Q1 2022 23andMe Holding Co. Earnings Call

August 13, 2021

[music].

Operator: and welcome to 23ME's fiscal year 2022 first quarter financial results conference call. As a reminder, this call is being recorded. At this time, all participants are on a listen-only mode. After the prepared remarks, there will be a question and answer session. I would now like to turn the call over to Wade Walk, Vice President of Investor Relations, to lead off the call.

Good morning, and welcome to the 23 and me fiscal year 'twenty 'twenty, two first quarter financial results Conference call.

This call is being recorded at this time all participants are in a listen only mode.

After the prepared remarks, there'll be a question and answer session I would now like to turn the call over to Wade Walke, Vice President of Investor Relations to lead off the call. Thank you. Please go ahead.

Wade Walk: Thank you. Before we begin, I encourage everyone to go to Investors.23Mu.com to find a press release we issued earlier today reporting our financial results for the quarter of In addition to the GAP financial reporting, our press release also contains a reconciliation of the GAP to non-GAAP financial measures we will discuss today. I would also remind everyone that on our call today, we will be making forward-looking statements that are based on our current expectations and beliefs.

Thank you before we begin I encourage everyone to go to investors about 23 in the dot com to find the press release, we issued earlier today reporting our financial results for the quarter.

In addition to the GAAP financial reporting our press release also contains a reconciliation of the GAAP to non-GAAP financial measures, we will discuss today.

I would also remind everyone that we will be making forward looking statements on our call today that are based on our current expectations. Please.

Wade Walk: These statements are subject to certain risks and uncertainties, and our actual results may differ materially. Please consult these factors discussed in our SEC filings for additional detail. Joining us on our call today are Anne Wiginski, our Chief Executive Officer and co-founder, Steve Schick, our Chief Financial Officer, and Kenneth Hillen, our head of Therapeutics. With that, I'll turn the call over to Day.

These statements are subject to certain risks and uncertainties actual results may differ materially.

Consult the risk factors discussed in our SEC filings for additional detail.

Joining us on our call today are Andrew Jetski, our Chief Executive Officer, and co founder, Steve Scherger, Our Chief Financial Officer, and Kenneth Hill, and our head of Therapeutics.

Without cultural we call over to Dan.

Wade Walk: Thank you, Wade, and welcome everyone to our first earnings call. I'm thrilled that 23 Me is now a publicly traded company. And again, I want to thank our customers, investors, board members, and employees for getting us to this point in the company's growth. I want to start by saying that our vision of a consumer-centered, personalized healthcare world remains at the forefront of all the work we are doing at 23 Me. I am more optimistic every day because we know the challenge we face is huge, but we also know the opportunity to make a meaningful, positive change is also huge.

Thank you Wayne and welcome everyone to our first earnings call I'm thrilled, but twenty-three me is now a publicly traded company and again I want to thank our customers investors and board members and employees for getting us to this point and the company broke.

I want to start by saying that our vision of a consumer on a.

Personalized healthcare world remains at the forefront of all the work we are doing at 23 and me.

I am more optimistic everyday because even though the challenge we face is huge we know the opportunity, they're making meaningful positive change is also huge.

Anne Wiginski: And we believe we have the tools and the plan to tackle it. The size and scale of our unique database enable us to use genetics to transform how we diagnose, treat, and prevent human disease. Capitalizing on the momentum we built as a private company, we recorded a solid start to fiscal year 2022 with Q1 revenues of $59 million, up $11 million, or 23% versus the prior year Q1.

And we believe we have the tools and the plan to tackle it.

Our size and scale of our unique database enables us to use genetics to transform how we diagnose treat and prevent human disease.

Capitalizing on the momentum we built as a private company, we recorded a solid start to fiscal year 2022, with Q1 revenues of 59 million up 11 million or 23% versus the prior year Q1 vivo.

Anne Wiginski: Steve will cover the numbers in more detail. We also recorded several important milestones on the consumer side. We grew our genetic database to 11.6 million genotype customers, further increasing the value of our premier recontactable database. We also launched three new health reports in the first quarter for our 23ME Plus members. 23Me Plus is our premium content subscription service, launched late last year, that provides subscribers with unique and new reports and features through the course of their subscription, giving them even deeper insights into their health.

He will cover the numbers in more detail.

We also recorded several important milestones on the consumer side.

We grew our genetic database to $11.6 million genotype customers further increasing the value of our Premier Contactable database.

We also launched three new health reports in the first quarter of our 23 and me plus members.

Twenty-three me passes our premium content subscription service launched late last year that provides subscribers with unique and new report and features through the course of their subscription giving them even deeper insights into their health.

Anne Wiginski: First, we launched a new medication insights report. Many people don't know that most of us have at least one genetic variant that may alter how our bodies process certain commonly prescribed medications. That's because genetic testing for these variants, also known as pharmacogenetic testing, is rare. We can offer these reports to our 23Me Plus members because we are the first and only direct consumer company with FDA-approved pharmacogenetic reports. This new report provides insight on how a person's genetics may impact their body's ability to process two drugs: Cetalopram and antidepressants and Clopidigrel, a blood thinner commonly known as clavic.

First we launched a new medication and Vice report.

Many people don't know that most of us have at least one genetic variant that may alter how our bodies process certain commonly prescribed medications.

Because genetic testing for these variants also known as pharmacogenetics testing is rare.

We can offer these reports to our 23 new class members because we are the first and only direct to consumer company with FDA authorized pharmacokinetic report.

This new report provides insights on how we person's genetic may impact their body's ability to process two drugs.

Palo brands and anti depressants and.

Petr Grill, a blood thinner commonly known as Plavix.

Anne Wiginski: About 22 million people in the U.S. are prescribed talaframs, and about 20 million people have prescriptions for clopidogrel. So these medication insight reports can have a real impact on many customers. Next, we launched a new wellness report on cat allergies and dog allergies. It is estimated that 10% to 20% of people are allergic to dogs or cats worldwide.

About 22 million people in the U S are prescribed the Taliban in about 20 million people have prescriptions for Clopidogrel.

This medication insight reports can have a real impact on many customers.

Next we launched a new wellness report on Cat allergies and on dog allergies.

It is estimated that 10% to 20% of people are allergic to dogs or cats worldwide.

We used statistical modeling that utilizes thousands of genetic variance as well as a customer's ethnicity and SEC to estimate the likelihood of developing a dog or cat allergy.

Finally in June we launched an eczema report.

The report does not diagnosed eczema it does estimate a person's likelihood of having this condition.

Anne Wiginski: We use statistical modeling that uses thousands of genetic variants, as well as a customer's ethnicity and sex, to estimate the likelihood of developing a dog or cat allergy. Finally, in June, we launched an eczema report. While the report does not diagnose eczema, it does estimate a person's likelihood of having this condition.

This report is powered by a proprietary polygenic risk score or Prs, which we are uniquely able to calculate by using more than 2100 genetic variant and a customer's ethnicity and SEC.

Our premier genetic database combined with greater than 4 billion phenotypic data points, we have a map gives us the statistical power to generate these Prs report.

In addition to our new reports, we also published T genetic research over the past quarter.

This includes our own research on a genetic link tied to loss of smell that is found in some individuals diagnosed with COVID-19, as well as research we've published in collaboration with academic institutions.

Anne Wiginski: This report is powered by a proprietary polygenic risk score, or PRF, which we are uniquely able to calculate by using more than 2100 genetic variants and a customer's ethnicity and sex. Our premier genetic database, combined with greater than 4 billion phenotypic data points, we have a mass, gives us the statistical power to generate these PRS reports. In addition to our new reports, we also published key genetic research over the past quarter. This included our own research on a genetic link tied to loss of smell that is found in some individuals diagnosed with COVID-19, as well as research we published in collaboration with academic institutions.

Just this quarter, our published research spans the genetics of allergies.

Cataract depression, and even how we use genetics the study rare diseases.

If you're interested in learning about the new reports and the research we publish I encourage you to follow our blog at blog dot twenty-three in Dot com.

Most advanced program is currently in a clinical trial and another is expected to start in the clinic by the end of March next year.

Kenneth will go into more detail on these later in the call.

Finally, we are pleased to welcome three new board members this past quarter, including even level Chief investment officer of the Virgin Group.

