23andMe: Evolution of a genomics company

What started as at-home DNA testing has evolved into the next generation of personalized medicine.

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 [1]. 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 [2].

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 [3]. As of October 2015, 23andMe has yet to turn a profit [3]. 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.

How it works
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 [2].

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 [2].

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 [4]. A January 2015 deal with Genentech yielded an upfront payment to 23andMe of $10M, with further milestones of as much as $50M [5].

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 [5]. 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 partnershipsArticle

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 [6]. 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 [7]. 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 [7]. In 2014, they published the discovery of six new genetic regions associated with the disease that provide promising targets for therapeutic intervention [8].

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 [9].


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 [10]. 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 [10]. 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.


Hospital for Special Surgery


Palantir: The Hottest Startup You’ve Never Heard Of

Student comments on 23andMe: Evolution of a genomics company

  1. Personally love this company and strongly believe there will be many multi billion $ consumer facing biotech companies in the next decade with this company leading the way.

    Interesting to see how they leveraging the companies data, and how valuable that will prove to be in the future. Probably in ways we can’t even imagine.

    I think another important point is the social networking aspect of the company. I have actually been introduced to long lost relatives via the site. Personally I think this is especially attractive aspect to their model and future potential.

    1. That’s a really great point. Coming from a healthcare focus, I tend to underestimate the value that the individual consumer gets from using the service. Thanks for reminding me!

  2. What’s troubling to me about this company is their ownership of (and ability to monetize) other peoples’ genetic data. At its core, genetic data is the most personal, private, and valuable healthcare data out there. How does 23andme’s model allow for the individuals sending their data to share in the company’s commercial success? Is there a threat that competitors come out with a better model and value proposition for incentivizing individuals to send data?

    1. It was interesting that my first reaction to your post was somewhat defensive — I really appreciate you challenging how positively I view this company and making me think more deeply about some of the moral implications of a private company controlling such a valuable resource.

      I think you’re right that there is a real risk of consumers becoming frustrated if another entity starts profiting off their genetics (something 23andMe has avoided to date). In particular, I imagine if their first product is an expensive drug for an orphan indication that there would be some considerable public backlash that could jeopardize their model.

      I’m not convinced that the company needs to compensate consumers for their data in dollars, just convince them that they’re being “paid” through their donation to potential lifesaving treatments. I think it’s a gift to share your genetic data in the hope of helping others, and if I were at 23andMe, I would make sure that that was the message that was consistently communicated (in particular when the company starts making money). For example, by donating a large portion of profits back into research or into patient care in the disease areas in which they are developing treatments.

      Maybe this will leave them open to a competitive threat if another firm enters with the promise of paying consumers for their genomic data (which I also have moral qualms about), but the naive part of me hopes it wont. Given their reputation and the data they’ve accumulated to date, I believe 23andMe has the ability to defend their leading position for the foreseeable future.

  3. Great post Maggie! I’m a big fan of 23andMe for exactly the reason you’ve pointed out – the massive genetic database they are building and the potential for that data to lead us to novel therapies. However, I’m less bullish on their recent push into drug discovery, for a couple of reasons. First, it seems to conflict with their partnerships business model – if 23andMe wants to be first to market with new therapies, it shouldn’t really be sharing it’s core competitive advantage (the data) with other pharma companies. Second, 23andMe will have to build internal drug discovery capabilities from scratch, and these capabilities are far removed from their current business. Guess time will tell!

    1. It’s funny — I’m also nervous about their foray into in-house discovery, but for completely different reasons. Or I guess partially the same ones, but from a slightly different perspective. I’m also concerned about how allowing partners access to their data will dilute their competitive advantage, but because it might encourage them to no longer participate in research collaborations. What’s so special about this company to me is that the *do* share their data (at a price, of course) with public and private partners, so everyone’s research efforts are being advanced. If 23andMe starts hoarding their data, it’s the patients who lose.

      Regarding their drug discovery capabilities, I’m actually quite bullish based on the talent they’ve been able to hire in (spurred by the aforementioned partnerships). Their CSO is Richard Scheller of Genentech fame, and the company is surrounded by such buzz that I imagine they’re able to draw in some of the smartest scientists around (I’m sure all the researchers are itching to get unlimited access to such amazing data themselves). Once the science leaves the bench and enters the clinic I imagine they’re going to be more out of their element, so I would be surprised if they didn’t license out/partner their early assets with big pharma who can guide the drugs through the development process. Agreed, though, I’m really looking forward to seeing where they are able to take things!


  4. Maggie – great post! What an interesting read. I have been increasingly interested in personalized medicine as family members have struggled with disease, and believe the core theory of tailoring diagnosis and treatment down to the genetic level for each individual person will be the future of medicine.

