When Sema4 Holdings rebranded as GeneDx Holdings (WGS) in January 2023, taking the name of a pioneer diagnostic test developer it acquired eight months earlier, the company was burning through about $90 million cash every quarter and was far from breaking even. Its somatic tumor testing business was losing so much money that it operated on a gross margin of negative 833%.
A year and a half later, publicly traded GeneDx could brag of a stock that has catapulted more than 3,600% over the past 10 months, thanks to a turnaround reflected in a series of strong second quarter results:
- A 45% jump in revenue to $70.514 million, nearly all of it ($68.924 million) revenue from continuing operations at adjusted gross margins of 62%.
- A 77% year-over-year leap in revenue from exome and genome testing.
- A 52% one-year jump in the volume of whole exome and whole genome tests, to 18,017 from 11,855 in Q2 2023.
The diagnostics company also raised its revenue guidance range 8.2% to 8.5%, projecting to investors it will finish this year making between $255 million and $265 million. Most attractively to investors, GeneDx reiterated its plan to achieve profitability in 2025, when it will celebrate its 25th anniversary.
In between, GeneDx changed its name, rechristening itself with the name of the NIH spinout diagnostics developer that Sema4 acquired from publicly traded OPKO Health (OPKO) two years ago.
More importantly, GeneDx’s turnaround follows its pivot toward offering diagnostic tests based on whole exome sequencing and whole genome sequencing, with emphasis on enabling diagnosis of rare diseases in children, Katherine Stueland, GeneDx’s president and CEO, told GEN Edge.
Rare disease and pediatric testing represents a $3 billion market, GeneDx estimates with support from data by the consultancy Definitive Healthcare. That market is expected to grow rapidly given the potential to achieve significant cost savings for patients and healthcare providers via early screening.
Over time, GeneDx plans to expand into newborn screening, a potentially $10 billion market—then eventually into adult screening to replace multi-gene panel and individual gene tests, a future market pegged at $16 billion.
“Very few clinicians are looking at a child who’s having seizures saying this may be CLN2 disease,” Stueland said, noting that the number of genes associated with epilepsy stands at 768-and-growing. Multi-gene panels, by comparison, may focus on about 180 of the genes.
Leaving no patients behind
“Being able to look at a genome’s worth of information ensures that you’re not leaving any patients behind. You’re able to get the totality of information that you need to really to really diagnose comprehensively whether or not there is a patient who has an underlying genetic condition by using whole exome and whole genome sequencing.
According to data published in February by the NIH and published last year by NORD (National Organization for Rare Disorders), about 1 in 10 Americans suffer from a rare disease, more than 30 million people. About half the nation’s rare disease patients are children, of which 30% will not live to see their fifth birthday. Approximately 70% of rare diseases appearing to be genetic in origin.
“These families really are going through a diagnostic odyssey that can last many years. It can take six to eight years to get a child diagnosed with a rare disease. So that is what we’re focused on—it’s getting a child diagnosed as early as possible so we can then put them on a healthier path moving forward,” Stueland added. “We can diagnose them within weeks, if not days.”
Faster diagnosis saves money for patients—about $7,000 per outpatient and about $30,000 for inpatients and babies in neonatal intensive care units (NICUs), GeneDx estimates. Most of the company’s tests are covered by payers. The number of states covering the tests has jumped over the past three years, from one to 14 states covering inpatient rapid whole genome sequencing in NICUs, and from five to 29 covering outpatient exome testing.
Raising gross margins
The move to whole exome and whole genome testing also raised GeneDx’s gross margins, which the company has further adjusted into a non-GAAP measure that removes restructuring costs, depreciation and amortization, and stock-based compensation. The company’s margins have improved from negative 82% (adjusted to negative 76%) in the second quarter of 2022 as Sema4, to positive 39% (42%) in Q2 2023, to 60.9% (62.1%) in this year’s second quarter.
“As we were able to get the company really focused, interestingly, the strongest parts of the business that deliver the highest patient impact have the strongest and most benefit to our P&L [profit and loss statement],” Stueland said. “We’re in this really rare place where we have the products that are what’s best for our patients and a growing number of patients, and we also have the products that have the strongest impact on our P&L.”
GeneDx finished Q2 with a net loss of $29.173 million, which the company adjusts to a $2.74 million net loss by removing fair value of financial liabilities and charges related to business exit, in addition to the adjustments it makes to its gross margins.
