23andMe Chapter 11 Deep Dive: $35M DIP Financing, Asset Sale Dynamics, and Privacy Scrutiny

Introduction

On March 24, 2025 (the "Petition Date"), 23andMe Holding Co. and its affiliated debtors (collectively, the "Debtors") initiated chapter 11 bankruptcy proceedings in the United States Bankruptcy Court for the Eastern District of Missouri (Case No. 25-40976). The Debtors' service address for these cases is 870 Market Street, Room 415, San Francisco, CA 94102. The court swiftly granted the Debtors' first-day motions, enabling continued operational continuity. A key component of the filing is the Debtors' request for approval of a $35 million debtor-in-possession ("DIP") financing facility. This funding is intended to support ongoing operations, cover the administrative costs of the chapter 11 case, and crucially, facilitate a court-supervised sale process for the company’s assets, notably including its vast and valuable genetic database.

Company Background and Key Challenges Leading to chapter 11

23andMe began in 2006 under the leadership of co-founder Anne Wojcicki, pioneering direct-to-consumer genetic testing. The company eventually went public via a SPAC transaction in June 2021, raising $592 million in gross proceeds. Those funds initially fueled continued investment in research and development (R&D), but changing market conditions—coupled with the often one-time nature of genetic kit sales—drove down revenues. Competition intensified, and rising inflation drove operating costs higher.

As of October 2023, 23andMe’s challenges were compounded by a cyber security incident (the "Cyber Security Incident") that left approximately seven million customers impacted by unauthorized access to their personal information. The breach spurred multi-district litigation, arbitration, and state and foreign regulatory investigations. Legal costs and negative press further dampened consumer demand, piling onto existing liquidity pressures.

In March 2024, the board of directors formed a Special Committee to explore a possible go-private transaction proposed by Ms. Wojcicki and to evaluate other strategic options. As several out-of-court proposals proved either preliminary or unworkable, more independent directors joined the board in October 2024, and in November 2024 the Debtors announced the cessation of their Therapeutics division to focus on core consumer and telehealth operations. Yet, despite cost-cutting and restructuring efforts, the company remained cash flow negative. By January 2025, Moelis was tasked with conducting a broader marketing process to find potential investors or buyers, culminating in the Debtors’ decision to file for chapter 11.

Many of the financial hurdles stemmed from macroeconomic pressures, such as inflation and rising interest rates, which led to higher operational costs (including freight, vendor, and supplier expenses). Additionally, the overall market for personal genetics products experienced a slowdown, with consumers sometimes deferring discretionary spending on services like genetic testing. To remain competitive, 23andMe lowered its pricing—which eroded margins further—and faced difficulties securing capital market funding out of court. All of these factors converged to bring 23andMe into chapter 11.

Cyber Security Incident and Resulting Litigation

In October 2023, a threat actor accessed around 0.1% of user accounts (“Credential Stuffed Accounts”) and, from there, obtained personal data from about seven million 23andMe customers. Exposed information included ancestry details and, for some, genetic health data. Multiple putative class actions were filed and later centralized in an MDL proceeding in the Northern District of California; numerous state-court actions, arbitration demands (around 35,000 claimants), and foreign proceedings arose in Canada and the U.K. Concurrently, U.S. state attorneys general launched a multi-state investigation, and various foreign regulators inquired about the incident. Though the Debtors reached a preliminary settlement framework for the class action, the ongoing legal pressures, combined with mounting operational costs, severely constrained 23andMe’s liquidity.

Capital Structure and Recent Strategic Moves

Upon going public, 23andMe used part of the $592 million in proceeds to fund its existing consumer business and acquire Lemonaid Health in November 2021 for $400 million. Although integration of Lemonaid Health expanded the company’s telehealth offerings, competition in the online healthcare space and limited marketing resources curbed the subsidiary’s growth. With mounting liquidity constraints, the Debtors pivoted to an in-court process.

