Kian Sadeghi on 23andMe’s Collapse and the Rise of Nucleus Genomics.

Kian, how you doing?

There he is.

What is up?

Welcome to the show. Are you guys celebrating? I mean, it's kind of, it's kind of depressing. It's kind of macabre to celebrate on when your, when your rivals go bankrupt. But what happened?

Listen, let's put this tweet up, John. We got a tweet up here I put up late last night. I think it was around 2 a.m. Eastern or so, maybe 1, 2 a.m. Eastern. I saw the announcement. The first thing I have to say to 23andMe is thank you. Because the reality is, you know, you stand on the shoulders of giants here, right? We stand on the shoulders of giants. All companies do. You know, you go from Blockbuster to Netflix, you go from, you know, BlackBerry to the iPhone, you know, go from MySpace to Facebook, and now you go from 23andMe to Nucleus Genomics, right? The industry is wide open. Nucleus is years ahead, and we're going to seize the moment. But before I talk about that, thank you to 23andMe. Did a great job building the foundation, and now it's time for something new. That's the reality.

So, yeah, talk me through the key— it seemed like your post was really focused on the technology and the price to sequence and the difference between shotgun sequencing and full sequencing. Talk to me about that. How different is the technology? And also, why can't 23andMe just use the same tech as you?

Yeah, great question. So, I have another tweet here, John, that actually I just put another tweet thread out here that I think you guys should pull up on the screen, give some further context on what's going on and what 23andMe users should actually do. It's currently riding high on Twitter. But no, difference between microarray and whole genome sequencing, I mean, it's massive. It's like a horse versus a car, right? Okay. You're talking about 23andMe's technology missing millions and millions of genetic markers. Effectively, it's not actually useful for any really disease risk assessment. So it's fundamentally different here. And the same question is the classic innovator's dilemma problem, right? Why can't this big company do this thing? Well, because imagine 23andMe is a castle. They have to pull out the foundation of their castle. Everything has to change. Technology, product, regulatory infrastructure. Every single part of 23andMe had to change to actually embrace whole genome sequencing. This is capitalism at work. We love capitalism around here. 23andMe is dying because they couldn't adapt. Nucleus is ascending because we are embracing the newest genetic technology. But actually, I think it even goes beyond technology. Yeah, go ahead, John. You have something to say?

No, I just want to push on that more because, like, if I'm like— I like you. I'm not going to compete with you. But if I was a potential buyer, I would buy 23andMe, rip out shotgun sequencing, drop in, you know, call up, I don't know, Illumina or something, and figure out how to do whole genome. And—

You would independently derive Nucleus. That's the beauty.

Yeah, exactly. So maybe you would do a de novo approach.

You have to resequence everyone, you have to change all the models.

Yeah, maybe the de novo approach is correct. And I mean, that's why I'm bullish on you. But, you know, at the same time, it just— I'm still not really understanding, like, why is it such rocket science for them to just offer, all right, hey, we're on V2 now. We're like, you still spit in the tube, you still pay $100, you mail it to us, we just put it in a different machine. It doesn't seem that complicated to me. No offense.

Well, it's a massive informatics change. It's a massive regulatory change. It's extremely non-trivial. It's kind of like being like, you know, horses both get us places. Why can't they just make an engine? It's fundamentally different, you know? But really, the thing that 23andMe got wrong, it wasn't just technology, it was also actually the philosophy of the business. They really viewed data gathering as a means to make drugs. But because it's such a small sliver of your DNA, you actually can't really make drugs off of it, which ended up making that such that the customer wasn't the customer. The customer is the pharma company. And I want to say here's something really important, which is a lot of people ask me right now, what should I do with my 23andMe data? What should I do with my 23andMe data? Well, first and foremost, you should move it to a HIPAA-compliant environment, right? Like, one of the most shocking things about 23andMe is it's actually not HIPAA-compliant. Right? It doesn't follow the gold standard clinical regulations that ensure your data is safeguarded. So Nucleus, for example, we are HIPAA compliant. We are a physician-ordered clinical-grade test. We make sure no genetic or protected health information is shared with any third party. It's very similar to like going to your doctor's office. Another thing to know, and I hope you have the thread up here, which is, you know, we outlined some of these things, is we, you know, 23andMe, the reality is that it's actually been illegal since 2008 for any insurance company, any health insurance company, as well as any employer to use your genetic information. That's been illegal for 2 decades. It's very, very important to say that. So there are some safeguards in place, even though 23andMe is not HIPAA compliant. But if you're a 23andMe user and you're listening to this, you should do 2 things. One is to download your genetic data, secure your genetic data. And then 2, which is microarray data, small snapshots of your DNA, but 2, you should probably put that in a HIPAA compliant environment. You can actually DM me. I can help you doing that. Some customers are currently uploading their DNA to Nucleus currently because they know that we're going to take very very good care of their DNA because it is, of course, ultimately all about the patient.

