Motley Fool Hidden Gems Investing - DTC Healthcare with 23andMe CEO Anne Wojcicki

Episode Date: April 24, 2022

Genes aren’t always predictive, but understanding them better could dramatically improve our healthcare system. Motley Fool contributor Brian Orelli interviews Anne Wojcicki, the CEO of 23andMe, about her company and why it’s looking to tell you much more than the names of your long-lost relatives. They discuss: - Opportunities in direct-to-consumer healthcare - Creating more personalized medicine - The limits of genetic testing Host: Brian Orelli Guest: Anne Wojcicki Producer: Ricky Mulvey Engineers: Dan Boyd, Brandon Gentry Learn more about your ad choices. Visit megaphone.fm/adchoices

Don't you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad? I get it. I'm Siaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently, that's how I roll.

So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem. And I think one of our legacies, hopefully will be, is that 23andMe has really proven that complicated information can go direct to a consumer. It does not have to have a one-to-one interaction with a physician. I'm Chris Hill, and that was Anne Wojcicki, the CEO of 23andMe, a DNA testing company that can give you personalized health insights based on your genetic information. The company went public in late 2020 through a SPAC. Since then, the stock has lost about

two-thirds of its value, but the company is continuing to take some big swings on the future of personalized medicine. Motley Fool contributor Brian Arelle caught up with Wojcicki to talk about the state of direct-to-consumer healthcare, how she thinks about acquisitions, as well as the possibilities and limits of her company's genetic tests. Hello, Fools. I'm Dr. Brian O'Reilly, Fool.com contributor and analyst for the Fools Biotech Breakthrough Service. And I have the great pleasure of talking with Anne Wojcicki, the co-founder, CEO, president, and director of the genetic testing company 23andMe. Welcome, Anne. Thanks, Brian. Nice to meet you.

I'd like to get to all the things that you're working on in 23andMe because there's a lot of them. First, let's start with the genetic test that the company started with in 2006. How did you come up with the idea of going for a direct-to-consumer genetic test, which I think was probably a little bit controversial at the time, if I remember correctly? It was certainly controversial. It actually came from my investing days. I worked on Wall Street for 10 years, and I was actively investing in all the genetics companies and right around the time the human genome was first sequenced. And there was companies like Affymetrix and Illumina came a little bit later,

but Human Genome Science, Insight, and Francis Collins, the director of the National Institute of Health, came out and said, genetics is going to revolutionize how we diagnose, treat, and prevent all human disease. And I was unbelievably thrilled. the idea that we are going to be able to subdivide every disease and know which ones have a genetic component. You're going to be able to use pharmacogenetics, meaning genetics associated with drug response. And we see all this natural variation in the population today. Type 2 diabetes is not the same in everyone. Parkinson's is not the same in everybody.

So I was unbelievably thrilled. And then I was also unbelievably dismayed that the technology was just not really being adopted that quickly. And even today, one of my disappointments is that genetics is not routinely used as part of primary care. And like most people today have not had a genetic test that's part of their healthcare system. And so 23andMe really started out of this idea that we have the potential to, you know, be consumer first and let people get access to what I think is one of the most transformative technologies in our lifetime and enable people to get access to it and benefit from it. So if you think of our mission statement, it's about help people access, understand, and benefit from the human genome. And that mission statement has

really held true now for 15 years. We're absolutely on that mission to enable the access. We absolutely believe we can deliver the content in a way people can understand it. And we absolutely believe you are going to benefit from it through our, you know, healthcare related services, as well as from our therapeutic programs. And so many genetic testing companies work through doctors who order the tests. And so can you talk about the advantages and challenges with direct to consumer versus the other routes? Well, I just, you know, it's part of what I learned actually working globally. Like, I remember going, I spent a lot of time working in India, and they had much more of a direct-to-consumer healthcare market.

And there, it's, they price things and they do things to maximize access, whereas I feel like sometimes we have decisions in the U.S. healthcare system that are about maximizing margin. And, like, think about today. There's all kinds, like, everyone would benefit from having a human genome, their own sequence. and it's not adopted for all kinds of reasons. So, you know, one of those reasons is, is in part the physician barrier. You know, you have to go and get an approval from a physician. That means you have to set up an appointment, means the physicians have to be trained on it. And mostly

today you have insurance will set up all kinds of barriers for access. So for instance, if you want to get a breast cancer genetic test, you have to also be able to say that you're of Ashkenazi Jewish descent. And one thing 23andMe knows is like roughly, you know, 20% of our customers who have genetic variants associated with breast cancer, the specific BRCA ones, never knew that they had Jewish ancestry. And so the reason why we went direct to consumer is that if you really want to enable access, you have to eliminate all those barriers. And one of the most, like the two barriers that are really huge is having to go through a physician and then having to go through insurance to pay for it. We made it affordable and we made it accessible. Can you talk about

