Sema4 Holdings Corp. (SMFR) on Q4 2021 Results - Earnings Call Transcript
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Operator: 00:01 Thank you for standing by, and welcome to the Sema4 Fourth Quarter 2021 Earnings Conference Call. 00:06 I would now like to turn the call over to Joel Kaufman, Vice President of Finance and Corporate Development. Please go ahead.
Joel Kaufman: 00:13Thank you. Good afternoon, everyone. Thank you all for participating in today's conference call. Participating for the company today will be Eric Schadt, Founder and Chief Executive Officer; and Isaac Ro, Chief Financial Officer. Earlier today, Sema4 released financial results for the fourth quarter and full year ended December 31, 2021. A copy of the press release is available on the company's website. 00:36 Before we begin, I'd like to remind you that management will make forward-looking statements within the meaning of federal securities law, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. 01:04 Additionally, these forward-looking statements, particularly our 2022 financial guidance, involve a number of risks, uncertainties, and assumptions. For a list and description of the risks and uncertainties associated with Sema4's business, please refer to the Risk Factors section of our Form 10-K filed with the Securities and Exchange Commission on March 14, 2022. We urge you to consider these factors and you should be aware that these statements should be considered estimates only and are not a guarantee of future performance. 01:35 During the call, we may discuss certain non-GAAP financial measures. For reconciliations of the non-GAAP measures to GAAP financial measures, as well as other information regarding these measures, please refer to our earnings release and other materials in our Investor Relations section of our website. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 14, 2022. Sema4 disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. 02:12 And with that, I'll turn the call over to Eric.
Eric Schadt: 02:15 Thank you, Joel. And thank you, everyone, for joining us on our fourth quarter and full year 2021 financial results conference call. I will begin with an overview of our performance, including the recent drivers of our success and future drivers of growth before passing the call to Isaac for a financial update. We will then open the call for questions. 02:35 2021 was a transformative year for Sema4, during which we drove record test volumes and grew our clinical, molecular and patient databases, listed on NASDAQ as a public company, and advanced our strategic objectives to accelerate the growth of our platform of algorithms. Overall, I'm very excited by our organizational progress during a year that had more disrupted macro issues than I would have imagined heading into 2021. 03:02 Sema4 continues to build capabilities anchored in clinically relevant genomic and patient data with artificial intelligence and machine learning. We continue to establish Sema4 as the partner of choice for health systems, therapeutic innovators, and other healthcare companies. At Sema4, we are building a unique company focused on delivering clinically actionable insights based on longitudinal data analysis that will help inform clinical decision-making across a broad spectrum of diseases and health conditions. We are delighted that our health intelligence platform is being increasingly recognized for its potential ability to predict more accurate and clinically meaningful outcomes. 03:43 In the fourth quarter we delivered revenue of $47.3 million, excluding COVID, representing 24% growth compared to $38.2 million in the same period a year ago. Importantly, we continue to make substantial progress advancing key initiatives, as evidenced by the nearly 83,000 resulted tests in the quarter, representing 37% growth compared to 61,000 resulted tests in the same period a year ago. We exited 2021 well positioned to grow our data engine with 4 health system partnerships, 47 petabytes of data from more than 20 million patients, including approximately 12 million patients for which we have access to high-quality longitudinal electronic medical record information. 04:31 We believe that Centrellis is the most extensive and fastest growing database of clinically relevant patient data in the industry. Meanwhile, our next-gen sequencing capacity continues to expand, where we are expecting to grow genomic patient records to more than 50% in 2022 over 2021. While we are pleased with our performance in the fourth quarter and are well positioned for growth in 2022, we will remain conservative in our full year 2022 revenue guidance of $215 million to $225 million. 05:05 Building upon the success that has propelled Sema4, we recently announced our plans to acquire GeneDx, a world leader in the delivery of clinical genomic solutions for rare disorders. The acquisition of GeneDx will transform Sema4 into a larger and stronger company with a faster path to profitability. Together, we will create a company that is changing the landscape of how patient care is delivered, while leveraging efficiencies that are unparalleled in our industry. 05:33 We believe that becoming a larger and stronger company gives us a clear and achievable path to 50% gross margin. We expect to accelerate our pathway to profitability with a pro forma revenue growth profile in excess of 30% and accomplish positive free cash flow by the end of 2025. We remain on track to close the acquisition in the second quarter of 2022. On a pro forma basis, we project that the combined company will deliver annual revenue of approximately $350 million in 2022. 06:07 We are excited to partner with Katherine Stueland, CEO of GeneDx and the team from GeneDx who share our vision of leveraging genomics and large-scale clinical and multi-omic data to enhance the standard of care through precision medicine and partnership with patients and providers. Combining GeneDx's clinical genomic solutions with our core Women's Health business allows us to better serve health system and pharmaceutical and biotech partners in a more holistic way. This transaction will significantly enhance the power of our Centrellis database by adding more than 2.1 million expertly curated phenotypes and well over 300,000 clinical exomes that GeneDx has generated to date. Following the close of the acquisition, Sema4 will have the most comprehensive clinically relevant data set available for our research and development purposes. 06:57 Turning back to our performance in 2021, I would like to provide a detailed update on our progress towards advancing our strategic objective, starting with our health system partnerships. As you know, Sema4 has partnered with 4 health systems, 3 of which were added during 2021. These partnerships span across our key targeted geographic areas and we continue to be very pleased with the performance of the relationships and traction we are gaining toward our mission to standardize precision medicine within these systems. 