Q2 2021 23andMe Holding Co. Earnings Call

Operator: Good day, ladies and gentlemen, and welcome to the 23rd and Meese fiscal year 20.

Good day, ladies and gentlemen, and welcome to the 23 in knees fiscal year 2022 second quarter earnings call.

Operator: year 2022 second quarter earnings call. At this time, all participants

At this time all participants are in a listen only mode.

Operator: At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and the instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touchstone telephone. As a reminder, this conference call is being recorded. I would like to introduce your host for today's conference, Wade Walk, Vice President of Investor Relations. You may begin.

There, we will conduct a question and answer session and instructions will follow at that time.

If anyone should require assistance during the conference.

Press Star Zero on your Touchtone telephone.

As a reminder, this conference call is being recorded.

I'd like to introduce your host for today's conference Wade Walke, Vice President of Investor Relations, Sir you may begin.

Wade Walk: Before we begin, I encourage everyone to go to Investors.23andMe.com to find the press release we issued earlier today, reporting our financial results for the quarter. A replay of today's webcast will also be available on our website for a limited time within 24 hours after the event.

Thank you.

Before we begin I encourage everyone to go to investors that 23, and me Dot com to find the press release, we issued earlier today, we reported our financial results for the quarter.

Replay of today's webcast will also be available on our website for a limited time within 24 hours after the event.

Wade Walk: Please note that certain statements made during this call regarding matters that are not historical facts, including but not limited to management's outlook or predictions for future periods, are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the section entitled Forward-looking Statements in our press release, which applies to this call. Also, please refer to our SEC filings, which can be found on our website and the SEC's website, for a discussion of numerous factors that may impact our future performance.

Please note that certain statements made during this call regarding matters that are not historical facts, including but not limited to management's outlook or predictions for future periods are forward looking statements.

These statements are based solely on information that is now available to us.

We encourage you to review the section entitled forward looking statements in our press release, which applies to this call.

So please refer to our SEC filings, which can be found on our website and the SEC's website for a discussion of numerous factors that may impact our future performance.

Wade Walk: We also discuss certain non-GAAP measures; important information on our use of these measures, and reconciliation to U.S. Gap may be found in our earnings release. Joining us on our call today are Anne Wojcicki, our chief executive officer and co-founder, and Steve Schick, our chief financial officer. Kenneth Hillen, our head of therapeutics, will also be joining us for Q&A. Now, I'd like to turn the call over to Ann.

We also discuss certain non-GAAP measures important information on our use of these measures and reconciliation to U S. GAAP, maybe found in our earnings release.

Joining us on our call today are Andrew <unk>, our Chief Executive Officer and co founder.

And Steve <unk>, our Chief Financial Officer.

Kenneth Palin, our head of Therapeutics will also be joining us for Q&A.

And now I'd like to turn the call over to Ann.

Anne Wojcicki: Thank you, Wade. I'm excited to talk to you today about the recent progress we've made on our mission to help people access, understand, and benefit from the human genome. We announced recently that we completed our acquisition of Lemonade Health. We believe this acquisition gets us closer to helping our customers more fully benefit from the genetic information we provide them. We have heard from our customers that they want to be able to do more with the information provided to them through our health reports, but most physicians are not trained in genetics and don't know how to integrate the information.

Thank you Wade.

If you could talk to you today about the recent progress we've made on our mission to help people access understand and benefit from the human genome.

We announced recently that we completed our acquisition of Lemonade Health. We believe this acquisition gets us closer to helping our customers more fully benefit from that.

Any information you can provide them.

We have heard from our customers that they want to be able to do more with the information provided to them through our health reports that most physicians are not trained in genetics and don't know how to integrate the information. We believe we now have the opportunity to change that and expand on our mission to help people benefit from their genetic.

Anne Wojcicki: We believe we now have the opportunity to change that and expand on our mission to help people benefit from their genetics. Our focus will now be on integration and developing a plan to accomplish our goal of providing consumers with convenient access to personalized, proactive, and genetically based primary care. We believe that by combining the Lemonade Health telemedicine platform, including its online team of medical professionals and its digital pharmacy services, with our consumer business, we are taking an important step in transforming the traditional primary care experience and making personalized health care a reality. I look forward to telling you more about this as our plans develop and take shape.

Our focus will now be on the integration and developing a plan to accomplish our goal to provide consumers with convenient access to personalized proactive and genetically based primary care.

We believe that by combining lemonade health telemedicine platform, including our online team of medical professionals and its digital pharmacy services with our consumer business. We are taking an important step in transforming the traditional primary care experience and making personalized health care a reality.

I look forward to telling you more about this as our plans develop and take shape.

We also launched three new health reports in the second quarter for our 'twenty, three and E. Plus members twenty-three me plus as our premium content subscription service that provides subscribers with new reports and features through the course of their subscription giving them even deeper insights into their health.

With our database of over 11 million genotype customers and billions of health related data points, we are uniquely positioned to provide our customers with these health insights.

The New report included a golf don't report a gestation diabetes report and then HDL cholesterol report.

Anne Wojcicki: We also launched three new health reports in the second quarter for our 23MU plus members. 23Meet Plus is our premium content subscription service that provides subscribers with new reports and features through the course of their subscription, giving them even deeper insights into their health. With our database of over 11 million genotype customers and billions of health-related data points, we are uniquely positioned to provide our customers with these health insights. The new reports included a Gulfstone report, a gestational diabetes report, and an H.D.L. My cholesterol report.

Each report uses machine learning to estimate a person's likelihood of developing a specific condition.

With the addition of these new reports, we now have over 20 reports as part of our 23, new plus subscription.

If you are 90 23, new plus subscriber you can learn more about these reports on our website at blog dot twenty-three knee dot com.

We are also pleased with the progress of our therapeutics pipeline our partner GSK.

To report clinical data from the C D 96 and 2022.

In addition, we expect to start a clinical trial with our wholly owned piece there are zero six program by the end of <unk>.

Our fiscal year 2022.

Finally, I'm pleased to welcome a new 23, New Board member.

You may have seen from our press release yesterday Doctor Standard Hernandez has joined our board.

