Q2 2023 23andMe Holding Co. Earnings Call

November 7, 2022

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Yeah.

Good day and thank you for standing by welcome to the 23 and me as fiscal year 2023 second quarter earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need a press star one on your telephone.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your host today Wade Walke, Vice President Investor Relations. Please go ahead.

Thank you.

Before we begin I encourage everyone to go to investors <unk> dot com to find the press release, we issued earlier today reporting on financial results for the quarter.

Today's webcast will also be available on our website for a limited time within 24 hours up EBIT.

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.

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.

Our future performance.

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

Joining us on our call today are Jim <unk>, our Chief Executive Officer, and co founder and Joseph Savage, Our interim Chief Financial Officer Accounting Officer, Kenneth Hill, Our Chief Therapeutics Officer will join us for Q&A.

Now I would like to turn the call over to Ann.

Thank you Wade.

And this last quarter, we continued to make progress on building a foundation to deliver personalized healthcare to consumers.

Our genetic databases now at $13 4 million in genotype customers.

It is the world's largest re contactable database for genetic research, which makes us the best positioned to unlock the potential of the human genome to treat and prevent disease.

We received FDA clearance to provide interpretive drug information are sitting in for Scott.

<unk>, a commonly prescribed cholesterol medications.

With this clearance we now have three FDA cleared Pharmacogenetics report.

These reports are some of our most highly actionable genetic reports.

They provide information on how individuals may process, certain commonly prescribed medications based on their genetics.

They can help individuals working together with their health care providers to determine medications and dosing that will be most effective for them.

For example, we know that in certain ethnicities up to 38% of people have a genetic variant which can be identified in this report that increases the risk of certain adverse events associated with simvastatin.

By providing information on how People's genetics may influence their response to this commonly prescribed medications, we are furthering the potential to shift healthcare towards personalized health care.

We also added three new genetic risk reports for our 23 million plus subscribers on it and on anxiety fibromyalgia and seasonal allergies.

In total we have over 60 health reports and our personal genome service.

23, and me is the only company with multiple FDA authorizations for direct to consumer genetic health risks.

We are the only company the FDA has authorized to provide without a physician involvement genetic cancer risk reports and medication insights similar to the one I just mentioned.

These personalized reports help people access and understand many of their genetic health risks and predisposition.

However, we know that this is just the beginning of efforts to help people benefit from this information.

In this regard we continue to work on building a genetically informed health service that focuses on prevention and wellness.

We believe that the integration of genetic health information with Telehealth and digital pharmacy services has the potential to revolutionize the diagnosis prevention and treatment of human disease.

We further believe that 'twenty three me is best positioned to accomplish this at scale with a direct to consumer service.

To help us achieve this goal we recently brought onboard Dan <unk> as Chief product Officer.

Dan brings over two decades of experience in product management design and strategy as well as expertise with navigating complex and highly regulated industries.

Dan joins us from <unk>, where he served as chief product officer and launched the world's first commercial fully autonomous ride hailing service.

Before Dan, let the Google map platform product team.

Turning to our therapeutics programs, we continue to use our research platform to advance our pipeline of more than 50 targets.

Therapeutic antibodies of two of our genetically validated targets are currently in phase one clinical trials.

Today, we announced details on the next stage of the Phase one study for our wholly owned 23 and me 610 program targeting CD 200, or one in cancer patients.

The trials in progress poster being presented this week at the society of immunotherapy of cancers annual meeting provides details on the indications for the expansion phase of the study.

These include specific tumor indications.

Bring me ex Tac.

Tepid anti can correct me.

Thank you.

Lastly, based on preclinical and published data.

<unk> Express virgate, DD 200, or one and its ligand <unk> hundred together with immune cell and <unk> tumor characteristics that have the potential to increase the likelihood of a response to <unk> 200 or one inhibition.

The progress we are making with our therapeutics programs demonstrate the potential promise of our drug discovery rooted in human genetics, using the world's largest crowdsource platform for genomics research.

I am pleased with the progress of our consumer and therapeutic teams have made this last quarter and I look forward.

Personalized health offering we are working to deliver for our customers.

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

Thanks Ann.

I am pleased to report that we remain on track to meet our fiscal 'twenty two 'twenty three guidance following our second quarter with positive revenue growth and results with other financial metrics that were in line with our expectations.

Overall, we are well positioned to continue to advance our goals both in our consumer segment and in our therapeutics efforts.

Our revenue for the three and six months ended September 32022, with $76 million and $140 million respectively.

Representing an increase of 37% and 22% respectively over the same periods in the prior year.

Second quarter and six month revenue growth was primarily due to the addition of Tele health revenue from the acquisition of eliminate last November higher revenue in our research services segment.

Growth in our subscription service.

The increase in our research services revenue was primarily driven from increased revenue from GSK and partially from nonrecurring payments of $4 million from other partners.

These increases were partially offset by lower personal genome service revenue.

Looking at the composition of our revenue consumer services revenue represented approximately 75% and 80% respectively.

Total revenue for the three and six months ended September 32022, and research services revenue, which was primarily derived from the GSK collaboration accounted for approximately 25% of total revenue in the three months period and 20% in the six months period.

Our gross profit for the three and six months ended September 32022 was $38 million and $64 million, respectively, representing a 37% and 9% increase over the same period in the prior year.

The three and six months year over year increase was driven primarily by the previously discussed increase in revenue offset partially by lower margin from the telehealth revenues as well as increased supply chain logistics and labor cost.

Operating expenses for the three and six months.

And at September 32022, or $106 million, and 221 million, respectively, compared to $74 million and $147 million for the same periods in the prior year.