07:27 Earlier this month, we held our first Founder Health System Consortium meeting with all 4 of our health system partners. The goal of this meeting was to establish a formal network dedicated to sharing our collective approaches to implementing precision medicine as the standard of care. By bringing these groups together, we aim to foster a learning based culture across our partners that we think will enable a virtuous cycle as our health system partnerships expand. The event was successful in these goals and very well received by our partners. 07:57 Sema4 and our partners aligned on the fact that we share many common challenges that can be better addressed collectively, particularly as the network expands over time. This was encouraging as each of our partners have different areas of initial focus and maturation levels of their previous precision medicine initiatives. We believe this network is now building a combined point of view that will help the industry understand the power of shared data, develop a standard implementation methodology, including ways to overcome significant educational needs and provide evidence of improved clinical care, providing headlights into the future of health care. 08:34 We expect to meet quarterly, starting with our next session focusing on creating a formal charter and priorities for the network of partners to focus on as a group. Since we updated you last quarter, Sema4 has continued to work with NorthShore University HealthSystem to scale their population health program. This program is focused on understanding the needs of primary care providers and their mission to advance care by leveraging genomic information within their patient population. Not only have more than 90% of primary care physicians ordered the test as part of this program, but 80% of those physicians reported substantially improved standard of care as a result. The total number of patients who have been offered the program in the past 11 months now exceeds 46,000. 09:20 To date, we have identified over 11,000 patients with positive family history and over 1,800 patients have moved forward with hereditary cancer testing, meeting NCCN guidelines for being at high risk for inheritable cancer. These results represent a 78% increase in adoption versus results of a similar program, not powered by Sema4. Evidence from this study will now inform Sema4 and NorthShore University HealthSystem on how to introduce insights at the point of care to ensure patients receive standard of care treatment among other insights gained through this study and expansion of additional studies to understand how to leverage the insights gained to improve care. 10:01 Turning to Avera, in November of 2021, Sema4 and Avera Health launched the Avera Health/Sema4 Oncology and Analytics Protocol, referred to as the ASAP protocol. The purpose of this study is to understand the breadth of molecular characteristics present among patients within a large integrated community-based healthcare system. Using comprehensive genomic profiling and proteomics, we are identifying the underlying genomic drivers of pre-malignant or malignant growth in patients across different stages of disease development and cancer types. 010:35 The comprehensive molecular profiling consists of somatic tumor testing using Seam4's whole exome, whole transcriptome, proteomics, and in selected instances, whole genome sequencing. In addition, we are performing broad heritable cancer testing in effective patient populations. Hereditary cancer has implications of screening prognosis and therapeutics for affected patients, as well as broad implications for genetic counseling and cascade testing. 11:03 Information collected across the patient population will aid in advancing our knowledge of cancer biology, discovering and validating biomarkers associated with clinical outcomes, and sharing collaborative projects in order to promote the study of cancer. We have curated the initial clinical data set by combining it with the genomic findings and creating initial clinical quality dashboards, which will provide additional insights to Avera Health providers. 11:31 We look forward to leveraging GeneDx to expand existing partnerships and enhanced discussions with future partners. I’m confident on our ability to integrate within health systems and provide state-of-the-art care will ultimately position us as the preferred partner of choice to an increasing number of systems. We are well on track to achieve our plan of partnering with a total of at least 5 systems by year-end 2023. 11:54 Our strong connection to the health systems and patients is a significant point of differentiation when pharmaceutical companies are looking for partners. Our sophisticated platform draws upon clinically relevant longitudinal patient information to provide unique insights to pharmaceutical companies looking to leverage big data to support drug development. We can be a partner of choice for research, as well as clinical development and impose market surveillance. 12:20 A component of our long-term strategy is to partner with pharmaceutical innovators to help improve the efficiency and accuracy of drug development and therapeutic delivery. During the fourth quarter, we increased our engagement with several potential pharmaceutical partners to gain a better understanding of their needs. We are pleased to have recently announced our partnership with BioSymetrics, focusing on data-driven drug discovery to advance precision medicine. 12:45 Together, we will leverage our proprietary health intelligence platform, Centrellis in combination with Elion, BioSymetrics' phenotypic drug discovery platform to both experimental validate our AI-based disease and risk models and to discover new treatments initially in cardiovascular, rare and neurological diseases. We will look to launch up to 10 new therapeutic programs in areas of high unmet need where multi-omics offers a differentiated approach to discovering drugs and leverage these programs to drive enhanced collaboration between Sema4 and biopharma companies. 13:19 We expect biopharma partner contributions to grow throughout 2022, as we work to demonstrate the tangible value of the Sema4 platform. Our partnerships with patients and health systems are also crucial for providing us with access to information that allows us to develop deep and information-based relationships to continuously drive improved knowledge and understanding within our platform. 13:41 Our ability to receive strong patient consent provides us with confidence that our strategy to build a platform of algorithms is being accepted in the marketplace. Following the fourth quarter, patient consent remained strong at greater than 80% in 2021 for those who engage our digital platforms through the testing process. This ability to acquire, manage and leverage the scale of the individual patient data is what feeds our platform of algorithms and differentiates us in the market. 