The DNA testing industry is stuck in a rut. Here's how 23andMe and Ancestry are plotting their next moves.
- Two of the biggest consumer genetics companies - 23andMe and Ancestry - have recently laid off workers, citing a slowdown in the market for their tests.
- Consumers aren't flocking to send their spit into genetic testing companies in as high a numbers as the industry expected, an issue the industry has sounded the alarm on for the past six months.
- Industry experts aren't expecting that market to ever come back, forcing the companies to adopt new strategies. Here's where the companies are betting the industry could go from here.
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The consumer DNA-testing market has officially cooled off.
Tests like Ancestry's and 23andMe's for years had been best-selling gifts of the holiday seasons, according to Amazon.
In 2019, the tests didn't make the list.
It wasn't the first warning that the consumer genetics market was headed for a slowdown. That came from Illumina, the genetics giant that makes all the tech these companies uses to read info about your genes. In July, the company noted "softness" in the market.
Illumina said its business segment that includes its work with Ancestry and 23andMe saw sales slump 12% last year. Within that segment, tests like those from Ancestry and 23andMe made up 50% of revenue in 2018 and 40% in 2019. Illumina's expecting that to drop further to 30% this year.
"The market's been down and we don't see that coming back next year," Vijay Kumar, an analyst at Evercore ISI who covers Illumina told Business Insider in November 2019.
In the past few weeks, the clearest signs that the consumer-genetics fad is ending has come from the giants themselves. Ancestry and 23andMe have laid off roughly 100 employees apiece, representing 6% and 14% of their total staffs, respectively. The companies both cited the slowdown in the consumer genetics market as the reason.
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What's causing the slowdown?
Over the years, consumer genetics companies had grown to massive sizes. Ancestry has more than 16 million users, while 23andMe has 10 million users who've shipped off their spit with the hopes of learning more about their family trees, genetic traits, or even some health information.
Along the way, there have been been flags raised about ethics and privacy, along with a slew of tough questions about identity and family.
As demand recedes, consumer genetics companies have to figure out what comes next.
"The fad's over," Luke Sergott, an analyst at Evercore ISI, told Business Insider in November.
"Future growth will require a continued focus on building consumer trust and innovative new offerings that deliver even greater value to people," Giordiadis said in the blog post.
Privacy is another big concern highlighted by industry experts and the heads of the consumer genetics companies alike.
In the past few years there's also been the concern of what happens if this information gets into the wrong hands. In June, laboratory giants Quest and LabCorp reported massive data breaches, in which the billing information of millions of patients was compromised.
Moving from ancestry to health
As the slowdown in the consumer genetics market hits the industry, it appears to be hitting companies offering ancestry tests to trace family histories back generations the hardest.
"Along with other players in the sector, we've seen a contraction in the ancestry submarket as players shift their focus and their ordering patterns," Stephen Tang, the CEO of Orasure, the company that makes the sample collection tubes for some of the DNA-testing companies, said in a presentation at the J.P. Morgan Healthcare Conference in early January.
"At the same time, we see a pivot from individuals who are primarily interested in their genealogy or heritage into more serious views of their health, which we call disease risk management," he said.
In October, Ancestry launched its first health products, an area it's long avoided in favor of sticking with genealogy reports.
The company has already started selling one new health product, AncestryHealth Core, and plans to offer a second, AncestryHealth Plus, this year. Both products will provide information like carrier status for genetic conditions, cancer risk, and wellness reports and can help users get a sense of their family health history as well as ancestry.
Unlike tests from rivals like 23andMe, Ancestry requires a doctor to be involved in ordering the tests and interpreting the results.
The company is also hoping that paying a subscription fee for updates to reports could be a way to a sustainable business. Through the AncestryHealth Plus product, the hope is to have users pay roughly $100 a year for quarterly updates with new insights about their health.
23andMe's therapeutics team wasn't affected by the layoffs
23andMe for its part has had health as part of its products since it got reinstated by the FDA in 2015. The company also has a business arm devoted to developing therapeutics based on the information it collects.
As part of 23andMe's layoffs, about 100 employees were let go in departments across the organization in an effort to scale back on work that isn't core to the consumer testing and therapeutics businesses, a spokesman told Business Insider in January. The therapeutics team was not affected, he said.
Over the coming year, 23andMe will have to look critically at its business model, as historically a company that provides a genetics test. "The business model has definitely evolved," 23andMe CEO Anne Wojcicki said in an October interview. "Because it was very much about one and done, and we still see a lot of our customers as being super engaged."
The growing business of selling to health systems
For some companies offering genetics tests, marketing directly to consumers is no longer the main goal.
When asked if the consumer genetics market will ever come back, for some the answer is straightforward.
"No," was the response from Othman Laraki, the CEO of Color, in a January conversation with Business Insider.
One is via entertainment. He thinks, "Is there a much bigger market for entertaining people based on their genetics?" That's a harder sell when going up against video games and movies and TV.
The second would be its use in medical care. That's where Color has increasingly been making its bet over the last three years. In January the company raised an additional $75 million in a round led by T. Rowe Price and Viking Global Investors.
Color, a consumer genetics company that provides a physician-ordered test, has been partnering with health systems and life-sciences companies like Verily to provide genetic screenings.
"Our bet from the beginning has always been like that, it's 100% the only way that genetics is going to happen at scale," Laraki said.
Invitae and Helix are also working with health systems
And Color isn't alone in this approach. Invitae, another provider of genetic tests, works with health systems as well to provide the test, as does Helix.
When Illumina spun out Helix in 2015 with $100 million in funding, it had the lofty goal of becoming something like an "app store" for your genetics. That is, instead of sending in new samples for each test, Helix could reanalyze the sample again and again for different tests - whether for ancestry, wine preferences, wellness, or more health-focused screens.
The "app store" officially launched in 2017, at which point Helix appealed to consumers directly to send in their samples. That ultimately didn't pan out, and now Helix has its eyes set on health system partnerships.
Working with partners instead has helped Helix extend its reach. For instance, in 2018, Helix started supplying tests for the Healthy Nevada Project.In the first four days, 10,000 people signed up to submit their samples using Helix's collection kits, Justin Kao, the chief business officer and a cofounder at Helix said.
"The interest in health is many times that of genealogy," Kao said in a February interview.
In May 2019, the company cut its workforce. Most of those cuts came from the direct digital marketing and advertising teams. Instead, Helix has staffed up more into working with health systems to cover the cost of the test, rather than going directly to consumers.
In a conversation this month, Kao said the company is now "hiring heavily."
By working with health systems to cover the cost of the test, the hope is to broaden the number of people who might have access beyond those who could get insurance coverage for clinical tests. In return, health systems have another way to recruit in patients. For instance, NorthShore University HealthSystem, which is working with Color, said in January that its program attracted more than 800 new patients to the health system.
"Our belief is that health itself will always be the killer app for genetics," Kao said in November.
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