The Journal. - The Spectacular Fall of 23andMe

Episode Date: February 13, 2024

Five years ago, 23andMe was one of the buzziest startups in the world. Now, 23andMe’s stock is worth less than $1. WSJ’s Rolfe Winkler unpacks the startup’s meteoric rise and fall. Further Reading and Watching: - 23andMe’s Fall From $6 Billion to Nearly $0  - How 23AndMe Went From a $6 Billion Valuation to a Penny Stock  - 23andMe Mulls Possible Split, Shares Fall After Disappointing Results  Learn more about your ad choices. Visit megaphone.fm/adchoices

Remember 23andMe? That DNA testing company that will tell you about your ancestry and genetics? A few years ago, people were all over social media sharing their results. I'm so nervous! I literally think it's going to be like, it's going to pop up and be like, you're screwed! And we recently got a bunch of 23andMe test kits, and I want to make everybody spit in a cup so we can learn where we're from and, I don't know, potentially do something with that information.

I'm part European? What? I'm 0.5% European. Last year, our colleague Rolf Winkler noticed something about 23andMe. There were layoffs last year, three rounds of them. And it just got us in the Bureau thinking, this was a company that was huge a few years ago. And quick, you pull up the stock chart,

and whoa, it's below a dollar. Why does 23andMe's rise and fall stand out? Great question. 90% of startups don't make it. But how many reach the kind of escape velocity that these guys reached in the public consciousness anyway? It was one of the hottest consumer tech companies out there. And then they just sort of disappeared. Why? Welcome to The Journal, our show about money, business, and power.

I'm Kate Leinbaugh. It's Tuesday, February 13th. It's Tuesday, February 13th. Coming up on the show, what happened to 23andMe? Travel better with Air Canada. You can enjoy free beer, wine, and premium snacks in economy class. Now extended to flights within Canada and the U.S. Cheers to taking off this summer. More details at aircanada.com.

23andMe got started in 2006. It sells kits that give consumers access to some DNA information. It was the brainchild of two women, Linda Avey and Ann Wojcicki. Here's Wojcicki in an interview with Kara Swisher back in the startup's early days, talking about their ambitions. And what are your aims? What are your big aims? To empower people to get their own genetic information and to be able to use it for their own learning. Right. Both founders brought their own expertise to the company. Avey was the genetics expert, and Wojcicki had a background in healthcare investment.

Our colleague Rolf has spoken to Wojcicki several times. And what's she like? What is Ann Wojcicki like as a person? I met her a bunch of times. She is full of energy. She's got kind of this quirky charisma, this quirky charm about her that just is immediately disarming.

So during our whole first meeting, she's wearing a sweater backwards, which was just sort of emblematic of her that it was like a little goofy. She caught herself about halfway through the meeting and reversed it. Oh, I'm wearing my shirt backwards. It was kind of a fun light moment. With 23andMe, Wojcicki saw a business that could provide consumers with some important information about their health. And that information might affect personal decisions in their lives. She told Rolf she experienced this herself with her father's death.

And nobody thinks to actually genetically test him before he's dying. And so I insisted on doing it. We get it. And he has like a really important genetic mutation. That's like important for me to know. I would argue everyone needs to have their genetic information. Another thing Wojcicki brought to the company was her deep connections in Silicon Valley. When 23andMe was starting, she was dating Google co-founder Sergey Brin. They eventually married. And Brin was one of 23andMe's first funders, with a $2.6 million loan. Then in 2007, Google led a funding round that raised $9 million. But as the company grew, according to Rolfe's reporting, Wojcicki wanted to run it by herself and convince the board to

oust her co-founder. What was interesting is a person familiar with the board's decision at the time basically said the chief reason they sided with Ann, or I should say they went with her, was her money and connections via Sergei, which they felt would be useful for the company. And Ann wouldn't comment on that. Ann wouldn't say what happened. Now, running the company on her own, Wojcicki had a problem. 23andMe needed to lower its prices. The test kits were expensive, at one point costing $1,000. So Wojcicki tapped her connections again.

In 2012, one of her neighbors, billionaire Yuri Milner, led a $50 million financing round for the company, the biggest investment yet. With that funding, 23andMe was able to slash the price of its kits. Know more about your health. Go to 23andMe.com and order your DNA kit for only $99 today. Eventually, after years of work, 23andMe had its moment. You think back to, you know, 2019, and Lizzo was dressing up as a 23andMe DNA test for Halloween.

Yes, finally my DNA test came in. Ellen DeGeneres did a holiday giveaway on her show. The audience can get three kits for their family with this $600 Visa gift card. And Eddie Murphy is name-checking them in a skit on Saturday Night Live. You know, somebody's knocking on his door saying, Daddy, Daddy, you're my daddy. Oh, boys and girls, see, there's a new company called 23andMe. And because of them, 23 people now say their father is me. Easiest way to describe it is if it takes nine years to get to 1 million users, it took three more years to get to 8 million. Right? So all of a sudden, it's just up and to the right and a steepening curve.