14:09 This brings me to an update on our expanding data platform. We are pleased to see our growing patient and provider engagement translate into increasing test volumes with a total of 292,000 tests resulted in 2021, excluding COVID. This represents annual growth of 41% when compared to 208,000 tests resulted in 2020. All areas of our core business are contributing to test volumes, including our recently launched product, Sema4 Elements. Sema4 Elements is part of our Women's Health portfolio and enable providers to treat patients holistically during their reproductive cancer and generational health journey. During the fourth quarter, our sales team increased uptake and began addressing the backlog of pent-up demand from existing customers, as well as the new users. Initial feedback has been very positive, and we look forward to increasing utilization and adoption. 15:05 Lastly, in mid-December we announced our plans to exit the COVID-19 testing business. Today, while the pandemic still lingers, circumstances relating to testing are very different than when we joined the fight against COVID-19 in early 2020. And we want to continue to drive innovative solutions to other pressing medical needs in the core components of our business, such as oncology and reproductive health. We therefore believe it is now appropriate for us to dedicate our resources to Sema4's core mission. 15:34 In 2021, we made key investments in our organization and infrastructure to build our platform of algorithms. In January of 2021 we hired renowned oncologist Dr. William Oh to help establish our leadership in delivering data-driven precision oncology solutions that support improved patient outcomes. In June, we hired health data expert and precision medicine scientist Andrew Kasarskis as Chief Data Officer to help optimize our data strategy and security to drive continued innovations of our health intelligence platform. In September, we hired Gustavo Stolovitzky, a world-leading computational biology expert as Chief Science Officer as we look to accelerate development and monetize our platform of algorithms. 16:21 To validate our platform of algorithms and support growing adoption, we remain committed to bringing industry guidelines together with our data to demonstrate the clinical benefits of data-driven insights have potential to improve patient outcomes. In November 2021, we published a pair of studies in collaboration with the Mount Sinai Health System that demonstrated the utility of our health intelligence platform to predict more accurately clinically meaningful outcomes. The studies were specifically focused on improving the prediction of risk of postpartum hemorrhage, the leading cause of maternal mortality globally over current standard care assessments. The results demonstrated the potential for healthcare providers to improve postpartum hemorrhage risk assessment and medical management for their pregnant patients, resulting in better health outcomes when implementing Sema4's predictive model into their clinical standard of care. 17:11 The publication of these results in the Journal of the American Medical Informatics Association marks an important advancement for the industry as we are among the first to use large-scale comprehensive real-world data to both accurately digitally phenotype patients and then predict clinically meaningful outcomes in pregnant women. These advances are happening in oncology as well, where among many papers, a recent study of Sema4 was just accepted in Nature Communications, which identified a molecular biomarker that could not only stratify an early-stage lung adenocarcinoma patients into different subtypes of disease, but identified Aurora kinases as a novel target for treating this disease at an early stage. 17:54 Publications and leading journals will also help support our reimbursement initiatives. Recently, we hired Jerry Conway to strengthen our Market Access team and drive improvement in our relationships with payers. In addition to the team's focus on commercial and reimbursement capabilities, the team will also look to develop new partnerships and strengthen existing relationships with payers and clinicians and establish broader patient access. 18:20 We are also honored to have recently been included in Fast Company's prestigious annual list of the world's most innovative companies for 2022. We were named as one of the top 3 most innovative companies in the data science category. Fast Company recognized Sema4 for closing the gap between the practice of medicine and the availability of more clinically actionable guidance, allowing for enhanced decision-making by physicians and patients to improve the prevention, management, and treatment of diseases. 18:51 2021 has been a year of investing for growth. During the year, we expanded our entire team to over 1,200 employees as of the end of 2021. This includes commercial headcount growth of roughly 50% since the beginning of 2021. We continue to see improvements in sales cycle and sales force productivity during the fourth quarter as our newly hired reps ramp towards full productivity. With the opening of our Stamford lab, we have increased the square footage of our lab operations and support infrastructure by 138%. R&D was up 45% in 2021 when compared to 2020 to support growth and development within both our diagnostic testing solutions and health intelligence platform. 19:34 Looking toward the remainder of 2022, we believe we are adequately staffed and resourced to support our growth objectives. As we have discussed previously, we continued to make investments to improve operating efficiency and margin throughout the fourth quarter. We made tangible progress across all priority areas, including portfolio optimization, implementing a new laboratory information management system, and additional lab automation initiatives. When combined with an improving reimbursement dynamic in oncology, our fastest growing segment, we remain on the right path towards more normalized margins through 2022. We do believe that the acquisition of GeneDx will help improve the combined company's operational excellence with best practices from each organization implemented in early days following the closing of the acquisition. 20:22 Overall, I'm excited with our progress in building the largest and most comprehensive integrated health information platform. The strategic objectives we have outlined then continue to advance, provide a solid foundation for sustainable future growth. With the acquisition of GeneDx, we will further distance ourselves as a market leader in comprehensive reproductive health genomic testing solutions and will be positioned to revolutionize patient care delivery. I’m confident in our ability to deliver on our plans and drive differentiated insights with the potential to dramatically improve the standard of care for all. 20:56 I would now like to turn the call over to Isaac for an update on our financial results and guidance. Isaac?
