23andMe founded in 2006 by Linda Avey and Anne Wojcicki is the leading personal genetics company. Over last 10 years, the company has transformed itself from a simple direct-to-consumer genetic testing company to a research and drug discovery company. This post is written to better understand the business model of 23andMe and how 23andMe makes money?
Understanding 23andMe Business Model
The cornerstone of 23andMe business strategy is to collect genetic information from a large population and utilize this big data for medical and biopharmaceutical research. Following diagram highlights how 23andMe is utilizing genomic information to build three interconnected yet independent businesses.
- Direct To Consumer Genetics Business
- Research Services Business
- Drug Discovery Business
Direct To Consumer Genetics Business
Technological advancements in genome sequencing and the burgeoning internet usage have given birth to a new age industry- personal genomics. Personal genomics is the business of collecting, analyzing and sharing customer genetic data over the internet. With more than 1.2 million customers, 23andMe is the world’s largest personal genomics company. In direct to consumer genetics business, the company sells mail order kits for genome sequencing to individual customers. After buying the kit for $199 and registering their profile online, users send their saliva sample to 23andMe. The company using the sequencing analysis generates more than 60 reports with unique information on carrier status, wellness, genetic ancestry and health traits. This genetic information is stored against the user profile and is shared with the users online in an easy to understand format.
- Carrier Status Report:
- This report shows if the subject carries a mutation that she could potentially pass down to her children.
- Wellness Report:
- Wellness report is used to better understand- how subject’s DNA relates to alcohol, caffeine, and milk consumption by comparing it to other 23andMe users with a similar genetic buildup. Wellness report also shows the muscle composition that might help determine the right sport e.g. becoming a better sprinter than a long-distance runner.
- Genetic Ancestry Report:
- Ancestry report provides insights on users ancestral origins and lineage. 23andMe also provides online tools like inheritance tracing and find your DNA relatives tool.
- Health Traits Report:
- 23andMe health trait reports include noticeable traits like eye color and hair curl as well as subtle traits like the timing of a person’s first tooth.
The company is currently collecting base data to build the personalized health data search engine. The company needs this information to build complimentary health data business. 23andMe long-term plan is to make money by utilizing this information for research and drug discovery services
Research Services Business
23andMe Direct To Consumer (DTC) genetic business is the front end for collecting massive health information. Due to the nature of its DTC business, 23andMe has this unique advantage of building disease specific communities. In these communities, 80% of the consumers have consented to share their database and other voluntary information for research. 23andMe is also working with NGOs and Govt. agencies to recruit patients and identify new genetic associations. 23andMe is combining genetic information from its database with voluntary information shared by the volunteers to find possible genetic links to people’s traits.
This genetic information and company’s ability to quickly enroll patients for clinical research has become a potential gold mine for drug developers. 23andMe was in news recently for signing multiple deals with biopharmaceutical companies to monetise the information it already posses. In January it announced a partnership with biotech company Genentech to develop new treatments for Parkinson’s Disease. The deal is the first of ten such deals 23andMe has signed with big biopharmaceutical companies.
Research services business is a lucrative business for 23andMe but the company has ambitious plans to disrupt the R&D process by entering drug discovery space.
Drug Discovery Business
Last year by hiring Richard Scheller and Robert Gentleman from Genentech, 23andMe announced its intention to enter the drug discovery business on its own. The company has already identified several potential targets and is now evaluating co-development opportunities with big biopharmaceutical companies.
How 23andMe Makes Money?
As discussed earlier, 23andMe offers genetic testing services for individuals and research and drug discovery services for biopharmaceutical companies. Following diagram shows how the money flows in from the different customer segments and the key cost elements where the money flows out to
23andMe utilizes following revenue models to generate its revenues.
23andMe Revenue Models
- Product and service revenues from consumers
- Fees for providing services to biopharmaceutical companies
- Outcome-based revenues from partnering biopharmaceutical companies
- Licensing revenues from partnering biopharmaceutical companies
23andMe Cost Elements
23andMe major cost elements include
- Cost of sales: This includes, direct materials & supplies, distribution cost, shipping and handling costs of Genetic testing kits
- Research & Development expenses: This include lab expenses, technology development expenses, consumer acquisition expenses and community development expenses
- Selling, General & Administrative expenses: This include, partnership expenses, hardware expenses, administrative and other direct and indirect expenses
It is often said that 21st century is going to be the century of biology. 23andMe with its sound business model is all geared up to help shape the next wave of personalized healthcare.
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