The Feds Socked 23andMe. Are You Next?

    By Christine Lagorio-Chafkin | Small Business

    It's been a landmark year for innovative tech companies locking horns with regulators. The genetic-testing company is the latest case study in the government's watchful eye on Silicon Valley. Here's what it means.

    UPDATE: 23andMe said Thursday it would stop providing its customers with health-related genetic data. It will continue providing customers with ancestry information.

    It seems we could barely go a week this year without government regulators stepping in against a Silicon Valley company.

    First it was Uber, the car-hailing app, which has regularly been under attack from municipal taxi-and-limousine commissions as well as a patchwork of city and state regulators across the U.S. I told the story earlier this year of how the company fought back against regulators in Denver, Boston, and faced an uphill battle in Miami.

    Next, Airbnb, the website that facilitates short-term home rentals, found itself in the crosshairs of New York State Attorney General Eric T. Schneiderman, in part for costing the state millions annually in tax dollars. The company was slapped with a subpoena, and some renters fined.

    Last month, federal regulators told yet another audacious, innovative company to stop in its tracks. The U.S. Food and Drug administration issued a stiff warning against personal-genomics startup 23andMe. And that warning was followed five days later by a class-action lawsuit from a customer in the Southern District of California.

    It's a little shocking for a seven-year-old company founded and run by a reputable, well-educated entrepreneur--Anne Wojcicki--with $126 million in venture-capital funding to just be told to cease marketing and selling. The $99 saliva test kit, from which individuals' genetic material is analyzed, is the company's only product, and it's been around five years now. What gives?

    The product itself doesn't seem to have earned the FDA's ire. Rather, it was the company's marketing. On the company's website, its service is explained as a "first step in prevention," and having the ability to help users "mitigating serious diseases." However innocuous those claims seem--they sound a lot like medical claims, which is an area the FDA regulates strictly. And it seems, based on public documents, that the FDA and 23andMe had met more than a dozen times and had exchanged hundreds of emails before the warning hit.

    Whether the company chose to ignore earlier warnings is unclear (it did ramp up its marketing push recently, including a surge this season in TV ads). But that wouldn't be an unusual reaction, given how its Silicon Valley peers react to regulatory gray areas. Generally, they take the hit or pay the fine, and plow forth.

    However, 23andMe suspended its marketing. It's playing nice. (It is unclear whether the company is still selling genetic tests; CNET reports that it is.)

    On the same day the New York Times marvels at the pace of innovation coming out of private companies --and, namely, those in tech in the San Francisco Bay Area--rather than from government, Bloomberg Businessweek concludes that the case of 23andMe "is a great example of how government regulators often overstep their bounds to control new-to-the-world businesses."

    Perhaps the only lesson here is that the discord between bureaucracy and innovation has never been louder. From Businessweek:

    The real issue is that the FDA--like virtually all government agencies--is predisposed to support the industry it regulates, so existing constituents in that industry are protected by it. As a result, innovative new businesses that challenge incumbents are penalized.

    The incumbent here being the already in-flux health-care industry, it's difficult to predict which way this will go. The American Medical Association continues to say that it believes genetic testing should be done only in the confines of a doctor's office. But if the FDA is trying to regulate based on the accuracy of one medical startup, it should start looking more broadly at those making health-tracking devices, too.

    Gregory Ferenstein writes at Techcrunch that he sees wild variation in the data provided by wrist pedometers, scales, blood tests, and sleep trackers that he's used. To 23andMe critics concerned that some customers, after receiving a positive result for the BRCA1 gene associated with breast cancer, will demand early treatment without consulting a doctor, he says: "Trust me, dieting information causes irrationality every bit as much as genetic abnormalities."

    That might be an overstatement, but it highlights the slippery slope of regulations the FDA has decided to go down.

    This article was originally published on Dec. 3, 2013.

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