SEM4 HLDG Item 2.01. Completion of Acquisition or Disposition of Assets. Financial Information
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and
related notes and other financial information appearing elsewhere in this
Report. Some of the information contained in this discussion and analysis or set
forth elsewhere in this prospectus, including information with respect to our
plans and strategy for our business and related financing, includes
forward-looking statements that involve risks and uncertainties. As a result of
many factors, including those factors set forth in the "Risk Factors" section of
this Report, our actual results could differ materially from the results
described in or implied by the forward-looking statements contained in the
following discussion and analysis.
Unless the context otherwise requires, references herein to the "Company," "we,"
"us" or "our" refers to Sema4 , prior to the consummation of the Business
Combination (the "Closing," and such date of the consummation of the Business
Combination, the "Closing Date") and to Sema4 Holdings and its subsidiary
following the Business Combination.
We are a patient-centered, health intelligence company with a mission to use
artificial intelligence, or AI, and machine learning to enable personalized
medicine for all. By leveraging leading data scientists and technology, our
platform powers remarkable and unique insights that transform the practice of
medicine including how disease is diagnosed, treated, and prevented.
We were established out of the Icahn School of Medicine at Mount Sinai , or
ISMMS, and commenced operations in June 2017 as a commercial entity that could
effectively engage diverse patient populations and health care institutions at
scale. We have since established and deployed our comprehensive and integrated
genomic and clinical data platform and established a mature diagnostic testing
business. We now maintain a database that includes more than 11.7 million
de-identified individual clinical records, many with genomic profiles. We also
manage a data asset over 35 petabytes in size, expanding at 1.2 petabytes per
month with an accelerating growth rate.
Currently, we derive the majority of revenue from our diagnostic test solutions.
Our diagnostic business generates revenue and engages with patients primarily
through our Women's Health and Oncology solutions.
Our Women's Health solutions sequence and analyze an industry-leading number of
genes and use interpretive information tools to translate raw sequencing and
clinical data efficiently and accurately into digestible clinical reports that
guide decision-making by patients and physicians. Our Oncology diagnostic
solutions feature both somatic tumor profiling and hereditary cancer screenings,
along with a foundational whole exome and whole transcriptome sequencing
approach. Our Sema4 Signal Hereditary Cancer solution determines if a patient
carries an inherited genetic change that increases the risk of cancer or informs
on cancer treatment. We believe our Signal Whole Exome and Transcriptome
solution is one of the most comprehensive molecular profiling solutions from a
commercial entity to receive New York State approval. Beginning in May of 2020,
we were also able to expand our diagnostic testing services to include testing
for the presence of COVID-19 infection.
We have also expanded beyond diagnostic testing to enter into collaboration
service agreements with third parties to provide diagnostic testing, research,
and related data aggregation reporting services. We
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have established and continue to seek strategic relationships with
pharmaceutical and biotech, or Biopharma , companies to enable innovation across
the entire drug lifecycle, from next-generation drug discovery and development,
to post-market efficacy surveillance, to informing on bioavailability, toxicity,
tolerability, and other features critical to drug development.
Factors Affecting Our Performance
We believe several important factors have impacted, and that we expect will
continue to impact, our performance and results of operations. While each of
these areas presents significant opportunities for us, they also pose
significant risks and challenges that we must address. See the section titled
"Risk Factors" for more information.
Number of accessioned and resulted tests
We believe the number of accessioned and resulted tests in any period is an
important indicator of the growth in our diagnostic testing services and
correlates with long-term patient relationships and the size of our genomic
database. A test is accessioned when we receive the test at our laboratory, the
relevant information about the test is entered into our computer system and the
test sample is routed to the appropriate workflow. Once the appropriate workflow
is completed, the test is resulted and details are provided to ordered patients
or healthcare professionals for reviews.
Success obtaining and maintaining reimbursement
Our ability to increase the number of billable tests and our revenue therefrom
will depend on our success in achieving reimbursement for our tests from
third-party payors. Reimbursement by a payor may depend on several factors,
including a payor's determination that a test is appropriate, medically
necessary, cost-effective, and has received prior authorization. Since each
payor makes its own decision as to whether to establish a policy or enter into a
contract to provide coverage for our tests, as well as the amount it will
reimburse us for a test, seeking these approvals is a time-consuming and costly
process.
