How Gene Testing Drives Investment Opportunities and the Future Role of Physicians

When introducing the industry background, every genetic testing company invariably states that the Human Genome Project is one of the three great engineering feats in the history of human science. For investors, however, what may be of greater interest is how such a monumental technological revolution has driven economic development and generated investment and employment opportunities.

Undoubtedly, any major technological revolution inevitably brings about an economic leap. The Human Genome Project, which spanned eight years, expanded from initial participation by six countries to the involvement of more than a dozen, evolving from a U.S.-led initiative into an international endeavor that has driven global economic development. According to a 2011 U.S. report titled “Economic Impact of the Human Genome Project,” the $3.8 billion invested by the U.S. government in the Human Genome Project generated $796 billion in economic output. In the year 2000 alone, the genomics sector directly or indirectly contributed $67 billion to economic output, supported 310,000 jobs, and generated $20 billion in personal income.

Such an exciting report easily brings to mind the subsequent biotech boom and the economic bubble that followed.



Let us carefully analyze the background surrounding the generation of this report, which may offer some insights.

This analysis was based on a study conducted by Battelle Technology Partnership Practice, with funding provided by Life Technologies. The economic impact cited in the analysis does not stem solely from genomics; it also encompasses industries spurred by technologies developed by Celera Genomics beyond the Human Genome Project. For instance, after the completion of the Human Genome Project, the U.S. National Institutes of Health (NIH) continued to invest $7.2 billion in follow-up initiatives. Therefore, the $3.8 billion figure represents investment only in basic scientific research within the genomics sector, excluding additional industry expenditures aimed at addressing technical challenges in pharmaceuticals, agriculture, and energy production.

Let us take a closer look at the history preceding the launch of the Human Genome Project: In 1984, the U.S. Department of Energy (DOE) convened an internal meeting in Utah to discuss the significance and prospects of sequencing the human genome. A year later, the DOE developed a draft proposal for the “Human Genome Project” (HGP). After two years of preparation, the DOE and the National Institutes of Health (NIH) allocated $5.5 million in early 1987 to initiate the HGP. On October 1, 1990, with approval from the U.S. Congress, the HGP was officially launched, with national funding of at least $3 billion dedicated to human genome sequencing.

Therefore, this is an initiative launched by the Department of Energy and led by the National Institutes of Health (NIH). To obtain the data for analysis, Battelle researchers examined six U.S. industry and research sectors: bioinformatics and custom programming services related to genomics; medical and diagnostic laboratories utilizing genomics; biologics and diagnostics; analytical instrument manufacturing; scientific R&D services; and genomics-related drug development.

Based on these economic data and the sectors involved, current domestic layout and investment in the gene industry are essentially centered around these six key areas. As for the investment proportions and the depth of entry strategies for each segment, opinions vary widely within the investment community.

This report was released in 2011, a year that astute investors will recognize as precisely when the U.S. National Research Council introduced the concept of “precision medicine.” Many mistakenly believe that “precision medicine” was first proposed by President Obama in his 2015 State of the Union Address; in fact, there is a four-year lag. Given the high rate of technological commercialization in the United States (over 40% in developed Western countries, compared to less than 10% in China), four years is sufficient time to complete investment positioning, deploy industrial chains, and translate related patented technologies into practical applications.

The concept of “precision medicine” within the field was first formally proposed in 2011 by the U.S. National Research Council in its report Toward Precision Medicine, with genetic testing being a key industry involved. The relationship between genetic testing and precision medicine has been analyzed in my previous three articles in the “Must-Read for Investors” series; here, I raise only one question:



The recipient of TIME Magazine’s 2008 Invention of the Year Award was a company called 23andMe (previously, only epoch-defining products like the iPhone had been selected). The story behind this company is now widely known. As a genetic testing firm backed by Google, it was founded by Anne Wojcicki, the former wife of Google co-founder Sergey Brin. Setting aside the company’s formidable background, let us examine two other companies that offered similar services at the time: deCODE and Navigenics.

deCODE is an Icelandic company with over a decade of hands-on experience in the genomics industry, while Navigenics focuses on high-end, premium-priced products. Navigenics was founded in 2006 by David Agus, a professor of cancer research, along with Dietrich Stephan, CEO of Biosystems and a geneticist.