Anne Wojcicki: Each report uses machine learning to estimate a person's likelihood of developing a specific condition. With the addition of these new reports, we now have over 20 reports as part of our 23 Me Plus subscription. If you are not a 23Me Plus subscriber, you can learn more about these reports on our website at blog.23andMe.com.

Sandra is the president and CEO of the California Health Care Foundation, an independent nonprofit philanthropy dedicated to improving California's healthcare system, so that all californians, especially those with low incomes can get the care they need.

I believe standards perspective, and guidance will be a great asset to us as we roll out a new digital primary care experience that delivers personalized preventative care to individuals and an affordable and accessible way.

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

Anne Wojcicki: We are also pleased with the progress of our therapeutics pipeline. Our partner, GSK, expects to report clinical data from the CD96 in 2022. In addition, we expect to start a clinical trial with our wholly owned P006 program by the end of fiscal year 2022.

Yeah.

Thanks Ann.

We are excited about the progress we're making on pursuing our vision across both our consumer research services segment and our therapeutic segments.

On the consumer and research services side, we believe that our customer centric genetically focused model for health services can significantly improve upon traditional health care by providing a new focus on individualized wellness prevention and cure.

Anne Wojcicki: Finally, I'm pleased to welcome a new 23 Me board member. As you may have seen from our press release yesterday, Dr. Sandra Hernandez has joined our board. Sandra is the president and CEO of the California Healthcare Foundation, an independent nonprofit philanthropy dedicated to improving California's health care system so that all Californians, especially those with low incomes, can get the care they need. I believe Sanders' perspective and guidance will be a great asset to us as we roll out a new digital primary care experience that delivers personalized preventative care to individuals in an affordable and accessible way. And with that, I'll turn the call over to Steve to review our financial results for the quarter.

The recent acquisition of Lemonade Health is just one of several steps we're taking.

This model of reality.

We're also continuing our internal investment in delivering innovative product enhancements made possible by our research capabilities combined with the unmatched scale of our genetic database.

One such example of this is what we're doing with our proprietary polygenic risk scores.

On the therapeutic side, we continue to invest in advancing our therapeutics discovery and development pipeline.

We believe that the unique insights we obtained from our premier genetic database of approximately $11 9 million genotype customers and our billions of phenotypic data points will give our therapeutics programs a distinct advantage as they moved from discovery through clinical development.

As we continue to grow our genetic database and the associated health data, we will continue to invest in our unique an increasing understanding of human genetics and biology in order to drive the discovery and development of New Therapeutics. We believe this is one of the very best opportunities we have to invest.

Steve Schick: We're excited about the progress we're making in pursuing our vision across both our consumer research services segment and our therapeutic segment. On the consumer and research services side, we believe that our customer-centric, genetically focused model or health services can significantly improve upon traditional health care by providing a new focus on individualized wellness, prevention, and care. The recent acquisition of Lemonade Health is just one of several steps we're taking to make this model a reality.

Now, let us turn to our second quarter financial performance.

Our revenue for the three and six months ended September 32021 was $55 million and $114 million respectively.

Representing increases of 7% and 15% respectively over the same period in the prior years.

This revenue growth was primarily due to higher sales volume in both our personal genome services or PGS product and our subscription product.

As we have pointed out previously a significant portion of our overall revenue comes from our consumer business.

Steve Schick: We're also continuing our internal investment in delivering innovative product enhancements made possible by our research capabilities combined with the unmatched scale of our genetic database. One such example of this is what we're doing with our proprietary polygenic risk. On the therapeutics side, we continue to invest in advancing our therapeutics discovery and development pipeline. We believe that the unique insights we obtained from our premier genetic database of approximately 11.9 million genotype customers and our billions of phenotypic data points will give our therapeutics programs a distinct advantage as they move from discovery through clinical development.

Additionally, P. G S revenue fluctuates during the year due to many seasonal promotional competitive and economic factors and those patterns can vary year to year.

Finally, we note that our second fiscal quarter has historically been one of our seasonally low revenue quarters.

When we look at the composition of revenue consumer services revenue represented approximately 81% of total revenue for the three and six months ended September 32021.

And research services revenue, which was substantially all from the GSK collaboration accounted for approximately 19% of total revenue.

Our gross profit for the three and six months ended September 32021 was $28 million and $58 million respectively.

Representing a 14% and 25% increase over the same periods in the prior year.

Steve Schick: As we continue to grow our genetic database and the associated health data, we will continue to invest in our unique and increasing understanding of human genetics and biology in order to drive the discovery and development of new therapeutics.

This increase was driven primarily by the above mentioned PGS and subscription service revenue increases as well as lower lab processing costs.

Operating expenses for the three and six months ended September 32021 were $74 million and $147 million respectively compared.

Compared to $61 million and 121 million for the same periods in the prior year.

Steve Schick: We believe this is one of the very best opportunities we have to invest. Now, let us turn to our second quarter financial performance. Our revenue for the three and six months ended September 30th, 2021 was $55 million and $114 million, respectively, representing increases of 7% and 15%, respectively, over the same period in the prior year. This revenue growth was primarily due to higher sales volume in both our personal genome services (PGS) product and our subscription products.

The increase in operating expenses was primarily attributable to the increase in research and development expenses related to our therapeutics programs, along with increased sales and marketing expenses intended to grow the consumer business.

Looking at the bottom line.

Net loss for the three and six months ended September 32021 was $17 million and $59 million, respectively, compared to net losses of $36 million and 72 million for the same period in the prior year.

The improvement in net loss was primarily driven by noncash changes in fair value of warrant liabilities of $30 million and $29 million, respectively for the three and six months ended September 32021, offset by higher loss from operations for those periods.

Steve Schick: As we have pointed out previously, a significant portion of our overall revenue comes from our consumer business. Additionally, PGS revenue fluctuates during the year due to many seasonal, promotional, competitive, and economic factors, and those patterns can vary year to year. Finally, we note that our second fiscal quarter has historically been one of our seasonally low revenue quarters.

We anticipate that there could be it could be.

Inefficient changes in the fair value of warrant liabilities from quarter to quarter.

Let's look at adjusted EBITDA for details on how we define adjusted EBITDA. Please see our earnings press release.