The increases in operating expenses for the three and six months periods were primarily attributable to increased labor costs and the addition of sales and marketing expenses from the previously acquired telehealth business.

These increases were partially offset by lower R&D expenses.

The decreased spending on the GSK six to eight program targeting CD 19, six following the company's election to adopt the royalty option instead of continuing to share development cost.

Looking at the bottom line net loss for the three and six months ended September 32022 was $66 million and $156 million respectively.

<unk> to net losses for the same periods in the prior year of $17 million and $59 million.

The increase in net loss for the three and six months periods were primarily driven by benefits from changes in the fair value of warrant liabilities of $30 million for the three months ended September 32021, and by the previously noted higher operating expenses in the current period.

These were partially offset by higher revenue.

Next let's look at our adjusted EBITDA for details about how we define adjusted EBITDA as well as the corresponding reconciliations to GAAP. Please see our earnings press release.

Total adjusted EBITDA for the three and six months ended September 32022 was a deficit of $30 million and 79 million.

<unk> to a deficit for the same periods in the prior year of $30 million and $57 million respectively.

The increase in adjusted EBIT, a deficit for the six month period was driven primarily by the increase in operating expenses mentioned earlier and offset by increased revenue.

We ended the quarter with $411 million in cash and cash equivalents compared to $553 million as of March 31 2022.

Of note, we received a $15 million payment from GSK. After the close of the second quarter. So this payment will not be reflected on our balance sheet or statement of cash flows until the third quarter of our fiscal year.

Our second quarter results continue to be in line with our expectations and thus we are reconfirming, our previous full year 2023 guidance.

As a reminder, our full year guidance include revenue in the range of $260 million to $280 million, a net loss in the range of $350 million to $370 million.

And adjusted EBITDA deficit of $195 million to $215 million.

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

Okay.

Thank you Joe.

We continue to make significant strides in our mission to help people access understand and benefit from the human genome.

We've now added another FDA approval for a report that can provide critical information on how a person's genetics and affect the processing of some Boston one of the most commonly prescribed medications for controlling cholesterol.

We also continue to advance our therapeutics effort as demonstrated by the announcement this week regarding our plans for the expansion phase of the 23 and me 610 Phase one study.

We are excited that that program has advanced at this stage and eagerly await the results of the study in cancer patients.

I look forward to telling you more this summer about the progress we are making in our efforts with genetics based health care and therapeutics.

Now, let's open up for questions.

Before that actually I'm told that there was some distortion with the audio when I was speaking about our therapeutics programs earlier in the call.

Just wanted to repeat what I said for those of you who may not have heard it clearly.

I was speaking about our trials in progress posters being presented this week at the society for immunotherapy of cancer annual meeting.

<unk> provides detail on the indications for the expansion phase <unk> study.

These indications include specific tumor indications were $23 six.

<unk> will be tested for anti cancer activity.

These indications were selected based on preclinical and published data of the activity and expression of the target VB 200, or one candidate <unk> 200, together with immune cell and tumor characteristics that have the potential to increase the likelihood of a response to <unk> 200 <unk>.

<unk> inhibition.

So with that now I can really open it up for questions.

Sure.

Thank you if you have a question at this time. Please press star one on your telephone one moment, while we compile the Q&A roster.

And our first question comes from the line of Thiago <unk> with Credit Suisse. Your line is open. Please go ahead.

Hey, Thanks for taking the question.

Just two quick ones for me so the first one is on <unk>.

And again, knowing that the expansion cohorts are likely going to be in places, where there's a higher likelihood of seeing activity.

I'm curious how you're framing it how investors should think about that those escalation portion versus the expansion portion in terms of.

On a tariff activity or any other indicative biomarker that youre measuring across those two stages.

And again, if you can provide any progress on where you are on the study I know that that's a little trickier.

And the second one is just.

Any updates on so is there any clause.

I know there was a relatively smaller portion of the business, but I'm curious how bad. The membership is growing is there any any metrics that might be worth following closely over time and how that's expected to grow. Thank you.

So for the first question, let me hand, it over to Kenneth.

Yes, thanks, and hoping everybody can hear me, okay Kenneth here.

Thanks for the question, Yes, we continue to make good progress on the dose escalation phase of the study.

And are pleased to make the announcement this week with the press release, and then with the poster presentation at <unk>.

On the phase <unk> part of that study.

We will be obviously selecting a dose when we get to the end of the dose escalation moving that dose forward as the monotherapy activity of <unk> in <unk>.

Five tumor cohorts, so specifically clear cell renal cell carcinoma.

Epithelium ovarian cancers.

<unk> cancers, which will include small cell lung cancer.

Tumors that have either microsatellite.

Stability high or high tumor burden mutations <unk> and <unk>.

A cohort of adolescence with locally advanced unresectable or metastatic malignancies.

So as I said, we will move forward with the dose escalation will select the dose go forward as a monotherapy.

And we will continue to update as we make progress here.

Thank you Thiago for your second question on 'twenty, three and a plus we do not update the subscription numbers.

Except for annually so that we will be updating that obviously in a couple of quarters then.

So in terms of.

Checkup and other areas that we have been talking about we are we haven't been into our chief product officer.

I did about the areas of everyone's moving forward with planning to update it.

The Street.

And in the summer.

Understood. Thank you.

Thank you and one moment for our next question.

And our next question comes from the line of Steven <unk> with Cowen. Your line is open. Please go ahead.

Oh, great. Thanks, operator.

Congrats on the quarter.

Thanks.

So a follow up question on the <unk> 610.

So Kevin you mentioned, the five tumor specific expansion cohorts.

