23andMe

23andMe

By
Robert Siegel, Sara Rosenthal
2017|Case No.E624| Length 26 pgs.

The Human Genome project, sponsored by the U.S. Department of Energy and the National Institutes of Health, was launched in 1990 to identify all the approximately 20,000-25,000 genes in human DNA.  The project subsequently opened the door for the personal genomics industry by providing a platform for which DNA―often obtained through a simple saliva sample―could uncover an individual’s genetic map.  23andMe was one of the first companies to launch in the personal genetic testing space, introducing its direct-to-consumer product in November 2007.  Though the company faced significant competition in its early years, it soon became the industry leader, offering information on over 200 genetic conditions and traits ranging from an individual’s genetic risk for Alzheimer’s disease to whether they carried a gene which allowed them to taste bitter flavors.

As 23andMe’s customer base grew in size and personal genetic testing became increasingly popular, the U.S. Food and Drug Administration began to more closely scrutinize the industry.  In 2013, with a customer base and corresponding genetic data for over 1 million individuals, the FDA sent a warning letter to the company that it must cease marketing its consumer test while the agency determined how to regulate the burgeoning industry.  With its primary business on hold, 23andMe secured partnerships with pharmaceutical companies to conduct studies using its extensive genetic data set, while continuing its own research on Parkinson’s disease and breast cancer, among other diseases.

In early 2015, the company announced the launch of its therapeutics business, leveraging its own data to more accurately and cost-effectively home in on suitable drug targets, thereby reducing both the time and cost of drug development.  But while even a small dent in drug development costs would be a massive win, 23andMe’s most recent valuation of $1.1 billion would make it challenging to attract the investments required to fund the company into the future.  Even if the company was able to keep the coffers full, would the DTC genetic testing and therapeutics groups be able to coexist and thrive given their divergent personnel, capital, and structural needs?  Was there even any other option?

Learning Objective
The learning objectives of this class are to help students understand how a new company that has created an entirely new industry—personal genetic testing—presents challenges to the establishment while also facing challenges of its own. From how it must overcome resistance from physicians to dealing with the strong hand of the FDA, 23andMe demonstrates how a disruptive business aiming to change the healthcare system from the outside in must deftly navigate the existing rules and regulations if it is to survive.
This material is available for download by current Stanford GSB students, faculty, and staff only. For inquiries, contact the Case Writing Office.