Q1 2024 23andMe Holding Co Earnings Call
Okay.
Hello, and welcome to twenty-three Emmys fiscal year 2020 for 'twenty.
24 first quarter financial results Conference call. As a reminder, this call is being recorded at this time all participants are in a listen only mode. After the prepared remarks there'll be a question and answer session I would now like to turn the call over to Katie Watson Vice President of Communications at 23 and me.
To lead off the call. Thank you. Please go ahead. Thank.
Thank you before we begin I encourage everyone to go to investors thought 23, and me Dot com to find the press release, we issued earlier today reporting our financial results for the first quarter.
A replay of today's webcast will also be available on our website for a limited time within 24 hours. After the event. Please.
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 website for a discussion of numerous factors that may impact our future performance.
We also discuss certain non-GAAP measures.
More 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 Ann logistics, our Chief Executive Officer and co founder.
And Joe cell salvage, our interim chief financial and accounting Officer, Kenneth Cohen, Our Chief Therapeutics Officer will join us for Q&A.
I'd now like to turn the call over to Ann.
Thank you Katie.
During our first fiscal quarter of 2024, we continue to make progress on advancing our therapeutic business and executing on our consumer strategy by providing additional customer customer value and expanding our profit margins.
Twenty-three meet concluded the exclusive drug discovery phase of our GSK collaboration in July and we now look forward to opportunities to work broadly with a number of therapeutics partners to enable genetic based drug discovery.
The collaboration with a large success combining the unique skill resources and scientific expertise of both companies to generate more than 50 therapeutic program.
We will continue to advance a number of ongoing programs, both collaboratively and independently.
Twenty-three me is now focused on partnering with multiple therapeutics companies for target discovery.
During the GSK partnership, we validate that the enormous potential for twenty-three knee to aid with therapeutic discovery and we feel confident in our ability to work both independently and with a number of partners going forward.
We are now actively pursuing new opportunities with pharmaceutical and biotech companies.
Details on future collaborations will be shared as available.
With the end of our GSK drug discovery period. It was important for the company to reassess our overall therapeutic strategy and Resourcing.
Over the last five years, we have built a large infrastructure to support the work of the collaboration and we recognize the need to rightsize and realign the business to set us up for long term success.
Based on this today, we significantly restructured our therapeutics organization, which included a reduction in workforce.
71 employees or nearly 50% of our therapeutics organization were impacted.
To remind our investors in June we announced that we reduced the size of the consumer and G&A gene by 9%.
Overall, we have reduced head count by nearly 200 people since April one of 2023.
We have a clear and focused plan for the therapeutics business, one that will enable us to focus in two areas, where we believe our data insights provide us with the greatest strategic advantage.
The first is to focus on continuing to advance our wholly owned immuno oncology assets.
We continue to be pleased with the progress of patient enrollment in the phase Iia portion of our phase one lost to a clinical trial for 23, and me 610 and hope to share additional scientific information on the program at a medical conference later this calendar year.
We are also excited to announce today that we are progressing a second io antibody asset.
One that target solid tumors through a novel mechanism that enhances natural killer cell mediated anti tumor activity.
We intend to provide an update on this program at a later date and continue to explore various options including potential partnerships.
The second area is to tailor the therapeutics discovery organization to focus on the immunology and inflammation therapeutic area.
We are excited about the strength and breadth of our data and immunology and inflammatory diseases and are looking to position a number of our leading immunology therapeutics programs to advance them towards the clinic.
A smaller more focused therapeutics organization allows us to reduce our cash burn and provides the overall business with a longer cash runway.
In addition, effective today Kenneth Hill will be stepping down as Chief Therapeutics officer with the intention of retiring from 23 and me on February eight.
He will continue to provide support through the transition.
I'm pleased to announce that Bill Richards will be stepping up to lead our discovery organization as head of Therapeutics discovery and Jennifer Lowe will continue to serve as head of Therapeutics development as we advance our pipeline.
Both will be reporting directly to me.
Shifting to our consumer business, we remain focused on increasing product margins and delivering long term customer value.
In May 2023, we increased the price of R 23 in the plus subscription for new members and we are seeing positive results.