Is the 15 patients per cohort is that powered enough to get some sense of efficacy.

Or is this more of a exploratory effort to guide the phase II study and then a follow up question.

Phase III study is also going to be in multiple cancer cohort or in a single cancer.

Yes. So so thanks. Thanks for the question I can obviously take that Steve so okay. Thanks.

In terms of the powering we have pre specified criteria for what we would be looking for from each of these cohorts for us to make a decision about continuing to move forward into either.

<unk> III study or potentially depending on what we observed into a registrational study.

We haven't shared that information, but we certainly have internally prespecified criteria for decision making purposes.

Exactly what would we do in phase two that will really be dependent on what we observed in the phase one b.

And also the phase one study that's currently ongoing.

Also have.

IOR program, we have some specific hypothesis that we're testing in each of these different groups.

And so I think that could also help to inform future decision, making so.

In terms of phase III study, we haven't made any predictions or comments and what that might be clearly with the signal seeking we're doing a phase one b. We think these are tumors that you mentioned with potential for more likely to respond to therapy that targets a specific pathway.

In addition, we also will be considering in the future.

Monotherapy or potentially combination therapy as well so.

We're excited where we are it's still early stages on the program, but we continue to make very good progress and investigator engagement. So for the moment Thats really all I can say.

Okay, great. Thanks, Kevin.

And then a follow up question on the 20 <unk> plus.

And I appreciate you're only giving annual.

Numbers here, but could you give us any sense is.

Is the growth slowing from or staying the same or versus fiscal year 2021 versus end of fiscal year 2022.

Good.

Could you give us any color on the growth is this more of the early adopters of your existing customers switching over to 20, <unk> plus or is this new.

New customers that are ordering the kit and the subscription.

Yeah, I'm actually going to handicap Joe.

To answer some of the great. Thank you and we are continuing to see adoption.

Adoption of our 20, plus program and generating additional revenue recurring revenue for us. So we're still excited about the program and we will be providing more detail.

<unk>.

And our fourth quarter results.

Okay I appreciate that and then maybe one last question for you Joe on the increased research services revenue.

I know you said there was a good contribution from GSK and then also some nonrecurring payments but.

How should we think about the GSK revenue going forward as you get closer to their exclusivity exploration mid next year.

Is that expected to increase like we saw this quarter or is it going to wind down or any sort of color you can give us would be great. Thanks.

So GSK exclusivity ends in July of next year.

Valuation of all of our options right now additional partnerships that will be engaging in and we're providing more information on those partnerships in upcoming calls.

Stephen I can just emphasize there that's I mean.

It is an active area for us to be pursuing like we have this opportunity now to look beyond GSK partnership then theres a lot of other.

So just trying to some interesting opportunities with the database that we're exploring so nothing.

Nothing specific to really guide you on.

Those payments will go away.

And we are definitely looking at ways to maximize value long term for the company.

Okay I appreciate the color. Thank you.

Thank you and I'm showing no further questions on the phone lines at this time.

Thank you we have a few questions from investors through our Q&A platform that we used to say technologies and so I'm going to ask those questions that we got on that platform for the management team to answer.

The first question.

What is the future of 'twenty three.

The future of 23 and me well, that's a very broad question as.

Always.

Certainly about the future and two aspects one absolutely enthused about the continued evolution.

Direct access health care.

Thanks Jordan.

Primary preventative world.

Our visibility for somebody to.

Take care that is affordable, but it's easily accessible and integrated genetic information and delivers true personalized care and I look at that from the whole Angola prevention as well as the angle.

Treatment to manage any points second there is.

Can you just speak to the opportunity.

Neely.

And maybe on how we are developing therapeutics and having in genetics driven approach and something we talk extensively about about.

Likelihood of success increases listening habits.

Yes.

As the database continues to grow and as our therapeutics team continues to execute we look forward to bringing more and more of those programs forward.

Meeting the loop ultimately for our customers that they're able to access understand and then truly benefit. Thank you.

And genome.

Thanks, and the second question is you've recently added capabilities with the acquisition of eliminated what are your plans to translate this into shareholder value.

Absolutely the plan.

One with lemonade brings.

Ability for us to have care means access to clinicians.

Those practitioners and health care providers as well as the ability for us to have access to.

Pharmacy.

One thing that was really clear as our customers are learning about their genetic information and then we have question and maybe one follow up and the platform that we get from Lemonade allows us to have a complete loop, where our customers now can.

To answer the question.

For the year.

And I point to pharmacogenomics is one of those key examples where a lot of our customers now we have three FDA authorization to farm.

And we have visibility to help our customers that precision medicine, but it is not commonly integrated.

Pharmacy system.

Practitioner.

Now, we're going to have an ability to really help our customers benefit from that information.

Great.

So we absolutely see lots of opportunities are returning shareholder value with the acquisitions of amendment.

Alright. The next question is with the forecasted economic challenges ahead, and the possibility of a recession. What steps are you taking to ensure the company's resiliency and how do you balance this with growth and profits.

I'll hand that to Joe Thank you Ann.

We're in a strong position with over $411 million in cash on the balance sheet.

At September 30th plus the additional $50 million that we received in October .

GSK partnership.

This will just really allow us to have the flexibility to navigate.

The macroeconomic and geopolitical.

Challenges that we're expecting to face in the near term.

Continue to be really vigilant about how we really monitor our expenses and really look at how our allocating capital. So if we can find the smartest ways that we can help them invest our capital and build the best product for consumers and shareholders in the long term.

Thanks, Joe.

The next question is from what I've seen 23 in the whole direct to consumer that's highest sector to make profit do you ever see 'twenty Jamie's drug research sector, surpassing direct to consumer as the largest profit mentioned sector.

