23andMe [ME] Conference call transcript for 2023 q2
2022-08-08 21:41:05
Fiscal: 2023 q1
Operator: Good morning, and welcome to 23andMe's Fiscal 2023 First Quarter Financial Results Conference Call. As a reminder this call is being recorded. At this time, all participants are listen-only mode. After the prepared remarks, there will be a question-and-answer session. I would now like to hand the call over to Wade Walke, Vice President of Investor Relations to lead off the call. Thank you, please go ahead.
Wade Walke: Thank you. Before we begin, I encourage everyone to go to investors.23me.com to find the press release we issued earlier today reporting our financial results for the 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 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 of 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. 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 that may impact our future performance. We also discuss certain non-GAAP measures. Important information on our use of these measures and reconciliation to US GAAP may be found in our earnings release. Joining us on our call today are Anne Wojcicki, our Chief Executive Officer and Co-Founder; and Steve Schoch, our Chief Financial Officer; Kenneth Hillan, our Chief Therapeutics Officer will join us for Q&A. And now I'd like to turn the call over to Anne.
Anne Wojcicki: Thank you Wade. During our first fiscal quarter, we continued to make progress developing our genomic health service for customers and advancing our pipeline in the therapeutics business. In the consumer business, we continued to grow our customer base, which is now over 13 million genotype customers. In this last quarter, we added three new genetic risk reports for our 23andMe+ subscribers glaucoma, psoriasis and rosacea. This brings the number of health reports in our products to over 60. We are able to provide new insights to our customers on a regular basis thanks to the unmatched size of our consented database for genetic research. Developing our genomic health service for our customers remains a high priority for our consumer business. This service is designed to integrate genetic health risk information into care with the goal of preventing or better managing disease. We are happy to announce two important new hires in the area of Genomic Health. Recently we hired Noura Abul-Husn and Amy Sturm to strengthen our leadership in genomic medicine. Dr. Abul-Husn is our new Vice President of Genomic Health. She is a physician scientist whose work aims to uncover the clinical impact of human genetic variation in diverse populations and drive the large-scale equitable, implementation of genomic medicine. She previously served as Director of Translational Genetics at the Regeneron Genetics Center and most recently was the founding Chief of the Division of Genomic Medicine and Clinical Director of the Institute for Genomic Health at the Icahn School of Medicine at Mount Sinai. Amy Sturm is our Director of Population Health Genomics. Amy was most recently a professor at Geisinger Genomic Medicine Institute and Director of the MyCode Genomic Screening and Counseling Program and Cardiovascular Genomic Counseling Program. Amy who is a past President of the National Society of Genetic Counselors has over 20 years of experience in leadership, clinical care, research, program development and implementation in areas that include population genomic screening, cardiovascular genetics and genomics and digital health technologies. Dr. Abul-Husn and Amy are bringing critical leadership and experience in the delivery of genomic medicine to the broad population. We look forward to you hearing from them in the near future. In our therapeutics efforts, we continue to use our research platform to create a pipeline of more than 50 programs backed by human genetic data with two now in Phase 1 clinical trials. We also just started the fifth year of our exclusive target discovery collaboration with GSK. Our collaboration with GSK has been very productive and we believe GSK's decision to exercise their option for a fifth year further demonstrates the value of our unique database for discovering novel targets for drug development. We believe the new therapeutics that come out of our discovery engine will eventually play a significant role in helping people benefit from the human genome. And with that, I'll turn the call over to Steve to review our financial results for the quarter.