The company’s net loss has shrunk from $46.719 million (adjusted to $41.847 million) in last year’s second quarter and $85.742 million (adjusted to $66.364 million) in Q2 2022.
GeneDx’s interpretation platform is fueled by data from nearly 700,000 clinical exome and genome tests, making it one of the world’s largest rare-disease datasets, and combines machine learning with more than two decades of genetics expertise to deliver diagnoses for patients intended to be accurate and actionable.
The company no longer offers the Centrellis® health information platform, an offering of the legacy Sema4 business that integrated artificial intelligence with digital tools that include one of the world’s largest rare-disease datasets and millions of medical records.
Investor approval
Investors have roared their approval of the pivot with a stock surge that has sent GeneDx shares zooming from a 52-week low of $1.16 on November 16, 2023, to a high of $43.32 on September 20, before fluctuating in recent days, falling 15% to $36.84 Wednesday before rebounding 10% Thursday to $40.62, then rising another 5% Friday to $42.79.
“I think they [investors] have taken notice of a really strong foundation with a clear competitive lead,” Stueland said.
Analysts largely agree with Stueland and GeneDx’s refocusing on whole exome and genome tests.
“GeneDx (and legacy Sema4) has walked a long road and the new management team took a company teetering in danger, to one that is knocking on the door of profitability,” Mark Massaro, a managing director and senior equity research analyst at BTIG covering diagnostics and life science tools, wrote in a research note soon after GeneDx released its powerhouse Q2 results. “We think what this management team has done is one of the best turnarounds we have seen in the space in the last decade.”
Massaro added that he viewed the company’s 2025 profitability forecast as “a conservative outlook, as we think WGS will get there sooner than expected.” He raised BTIG’s 12-month price target on GeneDx stock by 29%, from $35 to $45, and maintained the firm’s “Buy” rating on the stock.
Echoing Massaro’s optimism that GeneDx will become profitable by 2025 is Tycho Peterson, an equity analyst at Jefferies focused on life science tools, diagnostics, and medical devices. In a research note, Peterson observed that GeneDx’s forecast of operating in the black over the “next few” quarters “likely signals 1H25 (or perhaps even blue sky late ’24), in our view.”
“WGS has emerged as a much cleaner story post-Sema4 divestiture and results and operational progress during the last few quarters has been impressive,” Peterson added. Peterson also raised Jeffries’ price target on GeneDx by 81%, from $21 to $38, but maintained its “Hold” rating.
However, a consensus of analysts polled by FactSet predicts GeneDx won’t break even until 2026. According to Investor’s Business Daily, the analysts expect the company to gain 78 cents per share following an adjusted loss of $1.22 per share this year and a 4 cent per share loss in 2025.
Profitability mandate
“The mandate that was given to me when I took over at the end of April of 2022 was, how do you make this company profitable as quickly as possible?” Stueland recalled. “As we started really doing a systematic review, we wanted to make sure that we interrogated every aspect of the business before making a really big decision to wind down businesses or to sell businesses.”
Sema4 had already exited COVID-19 testing when GeneDx began reviewing its operations under Stueland. That review led GeneDx to exit Sema4’s somatic tumor testing business during the fourth quarter of 2022, followed in Q1 2023 by exiting the reproductive and women’s health testing business. GeneDx continues to book revenue from legacy Sema4 tests, but at $1.59 million it accounted for only 2% of GeneDx’s Q2 revenue.
Stueland said GeneDx tried to sell the reproductive health business, which had been burning through $30 million cash per quarter, but wound it down instead after it could not find a buyer.
“The oncology side was really a nascent business that [Sema4] was really just starting to invest in, and it would have required quite a bit more. There wasn’t anything particularly proprietary at the time there,” Stueland recalled. “So, that was the first business that we wound down. We did not look to sell that to anyone.”
GeneDx also shut down its laboratories in Stamford, CT, where the company remains headquartered, and Branford, CT. The company also carried out layoffs that included eliminating approximately 500 jobs in 2022, followed last year by cutting 85 jobs in two waves.
Today, Stueland said, GeneDx has a headcount of about 910 based across its Stamford headquarters, its current lab in Gaithersburg, MD, and remotely. The company has maintained its workforce at between 850 and about 900 over the past year.
