Winding down COVID testing, Sema4 to make $623 million acquisition

With Sema4 ending its COVID testing partnership with the state this month, Stamford announced Tuesday that it will acquire another genetic testing company — a deal worth about $623 million that company officials said will create one of the nation’s largest and most advanced providers in its industry.

Sema4’s purchase of Maryland-based GeneDx — a subsidiary of drug and diagnostics provider OPKO Health — would be its largest ever deal. It will include a down payment of $150 million in cash, plus 80 million shares in Sima 4, plus up to $150 million in “revenue-based milestones” over the next two years.

The deal reflects the increasing use of genetic testing, an important tool for detecting and treating many diseases such as different types of cancer. Sema4 officials cited GeneDx sequencing and clinical reports of more than 300,000 exomes, referring to protein-coding regions of the genome. They also cited 2.1 million ‘expertly annotated’ phenotypes for GeneDX. The phenotype represents an individual’s observable traits, such as height, eye color and blood type, according to the National Human Genome Research Institute.

The dataset in GeneDx will leverage nearly 12 million clinical records for Sema4, including more than 500,000 records with ‘genomic profiles’.

“This acquisition gives us the opportunity to accelerate the use of genomics as a standard of care by providing a deeper menu of precision medicine solutions to our health system partners to better meet their clinical needs,” said Eric Schad, founder and CEO of Sema4, in a statement. “Adding GeneDx’s comprehensive data set and capabilities to our offerings enables us to report on a wider range of diseases, further bridging the gap between the practice of medicine and the availability of more clinically actionable guidelines.”

Over the past two years, Sema4 has become one of the largest providers of COVID-19 testing services in Connecticut. However, it announced last month that it intends to discontinue these services by March 31 and will stop providing them to its home state by the end of this month.

The company’s contracts with the state have sparked controversy because Sema4 investors include Oak HC/FT, a Greenwich-based venture capital firm founded by Governor Ned Lamont’s wife, Annie. Oak has twice invested in Sima 4, which has received millions of dollars from the state for COVID-19 testing.

Sema4 also announced Tuesday that as a result of the acquisition, GeneDx CEO and President Katherine Stoeland will become Sema4’s co-CEO, along with Schadt.

GeneDx employs about 700, while Sema4 employs about 1,200. In their announcement, the two companies did not indicate that they would conduct any layoffs.

“We are excited to join Sima4, the market leader in the use of genomic and clinical data to deliver precision medicine,” Stoeland said in a statement. “The complementary fit between our teams, our missions, and our capabilities is strong. We are keen to leverage these strengths and facilitate the use of data-driven insights to improve healthcare for all. I look forward to partnering with Eric to create an unparalleled family health and health intelligence company, supporting patients who make care decisions. health throughout their lives, from pregnancy and newborn health to rare adult diseases, risk assessment and cancer care.”

Also on Tuesday, Sima 4 announced agreements with a group of institutional investors, including pharmaceutical giant Pfizer, for a $200 million “private placement” of Class A shares in Sima 4. In that deal, Sima 4 will issue 50 million shares, at $4 per share, to these investors.

The acquisition and the private placement are expected to close simultaneously in the first half of this year.

“We are excited to announce this investment with the support of several key institutions, including Pfizer,” Shadt said. “We believe that genomics and data, when harnessed in partnership with health systems, can be a powerful tool to enable precision medicine by delivering new treatments to patients faster and more effectively. We hope that this investment will serve as a basis for future collaboration.”

On Tuesday, shares of Sima 4 closed at $3.45, down about 15 percent from their previous closing total.

Sima 4 was founded in 2017 when it moved out of Mount Sinai Health System into its own company. His services include genetic cancer testing, prenatal testing and newborn screenings.

Last July, Sima 4 completed its transformation into a public joint stock company. It did so by merging with a Special Purpose Acquisition Company, which created a company worth about $3 billion. The SPAC process provided an alternative to the initial public offering.

For fiscal year 2022, Sima4 expects total revenue to be between $215 million and $225 million — annual growth of 23 percent to 29 percent that excludes revenue related to COVID-19 services. For 2022, it expects to process more than 350,000 tests, excluding COVID-19 tests.

Sema4’s main offices are located at 333 Ludlow Street, at the south end of Stamford. In addition, it operates laboratories in Stamford and Branford.

To support the growth of its Connecticut workforce, Sema4 has received $15.5 million in loans from the state’s Department of Economic and Community Development. So far, $4.5 million of that amount has been forgiven, while the company could earn up to $7.5 million in additional exemption.

pschott@stamfordadvocate.com; Twitter: @paulschott