how your tests actually work? What's the advantage and disadvantages of doing what you're doing versus full genome sequencing? The human genome is unbelievably fascinating. One of the most interesting aspects is we're all 99.5% the same. So 23andMe does not do a full human genome analysis where we look at every single variant. We look at the variants that are known to differ between humans. And there's a number of variants that are associated with things like cystic fibrosis or other conditions you could eventually pass down to children or variants like the BRCA mutation I brought up.

And then you get a really long tail of variants that are just in the population, but are really infrequent. So there are studies that have come out, like Geisinger is one group, where they are running a full exome analysis, meaning just, again, it's more than what we're doing, but not quite a whole human genome. And they find that it's roughly 1% to 3% of people are learning something in addition to what 23andMe would have potentially given them. And so the value proposition for the individual of saying, I'm going to go and pay potentially four times as much money, but only 1% to 3% of us are going to learn anything incremental. So the value proposition is not really there yet for whole genome sequencing.

But what 23andMe has optimized for is saying, what are those mutations or what are those variants that are common within most of the population where we can put them out? to our customers. We're really a phenomenal screen. We look broadly across all kinds of variations, and we help maximize that best value, also really focusing on the affordability of that test. I think you have over 12 million people who've taken one of your tests now. What does that scale do for you on the ancestry side and then also on the health test side? Well, one of the things that I always realized investing in healthcare is that a lot of decisions that happen, that come down to you, are not as driven by data as I would like, or they're driven by potentially smaller data sets. you know one of the things that's amazing like that we have seen is you know the rise of these

big data companies like facebook and google and youtube and all the things that they've done um they can there's some there's there's all the things that people are concerned about but there's some amazing abilities to like really hone in and predict what you potentially might be interested in what you potentially are going to like and my ideas were always i want to have that kind of data to tell me like, what do I need to do to be as healthy as I can be like use all of this idea of data to help me live the best and healthiest possible life. So when I, when I was little and I first heard about genetics and there was always that debate of genes and environment and say like, you know, genes are not, genes are not predictive. It's not always your destiny.

You can have something in your DNA, but your environment factors in. And I heard that message And I, to me, it was like, this is the most optimistic story ever because it means I could be born with a genetic variant. That means I'm a higher risk, but I can do something in my environment. It's not deterministic. Almost nothing is deterministic. So I can do something, but what should I do? And the way that we're going to figure out what to do is you have to have huge amounts of data to be able to do that kind of analysis, to figure out specifically for you, what is it potentially that you need to do? So by having the size and scale that we have, 12 million people, one of the core things that 23andMe is focused on is this idea,

the last part of our mission statement, help people access, understand, and benefit from the human genome. And how are we going to benefit from the human genome, but we're going to apply all this knowledge that we have to our life. And hopefully like one of the most important things we'll do is we'll help our customers either really figure out how to prevent disease and we'll give them the tools and like the real, the insights, how do you actually prevent disease or we'll help them better manage it and treat it if we can. But that's what, what data does for us is it's going to help us really understand what the human genome means. Yeah. And the 12 million people, definitely, you know, you getting to the point where you can, I think you can detect maybe

0.1% if I read, if I read that correctly, diseases that are in 0.1% of the, of the population. It was one of the things that we said is, you know, you want to have critical mass of people who, you know, if I start to look just at the 23andMe communities, you say you want to have enough people who have lupus so you could do research, and enough people who have atrial fibrillation that you could do research, enough people who have type 2 diabetes. So we wanted to make sure that we had enough people, and that's where we kind of hit this bar of saying, like, if we have 10 million people, we'll have enough in all, you know, in diseases that are over a certain kind of frequency. And so that's one of the reasons why we said we have this goal of going to over 10 million is because we wanted to be able to have statistical power when we actually do research to have enough people. And what's amazing there is when you have that enough people is you can start to see associations with things like one of the programs that we have in the clinic now, you can see associations between autoimmune disease and cancer. So if you're only studying

one disease area, you're pretty limited. And what's unusual about 23andMe is we're studying everything all at once. And so, it's complicated. But again, part of the ways that you can actually start to make sense of everything is by having incredibly large numbers. You also have a new subscription service. We love subscription services at The Motley Fool because it's a recurring revenue and there's potential to juice your margins. I think you had one a few years ago, maybe around 2010, and then you stopped offering it. So, what did you learned from the first stint with the subscription? And how's it going so far with this one? It has been, you know, we always talked about having a subscription service.