Last month, we also increase the price of R. P. G S kits.
These updates are part of our ongoing strategy to improve product margins through higher average selling prices and marketing efficiency.
We continue to grow our customer base and expand our unique crowdsource platform of genomic and phenotypic data contributed by our engaged customers.
This past quarter, we added to the value of our 23 me plus subscription by launching three new polygenic risk or reports for depression, lupus and panic attacks.
We now provides subscribers with a 38 reports on important conditions that have an impact on millions of customers.
We remain focused on delivering member exclusive premium insights and features that allow our subscribers to take actions to improve their overall health.
With lemonade, we offer pharmacy and medical services in 50 States and continue to meet the demands of customers looking for help with E. D care law mental health and other conditions.
Lemonade as a key part of our future strategy that integrates twenty-three me genetic information with the medical services allowed.
Allowing customers to take actionable next steps.
Over the past quarter. We also added finer ancestry composition detail for our PGS customers, including indigenous American and indigenous Caribbean population.
Our ancillary service now offers ancestry composition for 2500 geographic region.
Last week Science magazine featured a cover story on groundbreaking research led by our 23, New research team along with collaborators at Harvard and the Smithsonian an ancient DNA collected from the Catoctin furnace site in Maryland, where in Slaved and three African Americans labored and the 18.
<unk> and 19th centuries.
Using the <unk> DNA and the twenty-three me database 23, and me and Harvard researchers were able to find connections between the catoctin individuals in more than 40000 of their living relatives.
This research demonstrates the power of DNA to fill in gaps previously you raised by <unk> like the slave trade and the benefit to living individuals to learn of potential connection to their past relative.
In addition, this past quarter, our research service group launched a sickle cell carrier status awareness program with Morehouse School of Medicine, sickle cell Foundation of Georgia.
Aiming to increase access to information on sickle cell carrier status and offer resources to individuals with sickle cell trait in sickle cell disease.
We would be remiss not to talk about AI large language models and our strategy at 23 and me.
We are well positioned to capitalize on AI advancements given our unique database of human genetic and health information.
Twenty-three me has the largest re contactable database of human genetic data with self reported phenotype.
With over 14 million customers and growing annually.
We believe AI is going to play a significant role in the future for both the consumer and therapeutics businesses.
At 23 and me we have always recognized that genetic data serves as the cornerstone for a deep and meaningful understanding of health.
Our growing database has reached a scale that can truly empower emerging AI models.
In the same way that we led the charge in large scale consumer genetic testing. We are now positioned to bring AI to bear into health care and research.
We see opportunities in uncovering completely new patterns and relationships that can help prevent diagnose or treat a range of conditions, and making genetics and preventative health far more accessible and scalable to our customers through the application of large language models.
And with that I'll turn the call over to Joe to review, our financial results for the quarter.
Thank you our first quarter of our fiscal year 'twenty four was in line with our guidance.
We have also made headway on improving our adjusted EBITDA deficit for our consumer and research services and therapeutic segments through margin and operating expense discipline, which we expect to continue during fiscal year 2024.
We increased our prices our PGS kicks in subscriptions and to date these have been accretive to margin.
Our revenue for the three months ended June 32023.
61 billion, representing a decrease of 6% over the same period in the prior year.
The year over year decrease in revenue was primarily due to our focus on driving improved product margins through higher average selling prices and marketing efficiency, resulting in lower overall volume of PGS kits and telecom orders.
These decreases were partially offset by continued growth in our subscription services and.
And gsk's election to extend its exclusive discovery for fifth year, which provides greater revenues in prior years.
Looking at the composition of our revenue consumer services revenue represented approximately 78% of total revenue for the three months ended June 32023, and research services revenue, which was primarily derived from the GSK collaboration.
For approximately 22% of total revenue for the same period.
Our gross profit for the three months period ended June 32023.
$31 million, representing a 20% increase over the same period in the prior year.
The increase in the first quarter gross profit was driven primarily by the increase in research services revenue.
Subscription services revenue and improves PGS kits selling prices mentioned previously.
Operating expenses for the three months ended June 32023.
