23andMe is selling access to customer’s DNA

Bryce: [00:00:02] Welcome to the Dive, the podcast that asks who said business news needs to be all business. I'm your host, Bryce Leske. Sascha is taking a well-deserved break and I'm stepping into the hosting role. And I've chosen a cracking story. First to unpack today 23andMe, the genealogy testing company is set to get paid $20 million by pharmaceutical company GSK for access to the huge trove of customer DNA data. These genealogy companies have come a long way. They've gone from telling you your ancestry, your 6% Japanese and 40% European to finding serial killers and developing cutting edge drugs. But there are serious privacy concerns when customers that sent their saliva in to test their ancestry end up in policing, investigations and pharmaceutical trials. It is Wednesday, the 8th of November, and today I want to know what is going on with these ancestry testing kits and should I feel okay about it? And to help me unpack it, I'm joined by my co-founder here at Equity Mates, Alec Renehan, Ren. Ren, welcome. 

Alec: [00:01:05] Bryce, good to be here.

Bryce: [00:01:06] Yes, it's been a while since we've done a duo on the dive. 

Alec: [00:01:10] I know, I know. Let's see how today goes. Maybe we'll do it more often. 

Bryce: [00:01:14] Things to come in 2024? Anyway, I touched on it in the outline, but for those unfamiliar with these ancestry testing companies, tell me about them. 

Alec: [00:01:22] So there are two big companies in this space that people probably will have heard of or have seen ads from Ancestry.com and 23andMe then best known for their DNA testing kits that give customers ancestry and health information. As you said, you spit in a little tube and then they say, you know, you're 6% Japanese and 40% European. They can also give you some interesting insights into your DNA makeup and the chance that it may lead to certain health conditions.

Bryce: [00:01:53] I remember ancestry.com blowing up when we were at uni. It became a thing that you would gift your parents for Christmas, right? 

Alec: [00:02:00] Okay. Yeah 

Bryce: [00:02:01] I think even someone in here in the office wants to gift an ancestry.com to their dad as well. 

Alec: [00:02:07] Let's see if they still want to after this episode. But Ancestry.com got taken out by one of the big private equity players, I think, Blackstone. There's money as well. 

Bryce: [00:02:19] You will get a well as part of this service, 23andMe has collected vast troves of customers' DNA.

Alec: [00:02:26] That's right. All that spit that they've collected, they have analysed and then saved 23andMe has information on more than 14 million customers. The only genetic data sets that rival the size of 23andMe database belong to Ancestry.com, who's a little bit bigger? And the Chinese government.

Bryce: [00:02:47] There you go.

Alec: [00:02:48] Yeah. In 2021, Bloomberg estimated that one in five Americans have turned over their genetic material to 23 in May or one of its competitors.

Bryce: [00:02:58] Interesting. He's careful. What about all the COVID tests that we would have done? Surely the government has all of our DNA from that. 

Alec: [00:03:05] I don't think they analysed our DNA for COVID. 

Bryce: [00:03:07] But they have the samples to do. 

Alec: [00:03:09] It. I don't think they stored the samples. I assume they destroyed the samples. Yeah, I think they just checked. If we had COVID and then sent us a text message.

Bryce: [00:03:17] Okay, Yeah. 

Alec: [00:03:18] Because you could then ask, what about the pathology test? You know, who collects that blood truth? Like they're just doing what they need to do. 

Bryce: [00:03:28] Anyway, so 23andMe are likely only going to be collecting more of this with new products that they're rolling out.

Alec: [00:03:35] Yeah, that's right. In mid-October, they announced a 1200 dollar DNA sequencing product to help customers better understand and manage health risks hidden in their DNA. So a much more technical version of their saliva test. It will allow people to sequence their entire exosome, which is a tiny portion of DNA that researchers believe is responsible for the vast majority of disease causing genetic variants. 

Bryce: [00:04:05] But the headline that caught our attention is that GSK will pay 23andMe $20 million for non-exclusive access to genetic data. 

