As a genetic testing company, 23andMe Holding (ME -9.94%) is a futuristic business by default. There's nothing cooler than sending away a tube filled with your spit and getting (some of) the secrets of your genome unlocked and presented in a tidy report on your computer screen in return.
Yet, the past few years have been something of a challenge for the company in terms of maintaining its early momentum. Revenue has been sliding, the company continues to operate at a loss, and the stock has now tumbled more than two-thirds from its high as management seeks to navigate its way forward. It is, no doubt, a challenging period for the company.
Still, if the boosters of personalized medicine are to be believed, having your genes sequenced and screened for risks or peculiarities will be one of the most important healthcare activities of the future -- and 23andMe is highly likely to be at the forefront of this monster trend. So, let's examine a few reasons why this stock could be a winner over the next decade.
1. Its trove of genetic data grows ever larger
Around 12 million people have sequenced their genomes with the help of 23andMe's service, which is the single-biggest reason this company is valuable.
From this hoard, everything else in its future will spring forth. All that the company does -- from seeking leads for pharmaceutical development to finding your long-lost ancestors across the globe -- becomes easier with more data going into its funnel.
And more people are signing up to contribute their genes every day. Since 2017, the number of cumulative genotyped customers has increased by nearly sixfold. While it's true that new customer signups aren't happening as quickly as they were earlier, there's still a huge and unexploited market for genetic testing for both health and ancestry information.
And that means 23andMe probably won't have much trouble in growing its database even further, thereby increasing its long-term potential.
2. New growth initiatives are underway
The second green flag is that 23andMe continues to invest in its core, consumer genetic-testing platform. Earlier this year, it reported that the U.S. Food and Drug Administration (FDA) had granted its health-insight subscription service permission to provide consumers with reports about their risk of developing prostate cancer.
The approval means that subscribers to the health service can now see whether they have a mutation associated with developing the cancer. Releasing a consistent drumbeat of new features in the service means there's more reason for people to stick around and keep paying the fee each month, and it might attract new customers, too.
Separate from the work on its core platform, the company has also branched out into telehealth since its late 2021 acquisition of Lemonaid Health, an online pharmacy and health counseling service. When paired with its cornucopia of information about patients' genomes, the purchase opens the door to offering hyper-targeted care.
Though new revenue is unlikely to pour in without significant further integration of Lemonaid's capabilities into 23andMe's business, it's clear that management is laying the groundwork to thrive in the future.
3. The GlaxoSmithKline collab just got an upsizing
One of the best things to have for a fledgling healthcare stock is a major pharmaceutical company backing your business. And that's exactly what 23andMe has -- thanks to its long-running collaboration with GlaxoSmithKline.
On Jan. 18, GSK and 23andMe announced they would work together for another year. That'll put another $50 million in cash in the smaller company's pockets on top of the $300 million in equity that GlaxoSmithKline invested in 2018.
Per the terms of the arrangement, 23andMe analyzes its hoard of genetic data, looking for leads that might be useful for drug development. Then, it passes those leads on to GSK, which can choose to initiate pre-clinical research efforts to see whether the leads are worthwhile. If there's something promising, the companies can opt to advance with development under a profit-and-cost-sharing agreement, which GSK has exercised on at least one occasion.
With a powerful ally like GSK in its corner, 23andMe has access to a plethora of technical resources and distribution channels that are sure to help it grow, and that's why the recent expansion of the collaboration is a big green flag for the future.
4. It has plenty of cash in hand
Per its latest earnings report published on Feb. 10, the company has $586 million in cash. In the same period, its total operating expenses were $124 million. That means it has more than enough gas in the tank to keep operating at its current rate for a few years before money starts becoming a problem. As a result, it has a long runway to expand its therapeutics lead discovery business and its nascent digital health platform.
As a public company, 23andMe is still quite new -- it only went public in the middle of last year -- and that can often represent uncertainty for investors. Yet, as we've seen, there are some solid reasons for optimism about its future. With its growing trove of data, expanded offerings for consumers, strong collaboration with GlaxoSmithKline, and sizable cash on hand, the future could still be bright for the company as well as investors willing to factor in the risks.