Isaac Ro: 21:04 Thank you, Eric. Turning to our fourth quarter and full year 2021 financial results, total revenue for the fourth quarter of 2021 was $57.8 million, down 10% compared to $64 million in the fourth quarter of 2020. Diagnostic test revenue was $56.1 million in the fourth quarter of 2021, down 9% compared to $61.6 million in the same period of 2020. COVID-19 testing revenue in Q4 was $10.5 million, down 59% year-over-year, but was up 151% sequentially from the third quarter of 2021. Other revenue totaled $1.7 million in the fourth quarter of 2021, compared to $2.4 million in the fourth quarter of 2020. Excluding COVID-19, total revenue for the company in the fourth quarter of 2021 was up 24% year-over-year. 21:54 Total revenue for 2021 was $212.2 million, up 18% compared to $179.3 million in 2020. Diagnostic test revenue was $205.1 million in 2021, up 17% compared to $175.4 million in 2020. COVID-19 testing revenue in 2021 was $34.4 million, representing an annual increase of 4.8%. For the full year, other revenue totaled $7.1 million in 2021, compared to $4 million in 2020. The increase was mainly attributable to growth in collaboration service activities related to new partnerships with biopharma. Excluding COVID-19, total revenue for the full year of 2021 was up 21%. 22:39 Turning to volumes. We resulted approximately 83,000 diagnostic tests during the fourth quarter of 2021, excluding COVID-19. That was up 37% compared to the same period in 2020. We recorded 142% volume growth in oncology, and this category now accounts for 6% of our total volume excluding COVID-19. Women's Health volumes grew 33% in the fourth quarter compared to the same period in 2020. For the full year of 2021, we resulted approximately 292,000 diagnostic tests, excluding COVID-19, up 41% compared to the full year of 2020. 23:17 I would now like to spend a minute discussing our path to driving improved gross margins. I'm pleased to report that we have reclassified certain P&L expenses in conjunction with the filing of our 202110-K. Please see the reclassifications section of the 10-K for additional detail. The following items reflect these reclassification. Cost of services was $60.6 million in the fourth quarter of 2021, compared to $69.6 million in the same period of 2020. The decrease was driven by lower volumes in our COVID-19 business and lower stock-based compensation expense, partially offset by increased headcount, investments in systems, higher logistical and supply costs due to increased volumes in our non-COVID-19 business. We anticipate these new investments will enable us to support continued volume growth with significantly higher cost efficiencies over time. 24:07 Cost of services was $228.8 million for full year 2021, compared to $175.3 million for the full year of 2020. The increase was driven by increased stock-based compensation expense, increased headcount, and increase in logistical expenses as a result of our expanded operations. 24:26 As a result of the reclassifications mentioned earlier, our adjusted gross margin in Q4 was 0% and positive 3% for the full year 2021. On a dollar basis, adjusted cost of services, which excludes stock-based compensation expense and other one-time COVID-19 related expense were $58 million for the fourth quarter of 2020, compared to $43.5 million in the same period of 2020. Adjusted cost of services was $206.2 million for the full year of 2021, compared to $142.8 million for the full year 2020. 25:00 Operating expenses for the fourth quarter of 2021 were $113 million, compared to operating expenses of $119 million for the fourth quarter of 2020. The decrease in operating expenses was due in part to higher personnel related costs, as we built out our laboratory operations and further invested in our health intelligence platform, as well as incremental public company expense, offset by lower stock-based compensation expense. Operating expenses for the full year of 2021 were $429.5 million, compared to operating expenses of $246 million for the full year of 2020. 25:36 Adjusted operating expenses, which excludes stock-based compensation for the fourth quarter of 2021 were $78.6 million compared to $38.9 million for the same period of 2020. Adjusted operating expenses, which excludes stock-based compensation expense and other non-recurring transaction expenses for the full year of 2021 were $227.2 million compared to $138.7 million for the full year of 2020. 26:02 Net loss for the fourth quarter of 2021 was $40.2 million, as compared to a net loss of $125.7 million for the same period of 2020. Fourth quarter 2021 net loss included other income of $76.2 million tied to the decrease in liabilities associated to warrant and earn-out contingent liabilities recorded in connection with the merger with CM Life Sciences. Net loss for the full year of 2021 was $245.4 million, compared to a net loss of $241.3 million for the full year of 2020. 26:36 Turning to the balance sheet, total cash and cash equivalents was $400.6 million as of December 31, 2021. Now turning to guidance. Our current revenue, volume, and gross margin guidance excludes any contribution from the pending acquisition of GeneDx. We expect our full year 2022 resulted volume growth will exceed 20% versus full year 2021, excluding COVID-19 testing. Full year 2022 adjusted gross margin is expected to exceed 10%. We expect gross margin to improve throughout the course of the year, with gross margin in the -- higher in the second half of 2022 than the first half of 2022, with Q4 being the highest gross margin for 2022. 