Let’s also look at the market prices of these three companies’ products at the time: 23andMe charged $399, deCODE Genetics $985, and Navigenics $2,499 (the higher price reflected Navigenics’ inclusion of professional post-test telephone counseling). Among the three, 23andMe delivered results the fastest. Francis S. Collins, chief scientist of the International Human Genome Project and Director of the U.S. National Institutes of Health, described his experiences with these three genetic testing services in his 2011 book, The Language of Life: DNA and the Revolution in Personalized Medicine.

We now know that only 23andMe ultimately survived as an independent entity. Navigenics was acquired by Life Technologies in 2012, and in the same year, deCODE genetics—which had never turned a profit from its founding in 1996 until its bankruptcy in 2009—was acquired by the American biopharmaceutical company Amgen. However, after burning through capital for nearly a decade, 23andMe is undoubtedly facing significant challenges. It is perhaps only in the United States that entrepreneurs and investors possess such patience, enduring ten years of unprofitability and substantial financial losses, all in pursuit of building a great enterprise.

But what exactly is this so-called dream?

This dream is data. To borrow the words of Google co-founder Larry Page, “I want all the world’s data on my laptop.” This time, through 23andMe, Sergey Brin’s ex-wife has told the world, “I want all the world’s healthcare and medical data on my phone.”

If the beginning of the data game was the highlight of 2015, then the first players to take the stage must be those who pioneered the “burning cash” approach. deCODE and Navigenics have already been acquired, leaving 23andMe as the only company truly poised to take the first step onto the stage.

A Decade in the Making: As 2015 Began, 23andMe Announced Two Collaborative Deals: 1. A Partnership with Genentech to Analyze Genomic Sequencing Data from Parkinson’s Disease Patients. 2. A Collaboration Agreement with Pharmaceutical Giant Pfizer. In Addition to These Two Partnerships, 23andMe Reached Agreements with 12 Other Institutions, Including Private Companies and University Research Centers.

In April 2015, 23andMe further expanded its collaborative initiatives by jointly announcing with Superdrug, the UK’s largest health and beauty retailer, the launch of CE-marked personal genomic services on Superdrug’s website and across its network of more than 600 physical stores in the United Kingdom.

Partial Collaboration Events Involving 23andMe in Early 2015

After a decade of data accumulation, the company has amassed genetic data from 800,000 consumers. Founder Wojcicki has finally seen her breakthrough, and investors who previously endured painful losses over the past ten years are now beginning to show renewed interest.

As expected, on October 14 this year, 23andMe announced the closing of a $115 million financing round, led by Fidelity and participated by Google, Casdin, and WuXi AppTec. At this point, 23andMe’s valuation reached $1.1 billion, making it the most highly valued startup in the direct-to-consumer genetic testing sector.

2007–2015 23andMe Financing Overview

From 2006 to 2015, a full nine years enabled a company to grow from zero to one, and then from one to N, creating a model that can no longer be replicated by any team worldwide. Shortly after the founding of 23andMe, a global investment frenzy in genetic testing ignited. In Japan, for example, traditional medical institutions and pharmaceutical companies began entering the genetic testing business. An increasing number of Japanese investment firms, emulating the enthusiasm shown in the United States for the genetic testing industry, poured capital into Japan’s genetic testing market.

As of 2013, there were as many as 738 institutions in Japan offering genetic testing services, with a wide array of genetic products spanning health constitution, disease risk, aesthetics, and education. The technologies and pricing for these services lacked standardization, resulting in a chaotic market devoid of clear industry standards and regulatory frameworks.

Nine Lifestyle-Related Diseases + Longevity Factor DNA Test

In 2012, the U.S. company 23andMe secured a new round of $50 million in financing and began aggressively spending to launch its $99 personal genetic testing service. Japanese internet companies, which have long trailed closely behind U.S. internet giants, started to recognize the substantial business opportunities latent in this industry.

In 2014, Japan's internet giants officially entered the genomics industry.

