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Here's Why I Bought This Recent Genetics IPO

Consumer genetics testing company 23andMe Holding (NASDAQ: ME) recently went public via special purpose acquisition company merger, and longtime Fool.com contributor Matt Frankel, CFP, jumped at the opportunity to add shares to his portfolio. In this Fool Live video clip, recorded on Sept. 15, Frankel discusses why he's so excited about 23andMe's future with fellow contributors Danny Vena and Jason Hall.

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Matt Frankel: Recent IPO, another SPAC IPO, is 23andMe, ticker symbol is ME. This one went public recently through a SPAC sponsored by Richard Branson's Virgin Group. Right now, you can buy shares for about 20% less than Richard Branson himself paid. A lot of people know 23andMe for their home DNA test kits. I've certainly taken one, it didn't really tell me any big surprises. I have pretty monotonous bloodline. But I'm sure a lot of people got some nice surprises when they took a 23andMe kit. But that's really not the exciting part of this business. There's been around since, I think 2007, 2008, and it's relatively built out at this point. The thing to know as an investor is the home test kits, they were vessel to build out the rest of 23andMe's proprietary business. Particularly, there's two other parts of its business. It is a subscription services business called 23andMe Plus, which just launched last October and has 125,000 members already. This provides custom genetics reports to see, for example, there's one that'll tell you if you're susceptible to eczema. There's one that'll tell you how bad your dog and cat allergies are. Subscription products that really gives you personalized insights to healthcare. Eight out of 10 people say that they want a more personalized healthcare approach. The third and most exciting part of the business by far is the potential of 23andMe in pharmaceutical development. They have a partnership with GlaxoSmithKline (NYSE: GSK) where they split any revenue they make 50-50 from drugs developed, and they get access to Glaxo's all their resources, and facilities, and things like that. It's just a really impressive part of business. 23andMe, here's their advantage; they have a library of almost 12 million genotyped individuals. You know how many No. 2 has? Which is Regeneron, by the way. Regeneron has 1 million, 12 million to 1 million for No. 2. That's an enormous competitive advantage when it comes to developing generic therapies. I'm very excited about this. It dropped when the SPAC boom collapsed in the past few months. As soon as I'm allowed to, because I just mentioned it, probably going to buy some more of it

Danny Vena: Wow, 12 million to 1 million, I certainly didn't expect that.

Frankel: There are a few competitors, but they're all in the 500,000 to 1 million individuals range. 23andMe, that's the value of their genetic kits because it's crowdsourced genetic material.

Jason Hall: That's hugely valuable to the healthcare industry.

Frankel: You know how long the average drug takes to produce? Ten years at a cost of $2.8 billion and less than a 12% chance that that drug will ever see the light of day. Having all that genetic material, not only can create valuable therapies, but it makes it more of a focused process. So it takes a shorter amount of time, it costs less time to develop, and there's a higher probability of success. A lot of long-term potential on this one, it's a big money loser right now because they're investing heavily in the pharmaceutical development. But a lot of long-term potential here if they get it right. It's a small cap company, so there's lot of potential down the road.

Danny Vena has no position in any of the stocks mentioned. Jason Hall has no position in any of the stocks mentioned. Matthew Frankel, CFP owns shares of 23andMe Holding Co. The Motley Fool recommends GlaxoSmithKline. The Motley Fool has a disclosure policy.


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