Alec: [00:04:15] Yeah, that's right. So 23andMe have been collecting customer DNA and analysing it and then storing it as part of their mail in testing kits for a lot of customers, they would think that's the beginning and the end of their interaction with the company. But this headline shows us what 23 in May can do with our DNA data. They're selling it to a pharmaceutical company. Under the new agreement, 23 in May will provide GSK with one year of access to anonymized DNA data from approximately 80% of their customers who have agreed to share that information for research. So when you send your spit in your saliva in 23 May. Ask if you're happy to opt into research conducted on behalf of academic, non-profit and industry organisations. Something seemingly benign like that, generic like that. That's a good way of phrasing it. According to the company, 80% of their customers opt in and that 80% that have opted in their anonymized DNA data is now being sold to GSK. 

Bryce: [00:05:19] So we've spoken on equity markets about the power of companies and what they can do with big data. So what does GSK plan to do with this DNA data? 

Alec: [00:05:30] The idea for GSK is to comb through the vast trove of customer DNA data and find hints about different genetic pathways that might be at the root of different diseases. In theory, this should help them significantly speed up the pretty long and slow process of drug development. 

Bryce: [00:05:53] So I guess the question is then, has GSK in 23andMe had any success with doing this in the past?

Alec: [00:06:00] Yes. So they've actually been collaborating for the past five years and GSK has been using to try and raise data. So this isn't a new partnership. It's just that they've renewed it and changed a few things. And we saw the headline. In fact, the partnership between GSK and 23 in May has produced more than 50 new drug targets, according to the companies. Now, that's not drugs. That's like an idea. It's actually like.

Bryce: [00:06:27] Brainstorming. 

Alec: [00:06:27] Here's something we could explore. Here's something that's interesting. So 50 new drug targets, but they have gone beyond target. GSK in 2013 may have taken one potential medication to clinical trials, a cancer drug that works to block, say, day 96, a particular protein that modulates the body's immune response. It entered that testing phase in four years compared to the industry average of about seven years. So that's the thesis playing out. All of this customer data helps them speed up the drug development process. 

Bryce: [00:07:03] So if I'm on the executive committee of 23 in May, I'm sitting there going, Why can't we also get into drug development ourselves? Is this something that they're thinking about? Yes. 

Alec: [00:07:12] So not only is it what they're thinking about the founder of 23 in May and what jet ski and apologies. I think I butchered her last name. This was her thesis when she founded the company. Oh, wow. So when I IPO a couple of years ago, I was writing an article preparing for this. One of her early investors framed and gave her her original two page investment memo. She founded the company in 2006, and it she had a three phase plan. First phase, make genetic testing like sexy, essentially get a lot of tastemakers and influencers to do it and to share the results and to make it a thing. Second step find a way to bring the cost down of genetic testing and make it mass market. So sorry. She did the first thing she got on like Oprah's Christmas holiday list and stuff like that. She's done the second step. They've made genetic testing. Well, they spit testing very affordable. They've got now more than 14 million people's DNA. But the third step was always to use the vast trove of customer DNA they're collecting to get into drug development. And they have been they have actually been. So aside from this partnership they're doing with GSK, they've actually been working on a monoclonal antibody drug themselves. They've been developing it independently, and it's currently in clinical trials. 

Bryce: [00:08:35] Wow. Well applied to. 

Audio Clip: [00:08:38] I think what's going to drive growth long term is health. And I think of all the research that we've always done, we've always seen that the ancestry market is something people can relate to and it's substantial, but health is just much larger. 

Bryce: [00:08:51] Well, it's not just drug makers that are looking to get their hands on this data. No surprise. There are plenty of other people that want it, including the police who have used these services to catch one of America's most notorious serial killers. We're going to dive into this on the other side of the break. 

Audio Clip: [00:09:09] Police finally got their break by combing through commercial genealogy websites. Investigators compared DNA found at the crime scenes to genetic information listed on the websites, which led them to family trees of close matches. 

Bryce: [00:09:24] Welcome back to the Dive today. I'm with Rand and we are talking about ancestry sites like Ancestry.com and 23andMe and what they are doing with the customers' DNA that they collect. Before the break, we spoke about pharmaceutical company GSK paying $20 million to access it. But in America, we also saw the FBI use it to capture one of America's most notorious serial killers, the Golden State killer. A really fascinating documentary on Netflix. 