    Two things about your post really caught my attention:
    1) The interaction with patients to encourage mass sign-ups within groups suffering from a particular disease. The Parkinson’s story is extremely compelling, and the idea that a private enterprise could rapidly access such a high volume of genomic-level data by speaking through the patients themselves is powerful. We often see companies leverage “brand ambassadors” to encourage others to sign up for their services. This takes that idea to a whole new level by delivering both a personal and higher/moral benefit to participating. Curious to see how this evolves.

    2) I’m with Arkesh on the hesitance about developing pharmaceuticals in-house. I think this is a natural progression for 23 and Me in the sense that they have gathered an immense amount of data, and would like to convert that data into direct benefits to patients through new medications or treatment protocols. Yet I worry that building the pharmaceutical development pipeline into their business and operating models will require a tremendous effort (and massive amount of funding and specialized talent) that will detract from their current core business. Will they be able to recruit qualified researchers and developers away from other big pharma and biotech companies? Will they be able to develop the commercialization arm needed to bring any new products they succeed in developing to market? Will doing so be worth it, or would they be better off monetizing the aggregate data through sales to other firms that are already positioned to utilize it?

    Again – I really enjoyed reading this – thank you for sharing your insights with the group!

    1. Thank you for such a thoughtful reply, Sonali! In my response to Arkesh’s comment, I shared some of my thoughts on why I’m quite optimistic about their in-house discovery efforts. I agree with you both that this is a new world for them, and one that is quite removed from their core capabilities to date. However, they’ve been able to leverage partnerships so effectively in the past that I am hopeful that they will be able to navigate this next stage effectively with the expert input of others. I am also hopeful that they continue along the partnership path that is more central to their business model to date (selling data to pharmaceutical firms, as you mentioned), because as I touched on in my response to Arkesh, my greatest worry is that they start limiting the access to their database to outside researchers.

      In terms of key capabilities for drug discovery, a lot of what 23andMe will do is sift through mountains of data for abnormalities that appear consistently across a given disease. Unfortunately, at least in my experience consulting for large pharmaceutical companies, bio-statistics and bioinformatics departments are usually under-resourced and less than cutting edge. Because of this, I actually think that 23andMe (and their hybrid tech background — one of the earliest investors was Google) is actually better positioned than a lot of big pharma to employ their own data in the identification of promising therapeutic targets.

      One thing that’s interesting is that the company recently raised the price of their testing kits to consumers from $99 to $199. This is confusing to me, as if I were setting strategy at the company, I would be pushing to enroll as many people into the service as possible (and focusing on monetizing the data vs. the kits themselves). It seems that they’re still pushing forward on multiple paths to profitability, so perhaps they’re not putting all their eggs in the drug discovery basket quite yet :).

  5. Loved this post Mags. This company is fascinating (and now I kinda want to get myself analyzed…). Thinking through their business plan its clear that their data has an incredible amount of monetary value as well as societal value. How would you say their doing in balancing the two? What is their mission? Also, you mentioned working with foundations to help analyze your background. Is there any outreach towards physicians to get them to recommend this service to patients? I would love to get the testing done and then be able to sit with my doctor and really dig into it. Is that something they are working on?

    1. Your question on what the mission of this company is — is it to make money, to benefit society, or both? — is a really good one, and to be honest, I’m not sure yet. I wonder if even they are still trying to figure it out. I can say, though, that I feel strongly that they can’t ignore the responsibility to society to employ this incredible wealth of data for the benefit of patients. So far, I think that they have shown commitment to share their database with researchers, so I am happy with how they have been balancing these (possibly conflicting) objectives to date.

      The idea of targeting physicians to recommend these testing kits is fascinating. My understanding is that they haven’t targeted MDs to date, and now I’m imagining a 23andMe sales force that visits doctors and encourages them to get their patients enrolled. I wish I could ask them if they’ve considered this — it’s a really interesting idea. Maybe this is even a place where they could leverage their big pharma partnerships who have existing detailing forces and might add this product to their reps’ bags.

      I would also like to see them devise and communicate a clear value proposition to insurers to get the testing kit included on the reimbursement formulary. $199 is a lot of money for a lot of patients, and the more people they are able to add to their database, the more insights they will be able to uncover.

  6. 23&me is certainly one of the most interesting thing out there. Part of its power comes from the data pool composed of many gene sequences. Even though no one would question the validity of gene sequencing and its benefits, people are still unclear about how they should react if 23&me would use their gene sequences as part of its data collection to gain profit. I think 23&me will have to deal with this question in the future if the company ever thinks about making profits.

    1. I completely agree with you. I shared some of my thoughts on this in response to Mike’s comment above, but time will tell how 23andMe will be able to navigate this tricky situation. Is a public backlash something that can be avoided with some careful messaging and PR, or will people have deeper concerns over private corporations using their data for profit? I’m guessing the answer will be some combination of both.

Leave a comment