Doctor Valerie Montgomery right, the president of Dean of Morehouse School of Medicine.

And Peter Taylor President of the E C M C Foundation.

All three are impactful leaders, who will bring diverse perspectives.

They will be great partners as we scale the company to transform the continuum of health care.

Anne Wiginski: Just this quarter, our published research spans the genetics of allergies, cataracts, depression, and even how we use genetics to study rare diseases. If you are interested in learning about the new reports and the research we publish, I encourage you to follow our blog at blog.23andMe.com. We also continue to make progress with our pipeline of therapeutic programs. Our collaboration with GFK also continues to be very productive. We have over 40 programs in various stages of research and development. Our most advanced program is currently in a clinical trial, and another is expected to start in the clinic by the end of March next year.

I want to close by sharing how excited I am as we enter our next phase of growth as a public company. This quarter has gotten us off to a great start.

And with that I will turn the call over to Steve to review, our financial results for the quarter.

Thanks Ann.

Suzanne mentioned, we began this fiscal year with a solid first quarter with revenues coming in at $59 million, which is a 23% increase over last year's first quarter.

This increase was primarily driven by growth from our consumer and research services segment, reflecting the relatively higher pace of delivery of our kit based personal genome service or PGS.

So our customers versus the prior period.

It is important to note that.

With last year's quarter numbers were negatively impacted by the onset of the global pandemic in March of 2020.

The increased delivery of PGS was partially offset by lower year over year research services revenue within the segment is prior year non GSK contract revenues diminished.

Anne Wiginski: Kenneth will go into more detail on these later in the call. Finally, we are pleased to welcome three new board members this past quarter, including Evan Lovell, Chief Investment Officer of the Virgin Group, Dr. Valerie Montgomery Rice, president of the Dean of Morehouse School of Medicine, and Peter Taylor, president of the ECMC Foundation. All three are impactful leaders who will bring diverse perspectives. They will be great partners as we scale the company to transform the continuum of health care.

Our efforts turn to providing services to the exclusive GSK collaboration activities.

Well this is a solid start to fiscal 'twenty two.

We will remind you that our revenue comes significantly from our PGS business, which fluctuate during the year due to many seasonal promotional competitive and economic factors.

With shape, our full year results and all of which may be different in individual quarters and year to year.

We also ended the quarter with a strong balance sheet. Following our merger with <unk> acquisition Corp. As of June 30th we had $770 million in cash.

Anne Wiginski: I want to close by sharing how excited I am as we enter our next phase of growth as a public company. This quarter has gotten us off to a great start. And with that, I will turn the call over to Steve to review our financial results for the quarter.

During the quarter. We also continued to steadily build our unprecedented <unk> tactical consumer database, reaching $11.6 million genotype customers as of June 30th.

Steve Schick: As Ann mentioned, we began this fiscal year with a solid first quarter, with revenues coming in at $59 million, which is a 23% increase over last year's first quarter. This increase was primarily driven by growth in the consumer and research services segments, reflecting the relatively higher pace of delivery of our kit-based personal genome service, or PGS, to our customers versus the prior period. It is important to note that last year's quarter numbers were negatively impacted by the onset of the global pandemic in March of 2020.

As we have noted in prior communications continued increase in data leads to new insights on the role of genetics in human health and wellness and benefits, our consumer research and therapeutics activities.

The increase in the number of genotype customers will closely track the revenues for our consumer services component there'll be overall consumer and research services segment.

This is because we recognize revenue only once the customer sends us there saliva sample we test the sample and we provide the customer with their results.

Moving down the income statement.

<unk> profit for the quarter was $31 million and $8 million increase or 36% increase over the prior year.

Steve Schick: The increased delivery of PGS was partially offset by lower year-over-year research services revenue within the segment as prior year non-GSK contract revenues diminished, and our efforts turned to providing services to the exclusive GSK collaboration activities. Well, this is a solid start to fiscal 22. We will remind you that our revenue comes significantly from our PGS business, which fluctuates during the year due to many seasonal, promotional, competitive, and economic factors which shape our full-year results, and all of which may be different in individual quarters and year to year.

This increase was driven by the above mentioned revenue increase and aided by the addition of higher margin subscription service revenue and to a lesser extent by decreased PGS unit cost of sales.

As we have noted the subscription product is still in its launch phase and we are continuing to refine options with pricing promotions in bundling in order to optimize the value of this product.

Operating expenses were $72 million of $13 million or 22% increase over the prior period as we continue to invest in our therapeutics portfolio, including the most advanced C. D 96 program being developed in collaboration with GSK.

And in our own wholly owned.

P 006 program.

Steve Schick: We also ended the quarter with a strong balance sheet following our merger with Vichy Acquisition Corp. As of June 30th, we had $770 million in cash. During the quarter, we also continued to steadily build our unprecedented recontactable consumer database, reaching 11.6 million genotype customers as of June 30. As we have noted in prior communication, the continued increase in data leads to new insights on the role of genetics in human health and wellness, and benefits consumers, research, and therapeutics activity.

In addition, we had higher sales and marketing expenses as we have resumed investing in advertising and marketing programs designed to grow our consumer business. After a more cautious spending approach in the prior year.

G&A expense was lower for the period by $2 million versus the prior year.

Moving on to the bottom line net loss for the period was $42 million, which was a $6 million or 17% greater loss versus the prior period.

In addition to these GAAP results. We will also report adjusted EBITDA, which is net income or loss, adding back the noncash categories of depreciation and amortization intra.

Interest and other income and expense.

Noncash stock based compensation charges and changes in fair value of warrant liabilities.

Steve Schick: The increase in the number of genotype customers will closely track the revenues for our consumer services component of the overall consumer and research services segment. This is because we recognize revenue only once the customer sends us their saliva sample, we test the sample, and we provide the customer with their results. Moving down the income statement, gross profit for the quarter was $31 million, an $8 million increase or 36% increase over the prior year.

In the first quarter of fiscal year 'twenty, two we saw a full company adjusted EBITDA loss of $27 million versus a loss of $20 million in the prior year.

Within that the adjusted EBITDA for our consumer and research services segment was a loss of $1 million compared to a loss of $4 million in the prior year.

We continue to focus on the aim of economically efficient growth of that business over time.

Yeah.

Given the previously referenced sources of variability in our Pts business, we will not provide guidance on some of our non-GAAP business metrics, but we'll provide amounts on a historical basis. When we report the applicable period.

Steve Schick: This increase was driven by the above-mentioned revenue increase and aided by the addition of higher-margin subscription service revenue and, to a lesser extent, by decreased PGS unit costs of sales. As we have noted, the subscription product is still in its launch phase, and we are continuing to refine options with pricing, promotions, and bundling in order to optimize the value of this product.

Turning to outlook as this is our first quarterly reporting cycle as a public company. We are providing our initial full year fiscal 'twenty two guidance.

We believe our first quarter results put us on track to achieve full.

Full year fiscal 'twenty, two revenue guidance in the range of 250 million to $260 million.

Steve Schick: Operating expenses were $72 million, a $13 million or 22% increase over the prior period as we continue to invest in our therapeutics portfolio, including the most advanced CD96 program being developed in collaboration with GSK and in our own wholly owned, P006 program. In addition, we had higher sales and marketing expenses as we resumed investing in advertising and marketing programs designed to grow our consumer business after a more cautious spending approach in the prior year.

And a net loss in the range of $210 million to $225 million.

Finally, we expect full year adjusted EBITDA loss in the range of $143 million to $158 million.

You will find detail on this in the back of our press release.

With that let me turn the call over to <unk> to provide an update on our therapeutics progress.

Thank you Steve.

With over 80% of our $11.6 million genotype customers opting in to participate in research. We believe that the 23 and the database is the world's largest crowdsource platform for genetic research and it has the unique potential to offer new insights about diseases.

Steve Schick: GNA expense was lower for the period by $2 million versus the prior year. Moving on to the bottom line, net loss for the period was $42 million, which was a $6 million or 17% greater loss versus the prior period. In addition to these gap results, we will also report adjusted EBITDA, which is net income or loss, adding back the non-cash categories of depreciation and amortization, interest and other income and expenses, non-cash stock-based compensation charges, and changes in fair value of warrant liability.

