A nagging question lingered as I examined Function Health: could its trajectory mirror that of 23andMe? The parallels, once noticed, became impossible to ignore, a structural echo resonating with increasing clarity.
Function operates on a direct-to-consumer model. For a $365 annual fee, members receive comprehensive biomarker testing twice yearly at Quest Diagnostics, coupled with detailed, clinician-interpreted reports. Crucially, Function doesn’t perform the lab work itself; it curates the experience, analyzes the data, and delivers actionable insights.
The company’s impressive $2.5 billion valuation, achieved with a revenue multiple of 25x, signals that investors aren’t simply valuing a lab test reseller. They’re betting on a powerful data flywheel – a continuously growing database of longitudinal biomarker data, invaluable to health plans, pharmaceutical companies, and the burgeoning field of AI-driven healthcare.
The true value lies in the trend. A member invested for four years is unlikely to abandon the service, forfeiting years of personalized health tracking. Function’s success hinges on scaling its interpretation layer – powered by a new generative AI model – without a proportional increase in personnel costs.
Function taps into a deep-seated need among a specific demographic: those proactively managing their health, the “worried well,” and individuals who’ve witnessed the consequences of delayed diagnoses. These are people often overlooked by traditional healthcare systems, seeking a more personalized and preventative approach.
Consider apoB, a biomarker Function prominently features, a superior predictor of cardiovascular risk compared to standard LDL tests. Landmark studies, like the Swedish AMORIS cohort, demonstrate its ability to identify risk factors decades before a major cardiac event, offering a critical window for intervention – statins, lifestyle changes, and closer monitoring.
However, the economic benefits of early detection often don’t align with the typical employer-sponsored healthcare model. An employer may not be insuring an individual when a prevented heart attack would have occurred, rendering the investment seemingly lost. Function bypasses this challenge by directly charging members, focusing on individual value rather than elusive CFO-level ROI.
The real potential lies in the future: actuarial risk models and extensive research datasets built upon years of longitudinal biomarker data. The direct-to-consumer subscription model serves as the engine for acquiring this invaluable data, a foundation for future enterprise-level products.
This is where the 23andMe comparison solidified. 23andMe, too, was a direct-to-consumer data company, its valuation predicated on monetizing data through research partnerships and licensing agreements. The initial kit sales were merely a means to an end.
23andMe operated outside the scope of HIPAA, collecting sensitive health data under a privacy policy that permitted its transfer in the event of a sale or bankruptcy. Its marketing cleverly focused on ancestry, creating viral appeal and positioning the company as FDA-adjacent, rather than strictly regulated. Health reports were presented as an added benefit.
Function mirrors this structure, but with significantly higher stakes. Like 23andMe, it’s a direct-to-consumer health data company, targeting enterprise risk models, research partnerships, and AI development. It also operates outside the traditional HIPAA framework, raising similar privacy concerns.
While 23andMe’s business model was fundamentally flawed – a one-time purchase with no recurring revenue – Function benefits from recurring subscriptions and the inherent switching costs associated with long-term data tracking. Furthermore, Function’s monetization path is more closely aligned with its core capabilities.
However, the regulatory landscape is rapidly evolving. Recent updates to the Health Breach Notification Rule and the proposed Health Information Privacy Reform Act (HIPRA) threaten to extend HIPAA-equivalent obligations to companies like Function, potentially dismantling its current operational model.
The nature of the data itself amplifies the risk. 23andMe collected genetic predisposition data – probabilistic and future-oriented. Function’s biomarker data is current, providing a snapshot of thyroid function, metabolic status, and cardiovascular markers, offering immediate and actionable insights.
Function’s brand promise centers on data ownership and understanding, a message that resonated with its 200,000 members. But, like 23andMe, the true value creation may ultimately require a business-to-business transaction that isn’t fully transparent to the consumer.
The key lies in establishing credible research partnerships. Oura and Whoop have successfully framed data sharing as a contribution to scientific advancement, enhancing brand identity and fostering member engagement. Function’s biomarker data demands an even more rigorous approach.
Function’s partnership with the NBPA is a positive step, signaling brand credibility. However, a distribution deal is not a research collaboration. The company needs to prioritize partnerships that generate and publish findings, transforming distribution into evidence and building trust with potential health plan partners.
Proactive data governance is paramount. Function currently describes itself as “HIPAA-aligned,” voluntarily adhering to certain security requirements. But voluntary compliance isn’t enough. Fully adopting HIPAA-equivalent data handling practices, and framing it as a proactive product decision, is crucial for protecting the data flywheel.
Function has an opportunity to proactively shape its destiny. 23andMe reacted to regulatory changes, becoming a cautionary tale. Function can instead establish a new standard, demonstrating responsible data handling and building a sustainable future.