And in part at the time when we launched the product, like the number one thing that we were focused on was size and scale and the research potential. And so at that time, we were really just focused on the simplicity, like how can we actually get people in? And, you know, if we had continued the subscription service early on, maybe it would have been fine. Um, but I wanted to like maintain that simplicity for us. And we rolled it out. Um, now in part, because our customers were telling us they essentially want it that they, you know, over 40% of our customers come back on a quarterly basis, which is an amazing numbers. And we need to return value to them. And so it's hard, if I don't have a subscription service, it's hard for me to

justify that in-house from product about like, as I'm looking at all my resources, but if I have a subscription service, I actually have now a team that's dedicated to saying like, let's put out additional content. Let's keep doing research. Like people are, genetics were constantly, you know, I think about COVID-19, like all kinds of really interesting topics came out with that. So we want to be able to continuously return value to our customers. And by having a subscription product, we can justify that in-house and we can actually really start to meet those needs. On the healthcare side, can you talk about the FDA authorizations that you've received for your tests? I know you ran into some issues with the FDAs many years ago, but it seems like you're

back on the right side of the regulators for now. We're back on the right side. You know, it's one thing I actually, I love to advise other companies on this because just because, you know, when we launched, we had all the right intentions. Like it wasn't like we were trying to circumvent the system or try to avoid, but we had really been advised that we didn't need to go through the FDA. And so when we got that warning letter, it was like, first, it was a shock. And then secondly, it was like, how do we actually change things? And one, I think one of the most impressive things we've done was like, we hired an amazing leader who led the transition. And two, what she did, she convinced everyone in the company that we were going to change.

and you know we had to really essentially build the entire product from the ground up and so it's kudos to that team and it's like hopefully inspirational to anyone who needs to like totally pivot a company you absolutely can um so you know many years later now almost 10 years later um we have a number of fda authorizations we're the only ones who actually have all these health authorizations um and you know part of what we're trying to really prove out and i think one of our legacies, hopefully will be, is that 23andMe has really proven that complicated information can go direct to a consumer. It does not have to have a one-to-one interaction with a physician. And so again, part of what we specifically aim to do is like, how can you actually make

it as easy and accessible as possible to get access to your genetic information? And then obviously, we recently acquired the company Lemonade with the idea now is like, for some people who do have questions, how do I as easily and simply now make it possible for them to be able to get those questions answered? Yeah. So let's talk about Lemonade Health. And just for the viewers, this is Lemonade Health, which is different from Lemonade, the insurance provider, which is also a full recommendation. So in addition to having the health on the end of it, they also spell it differently. Lemonade is A-I-D as in like to help other people where the the insurer is spelled like the drink um with that with that out of the

way yeah just don't want anybody when i saw the headline i was like what are they doing why are they buying an insurance company that does car insurance and house insurance but then i yeah then i read enough to figure out what you were doing um so um what drew you to the acquisition and how does adding lemonade health help 23 and me grow a couple things like one of like again when I was talking earlier and I talked about this idea is like most people today still don't have access to genetics as part of their primary care. And I think it's a huge, you know, we're 20 years post the human genome being sequenced and it's not widely integrated into care. And I think that's a huge disappointment. And I spend, you know, it's, it's, it's interesting. Like when

you look at 23andMe, we have lots of partnerships, but almost no provider, you know, health system partnerships, but not because there's not a lack of like interest, but it's just genetics is just not part of primary care and physicians aren't trained. The time and energy it potentially takes around prevention is not necessarily seen as worth the initial cost and investment of getting people tested. So part of the reason why we acquired Lemonade is this idea that our customers are getting all of these various inputs. They're getting their genetic information. I get my watch input. I get my ring input. I'm getting all that. I have my lifestyle information. There's all kinds of data about where you live and the risks that are associated with where you live. So I'm getting

all this input, but then I have questions. And if I just call my primary care doctor and I get a seven minutes, like it's not going to be productive. And we all have that experience of going to the doctor and you, you get a pamphlet that's not reflective of you at all. And you all get the exact same guidelines. Like we want something that's personalized. And ultimately my dream, as I look at things like the U S prevention task force guidelines, how do I personalize that? So that all of us, like, like, you know, I'm 48, I think, but like not all 48 year olds are the same. And so like, what I do is different than others. So are my risks different? They should be like, again, going back to this interplay between genes and environment, my risks are