And how does it can be treated.

We are passionate about how are customer driven research platform may yield insights that could transform therapeutic target discovery drug development and ultimately to benefit patients.

Understanding how changes in achieving affects our risk of disease is a powerful way to identify drug targets.

And it has been shown that targets backed by human genetic evidence have a significantly higher chance of becoming medicines.

Our first example of a product candidate based on target discovery from our database.

You don't Koji investigational antibody targeting CD 19, six which we're developing in partnership with GSK.

Steve Schick: In the first quarter of fiscal year 22, we saw a full company adjusted EBITDA loss of $27 million versus a loss of $20 million in the prior year. Within that, the adjusted EBITDA for our current consumer and research services segment was a loss of $1 million compared to a loss of $4 million in the prior year. We continue to focus on the aim of economically efficient growth of that business over time.

On their recent earnings call GSK highlighted that we should see data from combinations of anti CD 96, with the Starwood mab their PD one inhibitor in 2022.

Our second immuno oncology antibody product candidates P..006 is wholly owned by <unk> 23 and me.

We expect it to enter clinical development for the treatment of patients with locally advanced or metastatic solid malignancies before the end of March 2022.

Steve Schick: Given the previously referenced sources of variability in our PGS business, we will not provide guidance on some of our non-gap business metrics but will provide amounts on a historical basis when we report the applicable period. Turning to Outlook, this is our first quarterly reporting cycle as a public company. We are providing our initial full-year fiscal 22 guidance. We believe our first quarter results put us on track to achieve full year fiscal 22 revenue guidance in the range of $250 million to $260 million and a net loss in the range of 210 to 225 million.

In addition to these two more advance programs, we have a robust pipeline of earlier stage programs, including programs in immuno oncology.

Or do you make a bulk diseases.

<unk> neurology and other disease areas, we continue to identify new drug targets from our database and the number that have been both genetically and biologically validated has increased from five in March of 2019 to 18 by the end of 2020.

As our database of genotype customers and phenotypic data grows we continue to invest in efforts to take advantage of our unique and growing understanding of human genetics, and biology, and now I will turn the call back over to Ed.

Thanks kind of.

In sum, we believe our large database of genetic phenotypic data has the potential to fuel a massive market opportunity and further advanced drug development. We feel we are well positioned to take advantage of these opportunities and we are excited for what is ahead.

Now with that let's open it up for questions. Thank you.

Steve Schick: Finally, we expect a full-year adjusted EBITDA loss in the range of $143 to $158 million. You will find detail on this in the back of our press release for the. With that, let me turn the call over to Kenneth Hillen to provide an update on our therapeutics progress.

Thank you to ask a question you will need to press Star then one on your telephone to withdraw your question. Please press the pound key.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Daniel gross like with Citi. Your line is now open.

Hi, Thanks for taking the question and congrats on a solid first quarter as a public company can.

Kenneth Hillen: Thank you, Steve. With over 80% of our 11.6 million Unicat customers opting in to participate in research, we believe that the 23 and Me database is the world's largest crowdsourced platform for genetic research, and it has the unique potential to offer new insights about diseases and how they can be treated. We are passionate about how our customer-driven research platform may yield insights that could transform therapeutic target discovery, drug development, and ultimately benefit patients.

Can you provide an update on our mother's day father's day and Prime day shaped up this year versus your expectations and correct me if I'm wrong, but just due to the cadence of kit returns, we should see most of that revenue hit next quarter or fiscal second quarter.

Yeah.

Thanks for the question.

To take that.

Yeah, I can I can take that.

So look you're right on the last part for sure.

The lag in recognizing revenue will reflect some of that activity in the coming quarters.

The I would say.

If you look at.

What we have given in the way of revenue guidance.

Kenneth Hillen: Understanding how changes in a gene affect our risk of disease is a powerful way to identify drug targets, and it has been shown that targets backed by human genetic evidence have a significantly higher chance of becoming medicines.

That's really our expert kind of reflects our expectation, including what we've seen in the leading indicator of kicked transactions as time goes along.

The fact is the composition of <unk>.

They're sort of equal equal weight in the way that our business the consumer business works between promotional periods and the daily run rates, which by number of days in Europe are bigger than the promotional days.

Kenneth Hillen: Our first example of a product candidate based on target discovery from our database is our immune oncology investigational antibody targeting CD-96, which we are developing in partnership with GSK. On their recent earnings call, GSK highlighted that we should see data from combinations of anti-CD-96 with Starlomab, their PD1 inhibitor, in 2022. Our second immune oncology antibody product candidate, P006, is wholly owned by 23 and Me. We expect to enter clinical development for the treatment of patients with locally advanced or metastatic solid malignancies before the end of March 2022.

So I would say that.

As you can see we gave guidance that's consistent with what we've been talking about in the proxy going back to really last January for for this year and.

You know when things are kind of staying consistent in terms of those expectations and I think that's the most we can say about.

Things as they are going in as we expect them to go.

Got it Okay, and then I guess in that respect adjusted EBITDA guidance was about <unk>.

16.5 million less at.

At the midpoint, then proxy estimates.

It seems like consumer gross margins and EBITDA, where it's a pretty strong curious where you're seeing the greatest pick up in spend versus your original expectations as a proxy for the rest of this year.

Yes, so in terms of you're talking about operating expense.

Yeah, Yeah. So adjusted EBITDA is about $16.5 million less at the midpoint of guidance versus the <unk>.

Kenneth Hillen: In addition to these two more advanced programs, we have a robust pipeline of earlier stage programs, including programs in immunoncology, cardiomephabolic diseases, immunology, neurology, and other disease areas. We continue to identify new drug targets from our database, and the number that have been both genetically and biologically validated has increased from 5 in March of 2019 to 18 by the end of 2020. As our database of genotype customers and phenotypic data grows, we continue to invest in efforts to take advantage of our unique and growing understanding of human genetics and biology. Now, I'll turn the call back over to Anne.

The proxy and so yeah. The delta there yeah for sure. So so a couple of things to talk about it in terms of spending it's about spending so as you can as you can see in the.

Quarter spend for instance.

Higher Opex was.

Part of the.

Story of the quarter its one of the more dominant factors and.

Within that.

Two things are going on more spending on therapeutics.

One of the things that we are adding to our disclosures in our 10-K is now filing our 10-Q, sorry has now filed.

We're splitting out and helping people understand what we're spending within R&D on the consumer business versus the therapeutics business and you know the composition of <unk>.

Spending in that.

In that category of R&D has moved from for the fourth quarter has moved from being 37% of that total last year to 47% of that total this year.

Anne Wiginski: In some ways, we believe our large database of genetic and phenotypic data has the potential to fuel massive market opportunities and further advanced drug development. We feel we are well positioned to take advantage of these opportunities, and we are excited for what is ahead. Now, with that, let's open it up for questions. Thank you.

And so you know when you do the math of an increase in the R&D line and an increase in the composition of Therapeutics you can see that we're really putting our back into investing in the programs that Kenneth is just talked about and we can talk more about.

So that's important.

A big driver in here in the mirror image of that is that we're trying not to spend more than is warranted on the consumer business.

Operator: Thank you. To ask a question, you will need to press Star than one on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Daniel Grosslight with City. Your line is now open.

Which.

As you can see from the EBIT down number for the consumer business, we're doing a pretty good job of keeping up.

Expenses in line with revenues.

And so.

So that's.

That is a dominant factor as we go and then the other thing that's going on in EBITDA is a little bit is the kind of overall company EBITDA, which is really kind of more hitting the the the G&A line is some some additional costs, we didn't anticipate of going public and being a public company.

Daniel Grosslight: Hi, thanks for taking the question and congrats on our first quarter as a public company. Can you provide an update on how Mother's Day, Father's Day, and Prime Day shaped up this year versus your expectations? And, correct me if I'm wrong, but just due to the cadence of kit returns, we should see most of that revenue hit next quarter or fiscal second quarter.

And so that's that's what's at work there.

It's nothing too complicated.

Got it okay, and maybe that's a good segue to our two candidates on the therapeutic side I guess first on the C. D 96 program.

How do you think delta is going to.

The impact enrollment in trials there if at all.

Yes, it's a great question.