$140 million compared to $115 million for the same periods in the prior year.
The increase in the first quarter operating expenses was primarily driven by a $22 million noncash stock based compensation expense associated in connection with the departure of an employee with an accelerated vesting of equity grants under the terms of our relinquishment agreement.
Along with continued investment in therapeutics portfolio advancements.
Partially offset by reductions in marketing and advertising spend aimed to improve advertising efficiency as noted previously.
Looking at the bottom line net loss for the three months ended June 32023 was $105 million compared to net loss for the same period in the prior year of $90 million.
The increase in first quarter net loss was driven mainly by the higher operating expenses mentioned previously.
Actually offset by gross margin improvement and an increase in interest income from cash held in money market funds.
Next our adjusted EBITDA for details on how we define adjusted EBITDA as well as the corresponding reconciliations to GAAP. Please see our earnings press release.
Total adjusted EBITDA deficit for the three months ended June 32023 was $50 million flat to the same period in the prior year.
We ended the quarter with $314 million in cash and cash equivalents compared to $387 million as of March 31 2023.
As always we are actively evaluating our use of capital for both our consumer and therapeutics businesses.
<unk> responsibly opting in or out of therapeutic programs based on opportunity potential and timing of returns as appropriate given market conditions.
Now turning to our guidance.
The company's full fiscal year 2024 guidance is based on a conservative approach recognizing the current uncertainties in the general economy and financial markets.
Within the existing consumer businesses PGS in telehealth. The company is prioritizing the amendments station of cash burn and margin expansion.
For those areas of the business expected to drive future growth, which include the 23 and me plus subscription services and therapeutics. The company plans to focus on most strategically and financially valuable allocation of our capital and invest appropriately.
Given the company's shift in focus to higher margins as well as the end of the target discovery term the GSK collaborations.
<unk> does not foresee meaningful revenue contribution from these areas of consumer in fiscal 'twenty to 'twenty four.
Within the first quarter's results behind US the company is adjusting its full year guidance for fiscal 2024, which ends on March 31 2024.
Revenue guidance for fiscal year, 2024 has reaffirmed to be in the range of $255 million to $275 million and more likely to come into the lower end of that range.
With net loss improving to an updated range of 325 million to $345 million net loss.
Full year adjusted EBITDA deficit is now projected to improve to be in the range of $160 million to $180 million deficit for fiscal year 2024.
This updated guidance as a result of us continuing to focus on margin growth through adding value to our products while at the same time, reducing our cost structure.
The adjusted EBITDA guidance assumes the following.
We will continue to advance our key therapeutic assets.
No additional revenue.
It's currently included from new strategic partnerships.
Also a reminder, that adjusted EBITDA is our best proxy for cash flow.
And now I'll turn the call back over to Ann.
Thank you Joe we remain optimistic heading into the rest of the fiscal year and our ability to execute on the consumer business and advance our current therapeutic pipeline and take advantage of exciting new opportunities in drug development with that let's open it up for questions.
Thank you.
To ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
Please standby, while we compile the Q&A roster.
Our first question comes from David Lebowitz with Citi. Your line is open.
Thank you for taking my question I'm on for Daniel grossly.
First question with respect to Prime day.
July .
Did was there any adaptation or change in your marketing strategy versus prior prime days.
David We appreciate the interest in Liberty today, we're not planning to talk about Prime day as it occurred in July which is part of our second fiscal quarter.
We can confirm that the results of the recent Brian may have reflected in our updated guidance for the year.
Got it.
Also given the recent price increase has there been any churn in subscriptions.
To date.
We have not seen any churn and subscriptions, we increased the prices or you do subscribers and that has been consistent with our projections.
Got it.
And then could you just update us as to the status of the eliminated 23 in the App.
Specifically the rollout relating to primary care.
Yes, Thank you Ashleigh Douglas do.
Do you want to take that.
I'll jump in a little bit just with the with the App.
<unk> is absolutely.
That we deprecated and something that we definitely think about how we're going to integrate the entire 20th the entire lemonade experience into twenty-three me in the future. So again just to reiterate the purpose. The reason why we bought lemonade was to be able to enhance more and more of the demand that we see for comprehensive genomic offering.
