Cutbacks by Ancestry, 23andMe Signal a Shakeout for DNA Industry

(Bloomberg) -- Consumer DNA-testing firms are closing up shop and cutting jobs, as a lull in sales forces the industry to move beyond the genealogy tests that turned a handful of well-funded companies into household names.

At least three companies have closed down or suspended their operations over the past year, while the two DNA-testing bellwethers, Ancestry.com LLC and 23andMe Inc., each cut approximately 100 jobs in recent weeks. Others have pulled tests from the market thanks to slow sales.

A seemingly insatiable appetite for discovering the secrets of the human genome made home-testing kits runaway hits. Ancestry gained more than 10 million users between 2017 and 2019, after growing to just five million in the five previous years combined. Rival 23andMe saw its sales quintuple in two years, from two million customers in 2017 to more than 10 million last year.

Those gains represent a near-term peak for an industry that attracted billions of dollars in private investment and spent lavishly on marketing and advertising. The biggest players are now retrenching as they try to deliver on a long-promised personalized health revolution, while those not big or well-funded enough to endure the slowdown are struggling.

“Genetics still are not as mainstream as people would like to believe that they are,” said Clayton Lewis, who co-founded and was chief executive officer of Arivale, a wellness-testing company that he said raised more than $55 million from investors including ARCH Venture Partners, but closed in April due to sluggish sales. Arivale, founded in 2014, provided people with genetic insights into diet and other issues and was a partner in a DNA “app store” envisioned by Helix, a company backed by genome-sequencing giant Illumina Inc.

“I built a company for a few of my friends, not the masses,” Lewis said. “People loved the idea, but then they wouldn’t go home and sign up. All of us that were pioneers thinking consumers were going to be interested, we have universally failed.”

Arivale’s closure reflects a wider shift in the consumer DNA-testing industry. While early adopters and genealogy enthusiasts looking to fill out their family tree rushed to take the tests, concern about what happens to their most intimate personal information has kept other potential customers from dropping a few hundred dollars on the screening. 

“One of the most important things right now is to win back customers’ trust,” 23andMe CEO Anne Wojcicki said in an interview, citing privacy as the main issue cutting into company sales. Last month, 23andMe said it cut 14% of its jobs.

While helping people interested in connecting with relatives, the tests provide little useful information about personal health. When 23andMe launched its test in 2007, the aim was to reveal genetic predispositions to dozens of diseases and traits. But for most people, the tests have changed little. Family history remains a better predictor of disease risk than genetics for most, and deciding what to do about a troubling result is often confusing. 

“I don’t think there are yet any interesting use cases for the medical side of consumer genomics. Telling people they have a three percent increased risk for Alzheimer’s disease isn’t changing anyone’s life,” said Bryan Roberts, an investor with venture-capital firm Venrock. “Until we have a much better handle on disease susceptibility it just seems like there isn’t a very big market there.”

"We've seen many customers learn important — and potentially lifesaving — information about themselves" said 23andMe spokesman Andy Kill in an email. The company offers the only consumer test with FDA-authorized health reports, he said.

A lack of value for customers is what led Everlywell Inc., an at-home lab-testing company that last April raised $50 million, to stop selling its DNA-testing product in December. The company had developed three tests, including one for food sensitivity, in collaboration with Helix, but CEO Julia Cheek said it accounted for less than two percent of its monthly sales.

“Consumers just do not know what to do with it,” said Cheek. The DNA-testing space, she said, is overcrowded and consumers still primarily view tests as a novelty. “It’s less about about privacy issues and more based on people just not seeing the value,” she said. 

Others have hit similar bumps. Vinome, a test on the Helix platform that matched people with wine they might like based on their genetics, said on its website in January it was taking a break. Mirza Cifric, CEO of Veritas Genetics, which temporarily shut down in December after running out of funding, said it is stressing that its test offers real clinical utility as it relaunches. Veritas offers whole-genome sequencing for $599. 

“There is definitely a correction in the growth that we saw,” he said. “If you’re not solving somebody's problem, it’s hard to get them to spend money instead of spending money on something else.”

Bigger companies have also shifted away from the consumer market. Helix, which launched in 2015 with $100 million from Illumina, had planned to sell tests directly through a DNA “app store.’’ In April, the company changed course, shifting instead to partnerships with health-care providers, finding it was hard to sell people on health information without a health-care provider. 

“The killer app in consumer genetics was genealogy. That’s totally clear,” said Justin Kao, a co-founder and senior vice president of business development and partnerships of Helix.

In January 2019, Color Genomics made a similar move. “One of the things that’s become clear over time is that the utility of genetics is really as a clinical service,” said Color CEO Othman Laraki. “If you’re competing for entertainment value, you’re competing against things like mobile games and Netflix that are cheaper.”

Laraki  said while people are used to paying for gym memberships or weight loss products, they’re not accustomed to paying out of pocket to learn about disease risk. If genetics testing is a health-care product, he said, it needs to be part of the health-care system.

“Getting consumers to pay for tests is not an effective business model,” he said. Color raised an additional $75 million in funding last month.

23andMe CEO Wojcicki said she views the decline as temporary. The company recently posted a slew of job openings in its growing therapeutics division, a sign that it is placing increased focus on turning its trove of DNA data into new therapies. Last month, it licensed a drug it developed in-house to another company for the first time, to Spanish pharmaceutical company Almirall SA. It also has a deal to collaborate on drug development with GlaxoSmithKline Plc, which took a $300 million stake in the company in 2018.

Ancestry also recently launched a health test, emphasizing that it hopes to bridge the gap between consumer tests and the doctor’s office. “Our focus going forward is centered on creating an ongoing relationship with consumers to bring them the most comprehensive personalized preventive health screens,” the company said in a statement.

“The basic challenge of direct-to-consumer is it’s too expensive,” said Jeff Bird, a managing director of Sutter Hill Ventures who helped launch Helix. “Once you’re in the market you don’t realize how little people are willing to pay.” 

To contact the editor responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Timothy AnnettCecile Daurat

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