One of the advantages we've had with having the partnership with GSK is as you know they have a global footprint and so we I think we've really been able to take advantage of that when we're in planning.

Steve Schick: Thanks for the question.

Steve Schick: Yeah, I can take that. So look, you're right on the last part for sure. The lag in recognizing revenue will reflect some of that activity in the next in the coming quarters. The, I would say, you know, if you look at what we have given in the way of revenue guidance, that's really our expectation, you know, it kind of reflects our expectation, including what we've seen in the leading indicator of kit transactions as time goes along.

The C. D 96 studies, so we havent seen significant impact from Delta with enrollment with excuse me 96 study we continues to make good progress.

And then as GSK as I said on the call as GSK said in their earnings I would anticipate seeing data from the combination of <unk> 96, with the start of a map in 2022.

Okay. That's helpful and then on the pipeline of products, maybe just spend a little bit more time going into detail there where were you kind of seeing the most uptick in spend and remind us.

Are those programs.

Steve Schick: You know, the fact is that compositionally, you know, there's sort of an equal weight in the way that our business, the consumer business, works between promotional periods and the daily run rates, which, by the number of days in a year, are far bigger than the promotional day. So I would say that, you know, as you can see, we gave guidance that's consistent with what we've been talking about in the proxy going back to really last January for this year.

Just being done in conjunction with GSK with a 50.50 cost and Rev split.

Yes, so obviously the clinical stage programs are the most expensive.

And so that would be the C. D 96 program and then piece. There was there were six of its moving through its R&D, enabling studies and towards the clinic by the end of March of next year, obviously, if that ramps up in expenses.

And then for the earlier stage pipeline you know those.

Those programs, obviously it depends on where they are at their very early they are less expensive.

Steve Schick: And, you know, when things are kind of staying consistent in terms of those expectations, and I think that's the most we can say about, you know, things as they're going and as we expect them to go. Got it, okay. And then I guess

And as you derisk them unique greater investment as you have conviction around losing things forwards CD 96 is a 50.50 split with GSK P series six is of course wholly owned by 23 and me. So we barrel of expenses there but.

We I would say that we don't have the same.

Steve Schick: Got it. Okay.

Steve Schick: And then I guess in that respect, the just of the EBITDA guidance was about 16 and a half million less at the midpoint than proxy estimates. This course seems like consumer gross margins in EBITDA were pretty strong. Curious where you're seeing the greatest pickup in spend versus your original expectations in the proxy for the rest of this year. Yeah, so in terms of operating expenses, yeah. So the adjusted divot is about $16.5 million less at the midpoint of guidance versus the proxy. So, yeah, the delta there. Yeah, for sure.

<unk> spaces with GSK, so actually we can be more efficient when we have our own programs just because we're a smaller more nimble company than GSK.

And then.

We haven't really spoken much about earlier stage programs we have.

We've talked about the fact that we have over 40 programs have been generated from the database through the collaboration.

We continue to.

<unk> moved those forwards in collaboration with GSK and in General there are 50.50, but in some cases.

Their unilateral programs for GSK and in some cases, those unilateral programs for 23 and me, but we havent broken those out.

Got it very helpful. All right I'll hop back in the queue. Thanks, everyone.

Yeah.

Thank you.

As a reminder to ask a question you will need to press Star then one of your telephone.

Our next question comes from the line of Thiago fought with Credit Suisse. Your line is now open.

Hey, Thanks for taking the questions and congratulations on all the progress just have a follow up on 006 actually you guys have had more limited disclosures around that program, but with the upcoming <unk>.

Steve Schick: So a couple things to talk about. In terms of spending, it's about spending. So, as you can see in the quarterly spend, for instance, higher op-x was part of the story of the quarter. It's one of the more dominant factors. And, you know, within that, two things are going on: more spending on therapeutics. One of the things that we are adding to our disclosures and our 10K is now filed, our 10Q, sorry, is now filed is that we're splitting out and helping people understand what we're spending within R&D on the consumer business versus the therapeutic business.

I'll start phase one trials start when could we get a little more detail. What's so unique about this this this io target.

So we can have a better sense of the potential application of that molecule.

And I guess a related but bigger bigger picture question, how should I think about the productivity to go to the therapeutics engine right. So you you've outlined some.

Some validation.

He gets that has grown substantially with with the last few years, how much of that is correlated to the growth of the database or just collecting additional casino typical data points from that that would be contactable database.

How much of the consumer growth.

Steve Schick: And, you know, the composition of spending in that category of R&D has moved from 37% of that total last year to 47% of that total this year. And so, you know, when you do the amount of an increase in the R&D line and an increase in the composition of therapeutics, you can see that we're really putting our backs into investing in the programs that Kenneth has just talked about and can talk more about. So that's important. That's a, that's a big driver here. And the mirror image of that is that we're not trying not

<unk> kind of helped to accelerate the validation of additional targets.

Thanks.

Yes of course, so your first part of your question was related to tease US there were six in certainly.

Communication and data flow is very much front of mind as we advance that program brokerage into the clinic. So.

Cadence contemporary Ineos with us moving that program into the clinic you shouldn't anticipate hearing an update on that program and more specifically around Europe, we haven't disclosed the target yet for that program for competitive reasons, but obviously as we advance to the clinic and we are working with investigators and enrolling patients and posting of clinical trials Gov.

You should anticipate in the timeframe between now and March of 2020 to getting additional information on that program. We're excited we'll be excited to be able to share that in due course.

Steve Schick: business, which, as you can see from the EBITDA number for the consumer business, we're doing a pretty good job of keeping expenses in line with revenue. And so, that's, you know, that is a dominant factor as we go. And then the other thing that's going on in EB-DA is a little bit in the kind of overall company, EB-DDA, which is really kind of more hitting the, the, the, the, the, the, the, the G&A line are some, some additional costs we didn't anticipate of going public and being a public company. And so that's, that's what's at work there. It's, it's, it's nothing too complicated.

On the earlier stage pipeline, it's I would just take a step back in.

If you think we signed the collaboration deal with GSK and in the summer of 2018 and from the database. We've got over 40 programs and for those of you who cover pharmaceutical companies.

As you know many years ago to have over 40 programs.

It is sort of remarkable productivity of course ultimately it depends how many products become medicines and get approved by the FDA. So we're still in the.

Early days of this.

In terms of where things come from is it just from data growth is important because that gives us greater statistical power to discover targets, but I think we've been very focused on the strategic course, there are certain areas, where we prioritized and we not only just have to.

Kenneth Hillen: Got it, okay. And maybe that's a good segue to Kenneth on the therapeutic side. I guess first on the CD-96 program: how do you think Delta is going to impact enrollment in trials there, if at all?

We don't just have the consumer keeps being sold but will also recruiting customers with diseases that were particularly interested in so we'll often partner with others to do that.

Kenneth Hillen: Yeah, it's a great question. I think one of the advantages we've had with having the partnership with GSC is that, as you know, they have our global footprint. And so I think we've really been able to take advantage of that when we were planning out the CD96 study. But we haven't seen a significant impact from Delta with enrollment in the CD96 study. We continue to make good progress. And then, as GSC, as I said on the call, as GSC said in their earlier earnings, I would anticipate seeing data from the combination of CD96 with Starlamab in 2020.

We also are always are becoming more sophisticated and analytical methods.

To interrogate the data so that allows us to discover new targets. So it's a combination of different things that allows us to maintain the productivity from the database.

Got it I appreciate the context, thanks again for taking the questions.

Of course.

Thank you there are no further questions I will now turn the call back to Andrew <unk> for closing remarks.

Well. Thank you very much everyone. We appreciate the questions and we look forward to thing in games.

Kenneth Hillen: Okay, that's helpful. And then on the pipeline of products, maybe just spend a little bit more time going into detail there, where are you kind of seeing the most uptick and spend, and remind us, are those programs being done in conjunction with GSCA with the 50-50 cost and revs split?

And with that at the end thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Okay.

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Kenneth Hillen: Yeah, obviously, the clinical stage programs are the most expensive. And so that would be the CD-96 program and then T-06 as it moves through its I&D enabling studies and towards the clinic by the end of March of next year.

Okay.

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Thank you.

