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Sema4 Closes SPAC Deal With CM Life Sciences, Raising Approximately $500M

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NEW YORK – Genetic testing and health intelligence firm Sema4 said on Thursday that it has closed its merger with special purpose acquisition company CM Life Sciences, resulting in approximately $500 million in cash proceeds.

Stamford, Connecticut-based Sema4 will start trading its shares of common stock and warrants on the Nasdaq Global Select Market on Friday under the ticker symbols SMFR and SMFRW.

The deal to merge with CM Life Sciences, which is sponsored by affiliates of Casdin Capital and Corvex Management, was originally announced in February. Eric Schadt, founder and CEO of Sema4, and his current executive team will continue to lead the combined company, which will add four new directors to its board.

Goldman Sachs and JP Morgan Securities served as financial advisers to Sema4, and Fenwick & West as legal adviser. Jefferies acted as sole financial adviser, lead capital markets adviser, and sole placement agent to CM Life Sciences, and Cowen and Company was its capital markets adviser. White & Case served as CM Life Sciences' legal adviser.

Sema4 was founded in 2015 as a spinout from Mount Sinai Health System and began operations in 2017. As of late March, it had almost 1,000 employees, including more than 160 data scientists with doctorate degrees.

Most of the firm's revenues to date have come from genetic testing in reproductive health and oncology. Last year, the company reported $179.3 million in revenues, almost all from diagnostic testing. The bulk of this came from reproductive health testing, in particular expanded carrier testing, Schadt said.

But the company's long-term vision is to team up with health systems as well as biopharmaceutical companies to mine clinical and genomic patient data using artificial intelligence and machine learning in order to gain new insights into predicting, diagnosing, and treating disease. Besides with Mount Sinai, the company has partnered with NorthShore University HealthSystem and AdventHealth so far. Schadt said another collaboration with a health system will soon be announced and several other deals are in the works.

Sema4's health information platform, called Centrellis, has so far amassed more than 11.5 million de-identified clinical patient records in its database, and the company is generating and processing more than 30 petabytes of data per month. The firm has also developed a standardized genomics platform, called Traversa, to generate and analyze genomic data for its diagnostic and screening tests and to allow re-analysis of genomic data for additional future clinical tests.

Schadt said about 60 percent of the current patient records have high-quality electronic medical records and longitudinal data associated with them, and on the order of 500,000 include genomic information. Of those, about 50,000 have exome- or genome-type data available, a number that is likely to grow as the company now conducts "a couple of hundred thousand" genomic tests per year, he said.

As an example of how the integrated analysis of patient medical records may generate new health insights, Schadt pointed to new data models of disease risk his team has been developing. "A couple of those models that are coming out are for complications of pregnancy, using the clinical data to better predict patients at risk for complications like preeclampsia or postpartum hemorrhage, at a level that has a positive predictive value that's four to five times the current standard of care assessment," he said.

Going forward, medical records data could also be used, for example, to discover previously undiagnosed rare diseases in patients and to predict their risk for common diseases through polygenic risk scores.

Sema4 said it plans to use the $500 million in new cash to support growth of its current business, including further development of its health information and genomics platforms, and to acquire complementary businesses.

While the company already has several genomic tests in the area of reproductive health available, including carrier screening, noninvasive genetic testing, and newborn screening, as well as tests in oncology, including inherited cancer testing and somatic tumor profiling, it is still "exploring opportunities on the liquid biopsy front," Schadt said, for applications such as minimal residual disease testing and cancer surveillance. On the informatics side, the firm is interested in partnering around technologies to help manage ever-increasing amounts of data, he added.

In a prospectus filed earlier this month with the US Securities and Exchange Commission, Sema4 provided financial results for the first quarter of 2021 as well as for 2020, 2019, and 2018. Schadt said the firm expects to release second quarter results in mid-August.

For the three months ended March 31, Sema4 reported $64.4 million in revenue, up 38 percent from $46.7 million in the same quarter a year ago. Most of this — $62.8 million — came from diagnostic testing, which was up 36 percent from $46.1 million last year, primarily due to COVID-19 testing, which did not exist in Q1 of 2019.

Meanwhile, other revenue was up almost threefold to $1.6 million from $585,000 in Q1 of 2020, driven by collaboration services related to two new third-party contracts.

R&D expenses for the quarter totaled $53.1 million, up fourfold from $13.1 million a year ago. The main reason for this increase was an additional $38 million in stock-based compensation expenses and a $2 million increase in expenses for reagents, lab supplies, and software.

SG&A costs ballooned to $133.5 million, from $18.9 million last year, mainly due to an increase in stock-based compensation expenses of $106.6 million.

Sema4's net loss for the quarter amounted to $191 million, up from $27.0 million in Q1 of 2020.

For 2020, Sema4 reported $179.3 million in revenues, down 9 percent from $196.2 million in 2019.

Diagnostic revenues for the year totaled $175.4 million, down 8 percent from $191.7 million, which the company attributed to a change in the mix of tests it performed and to reduced reimbursement rates.

While testing volumes rose 131 percent in 2020, primarily due to the introduction of COVID-19 testing in May, those tests were priced lower than the firm's other diagnostic tests. Also, the average price of its women's health and oncology tests decreased during the year.

Other revenues were $4.0 million, down 11 percent from $4.5 million in 2019. The main reason for the decline was the completion of a significant third-party contract in 2019 and of another significant contract, with Mount Sinai, in early 2020. These were partially offset by new third-party contracts in 2020.

R&D expenses for the year climbed about twofold, to $72.7 million from $34.9 million in 2019. This was mainly attributable to a $25.4 million increase in stock-based compensation expenses; a $9.3 million increase in personnel expenses; a $1.7 million increase in expenses for reagents, lab supplies, and software; and a $1.1 million increase in consulting and outside services.

SG&A costs more than doubled in 2020, to $154.6 million from $62.6 million in 2019. Most of this increase came from $76.1 million in additional stock-based compensation expenses and $10.6 million in additional personnel-related expenses.

Sema4's net loss for the year amounted to $241.3 million, compared to $32.7 million in 2019.

Schadt said that going forward, Sema4 plans to diversify its revenue sources, expanding its heritable cancer and somatic tumor profiling testing business and establishing partnerships with additional health systems and biopharmaceutical companies. The company projects annual revenues of about $500 million in three years, he added.

Asked why Sema4 chose to go public through a SPAC rather than an initial public offering, Schadt explained that in late 2020, when the company considered becoming publicly traded, it seemed "a little early" to achieve this the traditional way, and a SPAC appeared like a good alternative. "Having a high-confidence investor alongside of me, helping explain to outside investors where this would all go, and getting that confidence, allows you to be a little earlier in your preparation of being public," he said. "Also, the market was just red hot back then [and we] saw this as an opportunity to kind of leverage the hotness of the market."

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