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Sema4 Cuts 13 Percent of Workforce, Exits Somatic Tumor Testing as Founder Schadt Departs

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CHICAGO – Sema4 said Monday after the close of the market that it is eliminating 250 positions or about 13 percent of its workforce among a series of restructuring moves that also included the immediate resignation of Founder, President, and Chief R&D Officer Eric Schadt.

Following layoffs during the first quarter, the Stamford, Connecticut-based company has now cut approximately 30 percent of the workforce that predated this year's acquisition of GeneDx. The firm will have about 1,600 employees when the current round of downsizing is complete.

CEO Katherine Stueland and other executives said in a conference call Monday that the job cuts and other restructuring moves will save Sema4 $50 million this year and another $150 million in 2023.

The molecular diagnostics and bioinformatics company also announced plans to move its hereditary cancer testing operations from Connecticut to Gaithersburg, Maryland, by the end of the third quarter and exit the somatic tumor testing business completely by Dec. 31. Sema4 said that somatic tumor testing currently accounts for less than 1 percent of its revenue.

"The move down to Maryland allows us to leverage a fair bit of automation and other laboratory techniques that have been in place at GeneDx in that lab in Maryland for a number of years," said Kevin Feeley, senior VP of operations and head of GeneDx. He said that it "would have taken Sema4 a fair bit of time" to achieve such efficiencies on its own.

As a result of the shutdown of somatic tumor testing, the firm will close its clinical laboratory in Branford, Connecticut.

Joel Kaufman, VP of finance and corporate development, said that the restructuring should be completed by the end of 2022.

However, Feeley said that more changes may be in the offing. "All operational aspects of the company are under review to ensure proper resource management, automation, and enabling technologies are in place to drive cost efficiency," he said.

The moves come in the aftermath of Sema4's $623 million acquisition of GeneDx from Opko Health, which closed April 29. Former GeneDx boss Stueland took over as Sema4 CEO when the deal closed, contrary to earlier plans to have Stueland and Schadt serve as co-CEOs.

Meantime, the firm has named Matthew Davis chief technology and product officer. He is the former head of artificial intelligence and data at Invitae and will work closely with CSO Gustavo Stolovitzky on scientific and product innovation, according to the company.

Stueland had been chief commercial officer of Invitae before joining GeneDx in June 2021.

The hiring of Davis follows last week's previously announced departure of CFO Isaac Ro, who has been replaced on an interim basis by Deputy CFO Richard Miao. Miao will also take over as principal accounting officer when current Chief Accounting Officer Shawn Assad steps down on Aug. 30.

During the conference call, Sema4 management did not discuss the reasons for the multiple executive changes, and financial analysts on the call did not press the company on these moves.

Along with announcing the restructuring, Sema4 also reported its second quarter financial results. The firm booked $36.2 million in revenues in Q2, down 23 percent from $47.0 million in the same period in 2021, and far short of the Wall Street consensus estimate of $67.5 million.

The Q2 total reflects nearly $30 million in "revenue reversal" related to an unnamed large payor's claims that it overpaid Sema4 for previous testing services, without which Sema4 would have booked $66 million in sales, according to Kaufman. The firm said in a regulatory filing Monday that it is also engaged in discussions with a payor over other alleged overpayments.

Diagnostic test revenue for Q2 was $34.0 million, down 24 percent from $44.8 million in Q2 2021. Other revenue was marginally down, to just shy of $2.2 million.

Sema4 lowered its 2022 revenue estimate to a range of $245 million to $255 million, mostly thanks to the revenue reversal and a more conservative outlook on legacy Sema4 product lines, including reproductive health testing. Revenue estimates are down from a previous forecast of $305 million to $315 million, which includes contributions from GeneDx. However, the firm said that it still expects 19 percent higher testing volume in 2022 from the combined Sema4 and GeneDx businesses.

Net loss in Q2 grew to $85.7 million, or $.25 per share, compared to a net loss of $46.2 million, or $41.94 per share, in Q2 2021. The average Wall Street estimate was a loss of $.21 per share.

Sema4 used 337.8 million shares to calculate its per-share loss in the recently completed quarter, compared to 1.1 million shares in the year-ago period. The firm went public in July 2021 through a reverse merger with special purpose acquisition company CM Life Sciences. 

R&D expenses in Q2 totaled $27.2 million, up 127 percent from nearly $12.0 million a year ago. The company's SG&A costs more than tripled to $104.1 million during the quarter from $31.9 million in the year-earlier period.

Sema4, including GeneDx, performed 132,662 diagnostic tests in the quarter, excluding COVID-19 tests, 19 percent more than the 111,265 in Q2 2021 when calculated on a pro forma basis. The company ceased COVID-19 testing in Q1 of this year.

The company had $284.6 million in cash and equivalents plus $14.4 million in restricted cash as of June 30. Sema4 has not yet drawn on a $125 million revolving credit facility it has available.

Sema4 stock plunged Tuesday morning on the Nasdaq, and was trading at $1.65, more than 30 percent lower than the previous day's close at $2.40 per share.

Stueland said that Sema4 will pursue business lines that can produce profitable growth, scalable R&D strategies, and operating efficiency going forward.

"We're now operating Sema4 as a commercial business focused on profitable growth," Stueland said, indicating a clear break from the company's roots as a spinout from New York's Mount Sinai Health System. "We're shifting from an academic strategy for R&D to a scalable one."

The company reported 19 percent growth in volume year over year in Q2 from carrier screening, noninvasive prenatal screening, and pediatric and rare disease testing, much of it due to the GeneDx side of the business. In the conference call, Stueland expressed bullish sentiments on the legacy GeneDx product line.

She also said that Sema4's Centrellis cloud-based health intelligence platform remains central to the company's strategy of combining genomic and longitudinal clinical data to generate insights for health system, payor, and pharmaceutical customers.

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