Total adjusted EBITDA for the three and six months ended September 30 of 2021 was a loss of $30 million and $57 million, respectively, compared to a loss of $20 million and $40 million for the same periods in the prior year.

The increased loss in total adjusted EBITDA was driven primarily by an increase in research and development expenses related to our therapeutic programs and in sales and marketing expenses aimed at growing the consumer business.

Steve Schick: When we look at the composition of revenue, consumer services revenue represented approximately 81% of total revenue for the three and six months ended September 30th, 2021, and research services revenue, which was substantially all from the GSK collaboration, accounted for approximately 19% of total revenue. Our gross profit for the three and six months ended September 30th, 2021 was $28 million and $58 million, respectively, representing a 14% and 25% increase over the same periods in the prior year.

Looking specifically at the adjusted EBITDA for the three and six months periods for the consumer and research services segment, we saw a loss of <unk> 8 million and $1 3 million, respectively compared to a gain of $1 8 million and a loss of $2 5 million for the same periods in the prior year.

Quarterly adjusted EBITDA for the consumer and research services segment will have seasonal variation just as the consumer segment topline does.

And will be further impacted by the timing of our media spending pattern, which has varied over time.

For this reason, we focused manager really on our full year adjusted EBITDA performance.

As I've mentioned previously we continue to focus on the aim of economically efficient growth of the consumer and research services segment overtime.

Yeah.

We ended the quarter with a strong balance sheet, which included $701 million in cash, which gives us substantial capital for pursuing our strategic objectives.

Steve Schick: This increase was driven primarily by the above-mentioned PGS and subscription service revenue increases as well as lower lab processing costs. Operating expenses for the three and six months ended September 30th, 2021 were 74 million and 147 million, respectively, compared to $61 million and $121 million for the same periods in the prior year. The increase in operating expenses was primarily attributable to an increase in research and development expenses related to our therapeutics programs, along with increased sales and marketing expenses intended to grow the consumer business.

Subsequent to the end of the second quarter, we paid approximately $102 million in cash consideration for the acquisition of eliminated health.

Of which approximately $13 million was placed in escrow to cover potential purchase price adjustments and to secure the.

The indemnification obligations of the former equity holders or eliminate helped.

Turning now to the topic of guidance, our previous full year fiscal 2022 guidance, excluding the effects of the eliminate acquisition is unchanged.

Updated fiscal 2022 guidance, including the effects of eliminate acquisition will be provided with our third quarter update.

For purposes of our net loss guidance due to the unpredictable nature of market driven changes in our warrant liability. We have assumed no net change in the fair value of warrant liability for the year within our guidance.

And now I'll turn the call back over to Ann.

Thanks, Steve.

I believe the recent strategic steps, we've taken and the continued progress we have made with the acquisition of New Health services, New Health report and our therapeutics effort demonstrates the significant advancements we are making towards our goal of personalized health care.

Steve Schick: Looking at the bottom line, the net loss for the three and six months ended September 30th, 2021 was $17 million and $59 million, respectively, compared to net losses of $36 million and $72 million for the same period in the prior year. The improvement in net loss was primarily driven by non-cast changes in the fair value of warrant liabilities of $30 million and $29 million, respectively, for the three and six months ended September 30th, 2021, offset by higher losses from operations for those periods. We anticipate that there could be significant changes in the fair value of warrant liabilities from quarter to quarter.

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

Thank you at this time to ask a question you will need to press star one on your telephone.

Against ask a question please press star one.

So we draw a question just press the pound key.

Your first question comes from line of being a real slight from Citi. Your line is now open.

Hi, guys. Thanks for taking my question, Steve You mentioned that <unk> is typically seasonally light, but you know I would have assumed that you would start to see some revenue come in from mother's day father's day and this year Prime day.

And this quarter could you share some details around demand you saw during these holidays any discounting you mean, you may have taken during <unk>.

During these holidays and if they get sold.

Are taking longer to process and so we should start to see more of that revenue come in in <unk> and then maybe if you can just relate that to what you're expecting for this this holiday season coming up.

Steve Schick: Let's look at adjusted EBITDA. For details on how we define adjusted EBITDAB, please see our earnings press release. Total adjusted EBITDAF for the three and six months ended September 30th, 2021 was a loss of $30 million and $57 million, respectively, compared to a loss of $20 million and $40 million for the same periods in the prior year. The increased loss in total adjusted EBITDA was driven primarily by an increase in research and development expenses related to our therapeutics programs and in sales and marketing expenses aimed at growing the consumer business.

Ah, yes, so I think I'd start with.

The guidance that we've that we've.

Instead it is unchanged.

As we look at the full year, it's a it's running within our expectations that that guidance.

Guidance represents and.

In our estimation the seasonality this quarter in particular was kind of exactly where we thought it would be.

And which is why we haven't changed that guidance.

We are pattern of spending and we've talked about this a little bit before our pattern of spending.

Of marketing money.

Changes over time and year to year, and I would say that probably.

<unk>.

Thinking about this quarter or the next quarter.

We were pretty quiet in the summer.

We had some spending start to pick up in September, which really didn't affect this quarter other than its cost.

Steve Schick: Looking specifically at the adjusted EBITDA for the three and six months periods for the consumer and research services segment, we saw a loss of 0.8 million and 1.3 million, respectively, compared to a gain of 1.8 million and a loss of 2.5 million for the same periods in the prior year. Quarterly adjusted EBITDA for the consumer and research services segment will have seasonal variation just as the consumer segment top line does and will be further impacted by the timing of our media spending pattern, which has varied over time.

And you know and as usual, we'll spend quite a bit of our money in the full years.

Media budget.

You know in the cup in the current quarter that we're in.

So yeah, I think I think all the parameters of the business Asps were healthy.

You know all the parameters of the business are in line with what we would've expected to see so there really from our point of view, there really weren't any surprises.

Got it Okay and I understand you don't guide quarterly, but maybe if you can directionally give us some guideposts.

Guideposts around how we should think about revenue should that be up sequentially or.

Just some details around how we should think about revenue.

In this current quarter.

Yeah, I mean, we stay out of the business of <unk>.

Quarters, just because of.

