News is breaking right now that could point to the future of medicine as we know it.
Richard Branson has been busy of late. Besides sending humans to space, he’s also been a heavy player in the SPAC boom.
His latest venture just struck a major deal to bring a $3.5 billion company to market.
DNA testing company 23andMe Inc. announced it will merge with Branson’s VG Acquisition Corp. (NYSE: VGAC) during the second quarter of this year.
Already, investors are salivating at the idea of finally owning a piece of this major DNA tester. Shares spiked nearly 17% higher on the news.
If you’re not familiar with 23andMe, you’re one of the few. The company has already had 10.7 million people send in saliva samples to find out their ancestry.
But that’s just the start for the company.
After more than a decade of running at a loss, while adding millions to its database of DNA samples, it has been making moves into what it hopes to be a very profitable future.
The Deal That Could Change Drugs
23andMe has a joint venture partnership with GlaxoSmithKline plc (NYSE: GSK) to share the company’s wealth of data to find target drug candidates.
This deal gives GSK a $300 million stake in 23andMe, in exchange for a 50/50 revenue split on any drug that comes from it.
That could be huge. And if one of its early target drugs works out, it could be the frontier of a new type of medicine: personalized drugs.
In the company’s launch presentation, CEO Anne Wojcicki complains that the healthcare system and more specifically the drug development system we have today is fundamentally broken.
It’s hard to argue with that. But she explains further that combining the massive amount of DNA data 23andMe has at its fingertips with GSK’s traditional drug development tools will allow for quicker turnaround for both targeting new drugs and getting them approved.
That’s currently being tested. While the partnership has already produced 30 potential new drug targets, one has just been approved to enter clinical trials.
Wojcicki claims that this will be much smoother and faster than traditional drugs. On average it takes about seven years for a drug to go from candidate to FDA-approved. Through this partnership, she expects that to drop to four years.
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In addition, she claims that this approach will cut the remarkably-high 90% failure rate for new drugs in half.
The system relies on the vast amount of data already available, essentially skipping the need for many of the costly and long trials in the first place.
Clearly, this has the potential to become an enormous advancement in our drug development system. But we won’t know for quite a while.
You see, the clock for either four or seven years, depending on how accurate Wojcicki’s prediction is, just started this year.
So, while this could be a huge catalyst for the new stock to rally around, it’s one we’ll just have to wait on.
There’s another, much sooner-approaching catalyst that could be just as important to whether this new stock takes off when it begins trading or tanks like so many other promising IPOs and SPAC deals.
Everything Has a Subscription
That’s right. Even your own body and your knowledge about it is about to become subscription-based.
23andMe soft-launched a subscription service for customers to find out ongoing new information as it comes to light.
So far, over the last decade-plus it has been in business, 23andMe has simply shared new findings with customers for free. Now, the company intends to sell this information to its customers through a subscription model.
To be fair, the lack of recurring revenue has been a major business problem for the company over its lifetime. With 10.7 million customers and nowhere near a penny of profit, it needed something.
It hopes its new subscription model will pay off. So far, it does look promising.
Even without advertising or officially launching this subscription service, it has already been able to sign up 75,000 people since its soft launch in October.
Even if it can convert a small fraction of its 10.7 million customers or 7 million active ones, that’s still going to make a major impact on its income statement.
But we just don’t know yet.
Less than one full quarter of numbers following a soft launch isn’t quite enough to know if this will finally send 23andMe into the black.
I’ll be watching this particular number, as well as what happens with its first clinical trials before putting any of my money down.
You should too.
While this could turn out to be a major emerging profit idea, I recommend waiting until it starts trading and produces more results.
To your prosperity and health,
Joshua M. Belanger