23andMe is going to figure out exactly how much 15.1 million genomes are worth

On Tuesday, all seven independent directors of 23andMe, the DNA testing company that will provide your ancestry and genetic profile for $130 and a tube of saliva, resigned from the company’s board. The reason for their resignation, it appears, stems from disagreements with CEO Anne Wojcicki over her July 29 proposal to take the company private at 40 cents per share. From Wojcicki’s proposal:

Based on the information available to me and my potential financing sources, we are prepared to offer $0.40 per share in cash to acquire 100% of the Company’s outstanding shares of common stock. This price per share represents a premium of 11% to the closing stock price of $0.36 per share as of April 17, 2024, which was the last closing price prior to the amendment to my Schedule 13D filing with respect to the Company stating my intention to evaluate such a proposal.

That 11% premium mentioned by Wojcicki is doing a lot of work here: When the market closed on April 17, the last trading day before she filed the amendment to her Schedule 13D to announce her intent to take the company private, 23andMe’s stock closed at a then-all-time low of $0.36.

After her filing, the stock price jumped from $0.36 to $0.51 in reaction to news that she wanted to take the company private. That’s typical: When investors learn a company is in talks to be taken over, they bid the stock up to where they think it will sell, minus a risk premium for the deal not actually happening. That means 23andMe investors initially thought the offer would actually be for more than 51 cents a share. Meanwhile, the stock had only closed below 40 cents six times in the year leading up to her proposal.

So it feels pretty clear that 40 cents is a lowball offer.

Wojcicki also owns ~20% of the company’s stock, and she said that she has no interest in, and would not vote in favor of, an alternative sale, merger, or similar transaction. Basically, her stance is, “Let me buy my company back for no premium, or I’ll make it exceedingly difficult for you to sell it to anyone else.”

The Special Committee of the Board, as you could expect, did not accept her offer, stating: 

We are disappointed with the proposal for multiple reasons, including because it provides no premium to the closing price per share on Wednesday, July 31st, it lacks committed financing, and it is conditional in nature. Accordingly, we view your proposal as insufficient and not in the best interest of the non-affiliated shareholders.

On Tuesday, noting in a memo that “After months of work, we have yet to receive from you (Wojcicki) a fully financed, fully diligenced, actionable proposal that is in the best interests of the non-affiliated shareholders,” the independent directors of the board have resigned.

I want to address a couple of things here, starting with what exactly went wrong at 23andMe.

In June 2021, the DNA testing company went public through a reverse merger with Richard Branson’s SPAC, VG Acquisition group, at a $3.5 billion valuation. Investor sentiment was positive, with the stock jumping 21% to close at $13.32 on its first trading day. It’s been all downhill since then, however, with the company now worth just $180 million, down ~95% from its IPO.

One reason for its collapse is that the company just hasn’t been able to make money. In 2021, 23andMe projected that by the end of fiscal year 2024 (March is the last month of 23andMe’s fiscal year), the company would have 16.4 million customers, 2.9 million subscribers, and $400 million in annual revenue.

For context, customers can make a one-time payment of $99 or $199 for access to different ancestral and basic health data, but paying subscribers gain access to more detailed reports covering genetic health risks, pharmacogenetics, and carrier status for various genetic variants. It appears, however, that demand for these more detailed reports was lower than anticipated.

While the company’s customer count of 15.1 million slightly lagged its earlier projection, revenue and paying subscribers weren’t even close. 23andMe’s revenue declined from $265 million in 2023 to $192 million in 2024, and its paying subscribers dropped from 640,000 to 562,000. Not great!

Now, 23andMe is a cash-burning genetic testing company with a broken business model and declining revenues, and exit opportunities look unclear as the CEO and the now-former board couldn’t agree to terms on a take-private deal. One possibility that I think is interesting is an AI company, or a big tech company building its own LLM models, paying a premium to buy the whole business, just to have the data.

So, basically, the business didn’t work. Many such cases from former SPACs. However, now that we’re in an AI boom, my question is this: at what point does someone pay a huge premium to acquire 23andme just to get their hands on the company’s health data? Sure, 23andMe failed to become a profitable business, but the company has the genetic information of 15.1 million people, mapping their ancestries, likelihoods of various diseases, and more. How much is that worth to a big tech company?

In March 2022, Microsoft acquired Nuance Communications, a “leader in conversational AI and ambient intelligence across industries including healthcare, financial services, retail and telecommunications,”  for $19.7 billion in a move to “usher in a new era of outcomes-based AI.” Nuance had best-in-class conversational AI, and, per Scott Guthrie, Microsoft’s executive vice president for its Cloud and AI group, “This powerful combination will help providers offer more affordable, effective and accessible healthcare, and help organizations in every industry create more personalized and meaningful customer experiences.” And that acquisition happened before ChatGPT was launched in 2022.

How much would the genetic profiles of 15.1 million folks be worth in 2024, if tech companies are willing to pay image platforms like Photobucket and Shutterstock anywhere from tens of millions to billions of dollars for original photos and videos to use as training data? I wouldn’t be surprised if a big tech buyer came in and offered a large premium for 23andme — which still wouldn’t cost them very much in the grand scheme of things, considering 23andMe’s market cap is less than $200 million — just to get their hands on the data.