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Kenneth Hillen: Obviously, that ramps up expenses. And then for the earlier stage pipeline, you know, those programs obviously depend on where they are. If they're very early, they're less expensive.

Kenneth Hillen: And as you de-risk them, you make a greater investment as you have conviction around moving things forward. CD96 is a 50-50 cost split with GSK, and P006 is, of course, wholly owned by 23 and me.

Kenneth Hillen: So we bear all of the expenses there. But we, I would say that, you know, we don't have the same, you know, expense basis with GSK. So actually, we can be more efficient when we have our own programs just because we're a smaller, more nimble company than GSC. Then, you know, we haven't really spoken much about our earlier stage programs. We have, you know, we talked about the fact that we have over 40 programs that have been generated from the database through collaboration.

Kenneth Hillen: And, you know, we continue to move those forward in collaboration with GSC. And in general, they're 50-50. But in some cases, there are unilateral programs for GSK. And in some cases, they're unilateral programs for 23 in me. But we haven't broken those out. Got it.

Daniel Grosslight: Got it. Very helpful. All right, I'll hop back in the queue. Thanks, everyone.

Operator: Thank you. As a reminder, to ask a question, you would need to press star on one of your telephones. Our next question comes from the line of Tiago Fault with Credit Suisse. Your line is now open.

Tiago Fault: Thanks for the questions and congratulations on all the progress. I just have a follow up on zero six, actually.

Kenneth Hillen: You guys have had more limited disclosures around that program, but with the upcoming trial start, phase one trial start, when could we get a little more detail? What's so unique about this is that it's a child target so we can have a better sense of the potential application of that molecule? And I guess a related, but bigger, bigger picture question, how should I think about the productivity of the therapeutics engine, right? So you've outlined some, some validation of targets that have grown substantially over the last few years; how much of that is correlated to the growth of the database or just collecting additional phenotypical data points from that every contextual database, and how much of the consumer growth could kind of help to accelerate the validation of additional targets? Thanks.

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Kenneth Hillen: Yeah, of course. So the first part of your question was related to T006 and certainly, you know, communication and data flow are very much front of mind as we advance that program coverage into the clinic. So I think in sort of contemporaneous with us moving that program into the clinic, you should anticipate hearing an update on that program and more specifically around, you know, we haven't disclosed the target yet for that program for competitive reasons, but obviously, as we advance to the clinic and we're working with investigators and enrolling patients and posting on clinical trials.gov, you should anticipate in the timeframe between now and March of 2022 getting additional information on that program We're excited.

Kenneth Hillen: We'll be excited to be able to share that in due course. On the earlier state pipeline, you know, I would just take a step back and, you know, I think if you think we signed the collaboration deal with TSK in the summer of 2018, and from the database, we had over 40 programs. And for those of you who cover pharmaceutical companies, you know, I was a geneticist for, as you know, many years. To have over 40 programs is sort of remarkable productivity. Of course, ultimately, it depends, you know, how many products become medicines and get approved by ethics. So we're still in the early days of this.

Kenneth Hillen: In terms of where things come from, is it just from data growth? Growth is important because that gives us greater statistical power to discover targets. But I think we've been very focused on strategic growth in certain areas where we have prioritized. And we not only just have the, you know, we don't just have the consumer kits being sold, but we'll also recruit customers with diseases that we're particularly interested in.

Kenneth Hillen: So we'll often partner with others to do that. We also always become more sophisticated in our analytical methods to interrogate the data, so that allows us to discover a new target. So it's a combination of different things that allows us to maintain the productivity of the database.

Tiago Fault: Got it. I appreciate the context there.

Tiago Fault: Thanks again for taking the questions. Of course. Thank you. There are no further questions.

Operator: Thank you. There are no further questions. I will now turn the call back to Ann Wajicki for closing remarks. Well, thank you very much, everyone. We appreciate the questions, and we look forward to staying engaged.

Anne Wiginski: And with that, that's the end. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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Operator: Good morning, and welcome to 23M-Me's fiscal year 2022 first quarter financial results conference call. As a reminder, this call is being recorded. At this time, all participants are in a listen-only mode. After the prepared remarks, there will be a question and answer session. I would now like to turn the call over to Wade Walk, Vice President of Investor Relations, to lead off the call.

Wade Walk: Thank you. Before we begin, I encourage everyone to go to Investors.23Mood.com to find the press release we issued earlier today, reporting our financial results for the quarter of. In addition to the gap financial reporting, our press release also contains a reconciliation of the gap to non-gap financial measures we will discuss today. I would also remind everyone that we will be making forward-looking statements on our call today that are based on our current expectations.

Wade Walk: These statements are subject to certain risks and incidences, and our actual results may differ materially. Please consult these factors discussed in our SEC filings for additional details. Joining us on our call today are Anne Wiginski, our Chief Executive Officer and co-founder, Steve Schick, our Chief Financial Officer, and Kenneth Hillen, our head of Therapeutics. With that, I'll turn the call over to Day.

Anne Wiginski: Thank you, Wade, and welcome everyone to our first earnings call. I'm thrilled that 23Me is now a publicly traded company. And again, I want to thank our customers, investors, board members, and employees for getting us to this point in the company's growth. I want to start by saying that our vision of a consumer-centered, personalized healthcare world remains at the forefront of all the work we are doing at 23 Me. I am more optimistic every day because we know the challenge we face is huge, but we also know the opportunity to make a meaningful, positive change is also huge.

Anne Wiginski: First, we launched a new medication Insights report. Many people don't know that most of us have at least one genetic variant that may alter how our bodies process certain commonly prescribed medications. That's because genetic testing for these variants, also known as pharmacogenetic testing, is rare. We can offer these reports to our 23Me Plus members because we are the first and only direct-to-consumer company with FDA-approved pharmacogenetic reports. This new report provides insight on how a person's genetics may impact their body's ability to process two drugs: Phthalopram and antidepressants and Clopidigrel, a blood thinner commonly known as Plavic.

[music].

Good morning, and welcome to twenty-three Amies fiscal year 'twenty 'twenty, two first quarter financial results Conference call. As a reminder, this call is being recorded at this time all participants are in a listen only mode. After the prepared remarks there'll be a question and answer session.

Anne Wiginski: Just this quarter, our published research spans the genetics of allergies, cataracts, depression, and even how we use genetics to study rare diseases. If you are interested in learning about the new reports and the research we publish, I encourage you to follow our blog at blog.23in.com. We also continue to make progress with our pipeline of therapeutic programs. Our collaboration with GFK continues to be very productive. We have over 40 programs in various stages of research and development. Our most advanced program is currently in a clinical trial, and another is expected to start in the clinic by the end of March next year.

I would now like to turn the call over to Wade Walke, Vice President of Investor Relations to lead off the call. Thank you. Please go ahead.

Thank you before we begin I encourage everyone to go to investors that 23 in the dot com to find the press release, we issued earlier today, we're putting our financial results for the quarter.

Addition to the GAAP financials reported in our press release also contains a reconciliation of the GAAP non-GAAP financial measures, we will discuss today.

I will also remind everyone that we will be making forward looking statements on our call today that are based on our current expectations. Please.

Statements are subject to certain risks and uncertainties and actual results may differ materially.

All those factors discussed in our SEC filings for additional detail.

Joining us on our call today are Andrew Jetski, our Chief Executive Officer, and co founder, Dave Shirk, Our Chief Financial Officer, and cannot tell them our head of therapeutics.

Anne Wiginski: Kenneth will go into more detail on these later in the call. Finally, we are pleased to welcome three new board members this past quarter, including Evan Lovell, Chief Investment Officer of the Virgin Group, Dr. Valerie Montgomery Wright, President of the Dean of Morehouse School of Medicine, and Peter Taylor, president of the ECMC Foundation. All three are impactful leaders who will bring diverse perspectives. They will be great partners as we scale the company to transform the continuum of health care.

Now I'll turn the call over to Ed.

Thank you Wayne and welcome everyone to our first earnings call I'm thrilled, but twenty-three me is now a publicly traded company and again I want to thank our customers investors board members and employees for getting us to this point in the company.

I want to start by saying that our vision of a consumer in a personalized health care World remains at the forefront of all the work we are doing at 23 and me.

I am more optimistic everyday because even though the challenge we face is huge we know the opportunity to make a meaningful positive change is also huge.