different because I live my life in a different way than others. So how can I also give someone a more personalized set of recommendations about what they should do. And, you know, in, in Nirvana, we think about like, how do you actually say something like type two diabetes? Are there different ways based on your genes and your environment, how you live, where you might be able to help prevent it in a way versus somebody else. And maybe sleep's more important. Maybe diet's more important. Maybe there's like certain influences where we each need to be able to be customize more and more. So that's the ultimate goal. And the first step for us is let's put the infrastructure in place. I have access to a phenomenal group of healthcare providers that

can operate in all 50 states. And I have pharmacy that's integrated. And that opens up the door for things like pharmacogenetics, which we know that most medications today have a genetic component of either an adverse event or why you're likely to respond. And I think I'm going to be able to be the first group that can really deliver personalized genetics-based care at scale. And because again, we have data at scale, we have an opportunity to really, like I already have 12 million customers who have their genetics. And now we have this opportunity to add in more and more of the coaching and the medical side and really help people live sort of a more optimal life. So, and I just also have to call out, you know, there's been a sudden rise in virtual care

and telemedicine. And the one thing that really attracted us to the Lemonade team was how thoughtful they were with quality. Because I think ultimately, like one of the things, again, I'm really proud of with 23andMe is like, we trust with our customers is really everything. And saying that we're always going to do right by the individual, like making sure that we do that. And you see, there's all kinds of other suggestions out there of ways that you can overly promote medications or overly promote care. Like our ultimate customer is the individual. And that's one of the advantages we have of being direct to consumers. We're advocating for the individual. And Lemonade is one of the only direct-to-consumer healthcare, virtual care companies out there, and also with that same kind

of mission. So aligning, as you think about mergers, aligning values is one of the most important components. Let's move on to drug development, because that's something new that you guys have gotten into fairly recently compared to the age of the company. Can you talk about how using all this genetic health data that you have, how you use that to develop drugs? You know, drug discovery, drug discovery starts with an insight. You know, someone's in a lab, they make a discovery, and then you think about, can you alter human biology based on what you just discovered? And so what 23andMe has been able to do at scale is to start to understand all of these specific variations that happen in our human genome

lead to different outcomes. So for instance, you know, there's one example where you can have a specific mutation and you can have really, really low LDL rates. And so people can then understand that mutation and then create a drug that essentially mimics the downstream downstream implications of that mutation. So, what 23andMe has been able to do is generate genuinely unique insights into human biology. And because we actually, we can see things that nobody else can see, and we can have an insight into human biology, and then we think about, okay, what's the best way that we can eventually have an impact on it? Is it with an antibody? Is it a small molecule? Do we have to, are we going to do this in-house? Do we partner it?

What do we do? But we generate these incredible data sets of insights about human biology. And then we don't look at it based on a specific disease area. It's not like, hey, we're just focused on cardiology or GI. We look across all the data and we say, where can we potentially have the biggest impact for our customers? And then also, where is there an unmet need and how can we actually develop it? So we started Therapeutics in 2015, and we were very lucky to pull in Richard Scheller, who used to be the head of R&D at Genentech. And he started the team really out of, like, we didn't have any labs. We had nothing. We gave him an office. And we now today have an incredible program where we have over 100 scientists, we have labs, and we have

this large collaboration with GSK, where we have over 40 programs underway. We have two programs that are actually in the clinic. As we close out here, what's one thing that investors should look at to gauge the health of 23andMe going forward? Should they be more focused on the on the tests or on lemonade or on the therapeutics or everything you know i think one of the biggest like a lot of people just don't understand 23andme because we have this complicated consumer side and the therapeutic side and even when we went public lots of people would say like oh you should get rid of the therapeutic side or like you should get rid of this consumer side. Like people don't understand that the health of each side is what is truly

unique. Like it's truly this, this, this intersection, it's like an infinite loop between the two. So when I think about how you evaluate 23andMe, um, like core to what we have here is, is the underlying asset of our data. And what I push, like, again, as, as the largest shareholder, What I push my team to always do is to be innovative, because we have information that no one else has, and we can push to keep innovating. We're the first ones who came up with a DNA relatives tool. We're the first one who came up with ancestry composition. We have lots of novel programs on the therapeutic side.

What I think about us doing is making sure that the data set that we have continues to be really unique and that we are continuing to push and innovate on, you know, the opportunity of, you know, genetic-based care for all, and that we continue to move programs forward on therapeutics. And at the same time, you know, we're very cognizant of, you know, it's unclear times and, you know, we have a lot of cash on hand and cash is really important. Great. Thank you for talking with me today, Anne. It was lovely. Thank you, Brian. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against,

so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow. Thank you for watching.