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Feb 11, 2022

23andMe Reports FY2022 Third Quarter Financial Results

The following was written by 23andMe:

Third quarter revenue of $57 million

Therapeutics group advances first wholly-owned immuno-oncology antibody into clinical trials

Vision of genetics-based primary care offers potential for millions of people to live healthier lives

SUNNYVALE, Calif., Feb. 10, 2022 — 23andMe Holding Co. (Nasdaq: ME) (“23andMe”), a leading consumer genetics and research company with a mission to help people access, understand, and benefit from the human genome, today reported its financial results for the third quarter (“Q3”) of its fiscal year 2022 (“FY2022”), which ended December 31, 2021. 23andMe is the only company with multiple FDA authorizations for over-the-counter genetic health risk reports, and in particular the only company FDA authorized to provide, without physician involvement, genetic cancer risk reports and medication insights on how individuals may process certain commonly prescribed medications based on their genetics. The company has also created the world’s largest crowdsourced platform for genetic research, which it is using to pursue drug discovery programs rooted in human genetics across a spectrum of disease areas.

“We’ve made significant progress on both our consumer business and therapeutics efforts these last few months. On the consumer side, we acquired Lemonaid Health, which brings telehealth services that offer online access to healthcare professionals with e-prescribing, pharmacy and testing services to patients in all 50 states, the District of Columbia, and the United Kingdom. Combined with our Personal Genome Service, this positions us to achieve our vision of personalized, genetics-based primary care at scale. We also received FDA clearance for a direct-to-consumer genetic test on a hereditary prostate cancer marker, further expanding our ability to provide individuals with direct access to impactful health information that can help them make important life decisions,” said Anne Wojcicki, CEO and Co-Founder of 23andMe. “On the therapeutics side, we launched our first wholly-owned therapeutic, 23ME’610, into a Phase 1 clinical trial. This is our second immuno-oncology drug to enter clinical trials, following GSK’608, and marks an important milestone in our goal to find new medicines for people with serious unmet medical needs. We look forward to continuing to advance our pipeline of more than 40 programs across a range of disease areas, addressing targets that we have validated using human genetics.”

Recent Highlights

Initiated Phase 1 clinical trial for first wholly owned immuno-oncology antibody, 23ME’610, targeting CD200R1

Announced that GSK, our key collaborator in therapeutics, elected to extend the exclusive target discovery period under the collaboration agreement for a fifth year to discover and validate novel drug targets using 23andMe’s proprietary genetic and health survey database. 23andMe will receive a one-time payment of $50 million

Elected for a royalty option on GSK’608, the joint collaboration program with GSK targeting CD96. 23andMe will be eligible to earn tiered worldwide royalties up to the low double digits if GSK’608 is successfully commercialized.

Expanded customer database to 12.2 million genotyped customers

Received FDA clearance for direct-to-consumer genetic test on a hereditary prostate cancer marker

Launched two new reports for customers subscribed to 23andMe+, a membership service that offers insights and features to give members even more actionable information to live healthier lives. These new reports use machine learning to create a statistical model that estimates a person’s likelihood of developing a specific condition using thousands of genetic markers, along with a person’s ethnicity and birth sex. The new reports released in the third quarter were:

Nearsightedness (myopia) report

Severe acne report

Added new ancestry analysis, including additional insights into some customers’ indigenous genetic ancestry from North America and ancestral connections to 25 African ethnolinguistic groups

Received recognition from Inc. magazine as one of the “Best-Led Companies of 2021”; from Comparably, which listed Anne Wojcicki as one of the top CEOs among large companies and from Fast Company, which listed 23andMe as one of the “Brands that Matter”

Completed the redemption of all outstanding warrants in December 2021

“We are working to integrate Lemonaid Health’s telehealth services and our personal genetics services with the goal of bringing a genetics-based primary care service to our customers. This unique offering would enable our medical professionals to take a prevention-based, genetically-informed approach with our customers to help them live healthier lives. Beginning this quarter, Lemonaid Health’s financial results are incorporated into our consolidated results,” said Steve Schoch, Chief Financial Officer of 23andMe. “On the Therapeutics side, we were also pleased with GSK’s election to renew for a fifth year, with its $50 million fee. This further validates the value of our database to genetically validate targets for drug development and the potential for this approach to increase the probability of success in bringing new therapies to patients.”