“As we look to 2025, I don’t see us adding too many heads. I think we’re going to continue to invest in some of our commercial efforts,” Stueland said.
Those efforts, she said, include its collaboration launched in June with Epic Aura to expanding access to its rapid whole genome sequencing (rWGS) services in the neonatal intensive care units (NICUs) of leading health systems: “It will improve the experience of clinicians. It’ll shorten the time to ordering. So, that’s an investment that has some talent that we’ve brought on board to be able to pull that through.”
Expanding sales team
GeneDx will also grow its workforce by expanding its enterprise sales team, which is focused on building up the company’s presence in NICUs based on the Epic Aura collaboration.
“We’ll continue to bolster our commercial efforts to support, I would say, translating our leadership in the outpatient setting using our whole exome sequencing, and into the inpatient setting using our whole genome sequencing,” Stueland said.
Today’s GeneDx began as an NIH spinout founded in 2000 by then-investigators Sherri Bale, PhD, and John Compton, PhD, to broaden access to genetic testing for patients with rare diseases. GeneDx was the first company to commercially offer whole genome sequencing testing in a CLIA lab and promotes its pioneering role in the technology by using as its stock symbol “WGS.”
“The company started with a bit of a gene-by-gene approach, and over time really started pioneering multi-gene panels and then whole exome sequencing and whole genome sequencing,” Stueland said.
GeneDx was acquired in 2006 by BioReference Laboratories, which was snapped up in 2015 by OPKO Health. Two years later, the nonprofit Mount Sinai Health System spun out several genetic testing and data sciences operations from its Department of Genetics and Genomic Sciences and the Icahn Institute for Genomics and Multiscale Biology into the for-profit Sema4 led by founder and CEO Eric Schadt, the Institute’s founding director.
In 2021, Sema4 signaled its intent to grow into a juggernaut of precision medicine by going public. The company raised about $500 million through a business combination completed with CM Life Sciences, a Special Purpose Acquisition Company (SPAC) sponsored by affiliates of noted life sciences investor Eli Casdin’s Casdin Capital and Corvex Management.
“As the market worsened and the need to focus the company only on those things that could drive it to profitability over a much shorter time horizon than we had initially planned for, without needing to raise substantially more money, the hard decisions needed to be made to take down things that were longer term plays and not capable of delivering profitable results over a shorter period of time,” Schadt told GEN Edge on Tuesday.
“Necessary steps”
“This unfortunately meant closing down the cancer and reproductive health business. I think there were necessary steps for Sema4/GeneDx to take, and of course from my perspective obviously sad but necessary nevertheless, in order to survive the type of market that we were confronted with (a market by the way that has taken down many great companies, such as Invitae),” Schadt added.
Invitae filed for Chapter 11 bankruptcy in February, citing the economy, leadership turnover and poorly timed acquisition deals. The company listed $535 million in assets and $1.6 billion in liabilities. Three months later, the U.S. Bankruptcy Court approved Labcorp’s bid for select assets of Invitae on a going concern basis for $239 million cash plus other non-cash consideration.
According to Schadt, GeneDx’s focus on whole genome and exome tests motivated him and Sema4’s board to combine with GeneDx two years ago. “Those tests being on a good ramp and getting well reimbursed and a great brand in the clinic provided a path to much better margins and path to profitability,” Schadt said. “I think they [GeneDx leadership] have done an amazing job of pulling that off.”
Sema4 paid OPKO $150 million cash upfront plus 80 million shares of its Class A common stock for GeneDx. The deal also included up to $150 million in milestone payments to OPKO, of which GeneDx paid out 701,460 shares valued at $112.5 million for meeting the first milestone of 2022 revenues exceeding $163 million (they were $234.694 million), but missed the second milestone as 2023 revenue did not equal or exceed $219 million (they were $202.6 million).
When OPKO Health announced selling off GeneDx to Sema4 in 2022, the combined company initially planned to retain both Stueland and Schadt as co-CEOs. But by August 2022, Schadt left Sema4. He remains at Mount Sinai’s Icahn School of Medicine, where he is dean for Precision Medicine and professor in Predictive Health and Computational Biology.
“It was clear given the shifting market—the drying up of money to raise for companies that were not profitable, thus the need to get to profitability with money already raised—and the complexity of the mission we had been on, what would be of bigger value to the company would be my focusing way more on the science rather than the duties of a CEO,” Schadt explained.
