By Genetic testing company 23andMe (NASDAQ:ME) has filed for Chapter 11 bankruptcy protection in a Missouri federal court, marking a dramatic fall for a company once valued at nearly US$6 billion.
Alongside the bankruptcy, the Associated Press reported that co-founder Anne Wojcicki has stepped down as chief executive, effective immediately, though she will remain on the company’s board.
Founded in 2006, 23andMe gained widespread recognition for its at-home DNA testing kits, which provided customers with insights into their genetic ancestry and health traits. The firm went public in 2021 via a merger with a special-purpose acquisition company led by billionaire Richard Branson, achieving an initial valuation of US$3.5 billion.
However, 23andMe has struggled to maintain its financial momentum in recent years, with its market capitalization dropping to less than US$20 million as of Monday’s (March 24) close.
The company has faced persistent difficulties generating recurring revenue, as many customers only purchased DNA test kits once and saw little reason to buy others.
Analysts have noted that the market for ancestry testing kits may have reached its saturation point. Meanwhile, 23andMe’s attempts to expand into research and therapeutics failed to produce sustainable revenue streams.
In March 2023, 23andMe’s independent directors formed a special committee to explore strategic options. Wojcicki submitted multiple proposals to take the company private, but all were rejected, including a bid earlier this month.
According to the company’s bankruptcy filing, 23andMe’s estimated assets and liabilities range between US$100 million and US$500 million. The firm has secured US$35 million in financing to continue operations during the bankruptcy process, with plans to sell its assets through a court-approved process.
‘We have had many successes, but I equally take accountability for the challenges we have today,” Wojcicki wrote in a post on X, formerly Twitter, early on Monday morning. “There is no doubt that the challenges faced by 23andMe through an evolving business model have been real, but my belief in the company and its future is unwavering.”
With Wojcicki’s resignation, Joseph Selsavage, the company’s chief financial and accounting officer, will serve as interim CEO. It remains unclear whether there are any interested bidders for 23andMe’s assets.
The company stated that it will continue operations while actively soliciting qualified bids over the next 45 days. Wojcicki has confirmed she intends to pursue the company as an independent bidder.
23andMe faced security concerns prior to bankruptcy
Beyond financial struggles, 23andMe has faced growing concerns about its handling of consumer data.
In October 2023, hackers accessed the personal information of nearly 7 million customers over a five month period, raising alarm among users and regulators.
California Attorney General Rob Bonta issued a consumer alert last week urging residents to consider deleting their genetic data from 23andMe’s platform due to privacy risks.
The data breach compounded the company’s existing troubles, further damaging its reputation and diminishing consumer trust. 23andMe eventually reached a US$30 million settlement in a lawsuit related to the breach late last year.
In response to concerns about how genetic data will be handled during the bankruptcy process, 23andMe has stated that there will be no changes to its data storage, management or security policies.
However, reports have highlighted that 23andMe’s privacy policies allow for the potential sale of customer data to third parties, raising further questions about how data may be managed under new ownership.
23andMe’s struggles reflect broader challenges facing the consumer DNA testing industry. Rival AncestryDNA, owned by private equity firm Blackstone (NYSE:BX), has also seen a decline in demand.
DNA test kit sales have historically spiked during the holiday season, but consumer interest has waned in recent years. The long-term viability of genetic testing companies has come into question, as privacy concerns and a lack of recurring revenue models present significant obstacles.
In response to its financial difficulties, 23andMe implemented significant cost-cutting measures, including laying off 200 employees and halting development of its therapeutics division.
Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.
