https://www.barrons.com/articles/23andme-is-really-a-biotech-citi-says-51626108392
23andMe Is a Biotech Masquerading As a Digital Health Firm, Analyst Says
By
Josh Nathan-Kazis
July 12, 2021 12:49 pm ET
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A 23andMe Ancestry + Traits Service DNA kit arranged in Dobbs Ferry, New York, U.S., on on Sunday, Jan. 31, 2021.
Tiffany Hagler-Geard/Bloomberg
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Analysts at Citi Research say that
23andMe, the company best known for its consumer DNA tests, is actually a biotech that could become a powerful drug developer, and its stock has lots of room to grow.
In a note out early Monday, Citi analyst Daniel Grosslight initiated coverage of 23andMe (ticker: ME) with a Buy rating and a $14 target price. The stock closed Friday at $10.96, and slipped 1.7% on Monday, to $10.77.
In his note, Grosslight wrote that the company has collected a huge amount of patient data through its
direct-to-consumer genetic tests. “We view ME as a biotech in digital health clothing, utilizing the vast amount of genotypic and phenotypic data it has collected from its 11.3M customers to efficiently develop therapeutics,” he wrote.
The company
combined with a special purpose acquisition company and began trading publicly under its ticker on June 17. The SPAC, which previously traded as VGAC, was backed by Virgin Group founder Richard Branson, who
flew to space over the weekend.
Shares of 23andMe closed at $13.32 on June 17, up 21.2% from its close at $10.99 the previous day, before the merger was completed. The stock has since fallen, and has given up the entirety of that bump. The company’s market value is now $4.4 billion.
Grosslight thinks that the company is worth more. In his note, Grosslight wrote that he ascribes $2.8 billion of value to 23andMe’s therapeutics business, and $2.3 billion of value to its consumer business.
Grosslight is positive on 23andMe’s consumer genetic testing business. He says that the market for ancestry reports based on direct-to-consumer genetic tests is largely sated, and that 23andMe is the best equipped among its competitors to pivot to health reports.
“In our view, the consumer segment will return to 20%+ revenue growth over the next 3 years turning EBITDA positive on a sustainable basis in FY23,” he writes.
He is most excited, however, about 23andMe’s opportunities as a drug maker, using data it has gathered through its DNA testing business.
“23andMe has a database of >11M genotyped customers that, in our opinion, serves as a strong drug discovery engine that will help in therapeutics development using human genetics,” he writes. “The field is moving towards precision medicine targets in not only oncology but also in other therapeutic spaces. Having human genetic information tools would help ME be at the forefront of this next leg of therapeutic advancement.”
Positive data on a cancer drug the company is currently developing with
GlaxoSmithKline (GSK) could “unlock value,” Grosslight writes. That data could come in the
next year or year-and-a-half.
Hwah, you got durian tree!
