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23andMe Stock Soars on Outperform Initiation From Credit Suisse

23andMe has 'a core competitive advantage that is not easily replicated,' Credit Suisse says.

23andMe  (ME) - Get 23andMe Holding Co Class A Report soared Tuesday after a Credit Suisse analyst initiated coverage of shares of the genetic testing company with an outperform rating and a $13 price target. 

Shares of the Sunnyvale, Calif., company were rising 11% to $8.07 on Tuesday.

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Analyst Tiago Fauth said in a research note that "23andMe’s genetic database, fueled by its Consumer segment, is uniquely differentiated, providing a core competitive advantage that is not easily replicated."

The company, which went public in June by merging with VG Acquisition, a SPAC sponsored by Richard Branson's Virgin Group, provides direct-to-consumer genetic testing services that offer consumers personalized ancestry, health, and wellness information based on their individual DNA. 

"23andMe has created a leading brand in the consumer genetics market, supported by strong levels of repeat customer engagement," Fauth said.

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The analyst said that 23andMe also uses its proprietary genotypic and phenotypic database as a platform to pursue drug discovery programs rooted in human genetics.

Fauth said the company's re-contactable customer base continuously evolves the quantity and quality of phenotypic data collected.

"This enables each disease to be studied in a multi-directional fashion and unlocks additional insights that would not be possible otherwise," the analyst said.

In collaboration with its exclusive strategic partner GlaxoSmithKline  (GSK) - Get GlaxoSmithKline Plc Report, 23andMe, Fauth said, has identified more than 40 novel drug targets and 19 validated targets, including its lead CD96 program in immuno-oncology, a form of cancer treatment that uses the power of the body's own immune system to prevent, control, and eliminate cancer.

Fauth said that while consumer revenue has contracted in recent years he sees a potential return to growth based on incremental sales and marketing, strong competitive positioning following competitors’ exit from the health segment, and a clear and transparent privacy policy.

"Ultimately, we believe ME’s long-term value creation comes from its database and therapeutics engine, with the Consumer segment helping to support database expansion and contributing on an Adjusted EBITDA basis in 2023 and beyond," the analyst said.