And we believe we have the tool and the plan to tackle it.

Size and scale of our unique database enables us to use genetics to transform how we diagnose.

And prevent human disease.

Capitalizing on the momentum we built as a private company, we recorded a solid start to fiscal year 'twenty 'twenty two with Q1 revenue of 59 million up 11 million or 23% versus the prior year Q1.

Steve will cover the numbers in more detail.

We also recorded several important milestones on the consumer side, we grew our genetic database to 11.6 million genotype customer further increasing the value of our Premier Contactable database.

We also launched three new health reported in the first quarter of our 23 and the profit numbers.

So I'd really passes our premium content subscription service launched late last year that provides subscribers with unique and new report and features through the course of their subscription giving them even deeper insight into their health.

First we launched a new medication and bites report.

Many people don't know that most of us have at least one genetic bearing but may alter how our bodies process certain commonly prescribed medication.

Because genetic testing for these variance also known as pharmacogenetics testing is rare.

We can offer these reports to our 23 o'clock numbers because we are the first and only direct to consumer company with FDA authorized pharmacokinetic report.

This new report provides insights on how a person's genetic may impact their body's ability to process two drugs.

Palo brands, and anti depressant, and Clopidogrel, a blood thinner commonly known as classic.

About 22 million people in the U S are prescribed the Taliban and about 20 million people have prescriptions for Clopidogrel.

Medication insight report can have a real impact on many customer.

Next we launched a new wellness report on Cat allergies and on dog allergies.

It is estimated that 10% to 20% of people are allergic to dogs or cats worldwide.

We used statistical modeling that utilizes thousands of genetic variance as well as a customer's ethnicity and SEC to estimate a likelihood of developing a dog or cat allergy.

Finally in June we launched an eczema report.

All the reports without diagnosed.

It does estimate a person's likelihood of having this condition.

This report is powered by a proprietary polygenic risk score or Prs, which we are uniquely able to calculate by using more than 2100 genetic variant and a customer's ethnicity and back.

Our premier genetic database combined with greater than 4 billion phenotypic data point, we have enough gives us the statistical power to generate these Prs report.

In addition to our New report, we also published key genetic research over the past quarter.

Just this quarter, our published research spans the genetics of allergies, cataract depression, and even how we use genetics the study rare diseases.

If youre interested in learning about the new report and the research we publish I encourage you to follow our blog at <unk> dot twenty-three in Dot com.

We also continued to make progress with our pipeline of therapeutic program. Our collaboration with GSK continues to be very productive we have over 40 programs in various stages of research and development. Our most advanced program is currently in a clinical trial and another is expected to start in the clinic by the end of March next year.

Kenneth will go into more detail on these later in the call.

Finally, we are pleased to welcome three new board member this past quarter, including even level Chief investment officer of the Virgin Group.

Doctor Valerie Montgomery right, the president of Dean of Morehouse School of Medicine.

And Peter Taylor President of the E C M C Foundation.

All three are impactful leader, who will bring diverse perspectives.

They will be great partners as we scale the company to transform the continuum of health care.

I want to close by sharing how excited I am as we enter our next phase of growth as a public company. This quarter has gotten us off to a great start.

Steve Schick: GNA expense was lower for the period by $2 million versus the prior year. Moving on to the bottom line, net loss for the period was $42 million, which was a $6 million or 17% greater loss versus the prior period. In addition to these gap results, we will also report adjusted EBITDA, which is net income or loss, adding back the non-cash categories of depreciation and amortization, interest and other income and expense, non-cash stock-based compensation charges, and changes in fair value of warrant liability.

And with that I'll turn the call over to Steve to review, our financial results for the quarter.

Thanks, Dan.

As Dan mentioned, we began this fiscal year with a solid first quarter with revenues coming in at $59 million, which is a 23% increase over last year's first quarter.

This increase was primarily driven by growth in the consumer and research services segment, reflecting the relatively higher pace of delivery of our kit based personal genome service or PGS.

So our customers versus the prior period.

It is important to note that.

That last year's quarter numbers were negatively impacted by the onset of the global pandemic in March of 2020.

Steve Schick: In the first quarter of fiscal year 22, we saw a full company adjusted EBITDA loss of $27 million versus a loss of $20 million in the prior year. Within that, the adjusted EBITDA for our consumer and research services segment was a loss of $1 million compared to a loss of $4 million in the prior year. We continue to focus on the aim of economically efficient growth in that business over time.

The increased delivery of PGS was partially offset by lower year over year Research services revenue within this segment is prior year non GSK contract revenues diminished.

Our efforts turn to providing services to the exclusive GSK collaboration activities.

While this is a solid start to fiscal 'twenty two.

We will remind you that our revenue comes significantly from our PGS business, which fluctuate during the year due to many seasonal promotional competitive and economic factors.

Steve Schick: Given the previously referenced sources of variability in our PGS business, we will not provide guidance on some of our non-gap business metrics but will provide amounts on a historical basis when we report the applicable period. Turning to Outlook, this is our first quarterly reporting cycle as a public company. We are providing our initial full year fiscal 22 guidance. We believe our first quarter results put us on track to achieve full year fiscal 22 revenue guidance in the range of $250 million to $260 million and a net loss in the range of 210 to 225 million.

Shape, our full year results and all of which may be different in individual quarters and year to year.

We also ended the quarter with a strong balance sheet. Following our merger with <unk> acquisition Corp. As of June 30, we had $770 million in cash.

During the quarter. We also continued to steadily build our unprecedented <unk> tactical consumer database, reaching $11.6 million genotype customers as of June 30th.

As we have noted in prior communications and continued increase in data leads to new insights on the role of genetics in human health and wellness and benefits, our consumer research and therapeutics activities.

The increase in the number of genotype customers will closely track the revenues for our consumer services component of the overall consumer and research services segments.

This is because we recognize revenue only once the customer sends us there saliva sample we test the sample and we provide the customer with their results.

Kenneth Hillen: Thank you, Steve. With over 80% of our 11.6 million Junotacus customers opting in to participate in research, we believe that the 23 and Me database is the world's largest crowdsourced platform for genetic research, and it has the unique potential to offer new insights about diseases and how they can be treated. We are passionate about how our customer-driven research platform may yield insights that could transform therapeutic target discovery, drug development, and ultimately benefit patients.

Moving down the income statement.

<unk> profit for the quarter was $31 million and $8 million increase or 36% increase over the prior year.

This increase was driven by the above mentioned revenue increase and aided by the addition of higher margin subscription service revenue and to a lesser extent by decreased PGS unit cost of sales.

As we have noted the subscription product is still in its launch phase and we are continuing to refine options with pricing promotions in bundling in order to optimize the value of this product.

Operating expenses were $72 million $13 million or 22% increase over the prior period as we continue to invest in our therapeutics portfolio, including the most advanced <unk> 96 program being developed in collaboration with GSK.

And in our own wholly owned.

P 006 program.

Kenneth Hillen: Our first example of a product candidate based on target discovery from our database is our immune oncology investigational antibody targeting CD-96, which we are developing in partnership with GSK. On their recent earnings call, GSK highlighted that we should see data from combinations of anti-CD-96 with Starlomab, their PD1 inhibitor, in 2022. Our second immune oncology antibody product candidate, P006, is wholly owned by 23 in Me. We expect to enter clinical development for the treatment of patients with locally advanced or metastatic solid malignancies before the end of March 2022.

G&A expense was lower for the period by $2 million versus the prior year.

Moving on to the bottom line net loss for the period was $42 million, which was a $6 million or 17% greater loss versus the prior period.

In addition to these GAAP results. We will also report adjusted EBITDA, which is net income or loss, adding back the noncash categories of depreciation and amortization intra.

Interest and other income and expense.

Noncash stock based compensation charges and changes in fair value of warrant liabilities.

In the first quarter of fiscal year 'twenty, two we saw a whole company adjusted EBITDA loss of $27 million versus a loss of $20 million in the prior year.

Within that the adjusted EBITDA for our consumer and research services segment was a loss of $1 million compared to a loss of $4 million in the prior year.

