This story has been updated with additional comments from Sema4 management.
CHICAGO – Sema4 said Monday before the opening of the market that it would exit reproductive health testing early next year and lay off 500 employees, or nearly one-third of its current workforce. As part of the cuts, the firm will be closing its laboratory near its headquarters in Stamford, Connecticut.
The firm will stop accepting samples in the reproductive health segment after Dec. 14 and hopes to wind down its women's health business during the 2023 first quarter as it seeks to chart a course toward profitability by 2025.
"We considered every possible option to preserve the business," including seeking new investments, consolidating operations into a single facility in Maryland, pivoting to a direct-to-consumer model, and selling the reproductive health line, CEO Kathleen Stueland said in a conference call to discuss third quarter financial results and the restructuring. "In the end, we determined that the reproductive health testing business was unsustainable," particularly in this uncertain economic climate with rising interest rates that have made capital more expensive.
The company said that the move would reduce at least $30 million in cash burn per quarter. "It is necessary for the future growth of our business," Stueland said.
CFO Kevin Feeley said that the company will halve cash burn in 2023 thanks to the strategic shift and expected growth in other business segments.
The company instead will lean into the clinicogenomic insights market, a segment with a $30 billion market opportunity that Stueland said provides Sema4 with the chance to grow its remaining business by at least 20 percent annually.
As part of this shift, Sema4 wants to make whole-genome newborn screening a standard of care and adult genetic screening more routine. Stueland noted that the firm has already started implementing newborn genomic testing as part of the GUARDIAN (Genomic Uniform-screening Against Rare Diseases in All Newborns) study in New York City.
Feeley said that rapid whole-exome and whole-genome sequencing will drive most of the growth in the next several years.
At the American Society of Human Genetics annual meeting last month, researchers presented early data from the SeqFirst study Sema4 is working on with the University of Washington and Illumina that showed diagnostic benefits of rapid whole-genome sequencing for newborns in the neonatal intensive care setting.
The legacy Centrellis cloud-based health intelligence platform also remains central to the company's strategy of combining genomic and longitudinal clinical data to generate insights for health systems, payors, and pharmaceutical customers. "We intend to invest in and accelerate the commercial model for the Centrellis platform to expand utility and create a rich data pipeline to drive personalized medicine," Stueling said.
This is Sema4's second major restructuring and third round of layoffs this year. Following a staff reduction in the first quarter, the company said in August that it was eliminating 250 more positions at the same time it announced the departure of Founder, President, and Chief R&D Officer Eric Schadt.
The firm recently completed earlier plans to move its hereditary cancer testing operations from Connecticut to Gaithersburg, Maryland, and is in the midst of exiting its somatic tumor testing business by Dec. 31. Sema4 said at midyear that somatic tumor testing accounted for less than 1 percent of its revenue.
The company's corporate headquarters and some informatics development will remain in Stamford.
The molecular diagnostics and bioinformatics company will have about 1,100 employees once the reproductive health services business and Stamford lab close, down from 1,700 at the end of Q3. About 100 of the job cuts are from previously announced downsizing efforts.
Along with announcing the latest restructuring, Sema4 also reported its third quarter financial results Monday. The firm booked $83.2 million in revenues in Q3, 93 percent higher than the $43.2 million in the same period in 2021, when it had not acquired GeneDx yet, beating the Wall Street consensus estimate of $71.7 million.
Sema4 completed its $623 million acquisition of GeneDx from Opko Health on April 29.
Diagnostic test revenue for Q3 was $81.5 million, up 97 percent from $41.4 million in Q3 2021. Other revenue was marginally down, to just above $1.7 million.
Net loss in Q3 was $77.6 million, or $.20 per share, reversing a profit of $32.7 million, or $.16 per share, in Q3 2021, that reflected a one-time cash infusion from the firm going public in July 2021 through a reverse merger with special purpose acquisition company CM Life Sciences. The average Wall Street estimate was a loss of $.21 per share.
Sema4 used 380.8 million shares to calculate its per-share loss in the recently completed quarter, compared to 210.3 million shares in the year-ago period.
R&D expenses in Q3 totaled $13.4 million, down 25 percent from $17.8 million a year ago. The company's SG&A costs rose 46 percent to $89.4 million during the quarter from $61.3 million in the year-earlier period.
Sema4, including GeneDx, performed 128,262 diagnostic tests in the quarter, excluding COVID-19 tests, 19 percent more than the 107,417 in Q3 2021 when calculated on a pro forma basis. The company ceased COVID-19 testing in Q1 of this year.
The company had $191.4 million in cash and equivalents plus $14.4 million in restricted cash as of Sept. 30. It has not yet drawn on a $125 million revolving credit facility it has available.
Sema4 reiterated its 2022 revenue estimate of a range of $245 million to $255 million.
Company shares fell 12 percent on Monday to close at $.90.