Once exceeding a market capitalization of more than 8 trillion won, the American direct-to-consumer (DTC) genetic testing company 23andMe has declared bankruptcy. It could not withstand the effects of declining sales and a hacking incident. Domestic genetic testing corporations are also facing business contractions or liquidation crises. Since genes change very little over a lifetime, the demand for retesting is low. An analysis suggests that the structural limitations making sustainable revenue generation challenging are leading to a slowdown in growth across the industry.
23andMe announced on the 24th (local time) that it has filed for bankruptcy protection. 23andMe is a representative DTC genetic testing company. When consumers directly collect blood or saliva and send it to the company, it provides the genetic analysis results. Using DTC companies offers the advantage of not needing to visit a medical institution in person and allows for quick test results by analyzing only certain genetic sequences.
Since its inception, 23andMe has garnered attention with investments from American Google. Beyond services that inform individuals of their ancestry or genetic conditions, there were expectations that the collected genetic data could also be utilized in drug development. In 2021, the company went public in a roundabout way on the Nasdaq market through a merger with a special purpose acquisition company (SPAC), at one time reaching a market capitalization of $6 billion (8.8 trillion won). However, after a hacking attack in October 2023, which leaked the personal information of about 7 million customers, the financial difficulties intensified. The leaked information included customers' names, addresses, and racial information.
Co-founder and Chief Executive Officer (CEO) Anne Wojcicki stated that she will resign as CEO along with the bankruptcy filing. Anne Wojcicki is the ex-wife of Sergey Brin, the founder of Google, and the sister of Susan Wojcicki, the former CEO of YouTube who passed away from cancer last year.
The situation is not difficult only for 23andMe. Currently, companies providing genetic analysis and testing services are generally stagnating or regressing. The world’s largest genetic analysis equipment company, American Illumina, is also experiencing a decline in stock prices due to the rise of competitors like China’s BGI Genomics and Switzerland's Roche, compounded by tariff restrictions during the trade war with China. The company has lowered its annual revenue outlook for this year and is taking measures to reduce expenses.
The growth of the domestic genetic testing market is also slower than expected. Global Information, a market research firm, projects that the global DTC genetic testing market will grow from $1.4 billion (2 trillion won) in 2021 to $3.32 billion (4.6 trillion won) by 2028. In contrast, the domestic market size was only about 30 billion won as of 2022.
The domestic genome analysis corporation Macrogen has been in the red since its operating profit turned negative in 2022 and has continued to incur losses for two consecutive years. Macrogen's American subsidiary, Psomagen, is also experiencing a decline in performance. The company is expanding its B2B (business-to-business) operations with universities, hospitals, and government agencies in addition to DTC services. EDGC (formerly Ideon Diagnostics), which was seen as a promising player in the industry, has been undergoing corporate rehabilitation procedures since August last year due to deteriorating liquidity while pursuing a public sale, but the situation is not smooth.
For DTC genetic testing companies to generate sustainable revenue, the retesting rate needs to be high, but the likelihood of that is low unless the genes themselves change. Although retesting is required when new associations between specific genes and diseases are revealed, it takes over a year for such research to be reflected in services.
There are also observations that government regulations serve as hurdles to market growth. The Ministry of Health and Welfare introduced the 'Genetic Testing Competency Certification System' in July 2022 to foster the DTC genetic testing industry. This regulates that only corporations that have the specified facilities and personnel accredited can conduct DTC genetic testing businesses.
Companies have indicated that it takes over a year just to receive certification after developing technology. Even after obtaining certification, they pointed out that the requirement to report sales channels and service items individually, as well as to receive approval for changes to promotional materials, hinders business growth.
As the market is not growing as expected and adapting to regulations is difficult, some companies have given up on their businesses. So far, 15 companies have received DTC certification. Among them, Bioneer ceased operations in August last year, while NGeneBio, Clinomics, and GENINUS opted out of recertification last year.
A source in the industry noted, "Korea's industry has not yet properly established itself, yet the certification system has made practical commercialization and revenue generation even more difficult," and emphasized, "It's necessary to simplify the certification process so that services can be provided as soon as technological capability and safety are proven."