In mid-2014, Japanese mobile gaming giant DeNA announced the launch of a genetic testing service called Mycode. The service included 283 test items and provided corresponding dietary and exercise tracking recommendations based on the results. At its initial launch, the service offered three pricing tiers: ¥9,800 (approximately RMB 500) for testing 35 diseases, ¥19,800 (approximately RMB 1,000) for testing 100 diseases, and ¥29,800 (approximately RMB 1,600) for the full panel of 283 tests.

In October, Yahoo Japan officially launched the “Health Data Lab” personal genomics database project. Emulating 23andMe’s business model—online recruitment, at-home sample collection, and outsourced testing—it is burning through venture capital to build a genetic database of the Japanese population. In the initial phase, it is offering free genetic testing to 10,000 individuals (a notably costly endeavor), with the testing panel covering 40 diseases and 80 health conditions.



Meanwhile, major Japanese electronics manufacturers and telecommunications companies have also begun entering the genomics sector with an Internet of Things (IoT) mindset. In November, the Toshiba Group developed a system that accelerates genetic analysis, completing the process in just one week. Nippon Telegraph and Telephone Corporation (NTT) has developed a wristwatch-style sensor that, combined with genomic analysis technology, aims to help people prevent diseases through genetic testing.

By 2005, overseas internet companies had already entered the genomics industry and had spent nearly a decade exploring ways to enhance user experience.

When did genetic testing companies in China begin to emerge?

The traditional model of genetic testing needs an upgrade. U.S. internet companies already completed the zero-to-one phase for traditional genetic testing firms back in 2006. There is no viable path forward if we continue to establish a genetic testing company using this outdated approach. This is particularly true in China, where many conventional genetic testing companies, under the guise of “health management,” attempt to cleverly sidestep the sensitive issues surrounding “genetic testing,” while their actual business remains “genetic testing plus sales of value-added products.”

This business model may well fail beyond the “third degree.” Here, “third degree” refers to a customer’s customer’s customer. This is because genetic testing can only identify problems but cannot solve them. As issues accumulate across three degrees of separation, they grow in a geometric progression. The eventual eruption of these compounded problems will directly lead to customer churn and loss of trust. If a thousand such companies emerge in the market, chaos will ensue. By 2013, Japan already had 738 genetic testing service providers, while China was projected to surpass one thousand by the end of 2016.

Therefore, transformation is no longer a viable option for genetic testing companies; what is needed is upgrading. Upgrading what? It is the manufacturing model of the industrial chain that needs to be upgraded.

What is the current technical support for genetic testing companies? It is the laboratory. These laboratories include both clinical testing labs and research service labs. Some laboratories are accredited, while others are not. If we compare laboratories to factories, the biggest problem at present is the lack of standardized, stable, and efficient production lines.



The first step of the upgrade needs to be achieved in the laboratory.

It is often heard from industry peers that establishing a third-party clinical laboratory meeting national standards is no easy task. Apart from the cumbersome procedures of filing and approval, the standardization of the laboratory itself is a highly technical endeavor. While such clinical laboratories can be established with capital investments exceeding RMB 10 million, it remains unclear whether smaller laboratories can also provide technical support for genetic testing. The answer is ambiguous.

In fact, major companies, institutions, universities, and local laboratories all offer partial technical support for genetic testing. Information in this field is highly asymmetric, fragmented, and characterized by opaque costs.

The manufacturing process within the genetic testing industry chain is chaotic. This situation reminds me of the early days of the garment manufacturing industry in coastal cities of Guangdong Province, where thousands of small and large workshop-style factories operated without unified standards or pricing, engaged exclusively in contract manufacturing, and lacked independent brands.

Therefore, the upgrade of this laboratory is imminent. If China aims to make a significant impact in the genomics sector of the broader health industry, it must first implement fundamental reforms. This will give rise to substantial business opportunities. Within the next three years, the production segment of this field will undergo a major reshuffling.

