LunaDNA Offers Stock for Data in Bid to Build Research Database

Xconomy San Diego — 

Henrietta Lacks’s “immortal cells” contributed enormously to the progression of scientific discovery, but Lacks, a poor, black woman who died from cervical cancer in 1951 months after her cells were harvested, never personally benefited from or consented to the medical research the HeLa cell line enabled.

Dawn Barry, a former executive at San Diego genome sequencing powerhouse Illumina (NASDAQ: ILMN) who co-founded LunaDNA last year, says her company is committed to compensating those who help it build a database of anonymized health and DNA information.

LunaDNA, which is based in San Diego’s Solana Beach community, plans to share its equity and anticipated profits with people who hand over their health and genomic data, and hopes the feel-good boost from potentially contributing to medical advances and a bit of pocket change will incentivize potential contributors.

The company expects to generate revenue from researchers paying to use its database of health information. LunaDNA is one of a number of companies that aim to build a database of health and genomic data that researchers will want to mine for insights. For Boston’s Nebula Genomics, users are incentivized in the form of “credits,” which the company says will be transferable for free services, such as genome sequencing.

Another San Diego company, Seqster, offers users a consumer-friendly interface that seamlessly integrates different types of health information—data from a wearable fitness tracker plus electronic medical records from a hospital visit, for example—to provide someone with an overall view of their health. Co-founder and CEO Ardy Arianpour has likened the platform to personal finance site Mint.com.

At first, LunaDNA said it planned to offer its own cryptocurrency in exchange for data donations. But with the regulatory uncertainty around digital currencies, the company instead turned to another novel idea: offering equity.

“It’s really important to us to have a model that’s well-established, that’s very transparent, [and] that’s in line with current regulations,” Barry said.

In a traditional stock offering, companies exchange shares for money. This week the SEC qualified LunaDNA’s offering of $50 million worth of its shares in exchange not for cash, but for data.

Los Angeles-based law firm Sheppard Mullin advised LunaPBC, the public benefit corporation that manages LunaDNA.

John Tishler, a partner in the corporate practice group in the firm’s San Diego office, led the effort to explain the unusual offering to the SEC. Tishler said the offering was unusual in a number of ways, and the resulting back-and-forth with the regulators expanded the typical timeline of preparing for such an equity sale.

Shareholders can request their data be removed from the database at any time. They can also share their data with as many data repositories as they’d like. The company, in turn, has the right to change the terms under which it accepted the data, as long as it gives appropriate notice. (If contributors don’t like the changes, they can’t vote against it—but they can remove their information.)

“I thought the idea was brilliant,” Tishler says.

SEC exemption Regulation A “does expressly allow for non-cash contributions or investments, but nobody had this type of thing in mind—I don’t believe—when it was invented,” he adds.

LunaDNA says it is the first such platform to offer stock in exchange for health and DNA data.

According to the offering, LunaDNA is selling more than 714 million shares at 7 cents apiece. A complete genome sequencing is valued at $21 (300 shares); 20 days of data from a nutrition tracker, 14 cents (two shares).

LunaDNA’s platform currently accepts the results of genomic tests such as those offered by 23andMe and Ancestry.com and its own health surveys, according to its website. It will eventually accept other data types, such as whole genome and exome DNA files, electronic health records, and information collected by wearable devices.

If LunaDNA makes money, shareholders could later get a cut of it via a dividend payment.

“The more people that come in, the more value is created, [and] when that value is created, it’s shared,” Barry said.

The shares are being offered through what’s often referred to as equity crowdfunding, a process by which a company sells equity without having to register with the SEC. The amount that can be raised that way is limited to $50 million, but it’s generally less expensive and time-consuming than an IPO, and therefore more appropriate for some small, private companies.

It’s also available to unaccredited investors, although there are still financial limits on who can participate. (Individuals are considered accredited if they have a net worth of $1 million, alone or jointly with a spouse, not including a primary residence, or an income of at least $200,000 (or $300,000, jointly with a spouse) for two years and the expectation it will be at least that much in the year of the investment.) Under equity crowdfunding regulations, individuals are limited to investing the greater of 10 percent of either their annual income or their net worth.

Of course, asking for data instead of cash means the company won’t be adding to its financial coffers—the usual reason to do an offering.

LunaPBC said in May that it had raised $4 million to date. Backers include Illumina’s corporate venture arm and Arch Venture Partners.

For LunaDNA and its competitors, the more data collected, the more valuable their databases could be.

“[Offering equity] fixes earlier issues of imbalance and value in research,” Barry said. “Now our go-forward is to acquire members, to invite people to make a statement that this is the right way to do research…and to create that scale and continuous nature of data so that we can usher in an era of next-generation research.”