When news broke that 23andMe might be heading towards bankruptcy, it sent shockwaves through the investment landscape. A company that was once worth $6 billion, the sweetheart of the personalized medicine revolution, now on the verge of collapse. It’s tempting to interpret this as a cautionary tale, an indication that investing in genetics is a losing bet. As alarming as this development is—and it is very alarming—instead, I think this portends a distinct opportunity. The culmination of 23andMe’s failures could conceivably provide a landscape fertile for further, smarter, more seasoned investors.
The transformation has been marred by the company’s visible missteps. Despite all the initial hype and genetic data it accumulated, 23andMe never was able to actually become profitable. The journey from gathering saliva samples to creating sustainable, predictable revenue turned out to be much harder than expected. The fallout from the 2023 data breach was catastrophic, resulting in a $30 million class-action settlement. Adding insult to injury, independent directors then flooded the exits in a coordinated resignation in protest of the CEO’s strategic vision. Combined, these events make a perfect storm of corporate disaster. The last straw, maybe, was the board’s decision to cut 40% of its staff and shutter its therapeutic development program.
It's tempting to write off the entire sector, to see 23andMe's woes as indicative of a fundamental flaw in the business model of consumer genetics. I would argue that’s a bit of a premature and ultimately wrong conclusion to draw. Yet the underlying promise of personalized medicine is still immensely strong. Personalizing medical treatments and behavioral interventions according to a person’s unique genomic blueprint offers transformational promise. The issue, looking back, wasn’t the science—it was the execution.
23andMe’s failure provides a masterclass in what not to do. The company overextended itself. It overextended itself by attempting to be a drug-data collection service and drug development company at the same time. This dual focus inadvertently diluted its resources and expertise. Our recent experience with the data breach revealed alarming gaps in data security practices. This important space requires our steadfast commitment as cyber threats only continue to increase. The corporate boardroom drama points to a deeper leadership-strategy disconnect, a deep weakness that could prove fatal to any organization.
For those who will invest in the genetics space next, they’ll be equipped with the knowledge of where 23andMe went wrong. They’ll be tougher, more demanding, more exacting, and more aware of the peculiarities of this multi-faceted field. They will understand the importance of:
laser focus: Concentrating on a specific niche within the genetics field, whether it's diagnostics, drug development, or personalized wellness.
robust data security: Implementing state-of-the-art security measures to protect sensitive genetic information.
strong governance: Ensuring alignment between leadership and strategic vision, with a board of directors that provides effective oversight.
sustainable revenue models: Developing business models that generate consistent and predictable revenue streams.
I clearly recall just a few years ago attending an overly optimistic conference on personalized medicine in 2015. The air was charged with hopefulness, an energy that we were indeed about to experience a revolution in the way we deliver and experience healthcare. 23andMe became the poster child for this revolution, making millionaires of its early investors and founders, and everyone wanted in on their action. Even at that point, I was skeptical. The firm’s valuation appeared excessive, its business model undemonstrated. I relayed these concerns to a more senior colleague, who brushed them off as “old-fashioned thinking.” He made the case that 23andMe was disrupting the healthcare industry and that traditional financial metrics didn’t matter.
Now, looking back, I can see that my colleague, like so many others, was drinking the Kool-Aid. And worst, he never accepted the basic problems that 23andMe was up against. But his optimism was not completely unfounded. We know that personalized medicine has great promise. It would take a brave prognosticator to bet against the companies that will emerge and learn to navigate the intricacies of this new and dynamic landscape.
Although the prevailing view is that the bankruptcy of 23andMe is unfortunate, I believe it to be a welcome correction. It’s a warning that no matter how magical a new technology appears, it doesn’t guarantee success without mature business processes and experienced, thoughtful leadership. Hey investors, it’s time to get real and get active! They need to do their due diligence, look beyond the buzzwords and smoke screens and focus on companies that have a vision, viable business models and track records.
Empowering investors with the knowledge and tools to make informed decisions and create wealth. The 23andMe case highlights the necessity of crystal-clear strategic thinking and a profound comprehension of the marketplace. Beware of herd mentality. Get in front of the risk underneath the surface and capitalize on the high-flying opportunities!
The future of genetics investing is not dour—it’s just a bit more complicated. Those lessons will help inform the next generation of companies, but it’s not 23andMe’s experience alone that should set expectations. These businesses will be the most prepared to take advantage of the opportunities presented by personalized medicine. This is not the death knell for the genetic revolution. Rather, it’s a reassessment and fine-tuning exercise that’s going to push us closer to a more sustainable and more effective industry. Savvy investors don’t repeat past mistakes. They treat the space with respect and care, which is how they’re able to enjoy the fruits of their labor. This is why the genetic code has such tremendous potential. Unraveling its mysteries is the secret to smart investments in this game-changing sector.