Alec: [00:09:51] Oh, really? 

Bryce: [00:09:52] Yes, That my watch heart, I think has watched it three times. 

Alec: [00:09:56] Interesting.

Bryce: [00:09:57] Yeah.

Alec: [00:09:57] Watching documentaries is not something that I. 

Bryce: [00:09:59] I Know You know what's Going to happen? I think that's maybe why she likes it. But anyway, Ren, tell us about the Golden State killer. 

Alec: [00:10:07] Yes. So between 1974 and 1968, the Golden State killer murdered at least 12 people across California. Police had DNA from crime scenes that could never link it to any suspects. Almost 50 years after the crime spree started in 2018, police arrested 72 year old Joseph James D'Angelo Junior. How did they catch him? Almost 50 years after these crimes, they submitted the DNA collected from a 1978 crime scene to websites like Ancestry.com and 23andMe. 

Audio Clip: [00:10:46] The process produced a promising lead the DNA of a relative, a former police officer, Joseph D'Angelo. 

Alec: [00:10:52] Some family member had submitted their DNA to one of these websites, and then from there they were able to get the familial match narrowed down their potential suspect pool, and eventually they narrowed it down to Joseph James D'Angelo, Jr. They then followed him, waited for him to discard his DNA, you know, throw a coffee cup in the bin or something like that, and then use that to match his DNA back to the 1978 crime scene. 

Bryce: [00:11:26] Crazy. And as a result, he's been busted and he's in prison for life, I'm pretty sure. 

Alec: [00:11:30] Yeah. He's one of America's most notorious serial killers. He will not be getting out of jail.

Bryce: [00:11:34] Yeah. Wow. Well, police, drug makers, they're the two big case studies or use cases for the data. Is anyone else trying to get access to this data? 

Alec: [00:11:43] So I think in general, our personal health information, our DNA and our biometric features are going to become more and more valuable as health care becomes more and more personalised, but also that we use things like our biometrics for more and more things. We've spoken previously on The Dive about how the big tech companies are trying to move away from password protection to biometric security, and that's using our face to unlock our iPhone, using our fingerprint to unlock our laptops and stuff like that. So key health data is going to become more and more valuable. When we think about data hacks now, we often think about passwords and financial security. They're really key bits of information we don't want hackers getting. But more and more genetic data is going to become just as important to protect. In October, there was a big data breach. At 23andMe, My heritage, which is another genealogy website, has also had a cyber attack, and I don't think the DNA data was stolen, but a lot of customer data was stolen. So as this data becomes more valuable and more available, as you know, DNA testing gets cheaper and the like, we're certainly going to be more in demand and I guess more at risk from hackers. 

Bryce: [00:13:01] Will the customers who have provided that data, will the debate arise just like the big tech companies aren't paying us for the data that we create online that they on sell? I feel like it's going to go down that route again. The ethics of this will I, as the person who sent my saliva in, get a cut of that 20 million? 

Alec: [00:13:21] Yeah, I think there's the ethics of this cut two ways. I think there's certainly a question around I've paid 23andMe to test my DNA and now they're also getting paid by GSK for my DNA. Should I have some economic interest in that? That's certainly a question. I think the bigger ethical question is around privacy. So I would assume most people you survey who have spat in a tube and sent it to Ancestry.com or 23andMe, even if they opt in to this testing, they would assume that the saliva is being used by academics at universities and and the like. They wouldn't think that they're being used by multibillion dollar pharmaceutical companies to make the. Next blockbuster moneymaking drug. They certainly wouldn't think they're being used by police. So I think there's certainly a privacy question as DNA becomes more testable because it's getting cheaper, it's getting cheaper to sequence the genome. There's certainly going to be some privacy questions about how this data can be used. And I would say that a dense terms of service that people just click, it's just a sign up for the kit. Yeah, probably isn't going to cut it. 

Bryce: [00:14:43] No, but always read the fine print. All right, Ren. We'll leave it there. I've enjoyed being in the chair today. If you want more, Ren and I, can come across and listen to the Equity Mates Investing podcast, but otherwise, thanks for tuning in as always. We'll pick it up on Friday. 

Alec: [00:14:56] Sounds good.