23andMe deal should never be cloned
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Robert Cyran
NEW YORK, Sept 20 (Reuters Breakingviews) -The double helix that was 23andMe’s ME.O board of directors and company’s founder Anne Wojcicki unraveled on Tuesday. The entire committee, save Wojcicki, resigned in frustration over her stalled takeover bid. But the offer is perhaps the least-worst detail of this saga. From start-to-finish, 23andMe’s venture onto the public markets should never be cloned.
The company takes genetic samples from customers and tells them where their ancestors came from, helps find relatives, and shows whether a customer is a carrier of gene variants causing diseases. It went public in 2021 via a special-purpose acquisition company backed by British billionaire Richard Branson. At the time it gave 23andMe an implied enterprise value of $3.5 billion.
23andMe had just over $300 million of annual revenue and adjusted EBITDA loss of $147 million. There was some promise: statements in the deal pitchbook outlined plans to “revolutionize the diagnosis, prevention and treatment of most, if not all, of human disease." But the company oversold what the technology could deliver. Financial projections of $400 million of revenue for the fiscal year ending in March 2024 were equally fantastical.
There’s little prospect of improvement. 23andMe’s operations burn cash - over $40 million last quarter - so its $170 million hoard won’t last too long. There’s not much customer incentive to repeat testing or pay for a subscription. Sure, the company has accumulated a trove of genetic data. Snag is, it’s hard to turn this into profit. Its drug discovery business has a few potential therapies, but such assets tend to attract little interest from investors. A recent data breach and settlement dinged the company’s reputation.
Enter Wojcicki, who offered 40 cent per share in July, the same price as the stock was trading at before her bid. The deal has other warts too, like a lack of financing. Still, a better offer probably isn’t forthcoming, and the shares closed on Thursday at 33 cents. The shareholder alternative may be eventual bankruptcy.
The problem is that Wojcicki has a 49% voting stake thanks to class B shares with 10 votes each. The board tried to take a decently hard line, asking for more assurances that her offer was financed, or if Wojcicki would consider other strategic directions for the company, according to a person familiar with the former directors’ thinking. When they thought neither were likely to happen, the members resigned.
By the time this deal had come around, though, the genetic makeup of 23andMe had already been tainted. Wojcicki’s super-voting stock was something investors and board members were willing to overlook when the company’s prospects were bright. But it primed the company for its governance implosion when trouble mounted. Same goes for a half-baked public listing. Directors can walk, and shareholders can sell, but those are unsatisfactory responses to a CEO in flounder mode.
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CONTEXT NEWS
All seven independent directors on 23andMe’s board resigned on Sept. 17, leaving Anne Wojcicki, the company’s chief executive officer and co-founder, as the only remaining board member.
Wojcicki offered to take the company private in July, but that offer was rejected by a special committee formed by the board, because it said the 40 cents per share offer didn’t provide a premium to the stock’s trading price and was not fully financed. Super-voting stock gives Wojcicki 49.8% of the vote.
The directors said they had yet to receive a fully financed and acceptable offer, did not believe one was coming, and therefore were unwilling to consider further extensions. The directors that resigned are Roelof Botha, Patrick Chung, Sandra Hernández, Neal Mohan, Valerie Montgomery Rice, Richard Scheller, and Peter J. Taylor.
In a statement, Wojcicki said she continued to believe that taking the company private was the best path to success, and that 23andMe would immediately begin to identify new independent directors to the board.
Graphic: 23andMe's revenue projections fell far short https://reut.rs/3XAuMm0
Editing by Lauren Silva Laughlin and Sharon Lam
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