Less than five years ago, consumer DNA tests were being hailed as the innovative technology of the future—but today, declining sales have forced several companies in the field to scale back their workforces and adjust their business strategies.

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Slump in sales of consumer DNA tests

Sales of consumer DNA tests boomed in 2017 after FDA approved 23andMe's direct-to-consumer genetic tests. But last summer, the first signs of trouble in the DNA testing market emerged, when Francis deSouza—CEO of Illumina, a genetic equipment maker—during an earnings report noted a slowdown in sales across the industry.

New credit and debit card data from Second Measure shows that in November 2019 direct website sales for Ancestry and 23andMe were down 38% and 54%, respectively, compared with 2018—and 23andMe's website sales were down 54%. While Second Measure's data does not include how many testing kits were sold at physical or online third-party retailers, such as Amazon, it does "provide a good indication of general trends in consumer interest in ancestry and health genetics testing," Vox reports.

Why are sales declining?

According to Vox, there are a few factors that could contribute to the drop in DNA testing kit sales, but the two key ones are market saturation and damage from privacy concerns.  

According to Margo Georgiadi, president and CEO of Ancestry, about 30 million people around the world have taken a DNA test, and more than 50% of the tests were Ancestry kits. Similarly, 23andMe has sold more than 10 million DNA testing kits.

While these numbers originally pointed to good sales for the companies, Vox reports that the numbers can also indicate that the consumers who are interested in and can afford DNA testing may have already paid for it. And given one's genetic data is unlikely to change, most consumers may not see a reason to purchase another DNA testing kit.

As Georgiadi explained, "The DNA market is at an inflection point now that most early adopters have entered the category."

According to Vox, the market for DNA tests also may not be as wide as once believed.

"While each sibling inherits slightly different genes from their parents, you can get a pretty good idea of your ancestry from their DNA test," Vox reports. Meaning that some people might not feel a need to purchase the test if another close family member, like a sibling, has already undergone genetic testing.

As DNA testing became more popular, consumers and privacy advocates also started to raise concerns about third parties, like tech startups and law enforcement, gaining access to their genetic data.

When police in one high-profile case accessed genetic data through a third-party site to track down the Golden State Killer, it became apparent how DNA test results could be used by law enforcement, or sold to other third-parties, without their consent.

And while some DNA testing companies, including Ancestry and 23andMe, have since  updated privacy policies now require "express consent" from consumers before sharing their data with third parties, Vox reports that the efforts might be too little too late.

How are DNA testing companies responding

In response to the decline in sales, DNA testing companies are making changes to their business models and laying off workers.

23andMe CEO Anne Wojcicki last month announced the company was laying off 14% of its staff amid an industry-wide decline in sales of consumer DNA tests that has driven several companies in the industry toward other endeavors.

Christine Pai, a 23andMe spokesperson, said that 23andMe was "restructuring" its consumer business, cutting about 100 jobs mostly from the company's operations team.

Ancestry this month also laid off about 100 workers, 6% of its total workforce, in response to "a slowdown in demand," the company said.

In a blog post, the company indicated it is reinvesting in its health care business, called Ancestry Health. The company earlier this year announced it would expand its product offerings to include a next-generation sequencing tool to give consumers more detailed information about their potential health risks (Molla, Vox, 2/13; Farr, CNBC, 2/5).