Newly public 23andMe (ME 1.81%) presents investors with a unique opportunity in the personalized healthcare industry. Having drawn the attention of Virgin Group Acquisition Corporation (VGAC), 23andMe went public via special purpose acquisition corporation (SPAC) and raised roughly $600 million in cash, giving the company a $3.5 billion valuation. Although it's well-known for its ancestry services, 23andMe has its vision set far beyond this popular DNA test. Entering a partnership with GlaxoSmithKline (GSK 1.78%) in 2018, the companies agreed to a 50-50 split on profits and costs associated with a therapeutic program started by the duo. In return for this, GlaxoSmithKline agreed to a $300 million equity payment and an additional $100 million in cash payments to be made to 23andMe over four years.
After this agreement and its IPO, 23andMe has $770 million in cash to fuel its multiple growth options. As the company looks to build off its 11.6 million genotyped customers, 23andMe offers intriguing growth optionality through its ancestry services, personalized healthcare offerings, and therapeutic programs.
Looking to expand its consumer and research services segment, the company launched 23andMe+ early in 2021, which CEO Anne Wojcicki calls a "premium content subscription service." By launching this service, the company aims to generate recurring revenue while providing insightful reports to its subscribers. From a business standpoint, this helps the company move away from the one-time purchases of its one-time DNA testing and brings in a steady flow of sales. For its consumers, 23andMe+ offers ongoing personal health information ranging from medication insights to wellness reports and even various condition prediction reports.
Despite still being in its launch phase, 23andMe+ already had 125,000 subscribers as of March 31, 2021, highlighting initial interest in the offering. As the company continues to develop new reports based on its customer's genetic data, and it could begin to expand into genetics-based primary care or even personalized e-prescribing.
All in all, 23andMe is still in the early innings of offering personalized healthcare, but the future is incredibly bright as it continues to rollout out its new subscription service. However, despite this promising consumer segment, 23andMe's biggest potential for growth optionality actually lies within its therapeutics segment.
Having formed an agreement with GlaxoSmithKline in 2018, the two companies have begun a four-year collaboration, with an option period coming up in 2023. Using the genetic data from 23andMe's consumer and research services segment, the two companies have their sights set on a vast array of programs, all of which are personalized to each participant's DNA.
So far, two immuno-oncology programs, CD96, and P006 are approaching potential phase one trials, with P006 headed for clinical development by March 2022. This helps highlight the long-term frame of mind investors will need to take when looking at the company but also shows early promise. As promising as these two programs are, Head of Therapeutics Kenneth Hillan went on to explain during the company's first quarterly earnings call:
"In addition to these two more advanced programs, we have a robust pipeline of earlier stage programs, including programs in immuno-oncology, cardio-metabolic disease, immunology, neurology, and other disease areas. We continue to identify new drug targets from our database and the number that have been both genetically and biologically validated has increased from five in March of 2019 to 18 by the end of 2020."
Adding to the excitement of this pipeline is that it is still in the very nascent stages of its development. As the company continues to grow its database from its genotyped customers, it will see a flywheel effect in regards to its Genome-Wide Association Studies (GWAS). Simply put, the company uses these GWAS to identify specific genetic data that may lead to a higher frequency of certain diseases. As more data is added to these GWAS, 23andMe should theoretically continue to see its pipeline expand, creating a continuous cycle.
While these programs are still a ways down the road, it would only take one or two success stories to see 23andMe's market capitalization of $3.4 billion multiply.
An investor's next move
Overall, 23andMe's current market cap does not seem to fully value the potential set of long-term outcomes related to its therapeutic programs. This, paired with the company's goals of offering personalized healthcare, give investors tremendous growth optionality, in addition to its already successful DNA testing services. As we advance, I will be watching for an updated subscriber count on the consumer side of the business, as that will ultimately fuel the pipeline for the therapeutic segment.