Talk about— there's not total clarity right now. 23andMe is not HIPAA compliant. I'm trying to understand, in a— in, you know, 23andMe in a bankruptcy environment, is the value of them as an asset— it's pretty damaged. It's pretty damaged brand. There's not a lot of brand value necessarily. What are some of the risks of the types of buyers for that business? And it seems very possible from our initial research that somebody could buy it and with the explicit intent of not even rebooting the business, but just monetizing the underlying user data.

Is the value the data or just the revenue stream? Because I'm sure that they have marketing campaigns running. I'm sure they're bringing in customers and charging them $100 a test or something. There's some There's some normal business going on there, might not be profitable, but maybe you could cut costs and get to profitability, or is this nightmare scenario of someone buys it just for the data, is that at all credible?

Yeah, so it's a good question. I think one thing is Nucleus actively is looking into right now, considering whether it makes sense. Earlier, I'm sure you remember, we explored the possibility of acquiring 23andMe, and we're looking into right now whether that would make sense to go and see what we can do and how we can help in this situation. I think the thing to remember is that, again, this is microarray data. It's a small sliver of someone's DNA. A lot of the most critical genetic markers that you wouldn't want someone to know about simply do not exist in the data, and that cannot be overstated because it is microarray data. It is a small sliver of your DNA. It misses the most fundamental health risks that someone could have. So in some respects, it's a little bit overblown when people are worried. Right? Sometimes there's this funny narrative. People are like, "I did 23andMe. I learned that you know my pee smells like asparagus." You know if that gets out, I mean that's bad. It should never gone out. But like you know.

Not that big of a deal. Yeah, yeah, yeah.

You want to be both, you know?

Yeah, yeah. It can't be both doomsday, they're getting my DNA, and also the product isn't that good and it's not that reliable.

It can't be both. Yeah, exactly. I would encourage you to think about this because you can dose. There's, there's two really extreme narratives about 23andMe. It's actually interesting. So look at it. It's like, oh, I learned nothing. It's like, why do you think you learned nothing? Because it's a small sliver of your DNA. That's like one narrative. Then it's like, oh, it's the end of the world. My data is shared. It's like, well, actually, you know, The reality is that it's a small sliver of your DNA. Obviously, no data should ever get breached. No one's saying that. Of course not. But of course, it's microarray data. And so what I recommend is download the data knowing that, one, there's federal regulations that protect you and protect all people who do genetic testing, and that there are actual regulations that exist in clinical genetics companies like Nucleus that can safeguard your data. It's like going to your doctor's office. So that's the thing I think that should be top of mind for consumers right now.

You mentioned that They were potentially selling data to pharmaceutical companies. Again, that's kind of this weird narrative where if the data is not that valuable, then who are they selling it to?

But this is also— this is one of the— again, this is a great point. This is one of the reasons why 23andMe failed, because originally the founder, Anne, she said, okay, listen, we're going to use this data. People are actually— she has a quote on the record— people are going to donate data to 23andMe. In other words, one of the reasons why 23andMe failed is they never wanted to build a true consumer health application. It was never actually about, hey, can we provide you with life-saving or medical insights? It was about, hey, because it was really genealogy business for a long time.

Yeah.

Hey, we're going to get Ancestry on. We're going to get as many people as possible. We're going to take this data and then go to GSK. They worked with GSK, for example. The problem with that is, this is the thing they underestimate, is because it is a small sliver of your DNA, it's fundamentally not useful for drug discovery, which caught up with them. Because then if your business model is based off collecting a lot of data to then make drugs, but it's microarray data, it doesn't work, right? The customer doesn't want what you're buying, which is why eventually 23andMe collapsed. So, in some sense, it's a technological problem, which is, again, it's a small strip of your DNA. But also, I think it's a philosophical problem. The customer wasn't the customer. The pharma company was the customer, right? Yes. And so, that's why people say, I didn't learn anything about it from 23andMe. 23andMe didn't really— their goal was not to actually to really help you in your health. And that's another big shift from 23andMe to Nucleus, right? We're HIPAA compliant. Our technology is far more advanced. We actually want to give you medical-grade insight that helps you live longer, helps you have healthy family as well. And then also, we want to continue to build out that platform beyond just genetics, blood wearables, urinalysis, full-body MRIs, and beyond into a true consumer health application. Imagine 23andMe shipped, right? How far ahead would that be? They'd be 20 years ahead of everyone, right? Consumer health has just recently hit the zeitgeist. By 20, they would have had a head start. But that wasn't the customer. And so it's not just technological difference, it's actually a very strong philosophical difference as well.

How were they such a— they have this sort of one-time purchase problem that could contribute to challenges from a business standpoint. It becomes much harder if you sort of get this upfront payment, and then I'm assuming the average 23andMe customer just like, you know, gets the testing done, you know, maybe references back at some point. But why don't you think they were able to avoid bankruptcy given the scale that they were at, right? This is a company that does hundreds of millions of top-line revenue. You would think they would be able to figure out some economic— like, they've been in trouble for a long time. You would've thought that they would've gone found— you know, Anne would've gone founder mode and like figured out a way out. Well,

it sounds like she tried and is now bidding on the business go founder mode, maybe.