27:19 Turning to share count, we estimate the full year 2022 weighted average basic share count for Sema4 will be in the range of 247 million to 250 million shares on a standalone basis. Regarding GeneDx, we continue to expect to close in the second quarter of 2022. On a pro forma basis, we expect that 2 companies would deliver a combined total of approximately $350 million in revenue for the full year 2022. This implies $220 million for Sema4 at the midpoint of our guidance range and $130 million for GeneDx. We have provided these figures to illustrate the scale of the combined company's revenue base as if they were combined retroactive January 1, 2022. 28:03 As a reminder, Sema4 revenue for 2022 will only include a prorated amount of GeneDx's $130 million in 2022 revenue, based on the expected timing of the acquisition closing. We will provide formal 2022 revenue guidance for the combined company after the deal closes. 28:21 On a pro forma share count -- our pro forma share count will incorporate an additional 130 million shares that will be issued in conjunction with the closing of the GeneDx acquisition, meaning our share count at the time of deal close will be approximately 377 million to 380 million. Our full year 2020 weighted average share count will be lower based on the timing of the deal close. This includes 80 million shares issued to (ph) the parent of GeneDx, and 50 million shares that will be issued to investors that have subscribed to our $200 million PIPE, which we funded upon the closing of the GeneDx acquisition. This does not include any shares that may be issued in conjunction with potential milestone payments to OPKO after the closing. 29:03 Long term we continue to expect the combined company will deliver compounded revenue growth of 30% or higher, 50% gross margins, and positive free cash flow by the end of 2025. 29:14 Now, I'll turn it back to our Founder and CEO, Eric Schadt.
Eric Schadt: 29:19 Excellent, Isaac. Thank you. In summary, I’m proud of our substantial progress during the year. We are on the right path to build and leverage the most comprehensive clinically relevant data set and make precision medicine as standard of care for health systems. 29:34 I would now like to open the call to any questions. Operator?
Operator: 29:40 Thank you. Our first question comes from Brandon Couillard of Jefferies. Your line is open.
Brandon Couillard: 29:57 Hey, thanks. Good afternoon. Let me just start with Eric. In terms of the health systems, it would be great to just maybe get some more details, some more color on how you think those relationships are progressing. And I'm just trying to get a feel for how much these are contributing today? What the right metrics are that we should look at? And where you kind of see those pool of partnerships that you have today advancing over the next 12 months?
Eric Schadt: 30:27 Yeah, again, we're like super pleased with the health system partnerships we've formed today and the performance we -- between the Mount Sinai system, NorthShore, and Avera in terms of testing volume now accounts for substantial percentage of the testing volume. So the uptake and drive into those systems is going well. We’ve talked about the level of uptake in the NorthShore system with respect to the genomic health screening as part of their population health program and the amount of translation of those screenings into heritable cancer screening. So that's all gone amazing, and having over 90% -- not only 90% of those primary care physicians ordering that testing, but over 80% indicating changes, substantial increases in standard of care are amazing. 31:30 We've launched as well a protocol, a precision oncology protocol with Avera that's now recruiting at a really good clip in. So all of that kind of standardizing the genomic testing across a broad array of diseases and conditions continues to go very well and increasing engagement as well around the data and collaborating with the systems around the data and how the kind of restructuring and annotation and so on that Sema4 can do can drive value back. 32:04 So in my view, we are straight on track on. And what I would look for over the next 12 months are, first of all, bringing on one or a couple of new system, and then also growing the information asset, getting more and more partnership around the data, growing also the patient base and the volume of testing.
Isaac Ro: 32:29 Yeah. And Brandon, I'd just add one more thing to that answer, which is that, Eric called out in the script this Founder Health System Consortium that we held at the beginning of March. I want to underscore that event as something that's really special in the industry, because it was really a unique opportunity to get all these health systems with whom we're partnered together in the same room, multiple representatives from each institution. And that really we think is going to start creating this flywheel effect in this go-to-market strategy that we have, because now you've got partners that we're working with helping each other, taking advantage of our technology, figure out ways to apply it and implement it. And so, that's something that we think we can build upon and we're going to be doing those quarterly. I just want to mention that, because it's something that we just haven't seen before in this industry and the feedback from the partners was awesome.
Eric Schadt: 33:15 Yeah, it's a great color, Isaac. Thanks for bringing that up. And just the ability, again, with that health system data driving that in a common data model, harmonizing those data, unifying across systems, enabling systems to cross-leverage those data to have learnings or validate learnings from other systems. So like super exciting to see that come together.