I'll take that one I see I see theres, a huge opportunity with both the consumer side of the business as well as the research and the therapeutic class.

And I think realistically third with therapeutics is going to take many years for us to continue to work on these therapies and bring them to profitability. The consumer business has shorter term opportunities to think about how we are going to drive that to meet our near term profitable business and the size and all.

<unk> for me are significant in both areas.

So I don't see I think there might be times, where one is bigger than the other but I see both consumer and therapeutics has been big opportunities for our shareholders and for the company.

Thanks, Dan.

Our next question is does 23, new sell or otherwise disclosed data to governments.

Hi.

Absolutely, we do not sell our data Q2 government.

On the premise of 'twenty three.

Powering our consumers brands with control and transparency about how we are using the data as we mentioned 85% of our customers.

Research.

In your allowance you download attending.

Their own lean talent their data they have the right to download it.

Three we are not working with.

Disclosing data companion government entity not thank you.

On consumer empowerment.

Our research.

Thanks, Dan.

The next one is what additional features and products are you exploring or considering adding two plus subscribers, that's <unk> plus subscribers to stake.

Well I mean 23.

Foundational to 'twenty, Jamie as a research and one of the things that we can do with our research just maintenance coverage database that are proprietary to <unk> and you already see we have enough of our 23, New class reports that came out of our database now I think what's going to be incredibly unique that <unk> future is that integration of our own proprietary.

The combination of <unk> services.

The ability for us to engage directly with the consumer in an affordable accessible way. So we absolutely look at all kinds of features that can come specifically from our ability to manage.

Large data set.

Also there is a whole new world coming of additional datasets from Apple Watch and medical records et cetera. So we have this opportunity to develop really interesting data for our customers.

And the integration numbers nominated in care and pharmacy allows us to create.

Credibly service.

Thanks, Dan.

The next question is will 23 may need to raise capital in the next three years.

I'll give that to Jim Thank you Ann.

I would point you to two things that we disclosed first we disclosed that at the end of the second quarter, we had over $411 million in cash plus we received a $50 million for the third tier GSK payment in October .

Second we've been reaffirmed our guidance on our adjusted EBITDA of a deficit of $195 million $215 million, which is our proxy for operating cash flow.

We will give you a sense of what our cash runway is and it's a reasonably good period of time that will give us the ability to execute a lot on the goals on the consumer side and with our portfolio of therapeutics.

With that said, we will continue to look at the markets and be opportunistic and look at it and evaluate our options going forward.

Thanks, Joe.

Next question is what part of the business do you think has been ignored.

Despite being ignored by Wall Street.

Has more upside potential than wall Street is giving you.

That's an interesting question and just kind of macro environment.

Going on right now because I think a lot of things that naphthalene.

Understood.

In the global economy.

We have concerns.

I would say people still don't understand.

Many aspects of <unk>.

The direct to consumer side, and our ability to win in.

Page with consumers.

And bring them back and keep them engaged within genetic information.

Customer that is not well understood distinction.

I think a lot of people are still.

That was kind of a therapeutics group and that we actually do the therapeutics ourselves that it's not just that it's a research when we hand it over to GSK that I have over 100.

Incredibly talented people in the therapeutics, we're all working.

Working it real lab.

Pipettes and thinking prior.

Great.

Doing the real work of translating from a basic discovery into something that is now very proudly in human trial, So I would say.

Many aspects of twice a year.

I misunderstood, but I would say.

One on the consumer side that ability for us to engage with contact and <unk>.

<unk>.

Communicate with an individual value of that and I think second.

The fact that we have.

And outstanding Therapeutics team that is doing that translation and development work ourselves.

Often.

Totally unknown too.

On many investors.

Thanks, Dan. The next question is Hello, 23, and me profit from novel Drug Research and development.

That sounds like you.

Thanks, and happy to take that thanks Wade.

Luke.

Our goal as we spoken about is to advance our portfolio of therapeutics programs.

Based on targets that have human genetic validation is something that we think is incredibly important for increasing the overall probability of technical success.

It's really grounded first of all is human genetics.

The ways that you can generate profits from that we have the opportunity with royalty revenues from our GSK partnership.

And as you know we've spoken publicly about the fact that we've initiated more than 50 programs from the database.

GSK, so hopefully over time as some of those programs are successful we will have the opportunity to have royalty revenues coming back to the business.

Second thing with programs like <unk> and future products.

Potential to bring those forward and commercialize either at 'twenty, three EMEA or of course in partnership with others and so that would be the opportunity for product revenues.

And then thirdly in terms of future partnerships, I think with GSK and with the productivity of targets coming from the database. We've really shown that 23 and me is the partner of choice for the pharmaceutical industry and so we think that these partnerships could also bring in significant revenues those could be target discovery revenue.

Use could be assets that we license out to pharma partners in the future or it could be for example, if somebody.

We wanted to partner with us in the future with a program like <unk> 23 in the <unk>. So there is there is absolutely a number with that.

The therapeutics business can generate significant revenues and long term value for the business at 23 and me.

Thank you Kenneth.

And the last question that will take today. Some investors is would you consider more mutually beneficial deals with other healthcare companies.

So literally we are actively discussing engaging.

And talking to groups out there I mean, we feel like we have.

We're all about we want to maximize our customers' intentions of making their genetic information useful and beneficial for the world.

And do that we have to do a partnership to help understand how we can integrate genetic information more and more into the medical world. How we can make sure that we're maximizing the value of research that our customers have been trusted us to do.

And that we are really doing all we can to <unk>.

We benefit from <unk>.

No.

