By Daniel Wiessner
July 10 (Reuters) - A federal judge on Thursday declined to block the bankruptcy sale of genetic testing company 23andMe to its co-founder Anne Wojcicki pending the outcome of a legal challenge by California.
U.S. District Judge Matthew Schelp in St. Louis, Missouri, during a hearing said he would not pause the $305 million sale while he reviews the state's bid for a declaration that 23andMe cannot sell California customers' genetic data without their consent.
A bankruptcy judge rejected those claims on Monday, and California had appealed that ruling to Schelp, who on Tuesday had briefly paused the sale ahead of Thursday's hearing. 23andMe, which filed for bankruptcy in March, is selling its assets to TTAM Research, a new nonprofit founded by Wojcicki.
Schelp during the hearing said it was reasonable for U.S. Bankruptcy Judge Brian Walsh to conclude that California customers would not be harmed because they can opt to delete their accounts and genetic information.
“A stay pending appeal threatens to derail the TTAM sale altogether, and creditors and shareholders would likely suffer,” the judge said.
Schelp extended the temporary stay until 11:59 p.m. on Friday to give California time to seek a stay from the St. Louis-based 8th U.S. Circuit Court of Appeals.
23andMe, TTAM and the office of California Attorney General Rob Bonta did not immediately respond to requests for comment.
California argues the sale violates the state's Genetic Information Privacy Act, which prohibits the transfer and disclosure of genetic data or biological samples to third parties without express permission for each transfer.
The state had sought to prevent California customers' data from being transferred, a step that 23andMe said would effectively kill the sale. California consumers represent about 1.8 million of the approximately 10 million genetic profiles in 23andMe's inventory, according to court filings.
Walsh, the bankruptcy judge, on Monday overruled California's objections. Other states had also made similar objections to the sale.
On Thursday, Bernard Eskandari of the California Attorney General's office told Schelp that the state would have investigated and brought an enforcement action against a company that sold genetic information without consent outside of bankruptcy. And 23andMe customers cannot now be stripped of those protections, he said.
“Bankruptcy is not a hall pass to evade state law,” he said.
But Jeff Recher, a lawyer for the company, countered that California's genetic privacy law only regulates the transfer of data and not the sale of equity.
“This is not a transfer of genetic information, it’s a sale of an ownership interest," he said.
Schelp at the end of the hearing agreed the state law does not apply to sales of ownership and said that California likely lacked standing to challenge the sale.
TTAM has said it would continue to protect customers’ genetic data and maintain 23andMe’s privacy policies, including customers' right to delete their data.
Wojcicki was 23andMe’s CEO before its bankruptcy filing, and her new nonprofit’s name is an acronym formed from the first letters of the words “twenty-three and me.”
TTAM won a bankruptcy auction for 23andMe’s assets in June, outbidding a $265 million offer from Regeneron Pharmaceuticals (REGN.O).
23andMe filed for bankruptcy after a drop-off in consumer demand and a 2023 data breach that exposed millions of customers' genetic data.
The case is California v. 23andMe Holding Co., U.S. District Court for the Eastern District of Missouri, No. 25-cv-00999.
For California: Bernard Eskandari and Daniel Nadal of the Office of the Attorney General of California
For 23andMe: Jeff Recher, Chris Hopkins and Paul Basta of Paul, Weiss, Rifkind, Wharton & Garrison
For TTAM: Joe Larkin of Skadden Arps Slate Meagher & Flom
Read more:
Judge briefly pauses 23andMe bankruptcy sale amid California's appeal
California fails to stop 23andMe founder from re-acquiring company
23andMe's founder Anne Wojcicki wins bid for bankrupt DNA testing firm
DNA testing firm 23andMe files for bankruptcy as demand dries up
(Reporting by Daniel Wiessner in Albany, New York and Dietrich Knauth)
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