The U.S. Food and Drug Administration announced last week that it will no longer allow Silicon Valley startup 23andMe to sell its genetic testing kit, effectively putting the company out of business—for now.
23andMe, founded by Anne Wojcicki, the estranged spouse of Google (GOOG) co-founder Sergey Brin, has raised more than $125 million from Yuri Milner (investor in Facebook (FB), Twitter (TWTR)), Johnson & Johnson (JNJ), the Roche Venture Fund, and Google. The company sells $99 genetic tests that consumers can administer to themselves at home by spitting into a plastic tube. Samples are processed by a DNA lab and results are sent directly to the consumer, helping them understand their genetic makeup and allowing them to make proactive choices to prevent disease. In its short existence, 23andMe has attracted more than 400,000 customers, many of whom became part of an online community that shared genetic information for additional research.
In a letter last week to Chief Executive Officer Wojcicki, the FDA stated that 23andMe could no longer sell its product without premarket approval for each of its tests. This process would require several years and millions of dollars for each of the 250+ genes it tests, making approval prohibitive and impractical. The FDA reasoned that if consumers were to misuse the results of 23andMe or encounter false positives or false negatives, it could lead to mishandling of medications or unnecessary surgeries, making the tests themselves unsafe.
This is a great example of how government regulators often overstep their bounds to control new-to-the-world businesses. Genetic testing is all about information, and 23andMe helps individuals get information about their genetic make-up; it does not prescribe treatments. Only doctors can prescribe medications or surgeries, and it is unlikely any doctor would recommend treatment based solely on a genetic test. Using the FDA’s logic, WebMD (WBMD) and self-help books should be regulated too, because they dispensing advice that can potentially be misused by lay people.
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 American Medical Association has taken the position that genetic testing should be performed only under the supervision of a doctor. Doctors benefit immensely from this because they charge anywhere from $300 to $3,500 for these tests, which require no special expertise to administer and for which they need not gain FDA approval. Approximately 3,000 genetic tests are commercially available through doctors today, and only a small number have received FDA approval—a clear double standard.
The FDA is not the first regulatory agency to make it difficult for startups with a new take on an existing business. Taxi competitor Uber is under attack from municipal taxi and limousine commissions that favor existing services. Uber offers customers a black car limousine for about the same cost of a taxicab, using drivers that are all user-rated, have GPS systems, and take smartphone payments. Municipal commissions have cited Uber for not meeting a range of regulations and licensing rules—which are impossible under Uber’s business model, such as scheduling pickups in advance and charging a metered rate vs. prearranged time and distance rates.
Similarly, Airbnb, a successful startup that allows individuals to rent apartments or homes via online postings, is facing heat from hotel commissions in several cities that support the hotel industry. The commissions claim that Airbnb rentals violate hotel zoning laws and other hotel regulations, which individual renters could never meet.
Even higher education is not immune to protectionist regulation. In Minnesota, Coursera—which offers free online classes from Stanford, Johns Hopkins, and other leading universities—was temporarily shut down last year by the Minnesota Office for Higher Education because the courses didn’t meet its standards.
In some cases, municipal politicians are stepping in to help Uber and Airbnb by passing new laws to override regulations. We can only hope that a few members of Congress—which spent the last five years bickering over health care—will step in to save 23andMe.