The database that we are managing so ABT.

Absolutely think about additional deals and with the <unk> coming up in July it is top priority for us to make sure that we are.

I'm going to keep thinking about strategic partnerships. So that we can again maximize that value.

Yes.

Thanks, Dan and with that that's the last question.

I'll leave it to you and to wrap up the call.

Thank you.

We look forward to hearing you off from you all again next quarter and probably many of you in between.

Thank you enjoy the day.

This concludes today's conference. Thank you for participating you may now disconnect.

Goodbye.

The conference will begin shortly to raise Johan during Q&A, you can dial star one one.

[music].

Okay.

Yes.

[music].

Okay.

[music].

Today's conference is being recorded I would now like to hand, the conference over to your host today Wade Walke, Vice President Investor Relations. Please go ahead.

Thank you.

Before we begin I encourage everyone to go to the investors that 23, <unk> dot com to find the press release, we issued earlier today reporting our financial results for the quarter.

Play of todays webcast will also be available on our website for a limited time in 24 hours up to EBIT.

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 may affect our future performance.

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

Joining us on our call today are Jim <unk>, our Chief Executive Officer, and co founder and Joseph Savage, Our interim Chief Financial Officer, and Accounting Officer, Kenneth Hill, Our Chief Therapeutics Officer will join us for Q&A.

Now I'd like to turn the call over to Ann.

Thank you Wade.

And this last quarter, we continued to make progress on building a foundation to deliver personalized healthcare to consumers.

Our genetic database is now at $13 4 million in genotype customers. It is the world's largest re contactable database for genetic research, which makes us the best position to unlock the potential of the human genome to treat and prevent disease.

We received FDA clearance to provide interpretive drug information are similar to statin, a commonly prescribed cholesterol medications.

With this clearance we now have three FDA cleared Pharmacogenetics report.

These reports are some of our most highly actionable genetic reports.

Provide information on how individuals made process certain commonly prescribed medications based on their genetics.

They can help individuals working together with their health care providers to determine medications and dosing that will be most effective for them.

We also added three new genetic risk reports for our 23 plus subscribers on it and on anxiety fibromyalgia and seasonal allergies.

Total we have over 60 health reports and our personal genome service.

23, and me is the only company with multiple FDA authorization for direct to consumer genetic health risks.

We are the only company the FDA has authorized to provide without a physician involvement genetic cancer risk reports and medication insights similar to the one I just mentioned.

These personalized reports help people access and understand many of their genetic health risk and predispositions.

However, we know that this is just the beginning of efforts to help people benefit from this information.

In this regard we continue to work on building a genetically informed health service that focuses on prevention and wellness.

We believe that the integration of genetic health information with Telehealth and digital pharmacy services has the potential to revolutionize the diagnosis prevention and treatment of human disease.

We further believe that 23 and me is best positioned to accomplish this at scale with a direct to consumer service.

To help us achieve this goal we recently brought onboard Dan <unk> as Chief product Officer.

Dan brings over two decades of experience in product management design and strategy as well as expertise with navigating complex and highly regulated industries.

Dan joins us from <unk>, where he served as chief product officer and launched the world's first commercial fully autonomous ride hailing service.

Before <unk>, Dan, let the Google map platform product team.

Turning to our therapeutic programs, we continue to use our research platform to advance our pipeline of more than 50 targets.

Therapeutic antibodies of two of our genetically validated targets are currently in phase one clinical trials.

Today, we announced details on the next stage of the Phase one study for our wholly owned 23, and <unk> 610 program targeting CD 200, or one in cancer patients.

The trials in progress poster being presented this week at the society of immunotherapy of cancers annual meeting provides detail on the indications for the expansion phase of the study.

These include specific tumor indications.

Spring maintenance tackled detected anti can correct me.

These.

This lasted based on preclinical and published data.

The spread of ergot, DDG 100, or one and its ligand <unk> hundred together with immune cell and <unk> tumor characteristics that have the potential to increase the likelihood of a response to <unk> 200 or one inhibition.

The progress we are making with our therapeutics programs demonstrates the potential promise of our drug discovery rooted in human genetics, using the world's largest crowdsource platform for genetic research.

Yes.

Yeah.

I am pleased with the progress of our consumer and therapeutic teams have made this last quarter and I look forward.

Personalized health offering we are working to deliver for our customers.

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

Thanks, Dan I'm.

Overall, we are well positioned to continue to advance our goals both in our consumer segment and in our therapeutics efforts.

Our revenue for the three and six months ended September 32022, with $76 million and $140 million respectively.

Representing an increase of 37% and 22% respectively over the same periods in the prior year.

Second quarter and six month revenue growth was primarily due to the addition of Tele health revenue from the acquisition of eliminate last November higher revenue in our research services segment and continued growth in our subscription service.

The increase in our research services revenue was primarily driven from increased revenue from GSK and partially from nonrecurring payments of $4 million from other partners.

These increases were partially offset by lower personal genome service revenue.

Looking at the composition of our revenue consumer services revenue represented approximately 75% and 80% respectively of total revenue for the three and six months ended September 32022, and research services revenue, which was primarily derived from the GSK collaboration.

Accounted for approximately 25% of total revenue in the three months period and 20% in the six months period.

Our gross profit for the three and six months ended September 32022 was $38 million and $64 million respectively.

Representing a 37% and 9% increase over the same periods in the prior year.

The three and six months year over year increase was driven primarily by the previously discussed increase in revenue offset partially by lower margin from the telecom revenues as well as increased supply chain logistics and labor cost.

Operating expenses for the three and six months.

And at September 32022, or $106 million, and $221 million, respectively, compared to $74 million and $147 million for the same periods in the prior year.