Notably, 23andMe has no funded debt obligations beyond its newly secured $35 million DIP financing. Many unsecured claims relate to the litigation and arbitration stemming from the Cyber Security Incident. 23andMe Holding Co. remains publicly traded under the ticker symbol “ME,” with Class A shares bearing one vote each and Class B shares bearing ten, preserving Ms. Wojcicki’s super-voting control.

Organizational Structure and Key Business Lines

23andMe Holding Co. (the publicly traded parent) and its affiliated debtors oversee three main business segments: (1) Personal Genome Service (PGS), (2) Telehealth (via Lemonaid Health), and (3) Research Services. The Lemonaid platform includes contractual arrangements with four non-debtor professional medical corporations ("PMCs") owned by licensed medical professionals in various states. The PMCs employ clinicians who provide direct patient care on the telehealth platform, while the Debtors furnish managerial, administrative, and non-clinical services.

Personal Genome Service (PGS)

Accounting for roughly 76% of total revenue, the PGS segment sells saliva collection kits that inform customers of their genetic ancestry, carrier status, wellness traits, and—under its upgraded memberships—pharmacogenetic insights. The core product lines include the Ancestry Service, Health + Ancestry, and premium membership offerings like 23andMe+ Premium and 23andMe+ Total Health. By March 31, 2024, about 550,000 customers subscribed to these advanced memberships.

Telehealth Services (Lemonaid Health)

Acquired for $400 million in November 2021, Lemonaid Health brings in approximately 16% of revenue. It offers virtual medical visits, prescription fulfillment, and subscriptions for ongoing care in areas like mental health and weight loss. The Debtors support the PMCs’ medical staff by providing the technology, administrative services, and pharmacy operations. Since many patients opt to fill prescriptions via 23andMe’s mail-order pharmacy (LPRXOne LLC), the Debtors rely heavily on third-party suppliers and ensure compliance with state laws on corporate ownership of medical practices.

Research Services

Around 8% of total revenue arises from 23andMe’s collaborations with pharmaceutical and biotechnology partners. More than 80% of eligible 23andMe customers consent to participate in genetic research, resulting in a vast database of phenotypic and genotypic information (with over 15 million genotyped customers). These data power discovery efforts to validate novel drug targets and support clinical trial recruitment. Although 23andMe ceased its in-house Therapeutics program in November 2024, the Debtors continue to pursue licensing agreements and asset sales related to that discontinued division’s intellectual property.

Adverse Market Conditions and Liquidity Constraints

Although 23andMe has generated annual revenues exceeding $200 million for the past five years, it has never turned a net profit. Historically, operations have been funded through equity issuances, product sales, telehealth services, and research partnerships. Following the SPAC merger, however, 23andMe faced headwinds in accessing capital markets—exacerbated by rising inflation, interest-rate hikes, and global economic uncertainty that pushed up freight, supplier, and vendor costs. Simultaneously, consumer demand for genetic testing decelerated, and the company reduced its product prices to remain competitive. While discontinuing the Therapeutics division and reducing headcount helped right-size expenses, the company remained cash-flow negative as negative press from the Cyber Security Incident continued to hamper sales.

Operational Restructuring Efforts

Beginning in November 2024, the Debtors took significant steps to improve their balance sheet, including shutting down the in-house Therapeutics division and reducing headcount by 40%. In January 2025, they pushed further cost reductions and tried to negotiate more favorable terms with landlords. Yet litigation costs tied to the Cyber Security Incident—and continued market headwinds—limited any turnaround out of court. These obstacles, plus uncertainty over potential liabilities, led the Debtors to file for chapter 11, which allows for a centralized resolution of litigation claims and a free-and-clear asset sale under the U.S. Bankruptcy Code.

Prepetition Marketing and Decision to File

Moelis & Company LLC ("Moelis") was initially engaged as investment banker to a Special Committee of the Board in January 2025, later expanding its role to advise the Company directly. The objective was to evaluate a wide range of alternatives, including potential sales, mergers, asset disposals, licensing agreements, or a restructuring. Moelis conducted extensive outreach, contacting 103 potential counterparties, comprising 51 potential strategic investors and 52 potential financial investors or financing sources. This robust marketing process involved 90 introductory calls and led to 42 parties signing confidentiality agreements. A public announcement of this strategic exploration was made via press release on January 28, 2025 (view press release).

