23andMe, a company known for its consumer genetics test, is also looking to develop new drugs. The company raised $250 million on Tuesday, and the funding will in part go toward drug development. While drug development and consumer genetics tests might seem like vastly different businesses, the link could be critical to finding new treatments for diseases.

23andMe is getting serious about drug development.

On Tuesday, 23andMe announced that it had raised $250 million valuing the company at a reported $1.5 billion, and said that that funding will in part go toward developing 23andMe-made therapeutics. It’ll also help the company expand its user base and build up its research platform.

23andMe is best known for its genetics tests that tell you everything from how much Neanderthal DNA you have to potential health risks, so the idea that it might one day make a drug might seem a bit off-beat. After all, it’s not common for a company to run what seems like two completely different businesses: a consumer DNA test company and a biotech.

But the strategy makes more sense when one considers what gets paid for in healthcare, according to Dr. Krishna Yeshwant, a GV general partner who leads the Life Sciences team. GV is an investor in 23andMe.

"I think it's just the way the industry's structured," he told Business Insider. "There is a lot of value in diagnostics, it's just in the way that the diagnostics industry is structured you don't get paid as much for the diagnostic, you get paid a lot for the therapeutic,""

For example, a cancer drug might come with a diagnostic test that helps determine if the drug is right for that patient. But the part that costs the most is the drug, not the test. "If what the market wants, if what pharma and partners want, is a therapeutic, then to some degree you can produce a lot of data, but ultimately somebody needs to do that translation," Yeshwant said.

That could be where 23andMe - which has amassed massive datasets through its DNA-testing business - fits in. 23andMe has already partnered with major pharmaceutical companies like Lundbeck and Pfizer, which hope to use 23andMe's data to develop their own drugs. And in 2015, 23andMe started getting into drug development on its own, hiring former Genentech executive Richard Scheller to lead the team. But there haven't been too many updates since then.

The idea is to use the genetic information 23andMe's gathered from users who consent to share their information and use that to build therapies. The people who opt into sharing their data (about 85% of users) are asked to answer survey questions about their health and habits. Those answers then feed research into links between genetics and certain conditions. If certain genes stand out, they could become targets that 23andMe goes after with a drug. Ideally, that drug could then be studied in clinical trials, possibly on people who participated in the initial research who have that condition.

"We're a tiny biotech, but our goal is, rather than discover drugs based off of animal models, we're going to discover drugs based off of data from human beings," Emily Drabant-Conley, vice president of business development at 23andMe told Business Insider. "And hopefully that will help us to be more successful in creating more therapies."

Drabant-Conley pointed to university researchers who are taking similar approaches of looking into genetics to find drug targets. In that setting though, the researchers might not be able to get as large of a population as 23andMe. Plus, beyond small payments, there's not a ton of incentive for people to participate in research, which can limit results.

"The reason that many academic groups have failed to do that is that there's nothing to give back to consumer," she said.

Finding drugs based on genetic targets that work

23andMe how to

Foto: 23andMe's genetic test. source 23andMe/YouTube

A number of biotech companies are on the hunt to find genetically-based drug targets, then building a drug that targets it. One success so far has been with cholesterol drugs that inhibit PCSK9, a protein encoded by the PCSK9 gene.

In some people, the mutation causes the body to make too much of it, and discovering the gene led to the development of drugs that could inhibit the protein. Other genes that have been linked to a decreased risk of heart disease based on thousands of Icelanders who have had their genes sequenced, could be the beginnings of another heart drug.

The hope is that the drug discovery approach is less risky when it factors in genetics than when it doesn't.

"It's ultimately about how much risk there is around any given therapeutic because each one of these is going to be hundreds of millions, billions of dollars to develop, so what can you do to reduce the amount of risk around each one of those therapeutics getting to market?" Yeshwant said.

The PCSK9 story has turned people's attention on to the impact that genetic databases can have on finding a new drug. But it'll take at least one more to get approved by the FDA before pharmaceutical companies completely devote resources to it.

"The first one gets everyone's attention, the second one starts to validate it, the third one is like if you're not doing this you're behind," Yeshwant said.