Steve Schick: For this reason, we focus managerially on our full-year adjusted EBITDAF performance. As I mentioned previously, we continue to focus on the aim of economically efficient growth of the consumer and research services segment over time. We ended the quarter with a strong balance sheet, which included $701 million in cash, which gives us substantial capital for pursuing our strategic objective. Subsequent to the end of the second quarter, we paid approximately $102 million in cash consideration for the acquisition of Lemonade Health, of which approximately $13 million was placed in escrow to cover potential purchase price adjustments and to secure the indemnification obligations of the former equity holders of Lemonade Health.

The number of.

No moving parts in the way that revenue gets recognized but again I would point to two things one I would point to the you know the seasonality factors that we've provided.

For the last three years.

Last three full fiscal years those are helpful. They even have some variability in them because we spent marketing money in different patterns in those years and it's why we kind of try to point to the to the annual number because we actually run the business that way.

We don't we.

We don't really get too hung up on you know on quarterly numbers and their exact miss because we constantly shift.

How we're doing our promotions, including the way, we price and how we're doing.

Spending our media money and the timing of that so we'll probably just stay out of the business of of you know talking about the individual quarters, because its literally not the way we run the business.

Yeah fair enough.

Eliminate can you provide some details around how much of that business or those visits are done asynchronous Lee and if you anticipate.

Steve Schick: Turning now to the topic of guidance, our previous full-year fiscal 2022 guidance, excluding the effects of the lemonade acquisition, is unchanged. Updated fiscal 2022 guidance, including the effects of the lemonade acquisition, will be provided with our third quarter update. For purposes of our net loss guidance, due to the unpredictable nature of market-driven changes in our warrant liability, we have assumed no net change in the fair value of warrant liability for the year within our guidance. And now, I'll turn the call back over to Ann.

Pay as you move more into primary care and informing.

That visit with genetic data do you think you'll move more towards a video and telephonic visit.

Visit type model.

Yeah, I can start with kind of how to think about information flow and then let Dan talk about the vision. So we'll we'll have a lot more to say about overall performance of that business within the context of our total company next quarter for sure we will give guidance as we've talked about with.

Kind of that business coming in so.

Much like our own business, we will not get into a lot of detailed kpis.

Certainly on a quarterly basis, and largely not a lot of them on an annual basis.

But I'll, let him talk a little bit about kind of the vision for the product and the product environment.

Anne Wojcicki: I believe the recent strategic steps we've taken and the continued progress we have made with the acquisition of new health services, new health reports, and our therapeutic efforts demonstrate the significant advancements we are making toward our goal of personalized health care. Now, with that, let's open it up for questions.

Yeah, I don't have a specific breakdown on an asynchronous versus not anything pronounced I'm quite happy to again I think when we when we do have.

More in depth call.

For next quarter, and we want to talk more about sort of the integration plans I think I'm, making answer some more questions there.

I think as we are envisioning a future that is focused on primary care and focused on genetics I think that there is a great opportunity to have a lot of that continued to be a synchronous.

Operator: Thank you. At this time, to ask a question, you will need to press Star 1 on your telephone. Again, to ask a question, please press Star 1. So we draw your question. Just press the bound key. Your first question comes to the line of being a growth light from City. Your lines are now open.

And I think we both you know Paul the whole M&A team and I are very aligned.

And how do you actually really deliver health care that can scale.

And I think that's one of the important aspects of twenty-three me has really been able to pioneer is that we've been able to show that we can deliver information to customers without having to have a health care professional and so I think you can imagine we are thinking more and more how is that we can deliver.

High quality care at scale for a number of individuals and really have the teleconference or video conference of chat.

Analyst: Hi guys, thanks for taking the question.

Others as needed and at the appropriate times.

Steve Schick: Steve, you mentioned 2Q is typically seasonally light, but I would have assumed that you would start to see some revenue come in from Mother's Day, Father's Day, and this year's Prime Day in this quarter. Can you share some details around demand you saw during these holidays, any discounting you may have taken during these holidays, and if the kits sold are taking longer to process?

I would say, it's definitely going to be a balance.

Very helpful looking forward to that.

Call them.

Next quarter I mean.

Last one for me.

I know everyone is very excited to hear more details about easier zero six.

You mentioned.

Youre going to kind of.

Give them more color on that program, but I was curious if you know when you initiate the trial just curious if youre willing to share any additional information about pizza is euro six how that's been progressing and when we might actually I hear more about kind of the target that are actually going after.

Yes, Ken I think I can take that happy to respond yes, we continue to make really nice progress with pizza with euro six as we've communicated we anticipate.

Steve Schick: And so we should start to see more of that revenue come in in 3Q. And then maybe, if you can, just relate that to what you're expecting for this holiday season coming up. Yeah, so I think, you know, I'd start with the guidance that we've, you know, that we've, um, set is unchanged.

Having presentations in before the end of March of next year, and we would also be planning in between now and then to be ready to talk more about the target of the antibody and the biology and why we're so excited about this so it's a we're looking forward to sharing it.

And as I said, we have continued to make very nice progress with the program.

Got it alright lots to look forward to thanks guys.

Your next question comes from Atlanta, then Kim from Credit Suisse. Your line is now open.

Hi, This is Dan offer Thiago thanks for taking the question.

Analyst: So, you know, as we look at the full year, it's running within our, you know, expectations that that, you know, that guidance represents. And, in our estimation, the seasonality this quarter, in particular, was kind of exactly where we thought it would be, which is why we haven't changed that guidance. You know, we, our pattern of spending, and we've talked about this a little bit before, our pattern of spending, and we've talked about this a little bit before, of marketing money changes over time from year to year.

Looking ahead to be end of the fiscal year do you plan to disclose the number of new programs and validated targets in pipeline.

And can you help set expectations for what you would like to see and sort of frame the bar of success in this area.

Steve do you want to see if I can follow up.

Yeah, I think I think when we when we disclosed information last year and earlier this year in the pipe.

Spec process.

I think we talked about doing an update once a year on kind of macro progress here and there and so I think that's.

The the basic plan at this point as to you know to just know progress as we go along annually.

Great. Thank you.

Speakers there are no further questions at this time from the phone line for Mr. Walk I turn the call over back to you.