1. Platform-based genetic companies will emerge

Given the current pace of development in the genomics industry, China’s capital market requires a learning and engagement period to navigate this sector with its relatively high technical barriers. This process is expected to last approximately one year. Why one year? Because competition in the capital market is intense; the gap between a top-tier investment firm and a third-tier one is merely 3–5 months. This means that within a year, investor consensus on funding for the industry will reach equilibrium. It is worth noting the distinction between platform-based enterprises and application-oriented companies. While both leverage the same cloud computing and bioinformatics technologies, their business models and corporate DNA are fundamentally different.

Given the current pace of development among platform-based enterprises, product upgrades are typically implemented on a monthly basis, with product iterations occurring every three months. In other words, if a platform-based enterprise fails to generate significant industry buzz or make a notable impact at least once a month, it can essentially be said to lack core competitiveness.

2. Acquisitions in Other Industries

There is a highly significant policy change that warrants our attention. Effective October 1 last year, the China Securities Regulatory Commission (CSRC) permitted listed companies to engage in cross-industry mergers and acquisitions (M&A) without requiring regulatory approval. Previously, any domestic listed company seeking to acquire a genetic testing firm had to obtain CSRC approval, and M&A activities were restricted to within the same industry. What does this imply? It means that even a company manufacturing light tubes could acquire a genetics company, and a publicly traded food company selling biscuits could do the same. In the future, it will become an inevitable trend for internet companies to acquire domestic genetics firms as part of their strategic industrial layout.

3. The Frenzy of Capital Push

It is well known that Beijing has established a new capital market called the New Third Board, which has now surpassed the combined total of the Shenzhen and Shanghai stock exchanges. Given the current base of 2,700 listed companies and their growth trajectory, it should not be difficult for the number to exceed 10,000 within two years. Once the New Third Board becomes the world’s largest financing platform for small and medium-sized enterprises (SMEs), a time lag will inevitably emerge in how startup development strategies respond to this shift, regardless of how many skeptics there are. Driven by frenzied capital inflows, this time lag is highly likely to be amplified in the already chaotic genetic testing market.

The second step of the upgrade needs to be completed in the market.

Is there a market for genetic testing? The answer is undoubtedly yes. Any company planning to offer genetic testing will conduct market research before launching its product. How is this done? The most direct approach is to identify pre-sale customers. Some companies engage channels and distributors, others turn to internet crowdfunding platforms, while some adopt traditional sales models directly. Regardless of the method employed, every company has its own strategic calculations, which invariably aim to encompass the entire Chinese population. Why? Because without such a vast market, would investment flow in? Consider this: can companies that assess market potential with the mindset of selling jianbing guozi (Chinese savory crepes) truly expect favorable outcomes?

There is definitely a problem here. The issue lies in the disconnect between the market and production stages. Traditional enterprises are being impacted by the internet, and at the current pace, this impact will last for at least several years. However, the ultimate goal for internet companies is to achieve a viable profit model, one means of which is to convert their large user base. This conversion can be achieved by integrating with the product and service channels of traditional industries.

If the gene testing frenzy that emerged in China in 2006 introduced the general public for the first time to the mystique and fervent hype surrounding technology, then the farce staged by United Gene indeed plunged the gene testing market into a deep winter. Last year, favorable national policies boosted the clinical application of the gene sequencing market, and earlier this year, President Obama’s push for precision medicine in the United States further fanned the flames. As a result, gene testing—a service once forgotten by the public (perhaps now somewhat accurately described as a product)—has once again become hot.

Some have described United Gene as a deformed child born at the wrong time, arguing that China’s short-sighted, pyramid-selling-style system poisoned the first wave of public applications for gene science. However, the Chinese market eight years ago was clearly immature, and the ecosystem for the entire gene industry had yet to take shape. United Gene, acting alone, could not build this ecosystem. Driven by the profit-seeking nature of capital, and in the absence of a established industry landscape or ecological framework, this “deformed child” was set on a path of no return.

Market upgrades will spur the rapid growth of platform-based genetic companies, while industry development is increasingly calling for the construction of a comprehensive ecosystem. This ecosystem requires service providers across every segment of the industry, mature educational and training institutions, suppliers with authoritative brands, tight integration of offline and online products, and media outlets with deep industry expertise.

Against this backdrop, market upgrades have brought favorable news to traditional industries. In the absence of a mature ecosystem, genetic testing companies are unable to shoulder this mission, and their fate is thus destined to be tragic.