I always say that there's no such thing as a genetics company. There's only such thing as a healthcare company. And the reason why people always say 23andMe is one time, 23andMe is one time, right? There was actually no difficulty for 23andMe to add in other diagnostic tests and build a more consumer health application that was vertically integrated. But again, their customer was the pharma company. Yeah, they actually— when you— they didn't care that it was one time, they got your DNA. And that is the fundamental difference. What if you could have solved that problem? I mean, you look at some companies today, you some blood testing companies are building on top of Quest Diagnostics. 23andMe could have snapped their fingers and launched that product in 1 minute. But of course, that wasn't the customer, that wasn't the business model, that wasn't the strategy. So this is a good example where strategy meets technology, which eventually results in failure. You have the innovation lemmings problem. The genetics has really changed. 23andMe has been around since 2006. 2006, the cost of being a genome was $10 million a sample. Today, nucleic acids are a couple hundred dollars. It's one of the greatest technological shifts ever. And so, all these pieces together, you have 23andMe collapsing, which is sad, but I also think it's the sign it's time for something new. It's time for a true consumer health application.

Can you talk a little bit about ancestry.com? They were acquired by Blackstone for $4.7 billion. It seems like that business is doing pretty well. Again, not a genetics company, particularly they have their little niche in ancestry. People really love that. They become experts there. But How does that business play with you and— Great question. 23andMe?

You know, it's interesting because one time a very, very wise investor of ours said, he said, retention isn't about the product, it's about the use case. Okay? It's a very sharp comment. And I think Ancestry is a great example of that because genealogy is a very super high touchpoint business. People love genealogy. They love looking at who their ancestors are. There are people who like literally spend their entire hobby actually around this, right? And Ancestry capitalized on that. They realized that genetics was a means to do better genealogy. 23andMe never realized, are they a genealogy business? Are they a health business? Are they a drug discovery business? They never got that right. For Nucleus, we use genetics to help people live longer and have healthy families. The value prop is very clear. It's not about DNA. DNA is a means to accomplish some end goal for the user, which is namely better health and having a healthier family, right? Yeah. That is a fundamental difference. And to your point, Ancestry is a multibillion-dollar business. Natera— people say genetics businesses don't work. Natera is a clinical genetics business. It's valued at $20 billion. Okay. So genetics is in its absolute infancy stage here. And I really do think in the next decade you're going to see the rise of a consumer health behemoth. And that consumer health behemoth is going to have a whole genome, the entirety of someone's DNA at its foundation. And it's going to impact not just someone's health, but again, also their family. And Nucleus is building that future.

So is it, is it possible then that 23andMe had become this sort of toxic brand? And even the pharmaceutical companies said, you know, we like the data they have, but we don't want to kind of like even mess around here because there's huge potential for blowback. Right. I imagine, you know, there's, there's some risks there. Is that part of why they—

Well, the pharma companies worked with 23andMe, but because the data is such a small sliver, They realized that there was something to be found. The most important thing for drug discovery in a genetics context is finding rare genetic markers because those actually elucidate mechanism. To identify novel rare genetic markers, you need a whole genome file, right? Because a microarray, again, is such a small bit of your DNA. If your DNA is a 1,000-page book, it's funny, they said one page is one page. You can't actually get anything out of that. So it didn't work from a drug perspective business. It didn't work from a consumer health business, hence its collapse. There's a great actually chart here. I don't know if you guys— it's an old tweet, Peter, of mine. Maybe you guys pull it up later. It's on Bedrock. Does screen sharing work? Can I share my screen?

I think you can actually.

Oh, here we go. We're gonna try.

Yes, this is a technology first here. Whatever you screen share is live, so do not share API keys.

Ignore the tabs. There's a lot of tabs up there. It's

actually cropped out perfectly.

Yeah, it looks great.

Okay, so here we have, you know, this great thing. A shout out to Bedrock, right? They have this narrative violations, right? Clean tech is dead. You have Tesla. Dating apps are always fads. You have Tinder. Consumer is dead. You have Canva. And then, of course, the most recent one, artificial intelligence has been overhyped and underdelivered for 10 years. You have OpenAI. I will tell you what is next in 2024. Popular narrative right now is consumer genetics is dead. And then right now, nucleus is OpenAI. That is what's going on.

Let's go pump the bags. Let's ring the size gong for Kian on nucleus.

Do you have any idea how quickly Do you have any sort of read on how quickly this is going to get resolved?

Well, you know, Nucleus might be the one resolving it, if you know what I'm saying.

Listen, rubbing his hands.

Some of our big boy investors is in my, you know, they currently text me say, yeah, what can we do here?

And you know what to do here.

You know, we tried for a quarter of a billion dollars. You know, what's $50 million?

Hey, you

have to ask.

Getting cheaper every day. Getting cheaper every day.

There we go.

That's great. Well, good luck to you, Kian. I hope you can pull it off. I know you'll be successful. Regardless of what happens.

Thanks for jumping on. Love

it. Great to be back.

I hope this gong is gonna get hit for a very specific reason soon.

Absolutely. Good luck to you.

Thanks, guys.

Take care.

Talk to you soon.

Thanks for coming on.

Bye.