Thank you very much we have some questions that were submitted through our online portal from shareholders and we'd like to address some of the tough questions. At this point I'll read the question and then.

Analyst: And I would say that probably, you know, in thinking about this quarter and the next quarter, we were pretty quiet in the summer. We had some spending start to pick up in September, which really didn't affect this quarter other than its cost. And, you know, and as usual, we'll spend quite a bit of our money on the full year's media budget in the current quarter that we're in. So, you know, I think all the parameters of the business ASPs were, healthy, you know; all the parameters of the business are in line with what we would have expected to see. So, really, from our point of view, there really weren't any surprises. Got it.

A member of the management team will.

I can answer it.

Take a shot at answering that.

The first question. We have is how do you plan on integrating eliminate health with 23, new genetics products.

Excellent question Lemonade plays a very strategic role for us and it plays a strategic role in helping our customers really do more so we've learned from our customers that they get the genetic information they understand that but they would like to integrate it more with their health and liked.

To actually make it actionable with their health care, so by having lemonade, we have the ability to really start to think about how do you really have genetics based primary care that is going to have a heavy emphasis on prevention and one of the first areas, we won't really be able to think about its pharmacokinetics and Billy <unk>.

Steve Schick: Okay. And I understand you don't guide quarterly, but maybe if you could give us some guidelines around how we should think about revenue, should that be up sequentially or just some details around how we should think about revenue in this current quarter. Yeah, I mean, we stay out of the business of quarters just because of the number of moving parts in the way that revenue gets recognized.

The grading genetic information and with pharmacy.

The next question we have is.

Other than charging for kits what business models is 23, new considered and are there any being tested or near lunch.

Yes, we actually have been testing a subscription surface I'm also going along with the theme that our customers have been very clear that they want more from 23 and me and so twenty-three me plus it's a subscription service we launched last fall that is specifically about <unk>.

Steve Schick: But I, again, I would point to two things. One, I would point to the seasonality factors that we've provided for the last three years, you know, the last three full fiscal years. Those are helpful.

Biding additional content to our customers any regular basis.

So we think about all kinds of opportunities of how we'll be able to expand that in the future and I think that is a key area to it to stay and that will continue to update you on it.

Analyst: They even have some variability in them because we spent marketing money in different patterns in those years. And it's why we kind of try to point to the annual number because we actually run the business that way. We don't really get too hung up on, you know, quarterly numbers in their exactness because we constantly shift how we're doing our promotions, including the way we price and how we're doing, you know, how we're spending our media money and the timing of that.

As we learn and as we evolve.

Yeah.

The next question is what is the most exciting thing on the horizon for 2022.

So many things coming in 2022, I think is definitely going to be it'll.

It's an exciting time at least apparent from from my perspective, we have a lot coming on therapeutics I'm I'm very excited about <unk> 96, I'm, obviously very excited about piece. There. There are six so continuing to watch the progress of both of those also we have a we're in the thick of it now with integration with lemonade So to my mind.

Does the outcome for our 11 nine class customers is really about what are the various services, we are going to be able to roll out to our customers and really be able to impact their lives.

Analyst: So we'll probably just stay out of the business of, you know, talking about the individual courses because it's literally not the way we run the business. Yep, fair enough. On lemonade, can you provide some details on that?

Yeah.

Our next question is what genetic research is being prioritized.

Steve Schick: much of that business or those visits are done asynchronously. And if you anticipate that as you move more into primary care and inform that visit with genetic data, do you think you'll move more towards a video and telephonic visit?

Great Ken if you want to take that.

Yes happy to do that answer I was just on mute my apologies yes.

So we we've within our Therapeutics research we have programs across.

Multiple therapeutic areas, including oncology immune and inflammatory diseases and then also on cardio metabolic diseases.

What we've done is within those therapeutic areas, specifically prioritize indications or clinical disease.

Anne Wojcicki: I can start with kind of how to think about information flow and then let Ann talk about the vision. So, you know, we'll have a lot more to say about the overall performance of that business within the context of our total company next quarter for sure. We'll give guidance, as we've talked about with kind of that business coming in. So, much like our own business, we will not get into a lot of detailed KPIs, you know, certainly on a quarterly basis and, largely, not a lot of them on an annual basis. basis, but I'll let Ann talk a little bit about the kind of vision for the product and the product environment.

Where we have power in our database to identify novel genetic signals that others are not able to identify.

We believe there is.

Considerable unmet medical need and where we can advance potential new therapeutic candidates to clinical proof of concept with speed for priority can speed. So.

We those are the focus therapeutic areas in the database continues to use new.

New data and new insight.

Yeah.

Our next question is.

A two part question first one is are you currently or do you have plans to sell or license. The data that you had other biopharmaceutical research companies.

Yes, I can take that so you know our drug target discovery development and commercialization collaboration with GSK is exclusive for the four year term and you'll recall that GSK has the right to expand at a specific date for a fifth year.

Anne Wojcicki: Yeah, I don't have a specific breakdown on asynchronous versus non-asynchronous, but happy to, again, I think when we do have a more in-depth call for next quarter and we want to talk more about sort of integration plans, I think that we can answer some more questions there. I think as we are envisioning a future that is focused on primary care and focused on genetics, I think that there is a great opportunity. to have a lot of it continue to be asynchronous.

After that exploration of exclusivity, we may well pursue collaborations as we have done in the past with other pharma companies universities and research institutions and.

And we May also consider partnering some of our programs that we have at the end of the GSK collaboration.

The one other thing I would point out though in terms of our databases, we have data beyond information for the purpose you could target discovery. So we can continue as we do today to collaborate with other pharma partners are with academic partners outside of the area to target discovery, even during the period of the GSK collaboration.

Yeah.

Great and the second part of the question is about.

Analyst: And I think we both, you know, Paul, the whole lemonade team and I are very aligned on how you actually really deliver health care that can scale. And I think that's one of the important aspects that 23 has really been able to pioneer, is that we've been able to show that we can deliver information to customers without having to have a healthcare professional. And so I think you can imagine we are thinking more and more about how we can deliver, you know, high-quality care at scale for a number of individuals and really have the teleconference, the video conference, the chats, others as needed, and that's the appropriate time. So I would say it's definitely going to be a balance.