In cases where we or our partners have established reimbursement rates with
third-party payors, we face additional challenges in complying with their
procedural requirements for reimbursement. These requirements often vary from
payor to payor and are reassessed by third-party payors regularly, and we have
in the past needed additional time and resources to comply with them.
We expect to continue to focus our resources on increasing the adoption of, and
expanding coverage and reimbursement for, our current tests and any future tests
we may develop or acquire. If we fail to expand and maintain broad adoption of,
and coverage and reimbursement for, our tests, our ability to generate revenue
could be harmed and our future prospects and its business could suffer.
Ability to lower the costs associated with performing our tests
Reducing the costs associated with performing our diagnostic tests is both a
focus and a strategic objective of ours. We source, and will continue to source,
components of our diagnostic testing workflows from third parties. We also rely
upon third-party service providers for data storage and workflow management.
Increasing adoption of our services by existing and new customers
Our performance depends on our ability to retain and broaden the adoption of our
services with existing customers as well as our ability to attract new
customers. Our success in retaining and gaining customers is dependent on the
market's confidence in our services and the willingness of customers to continue
to seek more comprehensive and integrated genomic and clinical data insights.
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Investment in platform innovation to support commercial growth
We are seeking to leverage and deploy our Centrellis and Traversa platforms to
develop a pipeline of future disease-specific research and diagnostic and
therapeutic products and services. We have limited experience with the
development or commercialization of clinical or research products in connection
with our database and our Centrellis platform.
We operate in a rapidly evolving and highly competitive industry. Our business
faces changing technologies, shifting provider and patient needs, and frequent
introductions of rival products and services. To compete successfully, we must
accurately anticipate technology developments and deliver innovative, relevant,
and useful products, services, and technologies on time. As our business
evolves, the competitive pressure to innovate will encompass a wider range of
products and services. We must continue to invest significant resources in
research and development, including investments through acquisitions and
partnerships. These investments are critical to the enhancement of our current
diagnostics and health information and data science technologies from which
existing and new service offerings are derived.
We expect to incur significant expenses to advance these development efforts,
but they may not be successful. New potential services may fail at any stage of
development and, if we determine that any of our current or future services are
unlikely to succeed, we may abandon them without any return on our investment.
If we are unsuccessful in developing additional services, our growth potential
may be impaired.
Key Performance Indicators
The principal focus of our commercial operations is to offer our diagnostic
tests through both our direct sales force and laboratory distribution partners.
Test volume correlates with genomic database size and long-term patient
relationships - thus driving database diversity and enabling potential
identification of variants of unknown significance and population-specific
insights. The number of tests that we accession is a key indicator that we use
to assess the operational efficiency of our business. A test is accessioned when
we receive the test at our laboratory, the relevant information about the test
is entered into our computer system and the test sample is routed into the
appropriate workflow.
During the year ended December 31, 2020 , we accessioned approximately 520,660
tests in our laboratories, 311,987 tests of which were for COVID-19, compared to
December 31, 2019 , in which we accessioned approximately 225,863 tests in our
laboratories, and December 31, 2018 , in which we accessioned approximately
154,151 tests in our laboratories. The 47% increase in volume from 2018 to 2019
represents a continuous expansion to a national footprint and expanded test
offerings, and the 131% increase from 2019 to 2020 largely resulted from newly
entered service agreements for COVID-19 testing, offset by a slowdown in the
base diagnostic business during the beginning of the pandemic given that many of
our customers, including hospitals and clinics, had suspended non-emergency
appointments and services. Once the appropriate workflow is completed, the test
is resulted and details are provided to ordered patients or healthcare
professionals for reviews.