What did this all feel like for Wojcicki? You know, I asked that question. I suspected she'd say something like, oh man, it was such a relief. Oh God, what a deliverance or something. And she sort of just kind of said, eh, you know, I expected it. We had a good product. I liked our product.

Should have happened sooner. The company was getting a lot of hype and it was bringing in a lot of money. In 2021, it went public and reached a valuation of over $6 billion. Here's Wojcicki on the day the stock started trading. This has not been easy, but the work we are doing genuinely changes the world. Thank you for helping us get to this moment. This is just the beginning of our story. She was paid $33 million that year, nearly all in stock.

But very soon after, it became clear the company had some fundamental business problems. That's next. Right now, get a small, organic, fair trade coffee and a tasty bacon and egger breakfast sandwich for only $5 at A&W's in Ontario. Discover more value than ever at Loblaws. Like Price Drop. Hear that? Loblaws lowers prices every four weeks on a selection of items. So you can save more.

Whether it's pantry staples or seasonal favorites, you can look forward to new discounts throughout the aisles at Loblaws to get your essentials at great prices. It's your cue to stock up and save. Look for new value programs when you In the months after 23andMe went public in 2021, its stock began falling. Investors were scrutinizing the company's finances and asking questions about its business model. Rolf asked Wojcicki about this. He was interviewing her outside in Napa. Some people in my reporting have said, look, one of the reasons it slowed down was

it was kind of a one-time gag gift, ultimately. The ancestry thing, there were the people that wanted to do it, and there was not kind of a reason to do it again, and it was sort of, it was a fad that, in a sense, blew itself out. Let me think of that. of a reason to do it again and it was sort of it was a fad that in a sense blew itself out um let me think of that look i think you have people coming of age every year who are even more passionate about identity um i think that the market is still barely tapped um but i would say around that time in 2018 or so that's when we also started to pivot away from ancestry

into focusing more and more on health. Like once we got our, we've always thought, and we know this from our data, health is a much bigger market. 23andMe moved into healthcare in several ways. It rolled out a costly subscription service with personalized health reports and lifestyle advice, which typically runs around $200 the first year and $69 for every year after. The company also moved into drug development. So they hire a couple people to come in to start this effort, and they quickly realize, wait a minute, we have this very large database, more than 10 million DNA samples that we can do research on. So they sign a big deal with pharmaceutical giant GSK to co-develop.

GSK put in a bunch of money. They've come up with over 50 so-called drug candidates to date. They've come up with over 50 so-called drug candidates to date. Wojcicki created a team of 150 employees to dive deeper into drug development. The idea is that there's no shortage of opportunities to go deep on a specific segment of customers. So, for instance, if we can see genetically that, you know, we want to study people with asthma, with specific mutations that we see. Being able to recontact people, ask additional questions, you know, do sequencing. There's a whole world of opportunities of being able to recontact people and go deeper.

And did that work? Did her dreams become reality? Not yet. Nobody is really signing up for these subscriptions, certainly not in the numbers that they had projected. Because, you know, why am I subscribing to the DNA test I already took the one time, right? And the company's push to try to make new drugs hasn't been easy either. Out of the 50 drugs 23andMe is trying to develop, only two have made it to early-stage human trials. Most small biotech companies that are doing drug development, they're pretty focused. They do a handful or two or three kind of programs.

23andMe went very wide, but developing drugs is incredibly expensive and time-consuming. Rolf asked Wojcicki about this. Do you think you should have tried to do so many things? Knowing what you know now. Well, in hindsight, of course. I mean, in hindsight, so here's the thing. Biotech is inherently risky. We were at a point with GSK when we had incredible opportunity to mine the database with a partner that is incredibly capable.

So I'm really happy, like we've said. But neither health subscriptions nor drug development have taken off. So 23andMe has been under financial strain. Last year, it laid off dozens of employees, about 20% of its total staff. In September, 23andMe's stock price closed below $1. Where does this leave 23andMe now? It leaves them with a bunch of different initiatives, some that aren't working, some that could work, but it's going to take a lot of time and money.

And the question is, how much time and how much money they got left. What is the lesson of this story? The lesson is hype and virality aren't enough. Eventually, you need to be able to make a profit. This is a company that still could if some of these drug candidates work out, but it's not a layup. It's pretty hard. And it's going to take a while for them to get there.

So this is a story about hype? Kate, all of Silicon Valley is about hype. Sometimes the hype works out. Sometimes you lose money in the early going and the company founder builds something that can profit later. Right? Everybody loves to hold up Jeff Bezos and Amazon as the primary example. But you know what? If you're a startup founder, chances are you're not Jeff Bezos and you're not

Amazon. Those stories are very rare. So, you know, some of these companies, they never profit, but eventually you get to a certain scale. You got to start making money and this company never profit. But eventually you get to a certain scale. You got to start making money. And this company never did. That's all for today. Tuesday, February 13th. The Journal is a co-production of Spotify and The Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.