Steve Schoch: Thanks Anne. We are off to a solid start to fiscal 2023 with revenue growing by 9% and overall financial performance consistent with our expectations. While our existing lines of revenue continue to progress, as Anne mentioned, the work on developing our genomic health service continues to be a top priority as is the continued investment in progressing our genetically validated therapeutic pipeline. On the research services side as of late July we entered into the fifth year of our exclusive GSK agreement. And we look forward to continuing to work with GSK to turn genetically validated targets into potential new medicines. As a reminder, in January GSK elected to exercise its right for that fifth year option under the terms of our collaboration agreement for an additional payment of $50 million. Now let us turn to our first quarter financial performance. Our revenue for the three months ended June 30th 2022 was $65 million representing an increase of 9% over the same period the prior year. First quarter revenue growth was primarily due to the addition of telehealth revenue from the recent acquisition of Lemonaid Health and an increase in our subscription revenue. These increases were partially offset by lower revenue in the other areas of consumer and research services. Looking at the composition of our revenue, consumer services revenue represented approximately 87% of total revenue for the three months ended June 30th 2022 and research services revenue which was substantially all from the GSK collaboration, accounted for approximately 13% of total revenue. Our gross profit for the three-months ended June 30th 2022 was $25 million, representing a 17% decrease over the same period in the prior year. The year-over-year decline was driven primarily by an increased mix percentage of telehealth revenues, which carries a lower gross margin as well as increased overall labor costs affecting cost of sales across the consumer and research services segment. Operating expenses for the three months ended June 30th 2022 were $115 million compared to $72 million for the same period in the prior year. The increase in operating expenses was primarily attributable to 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 due to decreasing spend on the GSK'608 program, following the company's election to adopt the royalty option for the program versus the previous cost sharing arrangement with GSK on development costs. Looking at the bottom-line, net loss for the three months ended June 30 2022 was $90 million compared with -- to net losses for the same period in the prior year of $42 million. The increase in net loss was primarily driven by the higher operating expenses noted earlier. Now let's look at 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 for the three months ended June 30th 2022 was a deficit of $50 million compared to a deficit for the same period in the prior year of $27 million. The increase in total adjusted EBITDA deficit was driven primarily by the increase in operating expenses mentioned previously. Looking specifically at the adjusted EBITDA for the three months ended June 30th 2022 for the Consumer and Research Services segment, we saw a deficit of $17 million compared to a deficit for the same period in the prior year of $1 million. The higher current period adjusted EBITDA deficit in this segment was driven primarily by the increase in operating expenses discussed previously which reflects the impact from inclusion of our acquired telehealth results. We ended the quarter with $479 million in cash, which gives us an ample horizon to deliver on our longer-term business goals. We continue to be disciplined in our execution as we strive for efficiencies across all activities with a focus on advancing the development of our genomic health services and on advancing our therapeutics programs, both of which represent key future growth opportunities. As I mentioned earlier, our first quarter results were consistent with our expectations and thus we are confirming our previous full fiscal year 2023 guidance. As a reminder this included revenue in the range of $260 million to $280 million and a net loss in the range of $350 million to $370 million. The full year adjusted EBITDA deficit is projected to be in the range of $195 million to $215 million. Of note, this guidance includes the full year impact of the consolidation of our acquired telehealth business into the company's overall consumer business as well as the current and anticipated effects of general inflation on certain of our costs. And now, I'll turn the call back over to Anne.
Anne Wojcicki: Thank you, Steve. I'm very proud of all the progress the team has made to start off our fiscal year. To reiterate a few highlights. First our database, the largest of its kind in the world continues to grow now with over 13 million genotype customers. Second, we are making good progress with our integration of Lemonaid's telehealth business into our consumer business. Third, we are executing on our plans to offer a new genomic health service. Fourth, we have started the fifth and final year of our exclusive target discovery collaboration with GSK. And last, we continue to make progress with our 50-plus therapeutic targets through genetic-based drug discovery. With that, let's now open it up for further questions.
Operator: Our first question comes from Tiago Fauth with Credit Suisse. Your line is open.
Tiago Fauth: Operator, thanks for taking the question. So, just two for me. I would love to hear more about the new Genomic Health Services. I know you started beta testing a couple of months ago. I don't know if it's too early to talk about any specific learnings or how that may impact the future of the telehealth business any impact on unit economics or things like that that you can provide at this moment? And just briefly on the therapeutic side, I'm just curious if you can provide any qualitative comment on 610 enrollment and how that's progressing and when we might see some initial data for that asset? Thank you.