These increases were partially offset by lower R&D expenses due to the.

The decreased spending on the GSK six to eight program targeting CD 19, six following the company's election to adopt the royalty option instead of continuing to share development cost.

Looking at the bottom line net loss for the three and six months ended September 32022 was $66 million and $156 million, respectively compared to net losses for the same periods in the prior year of $17 million and $59 million.

Increases in net loss for the three and six months periods were primarily driven by a benefit from changes in the fair value of warrant liabilities of $30 million for the three months ended September 32021, and by the previously noted higher operating expenses in the current period.

These were partially offset by higher revenue.

Next let's look at our adjusted EBITDA for details about how we define adjusted EBITDA as well as the corresponding reconciliations to GAAP. Please see our earnings press release.

Total adjusted EBITDA for the three and six months ended September 32022 was a deficit of $30 million and $79 million compared to a deficit for the same periods in the prior year of $30 million and $57 million respectively.

The increase in adjusted EBIT, a deficit for the six months period was driven primarily by the increase in operating expenses mentioned earlier and offset by increased revenue.

We ended the quarter with $411 million in cash and cash equivalents compared to 553 million as of March 31 2022.

Note, we received a 15 million dollar payment from GSK. After the close of the second quarter. So this payment will not be reflected on our balance sheet or statement of cash flows until the third quarter of our fiscal year.

Our second quarter results continued to be in line with our expectations and thus we are reconfirming, our previous full year 2023 guidance.

As a reminder, our full year guidance include revenue in the range of $260 million to $280 million, a net loss in the range of $350 million to $370 million and adjusted EBITDA deficit of $195 million to $215 million.

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

Yeah.

Thank you Joe.

We continue to make significant strides in our mission to help people access understand and benefit from the human genome.

We also continue to advance our therapeutic efforts as demonstrated by the announcement. This week regarding our plans for the expansion phase of the 23 and me 610 Phase one study.

We're excited that that program has advanced at this stage and eagerly await the results of the study in cancer patients.

I look forward to telling you more this summer about the progress we are making in our effort with genetics based healthcare and therapeutics.

Now, let's open up for questions.

Before that actually I'm told that there was some distortion with the audio when I was speaking about our therapeutics programs earlier in the call.

I just want to repeat what I said for those of you may not have heard it clearly.

I was speaking about our trials in progress posters being presented this week at the society for immunotherapy of cancer annual meeting that provide detail on the indications for the expansion phase of the study.

These indications include specific tumor indications, where 23 and me.

<unk> will be tested for anti cancer activity.

These indications were selected based on preclinical and published data of the activity and expression of the target VB 200 Airlines and its ligand <unk> hundred together with immune cell and tumor characteristics that have the potential to increase the likelihood of a response to <unk>.

200, <unk> and position.

So with that now I can really open it up for questions.

Thank you if you have a question at this time. Please press star one on your telephone one moment, while we compile the Q&A roster.

And our first question comes from the line of Thiago <unk> with Credit Suisse. Your line is open. Please go ahead.

Great. Thanks for taking the question.

Just two quick ones for me so the first one is on <unk>.

And again, knowing that the expansion cohorts are likely going to be in indications, where there is a higher likelihood of seeing activity.

I'm curious how you're framing it how investors should think about the dose escalation portion versus expansion portion in terms of.

Tariff activity or any other indicative biomarkers that youre measuring across those two stages.

And again, if you can provide.

The progress on where you are on the study I know that Thats a little <unk>.

And the second one is just.

Any new updates on place so any clubs.

I know there was a relatively smaller portion of the business, but I'm curious how bad the membership is growing if there are any any metrics that might be worth following closely over time and how that's expected to grow. Thank you.

So for the first question, let me hand, it over to Kenneth.

Yeah, Okay, Thanks, and hoping everybody can hear me, okay Kenneth here.

Thanks for the question, Yes, we continue to make good progress on the dose escalation phase of the study and are pleased to make the announcement. This week with the press release, and then with the poster presentation at <unk> on.

The phase <unk> part of that study.

We will be obviously selecting a dose when we get to the end of the dose escalation moving that dose forwards as the monotherapy activity of <unk> in <unk>.

Five tumor cohorts, so specifically clear cell renal cell carcinoma.

If you live in ovarian cancers.

Endocrine cancers, which will include small cell lung cancer.

<unk> that have either microsatellite instability.

Instability high or high tumor burden mutations <unk> each.

And then a cohort of adolescence with locally advanced unresectable or metastatic malignancies.

So as I said, we will move forward with the dose escalation will select the dose go forward as a monotherapy.

And we will continue to update as we make progress here.

Thank you Thiago for your second question on 23, plus we do not update the subscription numbers.

Operationally, so that we'll be updating that obviously in a couple of quarters.

So in terms of genetic checkup and other areas that we have been talking about.

And we haven't built into our chief product officer.

Excited about that.

The areas of everyone's moving forward with planning to update more aimed at.

The Street.

In the summer.

Understood. Thank you.

Thank you and one moment for our next question.

And our next question comes from the line of Steven <unk> with Cowen. Your line is open. Please go ahead.

Oh, great. Thanks, operator.

On the quarter.

Thanks.

So a follow up question on Ami 610.

So Kevin you mentioned, the five tumor specific expansion cohorts.

Is the 15 patients per cohort is that powered enough to get some sense of efficacy or is this more of a exploratory effort to guide the phase two study and then a follow up question.

Is that phase III study is that also going to be in multiple cancer cohorts or in a single cancer.

Yes. So so thanks. Thanks for the question I can obviously take that Steve.