What you're excited about other new exciting things in the research pipeline that are you're excited about.

Yeah, we already I already answered a question about pizza with Euro six.

Analyst: Very helpful. Looking forward to that column next quarter.

Analyst: And then last one for me, I know everyone's very excited to hear more details about P006. You mentioned you're going to kind of give more color on that program. But I was curious if, when you initiate the trial, you were willing to share any additional information about P006, how that's been progressing, and when we might actually hear more about kind of the

Okay, we want to build ourselves or where we and then she want to buy that we are where enthused to see the quality of various companies that are out there and we are definitely mindful of you know opportunities that are out there.

The next question how important is subscription revenue to your growth plans could what metrics around the correct size a trajectory that this revenue stream can you share.

Let me think about it.

Yeah, Alright see if that's all you.

Okay great.

Kenneth Hillen: kind of the target that's going after.

Great. So you you you'll notice that we you know we referred in our prepared remarks, a couple of times to subscription as a factor.

Kenneth Hillen: Yes, Kenneth, maybe I can take that. I'll be happy to respond. Yeah, we continue to make really nice progress with P006. As we've communicated, we anticipate having our first patient in before the end of March of next year. And we'll also be planning between now and then to be ready to talk more about the target and the antibody and the biology and why we're so excited about this. So we're looking forward to sharing that. And as I said, we continue to make very nice progress with the program.

And you know when the numbers for the quarter in particular, because it's 100 per cent margin business you know it it actually does really help our our margins to you know to continue to expand our gross margins should continue to expand that said as a as a an absolute size matter relative.

To the company's current revenue base, it's it's not material enough to talk about individually and that will become even more pronounced as we get you know into the era of a consolidation of lemonade activities into the pool company.

Analyst: Got it. All right. Lots to look forward to. Thanks, guys.

The top line will be bigger and so you know we wouldn't anticipate spending a lotta time anytime soon talking about the specifics of that but it's important.

Operator: Your next question, counsellor, Lion of Van Kim from Guided Swiss. Your line's now open. Hi, this is Dan Offer-Tiago. Thanks for taking the questions. Looking ahead to the end of the fiscal year, do you plan to disclose the number of new programs and validated targets in the pipeline? And can you help set expectations for what you would like to see and sort of frame the bar of success?

Beyond what I just talked about on the on the margin front, it's important as a platform for enabling what comes in the future in the way of of recurring revenue relationships. You know, we now have that platform built.

The next question.

What do you think makes you stand out from other companies and what do you think would be most successful put part of your business by 2025.

Well I think what is what's so different about 23 is that the direct to consumer component of the company.

Analyst: See if you want to start and I can follow. Yeah, I think, you know, when we

That we empower individuals to get direct access to their genetic information and we also give them that choice and transparency about participating.

Steve Schick: Yeah, I think, you know, when we disclosed information last year or earlier this year in the, you know, SPAC process, I think we talked about doing an update once a year on kind of macro progress here and there. And so I think that's, you know, kind of the basic plan at this point is to, you know, just note progress as we go along annually.

And research and I think what is really exciting I mean, the reason why we started the company was really about unlock the potential of the human genome and what what can that mean for the individual as well as what does that mean for research overall and I think we you know whether it's in three years or five years or 10 years.

Absolutely a better data driven healthcare world out there that is both about how you're going to manage a health condition, but also really about helping you stay healthy.

Operator: speakers. There are no further questions at this time.

Wade Walk: Further questions at this time from the phone lines, Mr. Walk? I turned the call over back. Thank you very much. We have some questions that were submitted through our online portal from shareholders, and we'd like to address some of the top questions at this point. I'll read the questions, and then a member of the management team will take a shot at answering them in the. The first question that we have is, how do you plan on integrating lemonade health with 23-mead genetics products?

And I think genetics will play a key component of that so I think we're very different in other companies out there in that one we have this direct contact with access with our customers and it's.

It it's always customer first and second we have a very different type of datasets because it is again it. It's based on your genetics is a size and scale that is unlike anything else and and it is you know has this opportunity to really go back.

Directly to our customers and translate either into the world of therapeutics or translated into the world of helping our customers have better insight than themselves.

Uh-huh.

Anne Wojcicki: Excellent question. Lemonade plays a very strategic role for us, and it plays a strategic role in helping our customers really do more. So we've learned from our customers that they get genetic information, they understand it, but they would like to integrate it more with their health and like to actually make it actionable with their health care. So by having lemonade, we have the ability to really start to think about how you really have genetics-based primary care that is going to have a heavy emphasis on prevention. And one of the first areas we will really be able to think about is pharmacogenetics and really integrating genetic information with pharmacy.

The next question can you add the testing for all cancer markers.

We have we do not test for all cancers markers right now, but we are very proud of the two F. D. A authorizations that we have one for the B R. C. A two P R, saying mutations and for breast cancer and one for hereditary colon cancer, we absolutely think about more ways that we can.

Help our customers get access to meaningful cancer related information and I would say just personally one thing I'm very proud of it because we are affordable and it's direct access we have thousands of customers who found out that they are you know b R. C a positive and never would've otherwise.

Uhm qualified for traditional screening paid for by their insurance. So again part of the mission for transfer has really enabling broad access for people. So while we don't test for everything we find that we are finding lots of individuals who otherwise never would've gotten any kind of screening.

Anne Wojcicki: The next question we have is, Other than charging for kits, what business models has 23 need considered, and are there any being tested or near launch? Yes.

Great.

The next question relates to the partnership with GSK mm mm.

Anne Wojcicki: Yes, we actually have been testing a subscription service, also going along with the theme that our customers have been very clear that they want more from 23Mee. And so 23Mee Plus is the subscription service we launched last fall that is specifically about providing additional content to our customers on a regular basis. So we think about all kinds of opportunities for how we'll be able to expand that in the future. And I think that is a key area to stay focused on that we will continue to update you on as we learn and as we evolve.

<unk>, what's the latest status on the drug you guys have been working on it.

And what are your plans to bring new transformation medicines to assess patients.

[noise], Yeah, it's kind of.

I can take that thanks again for the question. So the the partnership with D. S. K I think it really speaks for itself it's been very productive.