Anne Wojcicki: Thanks Tiago. Good questions. So, the Genomic Health Service is obviously -- it's a top priority for the consumer team. And I think one of the things that we've really identified is that there's lots of players in telehealth and primary care, but we're the only ones really owning a complete genomic health experience and making sure that we get it right in terms of how we're going to price it what it's going to look like making sure that the healthcare providers we have are trained appropriately putting together the protocols is really sort of like the thick of it of how we are currently focused on what we're building and how we're going to roll it out. So, I don't have specifics for you in terms of timelines of exactly when we're promising that you're going to see something but it is -- hiring Amy and Noura was a key part of making sure we have the team that we'll be able to execute on a genomic health service and thinking very specifically about what is -- what are those first what is it going to initially look like and how do we make sure we have the appropriate kind of rollout. I can just say like one of the things that we did say when we acquired Lemonaid that continues to be really important to me is the fact that Lemonaid has a pharmacy. And when you think about something that -- everyone takes medications at some point pharmacogenomics has huge potential for every single person. So, how is it that we can appropriately leverage all of our resources leverage the 13 million customers and make sure that we can empower people to get access to the right medication for them. So, we will definitely -- Amy and Noura are two individuals I'd love for you to meet at some point and we will definitely keep following up with the timeline on the Genomic Health Service as well as on being able to spend more time with them. So, for question number two, let me point to Kenneth.
Kenneth Hillan: Yes, thanks Anne, thanks Tiago. Thanks for your interest in 23andMe 610, obviously, something we continue to follow very closely. Itâs a high priority. As you know, that program just initiated clinical trials for Phase 1 in January, earlier this year. So it's really still too early to forecast when we would expect to have Phase 1 data. What I can say is we continue to make good progress, continue to open up additional sites for enrollment. And so Jennifer Low and her team -- Jennifer leads the development organization at 23andMe, are continuing to make, as I said, good progress, but it's too early to be specific about when we'd anticipate being able to share Phase 1 data.
Tiago Fauth: Got it. No, fair on both questions. Thanks a lot.
Operator: Our next question comes from Daniel Grosslight with Citi. Your line is open.
David Lebowitz: Hello. This is David Lebowitz on for Dan. I guess my first question would be, if you could comment about the strength of your recent Prime Day in July, and how that would be recognized in the second quarter?
Anne Wojcicki: Steve, do you want to take that?
Steve Schoch: Yes, I can take that. So, I guess I'd start with the general messaging we've given is that how we see the year playing out is kind of represented in reaffirming our guidance and that includes the revenue guidance. So, safe to say that overall where things are progressing as we expected them to when we first set out that guidance. And so, we don't really break out results. And of course, timing-wise the way that Prime Day sort of fell this year versus fell last year, you would not have -- last year you might have snuck a little revenue into the first quarter, because Prime Day occurred in June and sort of early mid-June, but not much this year it fell in July. So, all of that would be forward recognition. And we would expect it to follow a pattern, which has become reasonably consistent over time about how those get returned. But it will be -- it's reflected in our expectations for revenue.
David Lebowitz: Okay. Thank you for that. And with respect to Lemonaid, could you first comment on the nature of what these consultations actually include, obviously, examination of their genetic risk profile and potential for next steps. Could you elaborate on to this point with the beta testing, what types of cases you've had that I guess, could illustrate for us what those next steps patients are actually taking? And then also, as far as the cadence for how that beta program might actually ramp up over time.
Anne Wojcicki: I think I caught all your questions here. So, one of the main things that we have a history of -- we have a very substantial customer care team and we have a history of lots of questions that people have asked. And I can point to all kinds. People can get a BRCA variant and not necessarily know who to go to. People can get an APOE4 variant with Alzheimer's not know are there preventive things they can do, are there behavior changes they can do, something like chronic kidney disease, are there APOL1 variant, are there things that you can do? And so what I'd say, the team is really looking at doing is identifying what is a specific kind of area that we can hone in on and really have a meaningful clinical product for our customers. And you can imagine something like Type 2 diabetes, people find out they're higher risk, what are the next things that they're going to want to do? And a lot of people, for instance, don't know that they're the blood test going in testing your hemoglobin A1c, and seeing what should you do? Are you high? Do you essentially need to be more proactive about how you're managing it? So there's some of that kind of basic advice that I think that we can start to be able to deliver to people like understanding what the information means, what are some of the follow-up steps. And some things are going to be very specific to the genetic knowledge, like really knowing that -- for examples, in chronic kidney disease what are the things that you can really do to mitigate any of those risks? And what I find is that the -- having genomic health experts, really allows us to have that edge to be able to work them in tandem either with specialists or with primary care providers about what is the latest that is out there about how you actually manage a patient with a higher risk. So, I don't have specifics. I mean I think that we can definitely say, we're -- we have plans about where we want to be by end of the year and we would be enthused for more customers for us to be able to update you certainly on next earnings. What was your second question again?