Kenneth Hillen: In addition to these two more advanced programs, we have a robust pipeline of earlier stage programs, including programs in immunoncology, cardiometabolic diseases, immunology, neurology, and other disease areas. We continue to identify new drug targets from our database, and the number that have been both genetically and biologically validated has increased from 5 in March of 2019 to 18 by the end of 2020. As our database of genotype customers and philanthropic data grows, we continue to invest in efforts to take advantage of our unique and growing understanding of human genetics and biology. Now, I'll turn the call back over to Anne.

We continue to focus on the aim of economically efficient growth of that business over time.

Okay.

Turning to outlook as this is our first quarterly reporting cycle as a public company. We are providing our initial full year fiscal 'twenty two guidance.

We believe our first quarter results put us on track to achieve full.

Full year fiscal 'twenty, two revenue guidance in the range of 250 millions of $260 million.

And our net loss in the range of $210 million to $225 million.

Finally, we expect full year adjusted EBITDA loss in the range of $143 million to $158 million.

You will find detail on this in the back of our press release.

With that let me turn the call over to Kenneth Helen to provide an update on our therapeutics progress.

Thank you Steve.

And how does he can be treated.

We are passionate about how are customer driven research platform may yield insights that could transform therapeutic target discovery drug development and ultimately to benefit patients.

Understanding how changes in achieving affects our risk of disease is a powerful way to identify drug targets.

Daniel Grosslight: Hi, thanks for taking the question and congrats on us all for our first quarter as a public company. Can you provide an update on how Mother's Day, Father's Day, and Prime Day shaped up this year versus your expectations? And, correct me if I'm wrong, but just due to the cadence of kit returns, we should see most of that revenue hit next quarter or fiscal second quarter? That would be awesome.

And that has been shown that targets backed by human genetic evidence have a significantly higher chance of becoming medicines.

Our first example of a product candidate based on target discovery from our database.

<unk> investigational antibody targeting CD 19, six could you are developing in partnership with GSK.

On their recent earnings call GSK highlighted that we should see data from combination of anti CD 96, with the starlet map their PD one inhibitor in 2022.

Steve Schick: Thanks for the question.

Our second immuno oncology antibody product candidates P..006 is wholly owned by <unk> 23 and me.

We expect it to enter clinical development for the treatment of patients with locally advanced or metastatic solid malignancies before the end of March 2022.

In addition to these two more advance programs, we have a robust pipeline of earlier stage programs, including programs in immuno oncology.

You can make a bowling diseases immunology neurology and other disease areas. We continue to identify new drug targets from our database and the number that have been both genetically and biologically validated has increased from five in March of 2019 to 18 by the end of 2020.

As our database of genotype customers and phenotypic data grows we continue to invest in efforts to take advantage of our unique and growing understanding of human genetics and biology.

I'll turn the call back over to Ed.

Thanks kind of.

In sum, we believe our large database of genetic phenotypic data has the potential to fuel massive market opportunity and further advanced drug development. We feel we are well positioned to take advantage of these opportunities and we are excited for what is ahead.

Now with that let's open it up for questions. Thank you.

Thank you to ask a question you will need to press Star then one on your telephone to withdraw your question. Please press the pound key.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Daniel gross like with Citi. Your line is now open.

Hi, Thanks for taking the question and congrats on a solid first quarter as a public company can.

Steve Schick: Got it. Okay.

Steve Schick: And then I guess in that respect, the just of the EBITDA guidance was about 16 and a half million less at the midpoint bin proxy estimates. This court seems like consumer gross margins in EBITDA were pretty strong. Curious where you're seeing the greatest pickup in spend versus your original expectations in the proxy for the rest of this year. Yeah, so in terms of operating expenses, yeah. So the adjusted divot is about $16.5 million less at the midpoint of guidance versus the proxy. So, yeah, the delta there. Yeah, for sure.

Can you provide an update on how mother's day father's day and Prime day shaped up this year versus your expectations and correct me if I'm wrong, but just due to the cadence of kit returns, we should see most of that revenue hit next quarter or fiscal second quarter.

Yeah.

Thanks for the question exactly.

You take that.

Yes, I can.

I can take that.

Look you're right on the last part for sure.

The the lag in recognizing revenue will reflect some of that activity in the next in the coming quarters.

The I would say.

If you look at.

What we have given in the way of revenue guidance.

Steve Schick: So a couple things to talk about. In terms of spending, it's about spending. So, as you can see in the quarterly spend, for instance, higher op-X was part of the story of the quarter. It's one of the more dominant factors. And, you know, one of the more dominant factors. And, you know, within that, two things are going on; more spending on therapeutics. One of the things that we are adding to our disclosures, and our 10K is now filed, our 10Q, sorry, is that we're splitting out and helping people understand what we're spending within R&D on the consumer business versus the therapeutics business.

That's really our expert they kind of reflects our expectation, including what we've seen in the leading indicator of chip transactions as time goes along.

The fact is that composition Ali.

They are sort of equal equal weight in the way that our business the consumer business works between promotional periods and the daily run rates, which by number of days in Europe far bigger than the promotional days.

So I would say that.

As you can see we gave guidance that's consistent with what we've been talking about in the proxy going back to really last January for for this year and you know.

When things are kind of staying consistent in terms of those expectations and I think that's the most we can say about.

Things as they are going in as we expect them to go.

Got it Okay, and then I guess in that respect adjusted EBITDA guidance was about 16.5 million less.

The midpoint, then proxy estimates this quarter it seems like consumer gross margins and EBITDA were pretty strong curious where youre seeing the greatest pick up in spend versus your original expectations as a proxy for the rest of this year.

Steve Schick: And, you know, the composition of spending in that category of R&D has moved. From, you know, for the quarter, it moved from 37% of that total last year to 47% of that total this year.

Yes, so in terms of you're talking about operating expense.

Yeah, Yeah. So adjusted EBITDA is about $16.5 million less at the midpoint of guidance versus the.

Steve Schick: And so, you know, when you do the math of an increase in the R&D line and an increase in the composition of therapeutics, you can see that we're really putting our money back into investing in the programs that Kenneth has just talked about and can talk more about. So that's important. That's a big driver here. And the mirror image of that is that we're trying not to spend more than is warranted on the consumer business, which, as you can see from the EBITDA number for the consumer business, we're doing a pretty good job of keeping expenses in line with revenue.

The proxy so yes, the delta there yeah for sure. So so a couple of things to talk about it in terms of spending you asked about spending so as you can.

As you can see in the.

Quarter spend for instance.

Higher Opex was.

Part of the.

Story of the quarter its one of the more dominant factors and.

Within that.

Two things are going on more spending on therapeutics.

One of the things that we.

We are adding to our disclosures in our 10-K is now filing our 10-Q, sorry has now filed.

We're splitting out.

Steve Schick: And so, so that's a, you know, that is a dominant factor as we go. And then the other thing that's going on in EB-DA is a little bit in the kind of overall company, EVIDDA, which is really kind of more hitting the, the, the, the, the, the, the, the G&A line is some additional costs we didn't anticipate when going public and being a public company. And so that's what's at work there. It's, it's, it's nothing too complicated.

Helping people understand what we're spending within R&D on the consumer business versus the therapeutics business.

The composition of spend.

Spending in that in that category of R&D has moved from towards the fourth quarter has moved from being 37% of that total last year to 47% of that total this year.

And so when you do the math of an increase in the R&D line and an increase in the composition of Therapeutics you can see that we're really putting our back into investing in the programs that Kenneth is just talked about and can talk more about so.

So that's important that's a that's a big driver in here and the mirror image of that is that we're trying not to spend more than is warranted on the consumer business.

Kenneth Hillen: Yeah, it's a great question.

Kenneth Hillen: Okay, that's helpful. And then on the pipeline of products, maybe just spend a little bit more time going into detail there, where are you kind of seeing the most uptick and spend and, remind us, are those programs being done in conjunction with GSCA with the 50-50 cost and revenue split?

Which as.

As you can see from the EBITDA number for the consumer business, we're doing a pretty good job of keeping up.

Expenses in line with revenues.

And so.

So that's.

That is a a dominant factor as we go and then the other thing that's going on in EBITDA is a little bit is that kind of overall company EBITDA, which is really kind of more hitting the <unk>.

The.

The G&A line is some additional cost we didn't anticipate of going public and being a public company.