Operator: 33:40 Thank you. Our next question comes from Max Masucci of Cowen & Company. Your line is open.
Max Masucci: 33:47 Hey, thanks for taking the questions. I would just be curious to start, was the deal with BioSymetrics driven more by Sema4's core capabilities with Centrellis? Or did GeneDx's whole exome database play a factor?
Eric Schadt: 34:04 Yeah. It’s driven initially completely by the Centrellis platform, engaging a partner with significant high content screening type capabilities, the ability to experimentally validate across a broad array of experimental systems, the kinds of predictions we make and the complex models we put together for a disease, so helping validate and progress those models for better actionability, whether it's in clinical test -- the clinical genomic testing or in the drug discovery partnerships we have with pharmaceutical companies, but then also better leveraging our information assets to progress targets on our own in partnership with BioSymetrics. 34:53 The add of GeneDx into the mix has kind of accelerates, in my view, the utility of that platform, especially in the rare disorder arena where the scales of data GeneDx brings to the table the breadth of their testing across all of the children's hospitals and kind of that rare disorder space kind of gives us definitely a strategic advantage in kind of from identifying and prioritizing targets that we may progress to finding the right patient populations to further assess those models.
Max Masucci: 35:31 That's great. And it's a bit unique. It's not necessarily sequencing as a service, it's more focused around drug discovery. So, I'd be curious if there is a downstream economics component of the partnership?
Eric Schadt: 35:49 Yeah. So downstream, what we see is -- and we'll have more to say on this in coming quarters, but it's advancing some of these drug discovery programs ourselves, kind of moving the ball further down the field in terms of getting to a clinically validated or preclinical model to carry forward into the clinic, and then we envision pharmaceutical partners or partners in biopharma to then take up what will be deemed a much more valuable and progressed asset for faster clinical studies. 36:29 So that's kind of the -- where I would expect us to drive the most value from that program, but I won't underestimate the need to have that kind of experimental platform to be validating models that we're using to deliver clinically actionable guidance as well through the genomic testing solutions to same cancer and the ability to better match patients based on their molecular profiling to the most appropriate kind of therapeutic intervention or clinical trial, like, there'll be utility for that platform in that arena as well.
Max Masucci: 37:03 Great. Final one from me. If you look at the attractive COGS profile in the GeneDx facility, it seems like you're well positioned to enter new liquid biopsy applications on your own? Or you could partner with liquid biopsy players that stand to benefit from the whole exome capability. So it would be great to hear whether you think the GeneDx lab operations opens up some new opportunities for partnerships in the liquid biopsy space.
Eric Schadt: 37:36 Yeah, definitely, and exactly along the 2 fronts you had indicated, both progressing internal programs we have around liquid biopsy and I'll note that that exploration is not necessarily just in the oncology arena, but has reproductive health components as well. And the -- so I would say, we're actively exploring and driving some internal research that way, but also partnerships -- strategic partnerships with others to help progress their programs where, again, that lower COGS profile to generate some of the upfront data that you might need for MRD is highly attractive. So we have a number of those discussions going on.
Max Masucci: 38:21 Great. Thanks for taking the questions.
Operator: 38:25 Thank you. Our next question comes from Mark Massaro of BTIG. Your line is open.
Mark Massaro: 38:32 Hey, thanks for taking the questions. I guess, first one is for Isaac, pretty basic. But you did report about $6 million above where you pre-announced earlier in the year with nearly 3,000 tests above. Do you have visibility as to what constituted the change in actual versus pre-announced?
Isaac Ro: 38:56 Yeah. Sure, Mark. Good question. So the good news there is the upside relative to our pre-announcement was both within the core business, as well as COVID-19. So yes, COVID-19 was the majority of the upside, because we obviously had a huge bump in volume related to the Omicron wave, like probably most companies in our tier testing group. And so, that was the biggest single source. And when we pre-announced in January, we were still working through the revenue recognition piece of it, but the underlying core business of testing, likewise, saw upside. 39:30 So I would just attribute it to treat across the business relative to the plan, a little bit of market dynamic with Omicron, and I would say all of that in the context of a pre-announcement in mid-January when it's tough to ensure proper rev rec. So, here we are in March, the books are closed and we're happy with where we landed.
Mark Massaro: 39:49 Perfect. So it sounds like you pretty much reiterated all of the numbers for the pro forma combined company with your base business and GeneDx. One nuance just to ask on, I think you initially talked about a 16% pro forma gross margin, and now I think you've guided to a pro forma gross margin in excess or to exceed 10%, should we think of those 2 numbers as substantially equivalent? And then maybe can you just expand a little bit more, Isaac, about what types of specific initiatives you have in place to -- really to expand gross margins in 2022 and beyond?