FY2022 Third Quarter Financial Results
Total revenue for the three and nine months ended December 31, 2021, was $57 million and $171 million, respectively, representing increases of 3% and 10%, respectively, for the same periods in the prior year. Third quarter revenue growth was primarily due to the addition of two months of Telehealth business revenue from the recent acquisition of Lemonaid Health and higher subscription revenue. These increases were partially offset by lower Personal Genome Service (“PGS”) revenue primarily due to the shift in a promotional channel partner’s event, which occurred in the second quarter of FY2022 as compared to the third quarter of FY2021. Nine-month revenue growth was primarily driven by higher PGS revenue, subscription revenue and the addition of two months of revenue from the Telehealth business.

Consumer services revenue represented approximately 81% of total revenue for the three and nine months ended December 31, 2021, and research services revenue, substantially all derived from the collaboration with GSK, accounted for approximately 19% of total revenue.

Operating expenses for the three and nine months ended December 31, 2021 were $124 million and $271 million, respectively, compared to $71 million and $191 million for the same periods in the prior year. The increase in operating expenses was primarily attributable to increased sales and marketing expenses, consistent with the seasonal promotion activities of the PGS business, therapeutics-related research and development expenses, one-time transaction costs associated with the acquisition of Lemonaid Health and incorporation of Telehealth operating expenses.

Net loss for the three and nine months ended December 31, 2021 was $89 million and $148 million, respectively, compared to net losses of $45 million and $117 million for the same periods in the prior year. The increase in net loss for the nine-month period ended December 31, 2021 was primarily driven by higher operating expenses (as noted above) offset by changes in fair value of warrant liabilities of $33 million. In December 2021, the company redeemed all outstanding warrants.

Total Adjusted EBITDA (as defined below) for the three and nine months ended December 31, 2021 was $(64) million and $(121) million, respectively, compared to $(25) million and $(65) million for the same periods in the prior year. The decrease in total Adjusted EBITDA was driven primarily by the increase in operating expenses listed above, excluding one-time transaction costs. Adjusted EBITDA for the three and nine months ended December 31, 2021 for the Consumer & Research Services segment was $(32) million and $(33) million, respectively, compared to $(2) million and $(5) million for the same periods in the prior year. The decrease in this segment was driven primarily by the increase in operating expenses listed above, excluding therapeutics-related research and development expenses and one-time transaction costs.

Balance Sheet
23andMe ended Q2 FY2022 with cash of $586 million, compared to $282 million as of March 31, 2021. The increase was attributable to the $560 million in gross proceeds from the completion of the business combination with the Virgin Group Acquisition Corp during the first quarter of FY2022. In Q3 FY2022, 23andMe paid approximately $102 million in cash consideration for the acquisition of Lemonaid Health, of which approximately $13 million was placed in escrow to cover a potential purchase price adjustment and to secure the indemnification obligations of the former equity holders of Lemonaid Health.

FY2022 Financial Guidance
23andMe is updating its FY2022 guidance following the inclusion of telehealth operations into its consumer business and the redemption of all outstanding warrants. The projected range for full year revenue for fiscal 2022, which will end on March 31, 2022, has been increased from $250 to $260 million to $268 to $278 million. The increase in projected revenue is primarily due to the addition of telehealth services to 23andMe’s consumer business. The projected range for full year net loss has decreased from $210 to $225 million to $205 to $220 million. The decrease in projected net loss is primarily due to the favorable effect of the warrant fair value adjustment following warrant redemption offset by the inclusion of telehealth operating expenses, integration and merger-related transaction costs. The projected range for full year adjusted EBITDA loss has increased from $143 to $158 million to $148 to $163 million as we expect telehealth net losses to be partially offset by other beneficial effects in our operations.

Conference Call Webcast Information
23andMe will host a conference call at 4:30 p.m. Eastern Time on Thursday, February 10, 2022 to discuss the financial results for Q3 FY2022 and report on business progress. The webcast can be accessed on the day of the event at https://investors.23andme.com/news-events/events-presentations. A webcast replay will be available at the same address for a limited time within 24 hours after the event.

