23andMe, a human genetics and biotechnology company providing DNA testing kits directly to consumers, has entered Chapter 11 protection to undergo a court-supervised sale process.

The company filed its petition late last night (23 March) in the US Bankruptcy Court for the Eastern District of Missouri. The company does not yet have a stalking horse bidder but comes into bankruptcy armed with a USD 35m DIP facility from JMB Capital Partners Lending.

At the same time the company filed for bankruptcy, it announced the resignation of CEO Anne Wojcicki. She issued a statement on X indicating that she intends to serve as a bidder during the case.

“I have resigned as CEO of the company so I can be in the best position to pursue the company as an independent bidder,” she said.

The company

According to court documents, Sunnyvale, California-based 23andMe is a leading human genetics and telehealth company. The company’s mission is to help people access, understand, and benefit from the human genome. 23andMe said it pioneered direct access to genetic information as the only company with multiple Food & Drug Administration clearances for genetic health reports.

23andMe sends DNA testing kits to consumers, who provide a saliva sample through the kit which is then sent to the company’s lab. The results can include details on consumers’ ancestry, genetic traits, and potential health risks.

Through its Lemonaid Health telehealth platform, 23andMe also operates as a national online doctor’s office that provides medical care, pharmacy fulfillment, and laboratory testing services.

In 2021, 23andMe and VG Acquisition, a special purpose acquisition company sponsored by Virgin Group, completed a business combination. The transaction, which was approved on 10 June 2021 by VG Acquisition shareholders, took the company public, at a value of USD 3.5bn.

According to Debtwire’s Restructuring Database, several companies have filed for bankruptcy since 2022 after similarly completing a business combination, or de-SPAC transaction. In addition to 23andMe, other companies that have filed for bankruptcy after such a transaction are listed in the following table.

The debt

As of the petition date, 23andMe has no funded debt obligations. According to its Chapter 11 petition, its assets and liabilities are both valued as between USD 100m to USD 500m. The liabilities stem from unsecured claims that are outstanding, a substantial portion of which are based on a cybersecurity incident in 2023 and ordinary course trade claims.

Of the claims listed in the top 20 unsecured creditors’ chart that have a defined claim amount, NGI Labcorp has by far the largest claim, at USD 11.9m.

The descent

Despite the “revolutionary nature” of the business and its impact on the lives of millions, Chief Restructuring Officer Matthew Kvarda said in his first day declaration, 23andMe has faced challenges arising from external market conditions. Over the last three years, rising inflation has increased operating expenses while downward trends in discretionary consumer spending negatively impacted sales, he said. Additionally, Kvarda noted, over the past few years, consumer interest and demand for genetic testing kits has declined.

Kvarda said 23andMe focused on increasing its value proposition to customers through enhanced products and features, but the “one-time” nature of sales involving saliva collection kits led to a shrinking customer base and declining topline revenues. Meanwhile, on the Lemonaid telehealth platform side of the business, Kvarda said that space has become increasingly crowded. Liquidity constraints have limited 23andMe’s ability to invest in Lemonaid and hindered the growth of that business.

Another major issue the company faced in recent years came from a cybersecurity incident in October 2023, Kvarda said. A “threat actor” posted online a claim to have 23andMe users’ profile information. 23andMe launched an investigation and engaged third-party experts to help determine the extent of unauthorized activity. Based on that, Kvarda said, 23andMe ultimately determined that the “threat actor” accessed personal information related to about seven million customers. The incident led to extensive litigation, including class action litigation, state court litigation, arbitration proceedings, and litigation in foreign courts.

In multi-district class action litigation (MDL), the parties entered mediation and ultimately agreed on a settlement. The MDL parties executed a settlement term sheet on 29 July 2024, which contemplated an aggregate cash payment by 23andMe of USD 30m to settle all claims brought on behalf of all US persons whose personal information was impacted by the cybersecurity incident. 23andMe also agreed to document business practice initiatives related to cybersecurity and provide customers with the chance to enroll in a privacy and monitoring service for three years. On 4 December 2024, the MDL court granted preliminary conditional approval of the settlement.

In addition to the litigation, the Federal Trade Commission (FTC) served a civil investigative demand seeking information related to the cybersecurity incident. As of the petition date, Kvarda said, 23andMe is continuing to respond to the FTC’s demands.

According to 23andMe’s bid procedures motion, which outlines its proposed sale process, the company’s special committee engaged Wells Fargo in March 2024 to help evaluate a potential strategic transaction. Shortly after that, Wells Fargo contacted 15 potential counterparties to assess third-party interest. One party signed a confidentiality agreement to facilitate further discussions, but the initial outreach did not lead to an out-of-court transaction. In October 2024, Wells Fargo terminated its engagement letter.

In November 2024, 23andMe announced a business restructuring to streamline operations and reduce costs. At the same time, 23andMe said it would discontinue further development of its therapeutics programs and evaluate strategic alternatives for its clinical and pre-clinical assets. Further, the company reduced its overall headcount by over 200 employees, representing about 40% of the workforce.

At the time, the company said the business restructuring was expected to reduce operating expenses and result in annualized cost savings of more than USD 35m.

Though the initial outreach for potential sales was done with the help of Wells Fargo, 23andMe’s special committee later chose Moelis & Company to help evaluate strategic alternatives for the company. In January, Moelis began soliciting potential third-party interest for all or a portion of the assets or business segments, as well as potential financing sources.

During the prepetition process, the debtors – under the direction of the special committee and its advisors – contacted 103 potential counterparties. Only one of the non-binding indications of interest the company received in the marketing process provided for an out-of-court acquisition of 100% of the equity of the company. Ultimately, none of the indications of interest led to an out-of-court transaction.

“Despite the overall outcome of the Prepetition Marketing Process, Moelis’ outreach and the receipt of several proposals reflect strong prospects for a robust in-court sale process and competitive Auction,” according to the bid procedures motion.

To preserve value and give the debtors a chance to increase the ultimate value provided by the monetization and disposition of the assets, the debtors decided to pursue an in-court Chapter 11 sale process.

The Chapter 11 case

As of now, 23andme has not chosen a stalking horse bidder but the bid procedures provide the ability to do that and grant bid protections. The debtors will consider all viable options before determining if selling any assets will maximize value for the estate.

“Any delay to the sale timeline would hinder the Debtors’ efforts to maximize value,” the company said in the bid procedures motion.

The bid procedures propose a 25 April deadline to select a stalking horse, a 7 May bid deadline for other bidders, a 14 May auction, and a 2 June sale hearing date.

In the recent statement from Wojcicki, who resigned as CEO concurrently with the bankruptcy filing, she indicated she would serve as a bidder in the case, but her prepetition offer was rejected. Last week, minority investor Zentree Investments disclosed that it was seeking to prevent the sale of the company at an unreasonable price.

On 11 March, Wojcicki disclosed that on 10 March she filed an updated proposal stating she was willing to provide 23andMe with an additional USD 20m commitment to fund its operations, which would be offset dollar-for-dollar by any future financing Wojcicki is able to raise. But the special committee of the board of directors has since sent a letter to her rejecting her take-private proposal for the company.

23andMe intends to run the case and sale process backed by DIP financing from JMB Capital Partners Lending. The funding will provide for USD 35m in DIP loans under a non-amortizing priming superpriority senior secured term loan facility. It does not include a roll-up.

Upon entry of the interim order, USD 10m of the total financing will be made available.

The advisors