So there's a number of services, obviously that lemonade can deliver.
<unk> delivers EDI hair loss dermatology that we are continuing but what I see is that strategic long term vision is the ability for us to have the 23, new experienced a comprehensive genome experience and really help people have pharmacodynamics understand the genetics and what to do with their care.
And really be able to have a partnership with those customers long term to help them get the best value from their genetic genomic information. So absolutely something that we are continuing to work on Joe what else are you going to say.
I think that covers of them. Thanks.
Excellent. Thank you so much for taking my questions.
Thank you.
And we have a question coming from.
Go Ralph.
<unk> with <unk> capital markets. Your line is open.
Yeah.
Hey can you hear me okay.
Yes, we can hear go.
Go ahead and awesome. Thanks, just a couple from me.
On our capital allocation strategy and therapeutics business, specifically given the current macro climate are you prioritizing later stage programs more or are you able to still focus on newer earlier discovery stage programs as well.
Kenneth do you want to take that.
Yes, happy to do that yes, absolutely prioritized, our therapeutics business into two areas, where we feel that we have the greatest strategic advantage.
The first is very much on those most advanced I O program. So we've talked before about Peter zero stick that is currently in its phase III study that really is our top priority and then events here today, we have a new program that we're excited about.
First in class program with a differentiated mechanism of action also an antibody for immuno oncology.
Currency area one.
<unk> priority area is in immunology and inflammation so ini.
And as we've gone through the restructuring the recent restructuring therapeutics, that's going to be our primary area of focus and we've essentially deeper ties all other efforts and discovery.
And so yes, it really come down and focus the organization.
Got it and then just one quick follow up pending favorable phase II data on 610 do you plan to out license. The program for later clinical development are you prepared to take it through commercialization internally.
Yes, I can take that and then feel free to add anything you'd like we've always said core programs, particularly those lead programs.
We see them as providing opportunities to partner with pharma companies.
That's because we believe in immuno oncology pharma partners actually have the ability to maximize the total value of the asset given their global reach and their ability to perform combination studies, which as you know we're really important immuno oncology so.
Our strategy there would be two to.
So look for partnership opportunities.
You will remember <unk> recently joined us as our head of corporate development.
And is leading those discussions with those Io programs.
Got it thanks guys.
Thank you.
Now I'll turn it over to Katie for any further questions.
Thank you we have a few questions from investors that came in through our seed technologies Q&A platform I'm now going to ask the management team to address the top questions that we received through the platform.
The first question is when does the exclusive deal with GSK and and what new partners, where deals can you announce now.
So I can take that and then I can have.
Kenneth jump in some as well so with the GSK collaboration ended in July and it is a collaboration that has many many programs that are continuing to mature. So that collaboration you can imagine will continue and in a in a different type of forum, we will not be.
Doing novel Discovery anymore, but we will be continuing to support the programs that are there what's really exciting for me and the post GSK world.
Is the explosion of interest in genomic based discovery. So there are lots of them lots of biotech and pharma companies that now really see the opportunity with having genetics is a fundamental part of their discovery engine and what we've really been able to prove out with GSK during this.
Collaboration is the incredible productivity that we can get from our database. So we are incredibly.
Adapt and capable with target discovery, and and leading that through 2222 novel programs. So we're focusing really on those types of collaborations data partnerships as well as research discovery partnerships in specific phenotype, but we see a real demand now for <unk>.
Access to the 23 and me database for target discovery.
Anything to add.
No I think that's a great summary, thanks.
The next question is when do you expect increased revenue from the maturation of the pharmaceutical and therapeutics pipeline.
I can take that Katie thank you.
We are pursuing revenue generated collaborations with third parties as well as advancing our wholly owned therapeutics programs.
We're also focused on non exclusive database collaborations and was just referencing earlier and other partnerships for drug discovery with third parties.
We'll continue to announce partnerships as they happen and provide updates on our therapeutic programs in the future.
Thanks, Joe.
The next question is is me looking at share repurchases since the share price is down 83% since IPO.
We have a strong current cash position with $314 million in cash and cash equivalents at the end of the quarter.