During the six months ended June 30, 2021 , we accessioned approximately 350,173
tests in our laboratories, 216,552 tests of which were for COVID-19, compared to
the period ended June 30, 2020 , in which we accessioned approximately 99,449
tests in our laboratories, 3,872 of which were for COVID-19. We resulted
approximately 357,404 tests in our laboratories, 218,757 tests of which were for
COVID-19, compared to the period ended June 30, 2020 , in which we resulted
approximately 112,008 tests in our laboratories, 16,411 of which were for
COVID-19. This 252% and 219% increase in accessioned and resulted volumes,
respectively, from 2020 to 2021 largely resulted from newly entered
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service agreements for COVID-19 testing as well as an increase in non-COVID-19
institutional testing. The volume of resulted tests during the periods may
include tests accessioned in prior periods that are completed and delivered
during the period.
COVID-19 Impact
In March 2020 , the World Health Organization declared the recent novel
coronavirus, or COVID-19, outbreak a pandemic. COVID-19 has had, and continues
to have, an extensive impact on the global health and economic environments.
Many jurisdictions, including those in which we have locations, have implemented
measures to combat the outbreak, such as travel restrictions and shelter in
place orders. In addition, the healthcare sector generally experienced a decline
in discretionary care services at the onset of the pandemic.
Beginning in April 2020 , our diagnostic test volumes decreased significantly as
compared to the prior year as a result of COVID-19 and the related limitations
and priorities across the healthcare system. In response, beginning in May 2020 ,
we entered into several service agreements with state governments and healthcare
institutions to provide testing for the presence of COVID-19 infection. COVID-19
test volumes grew significantly from the introduction of the service offering
through the remainder of the year. To support the rapid expansion of COVID-19
test volumes, we have increased our workforce through both temporary contractors
and employees. In addition, while most of our revenues from genetic testing rely
upon reimbursements from third-party payors, healthcare institutions, and
individuals, the majority of our COVID-19 test revenues rely upon reimbursements
from state governments and healthcare institutions. In addition, COVID-19
testing yields lower revenues per tests and incurs lower costs to perform each
test. We have also experienced a slowdown in receivable collections since the
onset of the pandemic, but do not expect those collection trends to continue.
As part of our response to COVID-19, we have implemented the following
strategies to mitigate operating risks, reduce costs and improve cash
collections.
•Made significant advance purchases of test-related inventory in order to reduce
the risk of potential business interruptions related to supply chain disruption;
•Engaged third-party vendors to collect and test COVID-19 samples to reduce
operating risks related to employee health;
•Cancelled the 2020 annual merit compensation increase temporarily implemented
the employee salary reduction programs from May through July 2020 , and deferred
the 401(k) employer match from May through December 2020 . The employer match was
reinstated in January 2021 , and the deferred portion was funded on March 9,
2021 ; and
•To support our sales employees with a commission-based compensation structure,
we implemented temporary minimum commissions during the second quarter of 2020.
. . .
Item 9.01. Financial Statement and Exhibits.
(a) Financial statements of businesses acquired.
In accordance with Item 9.01(a), Sema4's unaudited financial statements as of
and for the three and six months ended June 30, 2021 and 2020, is filed as
Exhibit 99.3 to this Report and is incorporated herein by reference.
(b) Pro forma financial information.
The unaudited pro forma condensed combined financial information of CMLS and
Sema4 as of and for the six months ended June 30, 2021 and for the year ended
December 31, 2020 is filed as Exhibit 99.2 and is incorporated herein by
reference.
(d) Exhibits.
Incorporated by Reference
Exhibit
Number Description Form Exhibit Filing Date
2.1* Agreement and Plan of Merger, dated February 9, DEFM14A Annex A 07/02/2021
2021, by and among CMLS, Merger Sub and Legacy Sema4,
as amended by Amendment to Agreement and Plan of
Merger dated May 3, 2021.
3.1 Third Amended and Restated Certificate of
I ncorporation of Sema4 Holdings Corp. (#)
3.2 Restated Bylaws of Sema4 Holdings Corp. (#)
4.1 Specimen Class A Common Stock Certificate. S-1/A 4.2 08/24/2020
4.2 Specimen Warrant Certificate. S-1/A 4.3 08/24/2020
4.3 Warrant Agreement, dated as of September 1, 2020, 8-K 10.1 09/04/2020
by and between CM Life Sciences, Inc. and Continental
Stock Transfer & Trust Company, as warrant agent.
