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Why 23andMe Stock Dropped Today

By Rich Smith – Oct 22, 2021 at 11:42AM

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Fresh off its SPAC IPO, 23andMe is buying another company.

What happened

Shares of 23andMe Holding (ME 8.20%) stock slipped in Friday morning trading after the genetic data miner announced that it will spend $400 million to acquire on-demand online medical care and pharmacy services platform Lemonaid Health (not to be confused with Lemonade (LMND 14.85%), the insurance provider).

As of 11 a.m. EDT, 23andMe shares are down 4.2%. (But coincidentally, Lemonade is down even more.)

Scientists study strands of DNA

Image source: Getty Images.

So what

23andMe noted that bringing Lemonaid Health's "innovative telemedicine and prescription drug delivery services" onboard could be "an important step in transforming the traditional primary care experience and making personalized healthcare a reality." Using its own treasure trove of genetic data, the company says it will be able to "give patients and healthcare providers better information about health risks and treatments, opening up the door to prevent as well as better manage disease."  

For its new prize 23andMe will pay 25% in cash and 75% in shares of 23andMe stock. It expects to close the acquisition before the end of this year.

Now what

Now, the synergies in this merger may not be immediately obvious. Still, if you think out a few years, the acquisition does kind of make sense. 23andMe could use its knowledge of how a patient's genes might interact with various drugs, for example, or make a patient more or less susceptible to this or that disease, then filter proposed medications or treatment options through its knowledge base for better patient outcomes.

You can imagine, for example, a scenario in which a doctor prescribes a particular drug for a patient, but 23andMe, on reviewing the patient's genetic code, discovers that this drug might cause a harmful side effect for this particular patient, and bounces the prescription back to the doctor for a safer alternative.

All that lies in the future, however, and is pretty speculative. For the time being, all investors really know here is that 23andMe is spending about $100 million of its SPAC IPO cash and diluting its shareholders with another 30 million shares (so about 24.4% dilution) to acquire a company with unknown revenues, unknown profits, and unknown growth potential.

That sounds like a risky proposition, and I suspect it's why the shares are down today.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Lemonade, Inc. The Motley Fool has a disclosure policy.

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