Sema4 Holdings Corp.

Thank you for standing by and welcome to the civil for fourth quarter 2021 earnings conference call. I would now like to turn a call over to Joel Kaufman, Vice President of Finance and Corporate Development. Please go ahead.

Thank you. Good afternoon, everyone. Thank you all for participating in today's conference call. Participating for the company today will be Eric Schott, founder and Chief Executive Officer and Isaac Rowe, Chief Financial Officer. Earlier today, SEMA IV released financial results for the fourth quarter and full year ended December 31st, 2021. A copy of the press release is available on the company's website. 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 that are forward-looking statements. Actual results may differ materially from those expressed or implied in the forward-looking statement due to a variety of factors. 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 Semaphore'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. 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. Semaphore 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. And with that, I'll turn the call over to Eric.

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. 2021 was a transformative year for Semaphore, 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 disruptive macro issues than I would have imagined heading into 2021. Semaphore continues to build capabilities anchored in clinically relevant genomic and patient data with artificial intelligence and machine learning. We continue to establish Semaphore as the partner of choice for health systems, therapeutic innovators, and other healthcare companies. At Semaphore, 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. 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 four 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. We believe that Centralis 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 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 to $225 million. Building upon the success that has propelled Semaphore, 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 Semaphore 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. We believe that becoming a larger and stronger company gives us a clear and achievable path to 50% gross margins. 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. We are excited to partner with Catherine Stulin, 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 in 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 Centralis database by adding more than 2.1 million expertly curated phenotypes and well over 300,000 clinical exomes that GNDX has generated to date. Following the close of the acquisition, Semaphore will have the most comprehensive, clinically relevant data set available for our research and development purposes. Turning back to our performance in 2021, I would like to provide a detailed update on our progress towards advancing our strategic objectives, starting with our health system partnerships. As you know, Semaphore has partnered with four health systems, three 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. Earlier this month, we held our first founder health system consortium meeting with all four 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 a 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. Semaphore 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 and 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 healthcare. 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, Semaphore has continued to work with North Shore University Health System 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 a test as part of this program, but 80% of those physicians report a 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. 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, meaning NCCN guidelines for being at high risk for heritable cancer. These results represent a 78% increase in adoption versus results of a similar program not powered by Semaphore. Evidence from this study will now inform Semaphore and North Shore University Health System 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. Turning to Avera, in November of 2021, Semaphore and Avera Health launched the Avera Health Semaphore 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 premalignant or malignant growth in patients across different stages of disease development and cancer types. The comprehensive molecular profiling consists of somatic tumor testing using semaphores, whole exome, whole transcriptome, proteomics, and in selected instances, whole genome sequencing. In addition, we are performing broad heritable cancer testing in affected patient populations. Hereditary cancer has implications in screening, prognosis, and therapeutics for affected patients, as well as broad implications for genetic counseling and cascade testing. 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 dataset by combining it with the genomic findings and creating initial clinical quality dashboards, which will provide additional insights to Avera Health providers. We look forward to leveraging GeneDx to expand existing partnerships and enhance discussions with future partners. I am confident 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 five systems by year-end 2023. 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 post-market surveillance. 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 BioSymmetrix, focusing on data-driven drug discovery to advance precision medicine. Together, we will leverage our proprietary health intelligence platforms and trellis in combination with ELEON, BioSymmetric's phenotypic drug discovery platform, to both experimentally 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-end need, where multi-omics offers a differentiated approach to discovering drugs and leverage these programs to drive enhanced collaboration between semaphore and biopharma companies. We expect BioPharma partner contributions to grow throughout 2022 as we work to demonstrate the tangible value of the Semaphore 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. 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 this scale of individual patient data is what feeds our platform of algorithms and differentiates us in the market. 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, Semaphore Elements. Some of her elements is part of our women's health portfolio and enables providers to treat patients holistically during their reproductive cancer and generational health journeys. During the fourth quarter, our sales team increased uptake and began addressing the backlog of pent-up demand from existing customers as well as new users. Initial feedback has been very positive, and we look forward to increasing utilization and adoption. 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 Semaphore's core mission. 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 Kasarskas, 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 Stolovitsky, a world-leading computational biology expert, as chief science officer as we look to accelerate development and monetize our platform of algorithms. 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 and 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 Semaphore's predictive model into the clinical standard of care. 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 semaphore was just accepted in Nature Communications, which identified a molecular biomarker that could not only stratify 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. 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. 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 three most innovative companies in the data science category. Fast Company recognized Semaphore for closing the gap between the practice of medicine and the availability of more clinically actionable guidance, allowing for enhanced decision-making by physician and patients to improve the prevention, management, and treatment of diseases. 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 Salesforce productivity during the fourth quarter as our newly hired reps ramp towards full productivity. With the opening of our Stanford 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. 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 continue to make investments to improve operating efficiency and margins 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 GNTX will help improve the combined company's operational excellence with best practices from each organization implemented in the early days following the closing of the acquisition. Overall, I'm excited with our progress in building the largest and most comprehensive integrated health information platform. The strategic objectives we have outlined and continue to advance provide a solid foundation for sustainable future growth. With the acquisition of GNDX, we will further distance ourselves as a market leader in comprehensive reproductive health genomics testing solutions and will be positioned to revolutionize patient care delivery. I am 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. I would now like to turn the call over to Isaac for an update on our financial results and guidance. Isaac?