In terms of the powering we have pre specified criteria for what we would be looking for from each of these cohorts.

For us to make a decision about continuing to move forward into either a phase III study or potentially depending on what we observed into a registrational study. So we haven't shared that information, but we certainly have internally prespecified criteria for decision making purposes.

Exactly what would we do in phase II that will really be dependent on what we observed in the phase one b.

And also the phase one study. That's currently ongoing we also have a biomarker program. We have some specific hypothesis that we're testing in each of these different groups.

And so I think that could also help to inform future decision, making so.

In terms of the phase II study, we haven't made any predictions or comments and what that might be clearly with the signal seeking we're doing in phase. One b. We think these are tumors that you mentioned with potential for more likely to respond to therapy that targets a specific pathway.

In addition, we also will be considering in the future.

No therapy, but potentially combination therapy as well so.

We're excited where we are it's still early stages on the program, but we continue to make very good progress and investigator engagement. So for the moment Thats really all I can say.

Okay, great. Thanks, Kevin.

And then a follow up question on the 20 <unk> plus.

And I appreciate you're only giving annual.

Numbers here, but could you give us any sense.

Is the growth slowing from or staying the same or versus fiscal year 2021 versus end of fiscal year 2022.

Sure.

Could you give us any color on.

The growth is this more of the early adopters of your existing customers switching over to 'twenty three I mean, plus or is this new.

New customers that are ordering the kit and the subscription.

Yeah, I'm actually going to hand, it to Joe.

To answer some of the great. Thank you Ann.

We're continuing to see.

Adoption of our <unk> plus program and generating additional revenue recurring revenue for us. So we're still excited about the program and we'll be providing more detail.

And our fourth quarter results.

Okay I appreciate that and then maybe one last question for you Joe on the increased research services revenue.

I know there are as you said there was a good contribution from GSK and then also some nonrecurring payments but.

How should we think about the GSK revenue going forward as we get closer to.

Their exclusivity exploration mid next year is.

Is that expected to increase like we saw this quarter or is it going to wind down or any sort of color you can give us would be great. Thanks Mark.

So GSK exclusivity ends in July of next year, and we're just evaluating all of our options right now.

What partnerships that we will be engaging in and we will providing more information on those partnerships in upcoming calls.

Stephen I can just emphasize there that's I mean, we its an active area for us to be pursuing like we have this opportunity now to look beyond GSK partnership then there is a lot of other.

There's no shortage of interesting opportunities with the database that we're exploring so nothing.

Nothing specific to really guide you on but that that those.

Those payments will go away and.

And we are definitely looking at ways to maximize value long term for the company.

Okay I appreciate the color. Thank you.

Thank you and I'm showing no further questions on the phone lines at this time.

Thank you we have a few questions from investors through our Q&A platform that we used to say technologies.

And so I'm going to ask those questions that we got on that platform for the management team to answer.

The first question.

What is the future of 'twenty three.

The future of 23 and me well, that's a very broad question.

<unk> always been pretty about the future and two aspects one absolutely enthused about the continued evolution.

Direct access healthcare and edge driven.

<unk>.

Primary preventative world.

Visibility for somebody who.

Take care that is affordable, but it's easily accessible and integrated genetic information delivered to personal lines.

And I looked at that from that whole Angola prevention as well as the ankle.

Treatment points second there is.

He is a spectacular opportunity.

Really.

Maybe on how we are developing therapeutics and having in genetics driven approach is something we talk extensively about about.

Frankly sort of success increases Abbott genetic validation.

As the database continues to grow and as our therapeutics.

We look forward to bringing more and more of those programs forward.

Cleaning the loop ultimately for our customers that they are able to access understand and then truly benefit from the human genome.

Thanks, and the second question is you recently added capabilities with the acquisition of eliminated what are your plans to translate this.

And to shareholder value.

Absolutely.

Perform with lemonade brings and the ability for us to have care.

Access to clinicians to practitioners and health care providers as well as the ability for us to have access to.

Pharmacy.

So one thing that was really clear as our customers are learning about their genetic information and then they have questions and maybe one follow up and the platform that we get from laminate allows us to have a complete loop, where our customers now can answer the question.

You get access to the care.

And I'd point to pharmacogenomics is one of those key examples where a lot of our customers now we have three FDA authorization.

And we have this ability to help our customers get precision medicine, but it is not commonly integrated.

The pharmacy system.

Practitioner.

Now we're going to have the ability to really help our customers benefit from that information and integrate that.

So we absolutely see lots of opportunities or returning shareholder value with the acquisition.

Alright. The next question is with the forecasted economic challenges ahead, and the possibility of a recession what steps have you taken to ensure the company's resiliency and how do you balance this with growth and profits.

I'll hand that to Joe Thank you Ann.

We're in a strong position with over $411 million in cash on the balance sheet as of September 30th plus the additional $50 million that we received in October .

Our GSK partnership.

This will just really allow us to have the flexibility to navigate.

The macroeconomic and geopolitical.

Challenges that we're expecting to face in the near term.

To be really vigilant about how we really monitor our expenses and really look at how our allocating capital. So if we can find the smartest ways that we can have is to invest our capital and build the best product for consumers and shareholders in the long term.

Yeah.

Thanks, Joe.

The next question is from what I've seen 23 in the whole direct to consumer as its highest sector to make profit do you ever see 23, Ms drug research sector, surpassing direct to consumer is the largest profit mentioned sector.

I'll take that one.

I see there is a huge opportunity with both the consumer side of the business as well as the research and the therapeutic classes.

And I think realistically Baird with therapeutics that is going to take many years for us to continue to work on to therapy.