10.1 Lockup Agreement, dated as of February 9, 2021, by 8-K 10.2 02/11/2021
and among the Company and the stockholder parties
identified therein.
10.2 Amended and Restated Registration Rights
Agreement, dated as of July 22, 2021, by and among
the Company, certain equity holders of the Company
named therein and certain equity holders of Sema4
named therein. (#)
10.3 Subscription Agreement, dated as of February 9, 8-K 10.1 02/11/2021
2021, by and among the Company and the subscriber
parties thereto.
10.4 Form of Director and Officer Indemnification
Agreement. (#)
10.5 2021 Equity Incentive Award Plan . (#)
10.6 Form of Stock Option Agreement under the 2021
Incentive Award Plan. (#)
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10.7 Form of RSU Agreement under the 2021 Incentive
Award Plan. (#)
10.8 Form of Earn-Out RSU Agreement. (#)
10.9 2021 Employee Stock Purchase Plan. (#)
10.10 Amended and Restated Employment of Agreement of
Eric Schadt. (#)
10.11 Employment Agreement of Isaac Ro. (#)
10.12 Employment Agreement of Dan Clark. (#)
10.13 Employment Agreement of James Coffin. (#)
10.14 Employment Agreement of Anthony Prentice. (#)
10.15 Employment Agreement of Kareem Saad. (#)
10.16 Employment Agreement of Karen White. (#)
10.17 Sub-Sublease, dated as of June 6, 2017, by and
between Icahn School of Medicine at Mount Sinai and
the Company, as amended July 31, 2019. (#)
10.18 Sublease Agreement, dated as of November 8, 2019,
by and between Marriott International, Inc. and the
Company. (#)
10.19 Sublease, dated as of June 1, 2017, by and
between Icahn School of Medicine at Mount Sinai and
the Company, as amended December 22, 2017. (#)
10.20 Sublease, dated as of April 23, 2019, by and
between Icahn School of Medicine at Mount Sinai and
the Company. (#)
10.21 Lease Agreement, dated as of January 31, 2020, by
and between 1 Commercial Street Associates, LLC and
the Company. (#)
10.22** Master Services Agreement, dated as of April 2,
2018, by and among the Company, Icahn School of
Medicine at Mount Sinai, The Mount Sinai Hospital,
and the parties thereto, as amended July 31,
2019 . (#)
10.23** Master Services Agreement, dated as of May 10,
2018, by and between the Company and Icahn School
of Medicine at Mount Sinai, as amended July 31,
2019. (#)
10.24** Data Structuring and Curation Agreement, dated as
of August 1, 2019, by and between Icahn School of
Medicine at Mount Sinai and the Company, as amended
March 11, 2020. (#)
10.25** BioMe Biospecimen and Data Access Agreement,
dated as of July 19, 2019, by and between Icahn
School of Medicine at Mount Sinai and the
Company. (#)
10.26** Non-Exclusive Patent License Agreement, dated as
of June 1, 2017, by and between the Company and
Icahn School of Medicine at Mount Sinai. (#)
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10.27** Supply Agreement, dated as of June 20, 2014, by
and between the Company and Illumina, Inc., and
amendments thereto . (#)
16.1 Letter from Withum to the U.S. Securities and
Exchange Commission dated July 28, 2021. (#)
21.1 Subsidiaries of the Company. (#)
99.1 Press release dated July 22, 2021. (#)
99.2 Unaudited pro forma condensed combined financial
information of the Company as of and for the six
months ended June 30, 2021 and for the year ended
December 30, 2020 .
99.3 Sema4 Unaudited Financial Statements as of and
for the six months ended June 30, 2021
* Certain of the exhibits and schedules to this Exhibit have been omitted in
accordance with Regulation S-K Item 601(a)(5). The Company agrees to furnish a
copy of all omitted exhibits and schedules to the SEC upon its request.
** The Company has omitted portions of the exhibit as permitted under
Regulation S-K Item 601(b)(10).
(#) Previously filed with the Original 8-K on July 28, 2021 .
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