Eight years after the emergence of Joint Gene in China and 23andMe in the United States, 360 Gene, a domestic company, mimicked their products and adopted an e-commerce model to begin online sales, only to attract few users two years later. Shanghai-based HiGene burned through funds raised via internet crowdfunding but ultimately failed, ending with the dissolution of its team. Companies such as GeneCat, Zhiyinbao, 23Mofang, WeGene, and Yimai Gene—leveraging models like internet e-commerce, crowdfunding, and O2O (Online-to-Offline)—remain steadfast in their faith in the market. “The revolution is not yet complete; imitation still requires effort.”

As genetic testing companies rush headlong into the “bonfire” of genetic testing, another force has begun to awaken: traditional industries that have already established their service channels, and internet companies that have completed their product channel layouts. This segment will be analyzed in detail in my other series.



Genetic testing can only identify problems, not solve them.

There is a book titled Who Do You Want Your Customers to Become, written by Michael Shrage for the Harvard Business Review, in which he states:

“Successful innovators do not merely get customers to do different things; they transform customers into different people. Facebook has made users more open and willing to share personal information, even among those who are not extroverted in real life. Amazon has turned shoppers into well-informed consumers who can access data and reviews in real time, search and compare prices, and even receive automated recommendations based on their past purchase history. Nowadays, who doesn’t compare cost-effectiveness through digital channels before making a purchase?”

“Successful innovators get users to accept—or at least tolerate—new values, new skills, new behaviors, new vocabulary, new concepts, new expectations, and new aspirations. They transform their customers.”

Can genetic testing companies reshape users’ value perceptions regarding health management? Can they alter users’ behavioral habits? With these questions in mind, let us examine the changes that genetic testing products have brought to users.



One is to reshape users’ values regarding health management. Genetic testing can only identify issues, not resolve them; this inherent characteristic dictates that genetic testing products serve primarily as an entry point for information, thereby justifying their existence.How to translate this informational entry point into an exit strategy is precisely what every genetic testing company needs to consider. If the data results from genetic testing lead to the re-integration of insurance product users, this represents the information value export brought by “Genetics + Insurance.” If the results of genetic testing enable patients to optimize the management of their health check-up items, this represents the resource optimization export brought by “Genetics + Health Management.” This series of “Genetics+” initiatives can disrupt numerous traditional industries and draw their attention. The resulting focus will encourage the first wave of enterprises that embraced the “Internet+” transformation to also embrace “Genetics+,” ultimately changing users’ values regarding health management.

Another is to change consumers’ perceptions of health products.In the internet era, characterized by highly centralized information, big data-driven consumption models have disrupted traditional industries. The disruption of traditional sectors by the internet is not merely about moving products online for sales, nor is it simply about achieving zero inventory and 24/7 availability through mobile online channels to alter sales distribution. Rather, internet thinking has fundamentally changed how users consume products. The genetic testing industry is marked by extremely long service cycles, fragmented product experiences, high pre- and post-sales maintenance costs, and low purchase frequency. If consumer perceptions cannot be shifted, it will be exceedingly difficult to promote genetic testing products in the market.

How Many Genetic Testing Companies Does China Need?

As of 2013, the number of institutions in Japan offering genetic testing services had reached 738. Given the current intensity of marketing for genetic testing products in the Japanese market, this figure has likely surpassed 1,000. The number of companies operating in a niche sector during its initial boom phase can serve as an indicator of how far that sector is from achieving a mature ecosystem.



One niche sector closely resembling the current genetic testing companies is internet healthcare. This field represents a specialized segment characterized by cross-industry integration and big data, bearing strong similarities to the genetic testing subsector within the broader health industry. Currently, there are already 2,000 internet healthcare companies in China. Optimistic projections suggest that the number of startups in the internet healthcare sector will double by 2016, driving rapid development across upstream and downstream industries related to internet healthcare. However, this market has already become a highly competitive “red ocean.” Pessimistically, it is estimated that half of these internet healthcare companies will fail as the capital winter sets in.