Kenneth Hillen: Yeah, obviously, the clinical stage programs are the most expensive. And so that would be the CD-96 program and then T-06 as it's moving through its I and enabling studies and toward the clinic by the end of March of next year. Obviously, that ramps up expenses. And then for the earlier stage pipeline, you know, those programs obviously depend on where they are. They're very early, they're less expensive, and as you de-risk them, you make a greater investment as you have conviction around moving things forward.

And so that's that's what's at work there.

It's nothing too complicated.

Got it okay, and maybe that's a good segue to our two candidates on the therapeutic side I guess first on the C. D 96 program.

How do you think delta is going to.

Impact enrollment in trials there if at all.

Yes, it's a great question I think one of the advantages we had with having the partnership with GSK is as you know they have a global footprint.

So we I think we've really been able to take advantage of that when we have been planning.

The C D and 96 studies, so we havent seen significant impact from Delta with enrollment with excuse me 96 study. We continues to make good progress and then as GSK as I said on the call is GSK said in their earnings I would anticipate seeing data from the combination of Cte 96 with the start on that.

Kenneth Hillen: CD96 is a 50-50 cost split with GSC. P006 is, of course, wholly owned by 23 and me. So we bear all of the expenses there, but we, I would say that, you know, we don't have the same expense basis with GSC. So actually, we can be more efficient when we have our own programs just because we're a smaller or more nimble company than GSC. Then, you know, we haven't really spoken much about earlier stage programs.

In 2022.

Okay. That's helpful and then on the pipeline of products, maybe just spend a little bit more time going into detail there where were you kind of seeing the most uptick in spend and remind us.

Are those programs.

Being done in conjunction with GSK with a 50.50 cost and Rev split.

Yeah.

Yes, so obviously the clinical stage programs are the most expensive.

And so that would be the C. D 96 program and then there was a risk.

As it's moving through its R&D, enabling studies and towards the clinic by the end of March of next year, obviously as that ramps up in expenses and then for the earlier stage pipeline.

Kenneth Hillen: We have, you know, we talked about the fact that we have over 40 programs that have been generated from the database through the collaboration. And, you know, we continue to, you know, move those forward in collaboration with GSC. And in general, they're 50-50. But in some cases, there are unilateral programs for GSC, and in some cases, they're unilateral programs for 23 and me. But we haven't broken those out yet. Got it

<unk>.

Those programs, obviously it depends on where they are at their very early there are less expensive and as you derisk them unique greater investment as you have conviction around different things forwards C. D..96 is a 50.50 split with GSK PCR zero six is of course wholly owned by 23 and me. So we bear all of it.

He is there but.

We I would say that we don't have the same expense bases with GSK. So actually we can be more efficient when we have our own programs just because we're a smaller more nimble company than GSK.

And then we you know.

We haven't really spoken much about earlier stage programs we have.

We've talked about the fact that we have over 40 programs have been generated from the database through the collaboration.

Daniel Grosslight: Got it. Very helpful. All right, I'll hop back in the queue. Thanks, everyone.

We continue to.

<unk> moved those forwards in collaboration with GSK and in General there are 50.50, but in some cases.

Unilateral programs for GSK and in some cases, those unilateral programs for 'twenty, three but we havent broken those out.

Got it very helpful. All right I'll hop back in the queue. Thanks, everyone.

Tiago Fault: Thanks for the good questions. Congratulations on all the progress. Just have a follow-up on zero six actually. You guys have had more limited disclosures around that program, but with the upcoming trial start, phase one trial start, when could we get a little more detail and what's so unique about this, this, this I.L. target so we can have a better sense of the potential application of that molecule. And I guess a related but bigger, bigger picture question: how should I think about the productivity of the therapeutics engine?

Yeah.

Thank you.

As a reminder to ask a question you will need to press Star then one of your telephones.

Our next question comes from the line of P. A golf fought with credit Suisse. Your line is now open.

Hey, Thanks for taking the questions and congratulations on all the progress.

A follow up on Zero-zero six actually you guys have had more limited disclosures around that program, but with the upcoming.

Trials start phase one trials start when could we get a little more detail. What's so unique about this this this io target. So we can have a better sense of the potential application of that molecule.

And I guess, a related but bigger bigger picture question, how should I think about the productivity because the therapeutics engine right. So you you've outlined some.

Tiago Fault: So you've outlined some, some validation of targets that have grown substantially in the last few years; how much of that is correlated to the growth of the database or just collecting additional phenotypical data points from every contactable database, and how much of the consumer growth could kind of help to accelerate the validation of additional targets?

Some validation.

<unk> that has grown substantially with with the last few years, how much of that is correlated to the growth of the database or just collecting additional casino typical data points from that every contactable database.

How much of the consumer growth.

It kind of helped to accelerate the validation of additional targets.

Kenneth Hillen: Yeah, of course. So the first part of your question was related to T006 and certainly, you know, communication and data flow are very much front of mind as we advance that program forward into the clinic. So I think in sort of contemporaneous with moving that program into the clinic, you should anticipate hearing an update on that program and more specifically around, you know, we haven't disclosed the target yet for that program for competitive reasons, but obviously, as we advance with the clinic and we're working with investigators and enrolling patients and posting on clinical trials.gov, you should anticipate in the timeframe between now and March of 2022 getting additional information on that program. We're excited.

Thanks.

Yes of course, so your first part of your question was related to T six and certainly.

Communication and data flow is very much front of mind as we are.

That program corporate into the clinic so.

Thank goodness contemporaneous with us moving that program into the clinic, you should anticipate giving an update on that program and more specifically around Europe, we haven't disclosed the target yet for that program for competitive reasons, but obviously as we advance to the clinic and we're working with investigators and enrolling patients and posting of clinical trials Gov.

You should anticipate in the timeframe between now and then.

So 2020 to getting additional information on that program. We're excited we'll be.

Kenneth Hillen: We'll be excited to be able to share that in due course. On the earlier stage pipeline, you know, I would just take a step back and you know, I think if you think we signed the collaboration deal with TSK in the summer of 2018, and from the database, we've had over 40 programs. For those of you who cover pharmaceutical companies, you know, I was a geneticist for, as you know, many years. To have over 40 programs is sort of remarkable productivity. Of course, ultimately, it depends, you know, how many products become medicines and get approved by the FDA. So we're still in the early days of this.

I'd like it to be able to share that in due course.

On the earlier stage pipeline is I would just take a step back and.

I think if you think we signed the collaboration deal with GSK in the summer of 2018 and from the database. We've got over 40 programs and for those of you who cover a pharmaceutical companies.

As you know.

Many years ago.

To have over 40 programs.

Its sort of remarkable productivity of course ultimately it depends on.

Many products become medicines and get approved by the FDA. So we're still.

Kenneth Hillen: In terms of where things come from, is it just from data growth? Growth is important because that gives us greater statistical power to discover targets. But I think we've been very focused on strategic growth in certain areas where we've prioritized. And we not only just have the, you know, we don't just have the consumer kits being sold, but we'll also recruit customers with diseases that we're particularly interested in.

In the early days of this.

In terms of where things come from is it just from data growth is important because that gives us greater statistical power to discover targets, but I think we've been very focused on the strategic goals that are certain areas, where we prioritized and we not only just have to.

We don't just have the consumer kits being sold but will also recruiting customers with diseases that were particularly interested in it so often partner with others to do that.

Also always are becoming more sophisticated analytical methods.

To interrogate the data so that allows us to discover new targets. So it's a combination of different things that allows us to maintain the productivity from the database.

Tiago Fault: Got it. I appreciate the context there.

Tiago Fault: Thanks again for taking the questions. Of course. Thank you. There are no further questions.

Got it I appreciate the context, thanks again for taking the questions.

Of course.

Operator: Thank you. There are no further questions. I will now turn the call back to Ann Wollicki for closing remarks. Well, thank you very much, everyone. We appreciate the questions, and we look forward to staying engaged.

Thank you.

There are no further questions I will now turn the call back to Andrew <unk> for closing remarks.

Well. Thank you very much everyone. We appreciate the questions and we look forward to staying in games.

Anne Wiginski: And with that, that's the end. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

And with that that's the end thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Q1 2022 23andMe Holding Co. Earnings Call

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