In less than four years, we have one collaboration program and the critic that's C. I P. C. P 96 that your body and another that you know as well as our P. V. Six program that doesn't come up with a G. A K cooperation that we anticipate being at the clinic before the end of March.

We've had more than 40 programs come from the database in that we've been working on sometimes it's GSK working on those as your life will targets on their own sometimes a part of the collaboration but ultimately advancing nose to the clinic. We also spoke in our in fact I suppose the fact that we've had for 18 target.

Anne Wojcicki: The next question is, what is the most exciting thing on the horizon for 2022?

From the database, which have been validated that we've gone through the biological epigenetic validation that was as of the end of December 31st 2020. So it's been it's been very productive.

Anne Wojcicki: So many things are coming in 2022. I think it's definitely going to be an exciting time, at least from my perspective. We have a lot coming in the field of therapeutics. I'm very excited about CD-96. I'm obviously very excited about P006, so I'm continuing to watch the progress of both of those. Also, we have, we're in the thick of it now with integration with lemonade. So my enthusiasm for our 11 million plus customers is really about the various services we are going to be able to roll out to our customers and really be able to impact their lives.

The other thing I would point out you may have seen and known clinical trial Coke oven Gsk's woken up at this day of an antibody I G. S. K 1070806, which target I owe a teen accident, you've already paid in the clinic I think for two or three years now, but had been tested and the number of indications, but it but it wasn't clear what the right.

<unk> might be for that program I'm, one of the really exciting things about our database as they were able to identify unique genetic signal alright. So unique to twenty-three me. It atopic dermatitis also known as eczema and they've recently posted on clinical trials Dot Gov initiation of phase one trial Ah, Okay antibody and patient.

Kenneth Hillen: Our next question is, what genetic research is being prioritized? Great, Kenneth. What do you want?

Kenneth Hillen: Great. Kenneth, do you want to take that?

Kenneth Hillen: Yeah, I'm happy to do that. I'm sorry, I was just on mute; my apologies.

With atopic dermatitis it before I'm study proof of concept and so I I think it's not just the carpet target. So we discovered advise therapeutics has that ability of that potential to repurpose existing therapeutics to the right indications based on human genetics.

Kenneth Hillen: Yeah, so within our therapeutics research, we have programs across multiple therapeutic areas, including oncology, immune and inflammatory-based diseases, and then also cardiometabolic diseases. What we've done is within those therapeutic areas, we've specifically prioritized indications or, you know, clinical diseases where we have power in our database to identify novel genetic signals that others are not able to identify, where we believe there is considerable unmet medical need, and where we can advance potential new therapeutic candidates to clinical proof of concept with speed. So power and need at speed. So anyway, those are the focused therapeutic areas, and the database continues to yield new data and new insights.

Thank you.

Our last question do you have time for today is.

About.

Well here's the question will twenty-three maybe doing extensive research about African genetics since African Americans are the main group of people.

No where they come from.

And I'll take that last one we planning to me, it's always been a priority for us to to make sure that genetic information is applicable to all.

Everybody.

And in our earliest days I think it was around 2010, we launched a program called reached into the future, where we gave away 10000 kits to African Americans, specifically with the plans of how can we actually do replication of studies and and find associations and whether or not they replicate in in the African American population that.

Steve Schick: Great. Our next question is a two-part question. The first one is, are you currently or do you have plans to sell or license the data that you have to other biofarm circle research companies?

It was really the beginning of some sort of research that we've done and we've done enough of initiatives since that have gone into our ancestry composition features meeting people can better understand which parts of Africa. They came from two additional research studies that are helping improve the <unk>.

Steve Schick: Yeah, wait, I can take that. So, you know, our drug target discovery, development, and commercialization collaboration with GSC is exclusive for the four-year term. And you recall that GSC has the right to extend that exclusivity for a fifth year. Certainly, after that expiration of exclusivity, we may well pursue collaborations as we have done in the past with pharma companies, universities, or research institutions. And we may also consider, you know, partnering some of our programs that we have at the end of the GSC for collaboration.

During the report experience as well as replicating studies as well as you know just research. So most recently, we actually we did have a grant years ago from NIH looking at doing sequencing and an African American population that has now led to a new reference base that we you know getting dizzy.

Partnership that will enable you know a better analysis and African Americans Fishnets research. So it's definitely a priority for us they would pay for all communities and everybody out there to make sure that check research is applicable to them and that twenty-three me is a product that serves everybody.

Steve Schick: The one other thing I would point out, though, in terms of our database, we have data beyond information for the purposes of target discovery. So we can continue, as we do today, to collaborate with other forms of partners or with academic partners outside of the areas of target discovery, even during the period of the GFC collaboration.

[noise], thanks, and with that we're done with our Q&A session and I'll turn it over to you to to wrap it up.

Great as always it was a pleasure to see here from our customers. It's a pleasure to hear from our investors and we enjoy we enjoy it and the updating you about how we're doing and we look forward to future for future calls.

Kenneth Hillen: Great, and the second part of the question is about what you're excited about. Are there new exciting things in the research pipeline that you're excited about? Yeah.

Thank you <unk>. This concludes today's conference call. Thank you for participating and have a wonderful day, you mean I'll disconnect.

Kenneth Hillen: Yeah, you know, we already answered a question about P006. It's a wholly owned program from 23 and me.

[music].

Kenneth Hillen: We identified the target for this program based on our immune oncology signature, which we believe predicts important genetic risk or genetic factors that drive the immune response against tumors. We have an antibody targeting this P006 and we'll be, you know, entering, we hope, clinical studies reasonably soon, certainly before the end of March of next year. And we're really excited to come out and talk more about the target, to talk about the antibody, to talk about the biology. So, really, something that I'm excited about and look forward to being able to share in the not-too-distant future.

Wade Walk: Thank you. The next question is, does 23 a NE plan on acquiring genetic companies moving forward?

Anne Wojcicki: We are definitely in the thick of it with integration with lemonade, but at the same time, we have a big vision, and we absolutely continue to evaluate in a number of different areas where we want to build ourselves or where we potentially want to buy. So we're enthused to see the quality of various companies that are out there, and we are definitely mindful of opportunities that are out there.