Premium to profitability the consumer business has shorter term opportunities to think about how we are Glen can drive that to meet our near term profitable business and the size and opportunity for me are significant in both areas.

So I don't see I think there might be times, where one is bigger than the other but I see both consumer and therapeutics has been big opportunities for our shareholders and for the company.

Thanks, Dan.

The next question is.

<unk> sell or otherwise disclosed data data to governments.

Hi.

Absolutely, we do not sell our data Q2 government.

On the premise of 'twenty three.

Powering our customers' brands with control and transparency about how we are as we mentioned 85% of our customers in our research.

They are allowed to download their data their own lean talent their data they have the right to download it.

'twenty three we are not working with.

Each of disclosing data to any government.

At this time.

Based on consumer empowerment.

Our research.

Yeah.

Thanks, Dan.

The next one is what additional features and products are you exploring or considering adding two plus subscribers, that's <unk> plus subscribers to stake.

Yeah.

Well.

23 need foundational to 'twenty, Jamie as our research and one of the things that we can do with our research and maintenance efforts, our database and our proprietary between E and you've already seen that in FY 'twenty three new class report that came out of our database now I think what's going to be incredibly unique to <unk>.

Future is that integration of our own proprietary data the combination of <unk> services.

The ability for us to engage directly with our consumers an affordable accessible way.

So we absolutely look at all kinds of features that can come specifically from our ability to manage and analyze large datasets.

There is a whole new world coming from additional datasets from Apple watch.

Medical records et cetera. So we have this opportunity to develop really interesting data for our customers and the integration was nominated in care and pharmacy allows us to create.

Incredibly unique service.

Thanks, Dan.

Question is will 23 may need to raise capital in the next three years.

I'll give that to Jim Thank you Ann.

Pointing to two things that we disclosed first we disclosed that at the end of the second quarter, we had over $411 million in cash plus we received a $50 million for the third tier GSK payment in October .

We then reaffirmed our guidance on our adjusted EBITDA of a deficit of $195 million $215 million, which is our proxy for operating cash flow. This will give you a sense of what our cash runway is and it's a reasonably good period of time that will give us the ability to execute a lot on the goals on the consumer side and with our portfolio of therapeutics.

With that said, we will continue to look at the markets and be opportunistic and look at it and evaluate our options going forward.

Thanks, Joe next.

The next question is what part of the business do you think has been ignored.

I think despite being ignored by wall Street that has more upside potential than wall Street is giving you.

That's an interesting question and just kind of macro environment.

And we have going on right now because I think a lot of things that necessarily.

Hi.

Global economy.

And concern.

So I would say people still don't understand.

Many aspects of <unk>, making <unk>.

The direct to consumer side and our ability.

Page with consumers.

Bring them back keeping the needs within genetic information.

That comes with that is not well understood.

I think a lot of people are still.

Surprised to hear that kind of thing.

Therapeutics group and that we actually do the therapeutics ourselves that it's not just that it's a research that we hand it over to GSK that I have over 100.

Incredibly talented people in the therapeutics world.

Working it real lab.

Ill take that and making progress.

Doing the real work of translating from a basic discovery into something that is now very proudly in human trials.

I would say.

Many aspects of twice here are misunderstood, but I would say one of the consumer side that had no need for us to engage re contact them.

Direct analogy too.

Communicate with an individual in that value of that and I think second.

The fact that we have.

Outstanding Therapeutics team that is doing that translation and developing work ourselves.

Ian.

Often.

Totally unknown to many.

On many metrics.

Thanks, Dan. The next question is Hello, 23, and me profit from novel Drug Research and development.

That sounds like you.

Thanks, Dan.

They can take that thanks Wade.

Luke.

Our goal as we spoken about is to advance our portfolio of therapeutics programs.

Based on targets that have human genetic validation is something that we think is incredibly important for increasing the overall probability of technical success. So it's really grounded first of all with human genetics.

The ways that you can generate appropriate so that we have the opportunity with royalty revenues from our GSK partnership.

And as you know we've spoken publicly about the fact that we've initiated more than 50 programs from the database with GSK. So hopefully over time as some of those programs are successful we will have the opportunity to have royalty revenues coming back to the business.

The second thing with programs like <unk> and future products.

We have the potential to bring those forward and commercialize either at 'twenty, three EMEA or of course in partnership with others and so.

The opportunity for our product revenues.

This could be assets that we license out to pharma partners in the future or it could be for example, if somebody wanted to partner with us in the future with a program like 23 <unk>. So there is there is absolutely a number of ways that.

The therapeutics business can generate significant revenues and long term value for the business at 23 and me.

Thank you Kenneth.

And the last question.

Today. Some investors is would you consider more mutually beneficial deals with other healthcare companies.

So literally we are actively.

Discussing engaging.

I'm talking to groups out there I mean, we feel like we have.

We're all about.

Want to maximize our customers' intentions of making their genetic information useful and beneficial to the world.

To do that we have to the partnership to help understand how we can integrate genetic information more and more into the medical world. How we can make sure that we're maximizing the value of research that our customers have entrusted us to do.

That we are really doing all we can to get the benefit.

Gino.

The database.

Our.

Managing.

Absolutely think about additional deals and with the <unk> coming up in July .

It is top priority for us to make sure that we are.

Keep thinking about strategic partnerships, so that we can again maximize that value.

Yes.

Thanks, Dan and with that that's the last question.

Leave it to you and to wrap up the call.

Thank you.

We look forward to hearing you all from you all again next quarter and probably many of you in between.

Thank you enjoy the day.

This concludes today's conference. Thank you for participating you may now disconnect.

Goodbye.

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