About 23andMe
23andMe, headquartered in Sunnyvale, CA, is a leading consumer genetics and research company. Founded in 2006, the company’s mission is to help people access, understand, and benefit from the human genome. 23andMe has pioneered direct access to genetic information as the only company with multiple FDA authorizations for genetic health risk reports. The company has created the world’s largest crowdsourced platform for genetic research, with approximately 80 percent of its customers electing to participate. The 23andMe research platform has generated more than 180 publications on the genetic underpinnings of a wide range of diseases, conditions, and traits. The platform also powers the 23andMe Therapeutics group, currently pursuing drug discovery programs rooted in human genetics across a spectrum of disease areas, including oncology, respiratory, and cardiovascular diseases, in addition to other therapeutic areas. More information is available at www.23andMe.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding the future performance of 23andMe’s businesses in consumer genetics and therapeutics and the growth and potential of its proprietary research platform. All statements, other than statements of historical fact, included or incorporated in this press release, including statements regarding 23andMe’s strategy, financial position, funding for continued operations, cash reserves, projected costs, plans, and objectives of management, are forward-looking statements. The words “believes,” “anticipates,” “estimates,” “plans,” “expects,” “intends,” “may,” “could,” “should,” “potential,” “likely,” “projects,” “predicts,” “continue,” “will,” “schedule,” and “would” or, in each case, their negative or other variations or comparable terminology, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are predictions based on 23andMe’s current expectations and projections about future events and various assumptions. 23andMe cannot guarantee that it will actually achieve the plans, intentions, or expectations disclosed in its forward-looking statements and you should not place undue reliance on 23andMe’s forward-looking statements. These forward-looking statements involve a number of risks, uncertainties (many of which are beyond the control of 23andMe), or other assumptions that may cause actual results or performance to differ materially from those expressed or implied by these forward-looking statements. The forward-looking statements contained herein are also subject to other risks and uncertainties that are described in 23andMe’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 filed with the Securities and Exchange Commission (“SEC”) on November 10, 2021 and in the reports subsequently filed by 23andMe with the SEC. The statements made herein are made as of the date of this press release and, except as may be required by law, 23andMe undertakes no obligation to update them, whether as a result of new information, developments, or otherwise.

Use of Non-GAAP Financial Measure

To supplement the 23andMe’s unaudited condensed consolidated statements of operations and unaudited condensed consolidated balance sheets, which are prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), this press release also includes references to Adjusted EBITDA, which is a non-GAAP financial measure that 23andMe defines as net income before net interest expense (income), net other expense (income), changes in fair value of warrant liabilities, income tax benefit, depreciation and amortization of fixed assets, amortization of internal use software, amortization of acquired intangible assets, non-cash stock-based compensation expense, acquisition-related costs, and expenses related to restructuring and other charges, if applicable for the period. 23andMe has provided a reconciliation of net loss, the most directly comparable GAAP financial measure, to Adjusted EBITDA at the end of this press release.

Adjusted EBITDA is a key measure used by 23andMe’s management and the board of directors to understand and evaluate operating performance and trends, to prepare and approve 23andMe’s annual budget and to develop short- and long-term operating plans. 23andMe provides Adjusted EBITDA because 23andMe believes it is frequently used by analysts, investors and other interested parties to evaluate companies in its industry and it facilitates comparisons on a consistent basis across reporting periods. Further, 23andMe believes it is helpful in highlighting trends in its operating results because it excludes items that are not indicative of 23andMe’s core operating performance. In particular, 23andMe believes that the exclusion of the items eliminated in calculating Adjusted EBITDA provides useful measures for period-to-period comparisons of 23andMe’s business. Accordingly, 23andMe believes that Adjusted EBITDA provides useful information in understanding and evaluating operating results in the same manner as 23andMe’s management and board of directors.

In evaluating Adjusted EBITDA, you should be aware that in the future 23andMe will incur expenses similar to the adjustments in this presentation. 23andMe’s presentation of Adjusted EBITDA should not be construed as an inference that future results will be unaffected by these expenses or any unusual or non-recurring items. Adjusted EBITDA should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. Other companies, including companies in the same industry, may calculate similarly-titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of Adjusted EBITDA as a tool for comparison. There are a number of limitations related to the use of these non-GAAP financial measures rather than net loss, which is the most directly comparable financial measure calculated in accordance with GAAP. Some of the limitations of Adjusted EBITDA include (i) Adjusted EBITDA does not properly reflect capital commitments to be paid in the future, and (ii) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and Adjusted EBITDA does not reflect these capital expenditures. When evaluating 23andMe’s performance, you should consider Adjusted EBITDA alongside other financial performance measures, including net loss and other GAAP results.