Dozens of states sue to block the sale of 23andMe personal genetic data without customer consent

Twenty-seven states and the District of Columbia have filed a lawsuit to block the sale of 23andMe's customer genetic data without explicit consent during its Chapter 11 bankruptcy proceedings, arguing that such sensitive information cannot be treated as ordinary property. The lawsuit coincides with Regeneron Pharmaceuticals' proposed $256 million acquisition of the struggling biotechnology firm, which has faced profitability challenges since its 2021 public offering and recently laid off 40% of its staff. The states seek to ensure customer control over deeply personal information amid concerns about data privacy during the sale.

Analysis

A coalition of twenty-seven states and the District of Columbia has initiated legal action in bankruptcy court to prevent 23andMe from selling customer personal genetic data without explicit consent, complicating the proposed $256 million acquisition of the financially distressed genetic testing firm by Regeneron Pharmaceuticals (REGN). This lawsuit arises from 23andMe's Chapter 11 bankruptcy filing, which followed significant operational challenges including a 40% staff reduction in March and persistent unprofitability since its 2021 public offering. The core of the states' argument, articulated by Oregon's Attorney General, is that sensitive information such as biological samples, DNA data, and medical records cannot be treated as conventional assets for sale and that individuals must retain control over their deeply personal data. While Regeneron has stated its intention to adhere to 23andMe's existing privacy policies and all applicable laws, the legal challenge introduces a significant hurdle, reflected in the slightly negative sentiment associated with REGN. The outcome of this lawsuit, and a forthcoming report from a court-appointed consumer privacy ombudsman due by Tuesday, will be critical in determining the permissibility of transferring such data and could set a precedent for how consumer genetic information is handled in bankruptcy and M&A scenarios, contributing to the overall moderately negative sentiment and uncertain tone of this development.

Key Decisions for Investors

• Investors in Regeneron (REGN) should closely monitor the legal proceedings regarding the 23andMe acquisition, as a successful challenge by the states could derail the $256 million deal or impose significant restrictions, potentially impacting REGN's strategic rationale and the perceived value of 23andMe's data assets.
• This lawsuit underscores heightened regulatory and legal risks associated with the monetization of personal genetic data, particularly in distressed M&A situations, warranting increased due diligence for investments in companies heavily reliant on such data assets across the biotech and technology sectors.
• The case may establish a significant precedent for data privacy in future M&A involving sensitive personal information, potentially leading to stricter consent requirements and impacting the valuation of data-centric companies if data transferability is constrained.