23andMe Earmarks Cash from SPAC Deal for Drug Development

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A company known for its at-home ancestry testing is developing two drugs to treat cancer

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Chief Financial Officer Steve Skoch said 23andMe plans to deploy the cash from its SPAC deal largely towards its ongoing investment in drug discovery. After years of selling home tests, the company created a therapeutics division six years ago, aiming to use its vast database of genetic information to identify new treatments. The database contained information on about 11.9 million consumers as of 30 September.

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By querying its database, 23andMe can find causal links between genetic variations and diseases and use that information to develop new treatments, Mr. Skoch said. Among its findings so far: Evidence of genetic variants that strengthen the immune system and reduce cancer risk.

23andMe currently has two immuno-oncology drugs under development. One of them, created through a partnership with pharmaceutical giant GlaxoSmithKline plc, is in the clinical trial phase. The second is expected to enter clinical trials by the end of March, according to Mr Skoch. The company has used its database to identify more than 40 potential drug targets to treat a variety of diseases.

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According to Mr. Skoch, the two cancer drugs, if effective, could help 23andMe make its first profit. The company reported a net loss of $16.5 million for the quarter ended September 30, compared to a net loss of $36.2 million in the same period a year ago. Total revenue rose 7% from a year earlier to $55.2 million for the quarter ended Sept. 30.

It could take years to move through clinical trials and receive approval from health regulators, Skoch said, noting the SPAC deal provided 23andMe with a cash cushion as long as its drugs. There is not much clinical data showing the feasibility of

“Once you have meaningful efficacy data on the biotech side of things, the ability to raise capital, and the price at which you raise capital, will change meaningfully and become less expensive and more available,” said Mr. Skoch. he said.

23andMe currently generates about 81% of its revenue from its in-house genetic tests, which provide consumers with information about their ancestry and screens for their chances of developing health conditions ranging from eczema to breast cancer. The remainder of its revenue comes from giving GSK access to research from its database. According to 23andMe, consumers must consent to share their genetic information — which is stripped of personal details such as names — with third parties for research purposes.

The company’s consumer and research division is also close to a consistent break even on adjusted earnings before interest, taxes, depreciation and amortization basis, while its medical segment is the major contributor to its loss.

During the quarter ended September 30, the Consumer and Research Services division reported an adjusted EBITDA loss of $760,000. The Department of Medicine reported an $18.9 million adjusted EBITDA loss during the same period.

As part of its partnership with GSK, 23andMe pays half of the total development cost, including labor and materials, while it bears the full cost of developing its drugs.

According to Natalie Schiebel, a senior analyst at market research firm Forrester Research, 23andMe’s competitive edge stems from its new method of collecting and analyzing genomic data. Inc.

This could be a challenge for other companies in the pharmaceutical industry, which typically rely on a range of data sources such as scientific publications and clinical trials, she said.

23andMe also forayed into the telehealth business this month by acquiring Lemonide Health Inc., which will provide an additional revenue stream for $400 million, with 25% paid in cash and the remainder in stock. 23andMe aims to integrate the genetic health information that Lemonade’s primary care and pharmacy services provide to customers.

23andMe decided to pursue the SPAC transaction instead of traditional public listing or private fundraising because it would provide the most capital, which is important because new drugs can take years to reach the market, Mr. Skoch said.

“We only advertise our direct-to-consumer business,” he said. “We’ve been very, very quiet about the biotech business because [with] That one, you just have to wait till he moves.”

Kristin Broughton at [email protected]

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