Full year adjusted EBITDA deficit is projected to be in the range of $160 million to $180 million deficit for fiscal year 2024.
This gives you a sense of our cash position and runway and it's a reasonably good period of time that will give us the ability to execute upon a lot of our goals on the consumer and as well as the therapeutics portfolio.
That said, we will be opportunistic and evaluate our options as it relates to fundraising.
Thanks, Joe.
The next question. Please comment more on the 50 plus therapeutics programs. The GSK collaboration has yielded.
Yes, Thank you and I'm happy to take that so broadly the programs, including both GSK and 23 in new wholly owned programs span. The following therapeutic areas immuno oncology cardiovascular and metabolic immunology and neurology. So it's very broad in that room.
He speaks to I think the breadth and depth of the 23 in the database and then of course gsk's interesting capabilities as our large pharma company across multiple therapeutic areas.
And then shared on the call. The collaboration has really been a large success you can find the skills and the resources of both companies to generate more than 50 therapeutic programs, which is incredible productivity.
Over five years.
We will continue to advance a number of ongoing programs, both collaboratively and independently.
And importantly, 23 and me has the option to receive royalties from the programs that GSK advances on its own that came from the database.
And so there are multiple revenue streams are still to be realized in the future we believe.
From this collaboration.
And in addition to our GSK programs, we also announced that we're progressing a second Io antibody.
Antibody program, one that target solid tumors through really novel mechanisms that enhance these natural killer cell mediated anti tumor activity. We believe it has the potential to be a first in class program and we intend to provide an update on this at a later date and we'll continue as I spoke about with PSA resilience to explore.
Various options, including potential partnerships in the immuno oncology space.
Thanks, Kevin.
I believe this question is also for you how is the drug development of your wholly owned 23 need 610 program going.
Sharing data at a later date, either scientific or medical conference around the <unk> installation portion of the study and we plan for that Lisa This fiscal year.
Alright, thank you.
How do you plan to address the current cashback.
Mmm, we've made headway I'm proving improving our adjusted EBITDA deficit for a consumer research services and therapeutics segments to Martin and operating expenditure.
Which we continue to expect to continue throughout fiscal year 2024.
Increase the prices of R. P. G S.
Prescription and today both of <unk> margin.
And we're actively working on non-exclusive database deals and other partnerships.
As announced we've also restructure the company, including the Therapeutics business, a smaller more focused therapeutics organization accompany overall allows us to reduce our cash burn and provide for your overall business with a longer cash runway.
Thank you.
The next question what are your plans to incorporate a I and what part of the business you see in providing the <unk> value.
I'll take that Katie.
We are very excited about the opportunities with Ellen models and the application of AI and it's not just in one segment or the other we really see the opportunity of L M to be transferring it to.
<unk> really for the consumer business and how can consumers are interacting with a genetic data how they're potentially getting access to care. The insights that they're getting we think it can be broadly applicable to the consumer experience and then in drug discovery as well. It is already been you know.
Used in Uhm uhm important areas like protein folding and we see that being able to have large genomic data sets with structured phenotypic data, we're really well set up to apply large language models to the incredible amount of data that we have for drug discovery.
So we see again broad applications, both on the consumer side in the therapeutic side and will continue to keep updating you as we have more announcements on that but we do have teams dedicated in both areas.
Thank you ma'am.
Final question, what new products services or new income streams are coming and if you're not able to speak to them and can you provide a simple, yes or no that they're on the way.
I can help you out of your data on getting we continue to invest in the 20th century, plus subscription offering to make it a compelling longterm valued service for customers were also optimizing pricing and efficiencies in customer acquisition cost better to deliver better margins.
We also expect continued growth for this recurring revenue model and a consistent focus on margin optimization as we bring more personally relevant information to our members.
Also as I previously mentioned 23 and me is also pursuing new revenue generating collaborations with third parties.
Includes non-exclusive database collaboration and other partnerships for drug discovery.
<unk> announced us these partnerships as they happen.
Alright that concludes the submitted Q&A, we look forward to updating you on 23 means progress on both our therapy next effort and consumer business.
Thank you for joining US. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Goodbye.
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