Isaac Ro: 40:34 Yeah, sure. Thanks for asking that question to clarify. So just to be very clear, the 16% number that you are referring to was pro forma for the combined company. And recall that GeneDx has higher gross margin than we do. So there was a gross margin accretion just by the fact -- by way of emerging the companies. Embedded within that percent number was a single-digit gross margin full year assumption for Sema4 standalone, right? So what that means is, the 10% number that we're guiding to for standalone Sema4, we're actually raising our gross margin outlook a little bit for the year, in part because of the reclassification work that just got done. 41:10 So just to simplify it, we're actually raising our underlying gross margin outlook for the year a little bit. When we close the GeneDx deal, the pro forma gross margin will be updated according to the current information we'll have at that point in time. And again, at this point, it looks like the pro forma number will also be higher. So the point here is to say that we're making great progress on gross margin. And we're certainly not done, there's a lot to do. And so, segue from there would be sort of your question on, like, the specific things we are doing. 41:40 So in prior public forums we've tried to disclose very clearly that there were simplistically, like, 2 major baskets to improving gross margin this year that we are really working on. The first was really an accounting effort, which is now concluded with the 10-K where we've reclassified a lot of expenses out of COGS into other areas of the P&L so that we're consistent with other public companies in our peer group. So this is a great opportunity for us to sort of catch up to best practice across the peer group so that we're more comparable to everyone else. And the result of that is a material improvement. 42:12 You saw in Q3, we had a substantially negative adjusted gross margin and then in Q4, we are coming in about flat, and a lot of that -- not all of it, but a lot of it was related to the reclassification. So that's sort of the accounting piece that's done with and on the go-forward basis, our guidance reflects that. 42:28 The second category of gross margin improvement really relates to the more classical kind of operational things that you would expect that actually impact cash flow, right? The first category has no bearing on cash flow, revenue, net income, it was just classification within P&L. But to really operationally improve the business, we're doing a bunch of things. Number one is, we are reducing our COGS on a unit basis by focusing really on labor and reagents. I mean, those are really the 2 major input costs to our business as it stands today in testing, right? 43:00 So we've made a lot of progress. We hired Tony Prentice, who is our Head of -- SVP of Lab Ops last fall, and he has spent the last 6 or so months making a kind of progress on our lab efficiencies. So I want to recognize the team for ramping a new product cycle, while also getting more efficient. And so, the labor piece of it is coming down significantly. There's room to go there with automation and that's -- I mean, that's to come this year. 43:25 And then on the reagent side, we've done a lot of work to start trimming down our vendor list, get more efficient with inventory, negotiate more and in many cases, for the first time with our counterparties. And so, certainly we don't want to ignore the fact that we are facing, like everybody, an inflationary backdrop. But I would say for us this year, most of the conversation around input costs should be going down, not up, on a unit basis, because of all the opportunities in labor and in reagents and all that. 43:55 So, those are the things that we're doing. I think separate from all of that would be sort of what the pro forma company looks like over time. We're going to have a world-class facility that's capable of over 0.5 million NGS -- clinical NGS tests a year and we want to take advantage of that the right way, but there is nothing specific today -- to say today that's, obviously, for after the deal closes.
Mark Massaro: 44:14 Perfect. So I know you're well capitalized with $400 million of cash in the balance sheet. We saw last week, I think, (ph) announced a little bit of a restructuring to their workforce. I guess with this decline in multiples across the industry, does that at all impact how you think about running the business either inorganically as you think about additional M&A? Or even as you look at your own operating model to what extent are you examining costs? And I guess with that, how should we think about adjusted EBITDA playing out throughout the year?
Isaac Ro: 44:54 Yeah. Good question, Mark. So a couple of things. Number one, certainly, we are very focused on ensuring that our strong position of liquidity continues and we feel like we're in a good spot there and we'll certainly update the guidance that we've given around cash flow positivity over the coming months and quarters. But we've -- to reiterated, today our goal of being cash flow positive by the end of 2025, and we think it's important to give investors that visibility on the horizon and that's what we're building towards. 45:23 I think from there, when I -- when we think about capital deployment, we said this before as well, we've undertaken a transformative deal with GeneDx. It's a significant commitment, it's a significant focus for us, critically important that we close it on a timely basis and execute upon the integration really well. So that is by far mission 1 and 2 for us operationally this year. And I think, as a result M&A, well, I would never say never, it's just really a very, very high bar, extremely high, for us to consider doing anything else here. We really want to focus on getting GeneDx right and that's really where we're putting our energy. 45:59 So with all that said, I think your last question had to do with the pacing for the year. So I'll just say that our cash burn for the year will come down dramatically over the course of the year, as we execute upon a lot of the things we've talked about, especially improving gross margin. So I would expect there to be sort of a peak cash burn for the year and for going forward, in Q1, and it should come down significantly in Q2, Q3, and Q4. And so, we'll give more details on that as the year progresses, but we are very much focused on driving a clear path towards profitability and self-sustainment.
Mark Massaro: 46:37 Okay, great. And maybe just one last one. I think I heard you talk about a goal of having at least 5 systems by year-end 2023. Just checking, is that a cumulative all-in number? And then can you just talk about maybe what your pipeline looks like? And I know you have a high bar, you've talked about quality over quantity, but anything you could add there would be helpful.