“Katherine was well poised to take that on. And having me focus 100% on the science would deliver more value, given what we were trying to do with the information platform and value of that beyond ‘the test.’”
Whenever GeneDx attains profitability, it plans to do so largely organically, though it has not ruled out growing through mergers and acquisitions (M&A).
“We have a very clear growth plan based on organic growth for sure,” Stueland said. “When I think about M&A, what I’m really taking a look at is, are there technologies that can help us become even better, faster, more efficient in delivering this sort of information? Are there better ways for us to be able to better our services into the workflow for providers and for parents? We really think about how to continue to drive the value that we’re driving, but do it better, faster, and cheaper than anyone, to be able to open up access and help more of these families.
Leaders and laggards
- Capricor Therapeutics (CAPR) shares rocketed 73% over two days, from $5.97 Monday to $10.34 Wednesday, after the company announced it will commence filing a Biologics License Application (BLA) in October seeking full approval of deramiocel for the treatment of Duchenne muscular dystrophy (DMD) cardiomyopathy, with a full submission expected by year’s end. Capricor said the BLA will be based on cardiac data from the Phase II HOPE-2 (NCT03406780) and Phase II HOPE-2 Open Label Extension (HOPE-2-OLE; NCT04428476) trials compared to natural history data provided by Vanderbilt University Medical Center and Cincinnati Children’s Hospital Medical Center. To support potential label expansion to treat DMD skeletal muscle myopathy, Capricor added, it plans to combine Cohorts A and B of the Phase III HOPE-3 trial (NCT05126758) to serve as a post-approval study and does not intend to unblind Cohort A now as had been expected to occur in the fourth quarter.
- Emergent BioSolutions (EBS) shares jumped 23% from $5.94 to $7.28 Thursday, a day after the company said it secured approximately $400 million in orders in 2024 and 2025 associated with its vaccinia, smallpox and mpox product portfolio. That total included previously disclosed U.S. government contract modification to procure ACAM2000®, (Smallpox and Mpox (Vaccinia) Vaccine, Live)—as well as CNJ-016®[Vaccinia Immune Globulin Intravenous (Human)] (VIGIV) contract options exercised in 2023 and earlier this year. To date, Emergent said, customer orders of nearly $210 million have been delivered for ACAM2000® and VIGIV. For the remainder of 2024 and into 2025, Emergent said, it is confirmed to deliver an incremental $185+ million in ACAM2000® and VIGIV orders.
- Telesis Bio (TBIO) shares leaped 72% from $2.32 to $3.99 Thursday, a day after the company announced after hours a partnership of undisclosed value with Danaher (DHR)-owned Beckman Coulter Life Sciences to develop solutions for sustainable and rapid on-premise synthesis of DNA by creating efficient and scalable biofoundries. The collaboration integrates Telesis Bio’s Gibson SOLA Enzymatic Synthesis technology with Beckman Coulter’s new Biomek Echo One System, allowing for incorporation of constructs from other providers compatible with Gibson SOLA. The companies trumpeted their collaboration as one that will “revolutionize DNA and mRNA [messenger RNA] synthesis” and thus “revolutionize synthetic biology.” Danaher shares rose 3% from $267.88 to $276.93.
- Wave Life Sciences (WVE) shares soared 69% over two days, from $5.34 Monday to $9.01 Wednesday after the company announced positive interim data from the ongoing Phase II FORWARD-53 trial (NCT04906460) assessing WVE-N531, an exon skipping oligonucleotide being studied in boys with Duchenne muscular dystrophy (DMD) who are amenable to exon 53 skipping. Dystrophin results from a pre-specified analysis of ambulatory boys showed mean absolute muscle content-adjusted dystrophin expression was 9.0% (range: 4.6–13.9%), while mean absolute unadjusted dystrophin expression was 5.5% of normal (range: 3.3–8.3%), as measured by Western Blot. Wave also said 89% of ambulatory participants achieved muscle content-adjusted dystrophin levels of at least 5%. Wave is awaiting word from regulators on a pathway to accelerated approval expected in the first quarter of 2025, by which time the company expects to have complete 48-week data. The interim analysis was conducted after 24 weeks of 10 mg/kg dosing every two weeks.