By analogy, it can be inferred that the number of genetic testing companies in China would exceed 1,000 by 2016. This increase will drive transformations across upstream and downstream industries. As previously discussed regarding the transformation of technical service providers and traditional industries, the genetic testing companies emerging here are primarily user-oriented and consumer-facing.

Undoubtedly, the companies that will ultimately survive are those with robust product and service distribution channels that deliver an exceptional user experience.No single genetic testing company can fully process all genetic data, nor can any one company completely realize the value of such data. Only within an ecosystem does the potential exist to translate this data into value.Only platform-based companies can achieve the conversion of data value. Genetic testing companies are not platform-based enterprises; while they can provide “scenario-based products,” they are unable to offer “scenario-based data services.”

Therefore, for genetic testing companies that provide “scenario-based products,” the true users should be physicians and healthcare professionals; whereas for genetic companies offering “scenario-based data services,” the end users are the general public. The number of genetic testing companies needed in China can be gauged simply by looking at the number of domestic physicians and healthcare workers. Currently, most genetic testing companies in China lack long-term vision and clear market positioning. Investors, meanwhile, merely conduct superficial market research and attend a few academic conferences before blindly jumping in to secure their foothold. The inevitable outcome is dismal user adoption.

What China needs most is not genetic testing companies, but genetic firms that provide “scenario-based data services.” In essence, 23andMe in the United States is not merely a genetic testing company; rather, it is a genetic company capable of delivering “scenario-based data services.” Why is this the case? Initially, 23andMe operated as a genetic testing company, offering only “scenario-based products,” specifically risk assessment services for disease-susceptibility genes. However, at that time, it did not possess a significant competitive advantage, as there were many superior alternatives available, such as deCODE and Navigenics, which also provided services to healthcare professionals.

23andMe’s true awakening came when its founders realized that “data services” and “product services” are fundamentally different. Subsequently, 23andMe realigned its sales strategy for genetic products, rapidly accumulating genetic data from 800,000 users in a very short period and initiating its transformation. Today, 23andMe is pushing “scenario-based genetic products” into the healthcare sector while simultaneously offering “scenario-based data services” to pharmaceutical companies.

Judging by 23andMe’s future trajectory, these two paths represent entirely different business models. It is likely that within two years, the company will make a strategic choice or split into two sub-brands for operation. The most probable outcome is that this nearly decade-old genetic testing company will evolve into an internet enterprise focused on “scenario-based genetic data services.”

In China, the ownership and usage rights of genetic data remain an open secret for now, but will inevitably become a public issue in the future.Genetic testing companies that are “gene data-centric” will eventually hit a “cliff edge,” whereas only those that are “user-centric” can achieve rapid, albeit temporary, growth. Some argue that whoever controls medical big data controls the future; I personally disagree. For instance, at a summit or forum with two to three thousand attendees, the organizers may hold the registration information for all participants. However, if I were to distribute my personal WeChat QR code at the venue, I could capture half of the attendees within just a few hours. By offering valuable gifts to each user who follows my account, I can quickly gain their attention. Comparing my customer acquisition cost with the substantial expenses incurred by the organizers to host the event, the two are simply not on the same level.

In the future, whoever can most rapidly transform medical data into useful information and then into actionable knowledge for physicians will win over users. Physicians feel that by entrusting their genetic data to us, they can immediately make informed judgments about medication use. Why are physicians able to make such accurate assessments? Because we convert big data into small data, small data into useful information, and useful information into scenario-specific knowledge, enabling knowledge to flow and generate commercial value.

We believe that technology is ultimately meant to improve lives, not to replace doctors.In the future, physicians will not be displaced by genetic testing and internet-based healthcare; on the contrary, their role will become increasingly vital. With more tools at their disposal, diagnostic speed will increase, and treatment plans will be more precise. In such a society, do you think physicians will be rendered obsolete? No.

Free genetic testing will always remain an aspiration; products offered at no cost should not enter commercial circulation. While genetic testing kits may be provided free of charge, genetic testing services cannot be free, and genetic data services even less so. Until the ecosystem of the genetics industry is fully established and the costs of “free” offerings can be offset by other value-added services, do not pin your hopes on free models. After all, there is no such thing as a free lunch.

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