
The power of partnerships
23andMe’s competitive advantage depends on continuing to accumulate and analyze consumer genetic and personal information. One of the ways the company is reaching new consumers is through collaborations with patient advocacy and research organizations such as the Michael J. Fox Foundation for Parkinson’s disease . 23andMe provides free genetic testing kits to members of the patient community, and in exchange, the patient organization encourages members to enroll in the service . In the case of the Parkinson’s collaboration, 23andMe was able to catalog the genomic data of thousands of patients with Parkinson’s disease in record time . In 2014, they published the discovery of six new genetic regions associated with the disease that provide promising targets for therapeutic intervention .
The company has established additional research partnerships with leading academic institutions, including the Broad Institute at MIT and Harvard, Stanford University and the University of Chicago. In whole, 23andMe has formed cross-industry collaborations that span the public and private sector and unite some of the brightest minds in research. The company has received four grants from the U.S. National Institutes of Health to fund research and has identified hundreds of new genetic associations .
A new frontier
Perhaps it was inevitable that 23andMe evolve from facilitating drug research to conducting its own pharmaceutical discovery efforts. In March 2015, the company announced that in addition to continuing its industry partnerships, it will begin inventing medicines in house . A drug in clinical trials can be worth hundreds of millions of dollars, and a therapy that makes it to market can be worth billions . If the discovery efforts are successful, 23andMe will capture yet another portion of the value generated by its genomic database.
While 23andMe is unprofitable to date, the company has secured multiple paths to monetization by leveraging its core assets. More importantly, by returning the patient to the center of drug discovery it has the potential to transform the way that medical science advances.