David Lebowitz: On cadence of the beta program and ramping up.
Anne Wojcicki: Well on the cadence of it, I mean I'd say there's a lot of internal structure, when you think about like what are we doing right now integrations, especially technical integrations on the backend are complicated. So there's a lot of that infrastructure work coming together. And I think you can imagine us like I said by end of the year having some better insights into what we are planning for the genetic health checkup.
David Lebowitz: Thanks. And one last question on 610. What type of data could we actually see in the first update?
Kenneth Hillan: Anne, do you want me to take that?
Anne Wojcicki: Yes. Yes. Sorry, Kenneth you take it.
Kenneth Hillan: Yes sure. I think the primary purpose of the Phase I study is about safety and PK. So clearly you should expect updates on that. Of course, given that the indications are in oncology there's always the potential to see some evidence of activity and that can be something that may help you in terms of pointing clues about where you would go next. We've shared previously that at the end of the dose escalation, Phase I when we've selected our dose or go-forward dose, we plan to dose five additional cohorts of patients with tumor types that we may â we think from a scientific perspective from a genetic perspective there would be basis to think that CD200R1 therapy may help those patients. So I think the first stage is all about safety and PK getting that dose selected to move forward into those five cohorts. And then I think from there that would be when I think we would have a data update that we could provide.
David Lebowitz: Thanks so much for taking our questions.
Wade Walke: I have some questions here from our retail investors that have come in on the Say Technology platform. And so I'm going to ask those questions at this point in time. The first question that we have is when is the first joint product with the major pharma expected to launch?
Kenneth Hillan: Anne, I can take that if you want.
Anne Wojcicki: Yes definitely.
Kenneth Hillan: So thank you from the retail side. The most advanced program that's come from the GSK collaboration is GSK'608 that we spoke about on the call. This is a program that is currently under study in Phase I. This timing of development it's really too early to speculate of timing of any potential future launch date. And of course, only if the program is successful. The other thing is I would say GSK as we've publicly announced is now solely responsible for the continued development of this program. And so theyâll be responsible for communicating their plans. And so I would just refer you to GSK for future updates on GSK'608. Thanks.
Wade Walke: Thanks Ken. The next question we have is to what other areas are you expanding your business? And where do you expect to generate growth?
Anne Wojcicki: I'll take that one. We â I kind of look at it in two areas. One, the genomic health service gives us opportunities to expand in a number of areas. So one, we see real interest in the transition from genetics being associated with ancestry to genetics being associated with health. And with that that also then allows us to expand into the telehealth services and providing follow-up in care and guidance, pharmacy services as well as in labs. And so I think all of that, I see as opportunity. I think the health care opportunity, we've always seen is the bigger opportunity than ancestry, as well as the additional services is a real area for us to continue to grow. On -- we talked about the fifth year of GSK, and that does open the door for us to expand research services again. So something that we are spending a fair amount of time thinking about is a post-GSK world, and what that is going to look like with research services.
Wade Walke: Thanks, Anne. The next question, any plans to get into therapeutics as you're sitting on the largest DNA data ever collected?
Kenneth Hillan: I can take that Anne, if you like.
Anne Wojcicki: Yes. Great.
Kenneth Hillan: Yes. So I really couldn't agree, with the person who asked the question more. And I hope, as you heard from Anne today, we've actually made significant progress already in the therapeutics business segment at 23andMe. It's true we have the world's largest resource platform for genetic research. And as you saw in our latest updates, the database continues to grow. This database really has been the foundation for the collaboration with GSK and this has resulted in two product candidates, GSK'608 and also 23ME'610, now both being in Phase I stages of clinical development in immuno-oncology indications. And then, as you've heard behind those programs, we have over 50 programs that have come from the collaboration with GSK. So it's an exciting time. It takes -- it does take time from going from the database, to moving a molecule forms into Phase I and beyond, but we continue to be enthusiastic about what the database can provide and the opportunities for patients.