Steve Schick: The next question is, how important is subscription revenue to your growth plans and what metrics around the current size and trajectory of this revenue stream can you share?

Steve Schick: Yes, sorry, Steve, that's all you. Okay.

Steve Schick: Okay, great. So you'll notice that we referred in our prepared remarks a couple of times to subscription as a factor in the numbers for the quarter in particular because it's a 100% margin business. It actually does really help our margins to, you know, continue to expand, our gross margins to continue to expand. That said, as an absolute size and mass, relative to, you know, the company's current revenue base, it's not material enough to talk about individually, and that will become even more pronounced as we get, you know, into the era of consolidation of, you know, lemonade's activities into the full company.

[music].

Steve Schick: The top line will be bigger, and so, you know, we wouldn't anticipate spending a lot of time anytime soon talking about the specifics of that, but it's important beyond what I just talked about on the margin front; it's important as a platform for enabling what comes in the future in the way of recurring revenue relationships. You know, we now have that platform built. The next question, what do you think makes you stand out from other companies and what do you think will be the most successful part of your business by 2025?

Anne Wojcicki: Well, I think what's so different about 23 is the direct-to-consumer component of the company; we empower individuals to get direct access to their genetic information, and we also give them that choice and transparency about participating in research. And I think what is really exciting, the reason why we started the company was really about unlocking the potential of the human genome and what that can mean for the individual as well as what that means for research overall.

Anne Wojcicki: And I think we, you know, whether it's in three years or five years or ten years, there's absolutely a better data-driven healthcare world out there that is both about how you're going to manage a health condition but also really about helping you stay healthy. And I think genetics will play a key component of that. So I think we're very different than other companies out there in that, one, we have this direct, contactable access with our customers, and it's always the customer first. And second, we have a very different type of data set because it is, again, based on your genetics.

Anne Wojcicki: It is a size and scale that is unlike anything else. And it has this opportunity, the opportunity to really go back directly to our customers and translate either into the world of therapeutics or into the world of helping our customers have better insights into themselves.

Anne Wojcicki: Next question: can you add testing for all cancer markers?

Anne Wojcicki: We do not test for all cancer markers right now, but we are very proud of the two FDA authorizations that we have, one for the BRCA gene mutations for breast cancer and one for hereditary colon cancer. We are absolutely thinking about more ways that we can help our customers get access to meaningful cancer-related information. And I would say, personally, one thing I'm very proud of is that because we are affordable and it's direct access, we have thousands of customers who found out that they are, you know, BRCA positive and never would otherwise have qualified for traditional screening paid for by their insurance.

Anne Wojcicki: So again, part of the mission for 23rd is really enabling broad access for people. So while we don't test for everything, we find that we are finding lots of individuals who otherwise never would have gotten any kind of screening.

Kenneth Hillen: The next question relates to the partnership with GSK. The question is, what's the latest status on the drug you guys have been working on, and what are your plans to bring new transformations of medicines to us as patients?

Kenneth Hillen: Yeah, Kenneth, I can take that. Thanks again for the question. So the partnership with GSC, you know, I think it really speaks for itself. It's been very productive. In less than four years, we have one collaboration program in the clinic, that's the anti-CD-96 antibody, and another that, you know, as well as our P006 program that doesn't come to the GFK collaboration that we anticipate being in the clinic before the end of March.

Kenneth Hillen: We've had more than 40 programs come from the database and that we've been working on. Sometimes it's GFK working on those as unilateral targets on their own, sometimes they're part of the collaboration, but ultimately, advancing those to the clinic. We also spoke in our back deck about the fact that we've had 18 targets come from the database that have been validated. That means they've gone through the biological and genetic validation as of the end of December 31st, 2020. So it's been very productive.

[music].

Kenneth Hillen: The other thing I would point out, you may have seen on clinical trials.gov and GFC spoke about this; they have an antibody called GSC 1 07806 which targets IL-18. It's an antibody they've had in the clinic for two or three years now but had been tested in a number of indications, but it wasn't clear what the right indication might be for that program, and one of the really exciting things about our database is that they were able to identify it by a unique genetic signal, so unique to 23, me, in atopic dermatitis, also known as eczema.

Kenneth Hillen: And they've recently posted on clinical trials.gov the initiation of a phase one trial of that antibody in patients with atopic dermatitis. It's a proof of concept study, a proof of principle. And so I think it's not just about the target that we discover in advanced therapeutics, it's that ability and that potential to repurpose existing therapeutics to the right indications based on human genetics.

Anne Wojcicki: Our last question that we have time for today is about Well, here's the question. Will 23 be doing extensive research about African genetics since African Americans are the main group of people who do not know where they come from? And I'll take that left.

Anne Wojcicki: And I'll take that last one. We, 23 Me, it's always been a priority for us to make sure that genetic information is applicable to all, to everybody. And in our earliest days, I think it was around 2010, we launched a program called Roots Into the Future, where we gave away 10,000 kits to African Americans, specifically with the plan of how can we actually do replication studies and find associations and whether or not they replicate in the African American population.

Anne Wojcicki: That was really the beginning of some of the research that we've done, and we've done another initiative since that has gone into our ancestry composition features, meaning people can better understand which parts of Africa they came from. We have also done additional research studies that are helping improve the 23 report experience as well as replicating studies, as well as, you know, just research. So most recently, we actually did have a grant years ago from NIH looking at doing sequencing in African-American populations.

Anne Wojcicki: That has now led to a new reference base that we, you know, again, Diven Partnership that will enable, you know, better analysis of African Americans for genetic research. So it's definitely a priority for us, I would say, for all communities and everybody out there to make sure that genetic research is applicable to them and that 23M is a product that serves everybody.

Wade Walk: Thanks, and with that, we're done with our Q&A session, and I'll turn it over to you to wrap it up.

Anne Wojcicki: Great. As always, it is a pleasure to hear from our customers. It's a pleasure to hear from our investors, and we enjoy this updating you about how we're doing, and we look forward to future calls.

Operator: Thank you. This concludes today's conference call. Thank you for participating.

Operator: Thank you for participating and have a wonderful day. You may all disconnect. Thank you.

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