What’s The Deal With 23andMe?
Great Ones, what do you know about 23andMe (Nasdaq: ME)?
Some of you probably know 23andMe from its home testing kits. No, not home drug tests — genetic tests that tell you where your ancestors came from.
23andMe’s tests were a popular holiday/birthday gift a few years ago. According to the company, 23andMe’s DNA tests — which cost about $99 each — can tell you about your ancestry, traits like hair and eye color (like you didn’t already know … or did some of you forget?) and genetic markers for certain health conditions.
For instance, when I took mine, I discovered shocking information … that I had brown hair and brown eyes and that nearly the entirety of my ancestry came from Germany.
With a last name like Hargett … where else would you expect my ancestors to come from? (Sup, Great One Bill from Nürnberg! Say hi to my family if you see any!)
Also, the Northern Kentucky/Cincinnati, Ohio area is thick with German heritage. I mean, it’s no coincidence that Hofbräuhaus Newport was the first Hofbräuhaus built in the U.S. But I digress…
So, back in February, 23andMe decided to go public via a $3.5 billion SPAC merger deal with Richard Branson-backed Virgin Acquisition Group.
On Thursday, 23andMe finally started trading … with ME stock skyrocketing more than 21% in its first official day on Wall Street.
Now, if you’re like me, you’re probably wondering how a company that makes home DNA-testing kits is valued at $3.5 billion … or how ME stock surged 21% in its first day of trading when risky SPACs have been persona non grata on Wall Street for months now.
Well, I’ll let Virgin Acquisition Group answer that one. When the SPAC merger was first announced, Virgin said that 23andMe held a “vast proprietary dataset” of DNA that would allow Virgin to “unlock revenue streams across digital health, therapeutics and more.”
A vast proprietary dataset of your DNA, huh? It seems that outer space isn’t the only space Branson is interested in these days, as the 23andMe deal gives good ol’ Richie Rich access to your personal inner space.
Great Ones, are you familiar with the 1997 movie Gattaca? Hold that thought … we’ll get to it in a bit.
23andMe: More Than Meets The Eye
It turns out that DNA ancestry testing isn’t the only thing 23andMe is into. The company plans to leverage that vast proprietary dataset of DNA in the health care and biotech markets for drug discovery.
In fact, it’s already doing so, signing a drug-licensing deal with Spanish pharmaceutical firm Almirall in January 2020. A drug that 23andMe developed using DNA gathered from its millions of paying customers.
Now, you might be thinking: How is that legal? How can 23andMe develop a drug from your extremely personal information?
The answer is simple: 80% of 23andMe users agreed to allow their data to be used for research.
The company partners with many academic research groups, which seems OK. It’s academic research — we’re helping humanity, right?
But, 23andMe also has partnerships with big-time, multibillion-dollar pharmaceutical companies like GlaxoSmithKline — clearly not a humanitarian company.
So, let’s recap: Customers pay 23andMe $99 for an ancestry test and send the company their DNA. In turn, 23andMe provides customers with said ancestry and health information. However, it also compiles all that data into a proprietary dataset … which it shares with Big Pharma partners and uses for drug discovery and licensing deals.
That, Great Ones, is one hell of a racket.
People pay 23andMe to give the company the very data it uses to design and license drugs. And, no, if you contributed DNA to the database, you don’t get paid if 23andMe uses your information to design a drug.
In fact, the terms of service for using 23andMe tests explicitly state: “You specifically understand that you will not receive compensation for any research or commercial products that include or result from your genetic information or self-reported information.”
Pfizer (NYSE: PFE) is likely kicking itself right now that it didn’t think of this first.
You can probably see now why ME stock surged this past week. I mean, 23andMe is getting paid to make a cake that it gets to eat all by itself. Seems like a no-brainer investment, right? Well, about that…
Gattaca Rising: The Greatest Threat To Your Privacy
Some of you probably already understand why I might have grave concerns about 23andMe. All that very personal identifying data stored in one place? That spells trouble with a capital T.
There are two groups that come immediately to mind when I see that much personal data in one place: hackers and the government.
If 2021 has taught us anything, it’s that nothing is sacred when it comes to hackers and ransomware purveyors. They went after a meat producer, for heaven’s sake.
Back in 2018, 23andMe competitor MyHeritage was hacked, and 92 million accounts were compromised. The company says no DNA was accessed, but can you imagine if it was?
We all know what hackers can do with regular information — credit fraud and identity theft are just the tips of the iceberg here. Now imagine what these same hackers could do with your DNA.
Actually, it’s not a matter of figuring out what the hackers would do. They’d sell it. And that “customer” might use it to blackmail you, maybe even plant it at the scene of a crime. The possibilities are truly frightening.
And then there’s the government…
Law enforcement is already salivating over the massive treasure trove of personal data that companies like 23andMe collect. In fact … you guessed it … the FBI has already requested and used this data. In 2018, the FBI requested data from GEDmatch, a free DNA-testing company, to apprehend the “Golden State Killer.”
I can almost hear you now: Mr. Great Stuff, that’s a really good thing! That guy was just evil.
I agree … but is every single case going to be this clear-cut? Where should law enforcement draw the line? Where should government draw the line?
In the movie Gattaca, the government uses DNA testing to determine where you go to school, what subjects you study, what jobs you get — everything. All for the “good” of the people. It sounded far-fetched back in 1997. But now? It’s a very real possibility.
Do you trust the government and law enforcement to have access to this much personal information? I sure don’t.
Right now, there’s only one law on the books protecting your genetic information: the Genetic Information Nondiscrimination Act (GINA). Unfortunately, GINA only bans employers and insurance companies from accessing this information. It says nothing about the government, law enforcement or even companies like 23andMe.
Now, 23andMe says that it doesn’t share any personally identifying information without explicit consumer consent. But, with no laws governing this data or 23andMe’s business practices, what’s to stop it from changing that policy in the future — especially if enough money is involved?
The Final Take: Should You Buy 23andMe?
If you’re solely interested in 23andMe for investing reasons, the company has excellent prospects. The pandemic has shown us just how valuable the biotechnology sector is.
All of the COVID-19 vaccines available were produced using genetic data, without which those vaccines would’ve taken much longer to develop.
In more normal times — i.e., when there’s not a pandemic taking up drug developers’ attention and resources — just think of how that fast turnaround speed could help biotechs of all sizes pump out profitable drugs en masse, like an ever-whirring money printer for investors.
23andMe and its DNA database have the potential to be a massive gamechanger in drug development and biotech. Without additional government regulation, 23andMe’s $3.5 billion valuation seems extremely low.
That said, those of you looking to buy ME stock might want to wait until the shares settle down before jumping in.
Personally, however, this company worries me more than a little … for obvious reasons. Eventually, I believe that government regulation will come down hard on what you can and can’t do with personal genetic information, and that will eat into 23andMe’s potential to “repurpose” said DNA data.
Or maybe “believe” is too strong a word. Hope. I hope we get real genetic-data regulation. Otherwise, winding up like Ethan Hawke in Gattaca will be the least of our worries.
In the meantime, if you want to see what else is going on in the genomics market without shipping your DNA off to Big Brother … we’ve got you covered. (How about that!)
It’s called “Imperium.” And according to experts, “Imperium” is set to go from virtually unknown … to having 2 billion users in the next four years, launching a stock market gravy train almost nobody sees coming.
And with that, thank you all for coming to my paranoid rant fest. Have a tremendous weekend, Great Ones! And if you have that burning yearning that only more Great Stuff can satisfy, you should check out our deets here:
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Editor, Great Stuff