Eric Schadt: 47:03 Yeah, it's definitely cumulative. And again, the strategy we're pushing is 5, maybe as high as 10 systems by -- over the next couple of years, and these initial ones are very much learning based partnerships right? It’s learning how do we take all of the components we have, the components others have and wire together solutions for the system that delivers precision medicine as standard of care, that involves advanced genomic testing solution against all diseases and conditions, that involves helping structure and manage information and make it accessible and useful to better characterizing patients and hospital operations, as well as research. 47:49 So like there is a lot there, and we think that -- so that pipeline, we thinking of it as just a handful of additional systems over the next couple of years to kind of fill out the range of possibilities that we're pursuing with respect to precision medicine as standard of care. And we think over the next year or so, especially with this consortium and having the systems working together and address common problems and ways to advance, what's common among the systems, what's idiosyncratic and requires customization, and so on. So there's a lot of learnings that will happen that will enable us to then come up with a model to scale. 48:31 And so, I think until we're at that model, which we think will be over the next year or so, the plan is not to scale to as many systems as we can grab. And it's worth noting that our (ph), everything we filed is really based on that 5 to 10 health system number, in getting to the right level of uptake in partnership, and driving a lot of that benefit into pharma relationships. 48:58 I don't know if, Isaac, you have anything else to --
Isaac Ro: 49:01 Yeah. No, it's a great summary. Nothing to add.
Mark Massaro: 49:06 Okay. That's it for me. Thank you.
Operator: 49:09 Thank you. Our next question comes from Matt Sykes of Goldman Sachs. Your line is open.
Dave Delahunt: 49:19 Hey guys, this is Dave on for Matt. Thanks for taking the questions. Any additional updates you can give on progress in the biopharma business and expectations for the year?
Eric Schadt: 49:32 Yeah. So we maintain a really aggressive degree of effort around discussions with a number of very large pharma around a more transformative deal that leverages the kind of information asset, we've built a high degree of interest in that. In addition to some of the drug discovery capabilities we've been demonstrating. So I would say, all of those discussions and interactions are going really well and we continue to think that this will be a more transformative year for Sema4 with respect to pharma relationships. 50:15 That said, we also have some of the more modest -- moderate type deals that we keep driving around real-world evidence studies and clinical trial matching and continuing the relationship with Sanofi on helping identify the next generation of targets with partnership with them for asthma and better characterization of asthma patients. So all in all, we are feeling really confident on that.
Dave Delahunt: 50:43 Great. And then looking forward to continued strong growth in your oncology business, any additional color on the Women's Health versus oncology mix we can expect for the year?
Isaac Ro: 50:59 Yeah, maybe just high level, I would say that you are seeing the volume growth each of the last 2 quarters in oncology, triple digits. So while it's still relatively small absolute values versus the Women's Health business, you can clearly see that it is the fastest growing part of our franchise, number one; and number two, we're growing much faster than the end markets that we serve in that category. So a lot of that's being enabled by the health system progress that we're making. Eric touched on a lot of that. So we feel really good about the opportunity for our oncology franchise going forward. 51:32 I should also remind you that from a reimbursement perspective, we have a bunch of irons in the fire this year to drive better payment so that the revenue attached with our volume starts to catch up. And if we do that, that will also be important to improving our gross margin profile in the second half of the year. So, lots going on in the oncology business on the internal side that's really positive and worth highlighting and as we think about the feedback that we're getting the -- again, the consortia that we held with our health system partners, they're really excited about what we're able to enable for them and their patients with the data that wraps around the tests ourselves -- themselves.
Eric Schadt: 52:12 Yeah. And maybe just wanted to add a little on top of that, that it's -- on the Women's Health side, one of the big plays that we're making there and that are driving a significant part of that growth is through the oncology connection with women's health with diseases like breast and ovarian endometrial cancer being reproductive health diseases and kind of offering our heritable cancer genomic testing solution in that arena where we're getting kind of the best uptake a more traditional (ph) channels and of course, also the partnerships around the somatic tumor profiling and connected that with respect to breast and ovarian, so there's a lot of connectivity again driving across those different channels and in particular with the health systems. And I'll also say to Isaac's point on the fast growth and uptake in these systems on the oncology solution is kind of representative of -- there is no full precision oncology solution today. Nobody really has that today. And again, the testing as part of it, liquid biopsy may be part of it, the data is part of it, the patient engagement is part of it. But what the systems really need, what the physicians really need is a way to more effectively manage, engage that information, make decisions over time, and it's not a one-time episodic test that gets flipped. It's a way more holistic wrap-around solution that we're providing.
Dave Delahunt: 53:43 Fantastic. Thanks for the excellent color.
Operator: 53:47 Thank you. I'm showing no further questions this time I'd like to turn the call back over to Eric Schadt for any closing remarks.
Eric Schadt: 53:55 Great, thank you. Thank you for your attention. I wanted to thank everybody on the call for the interest in Sema4 and joining us today on our fourth quarter and full year 2021 results. We look forward to keeping you all updated on our developments. So have a nice evening.
Operator: 54:16 Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all participating. You may now disconnect. Have a great day.