Wade Walke: Thanks, Kenneth. I think it's an exciting opportunity. The next question, how can you ensure that 23andMe will keep all of the samples of DNA safe from hackers?
Anne Wojcicki: Great question, and something that since the inception of the company has been a top priority for us. Everything that we do from how we think about, how we collect the sample, to how the database is structured has really been with doing everything we can to empower the individual with choice, as well as to make sure that we are protecting those choices once they've made them. So how we structure the database for instance, keeping your genetic information separate from your personal identifying information, and making sure that all of the various privacy controls in terms of, whether you're sharing or whether you're opting in, are all within the power of the consumer. So it's always a top priority for us, something that we remain incredibly vigilant about. We have a Chief Security Officer, who spends day and night making sure that we are doing all we can to protect our customers and their choices.
Wade Walke: Thanks, Anne. The next question we have is, do you have any plans to expand your health service to other countries in the following months?
Anne Wojcicki: Also another great question. We get that quite a bit asking about additional countries and we actually, are already selling right now in 66 countries, that does not include health in all of those countries, but in a good number. We're always evaluating options. Each country comes with its own set of regulatory restrictions. So it's something that we're always evaluating and considering. But right now, we're really focused on maximizing those 66 countries.
Wade Walke: Thanks, Anne. The next one is, do you have any plans to start offering a full genome analysis?
Anne Wojcicki: That is also a great question that we get, quite a bit. People are -- when we talk to customers and when you look at what you get from a whole genome versus what you get from 23andMe, for the majority of the population 98% of individuals are not going to learn anything additional from a whole genome, but it's substantially more expensive. So we can definitely -- and we do recommend that for individuals who are not -- who have a family health history or have a specific risk and they're looking for it that we are not the ideal provider for them and that there's other services. But as a screen, we are -- we believe that the genotyping array that we have is phenomenal. So we do definitely think about in the future are there opportunities for us to offer panels or whole genome for individuals where it makes sense? Definitely something that we're always considering and staying on our radar.
Wade Walke: Thanks Anne. The next question is a financial one. Do you have enough cash on hand to become profitable?
Anne Wojcicki: Steve, I'll turn that to you.
Steve Schoch: Yes. Thank you. Always a good question. So, yeah, mostly I would point you to two things that we disclosed. So we disclosed at the end of the first quarter that we have $479 million in cash. And we also then reaffirmed our guidance on our adjusted EBITDA, which is our proxy for operating cash flow. And so when you look at that those two figures the range on adjusted EBITDA is $195 million to $215 million. If you kind of take the average of that and look at that cash balance, you can get a sense of what the runway is and it's a reasonably good period of time it will give us the ability to execute a lot of things that Anne has talked about on the consumer side and that Kenneth is working on with our portfolio of therapeutics.
Wade Walke: Thanks Steve. The next question is will the US recession cause any financial troubles for 23andMe in the coming year?
Anne Wojcicki: Steve, you again.
Steve Schoch: Yeah. I mean, the main thing is that the personal genetic service in particular among all of our businesses, it is a consumer discretionary. So you could imagine that in a severe recession maybe some consumers at the increment choosing not to buy. When we look at our other businesses they're kind of -- they're a little bit more independent of a general recession. So we don't really have an experience at this volume in the past few years when we've been at greater than a million units a year. We just don't have any experience with a deep recession so we can't say for sure. But I would say that's probably how to think about it.
Wade Walke: Thanks Steve. And our last question is, are there any significant leadership changes planned in the coming quarters?
Anne Wojcicki: Well, I think some -- the two people that we announced today are some of the most important changes that Iâve been recruiting for and anticipating and having that kind of leadership is pivotal for us for the next phase of this company. So there's nothing -- we have not announced any other strategic changes, but it's something that we are always evaluating talent that we need and I am thrilled to have Noura and Amy be joining us.
Wade Walke: Thanks Anne and thanks everyone for joining us today. I think that wraps up our Q&A portion of the call.
Operator: This concludes the program. You may now disconnect. Everyone have a great day.