Despite receiving multiple preliminary non-binding indications of interest (IOIs) by February 20, 2025, none presented a viable out-of-court solution acceptable to the Special Committee. The IOIs were generally deemed preliminary, not currently actionable, or otherwise unsuitable for an out-of-court execution. An indication of interest from co-founder Anne Wojcicki (the "Former CEO" in court filings, who resigned as CEO upon filing but remains a director and potential bidder) also did not result in a transaction. Faced with pressing liquidity needs, the Special Committee concluded that an in-court, chapter 11 supervised sale process was the necessary path forward. The Debtors ultimately filed chapter 11 on March 24, 2025.

Details of the Proposed $35 Million DIP Financing

Pivoting to an in-court strategy required securing DIP financing. The Debtors leveraged interest from the prepetition process, ultimately receiving three written DIP proposals. Following evaluation, the Special Committee authorized negotiations on two potentially actionable proposals: one from the eventual DIP Lender (JMB) and one from the Former CEO, Anne Wojcicki. Court documents emphasize that arm's-length, good-faith negotiations ensued between the Debtors' advisors and advisors for both potential lenders.

The Special Committee ultimately concluded that the DIP Lender's proposal offered comparable or superior terms regarding facility size, maturity, cost, conditions, and covenants. Consequently, the Debtors finalized and executed the binding DIP Term Sheet with the selected lender on March 23, 2025. Key elements include:

Heightened Scrutiny Over Genetic Data Privacy

The bankruptcy filing places 23andMe's handling of sensitive customer genetic data under a microscope. While the court has authorized the marketing of assets, including this data, as part of the sale process, significant concerns have been raised. Privacy advocates and, notably, state attorneys general are watching closely. This scrutiny is compounded by eroded public trust stemming from previous data breach incidents and the inherent uncertainty bankruptcy introduces regarding data stewardship.

23andMe has publicly affirmed its commitment, stating that any successful bidder must agree contractually to adhere to the company’s privacy policy and all relevant laws. The effectiveness and enforcement of these commitments within the court-supervised sale process will be critical.

Justification for DIP Financing, Sale Process Goals, and Next Steps

In supporting the DIP motion, Moelis Managing Director Andrew Swift affirmed that the extensive prepetition marketing confirmed the lack of viable out-of-court or unsecured financing options. He opined that the proposed DIP Facility is the best available path to provide essential liquidity, was negotiated fairly, and features reasonable terms given the circumstances. The financing is deemed critical not only for maintaining operations and administering the chapter 11 case but specifically for funding a robust, value-maximizing sale process for the benefit of all stakeholders.

The Debtors assert that without this financing, their ability to operate, preserve the value of their assets (including the significant data asset), and execute an orderly sale would be severely hampered, harming all parties involved. The immediate next steps involve seeking court approval for the DIP Term Sheet and initial fees, followed by a request for the final DIP Order authorizing access to the loan funds, contingent upon meeting milestones like securing a stalking horse bidder for the assets by early May.

Anticipated Chapter 11 Process, Timeline, and Goals

In the near term, 23andMe plans to fund ongoing operations with its unrestricted cash until a final order approving the $35 million DIP facility is secured. The Debtors intend to continue the prepetition marketing process, now under court oversight, to solicit the highest or otherwise best bids for their assets—whether via section 363 sales or a chapter 11 plan. They also aim to finalize a stalking horse bidder by early May and conduct an auction promptly thereafter, thereby maximizing recoveries for all stakeholders.

Throughout this process, protecting the privacy and security of 23andMe’s customer data remains paramount. Any prospective acquirer must adhere to the company’s current consumer privacy practices and all relevant regulations. The Debtors believe that the sale process will attract robust interest, especially given 23andMe’s unique genetic database and well-known brand. Ultimately, the chapter 11 filing seeks to ensure that the company can emerge—whether via sale or reorganization—with minimized liabilities and an optimized platform for future growth in consumer genomics and telehealth.