NEW YORK – Shares of GeneDx fell 7 percent Wednesday after a report from a short seller accused the firm of "fraudulent schemes," among other misdeeds, that inflated its revenues and led to an increase in its stock price.
The report from Grizzly Research cited former employees and ongoing litigation to support its thesis that the firm's revenue is artificially inflated through the illegal practice of code stacking. Grizzly claims in the report that "multiple former employees" have said the firm has continued this practice, inflating the firm's revenue by an estimated 25 percent.
It also noted that GeneDx CEO Katherine Stueland and CFO Kevin Feeley have sold their shares in the firm immediately upon vesting while not making open market purchases. "This pattern suggests that insiders may be aware of an imminent risk that will significantly impact the company," Grizzly said. It further stated that a whistleblower action claims that GeneDx "is operating illegal 'independent' counselor entities that direct patients exclusively to GeneDx testing services."
The report delved into the history of the firm and its operations under its former name, Sema4, and it noted a $42 million settlement with UnitedHealthcare in 2023, which it claims was due to code stacking. As GenomeWeb reported in January 2023, Sema4 had disclosed in a filing with the US Securities and Exchange Commission that it settled a series of legal claims with an unnamed health insurance company for alleged overpayments from the payor for services including multigene tests like carrier screening.
GeneDx declined to comment for this article.
However, several Wall Street analysts put out research notes Wednesday throwing cold water on Grizzly's claims.
Brandon Couillard, an equity analyst with Wells Fargo, said the sell-off of GeneDx shares on Wednesday was overdone. He further noted that the bank believes "most/all claims raised in the report are either false, misplaced, and/or unrelated to current GeneDx [operations]." He further noted that GeneDx does not use code stacking, and for the firm's exome/genome tests, "there are about six standard, well-established CPT codes used."
Jefferies analyst Tycho Peterson called the report a "hit piece," adding, "we view the allegations as bogus." He further noted that "the company has been audited many times by both [the Centers for Medicare and Medicaid Services] and payors over the last several years, with no issues found, and [GeneDx] has very little payor recoupment set aside, as it does not envision any issues going forward."
Similar to the other analysts, BTIG's Mark Massaro wrote, "We were particularly puzzled by some of the statements about the old legacy company, Sema4, given that it was already shut down." Regarding the settlement with UnitedHealthcare, he said, "To us, this is a well-known, well-covered, and well-understood topic. GeneDx does not perform any legacy Sema4 testing today."
GeneDx's shares rose 2,500 percent in 2024, but according to Massaro, "the run was justified." And Peterson noted that the stock's massive gain makes it "an easy target for short reports."
GeneDx was among a handful of firms that reported preliminary fourth quarter and FY 2024 revenues last month on the first day of the JP Morgan Healthcare Conference. The firm said it anticipates reporting revenues of at least $92 million for Q4 2024 and at least $299 million for the full year, corresponding to year-over-year increases of 59 percent and 54 percent, respectively.
Shares of GeneDx closed at $67.18 in Wednesday trade on the Nasdaq.