UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from __________ to __________
Commission file number 001-39482
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| (Address of Principal Executive Offices) | (Zip Code) | ||||
(800 ) 298-6470
Registrant's telephone number, including area code
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | o | Accelerated filer | o | ||||||||
| x | Smaller reporting company | ||||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The registrant had outstanding 380,641,510 shares of Class A common stock as of August 9, 2022.
Table of Contents
| Page | ||||||||
Cautionary Note Regarding Forward Looking Statements | ||||||||
EXPLANATORY NOTE
Unless otherwise stated in this report or the context otherwise requires, references to:
•the “Company,” “Sema4” and “we,” “us” and “our” refer to (i) Mount Sinai Genomics, Inc. d/b/a as Sema4, or Legacy Sema4, prior to the consummation of our business combination with CM Life Sciences, Inc., or CMLS, on July 22, 2021 and (ii) Sema4 Holdings Corp. and its consolidated subsidiaries following the consummation of our business combination.
•“GeneDx” refer to GeneDx, LLC, a Delaware limited liability company (formerly, GeneDx, Inc., a New Jersey corporation), which we acquired on April 29, 2022.
4
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. The words “anticipate,” “believe,” “estimate,” “may,” “expect” and similar expressions are generally intended to identify forward-looking statements. Our actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation, those discussed under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report, as well as other factors which may be identified from time to time in our other filings with the Securities and Exchange Commission, or the SEC, or in the documents where such forward-looking statements appear. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements. Such forward-looking statements include, but are not limited to, statements about:
•our estimates of the sufficiency of our existing capital resources combined with future anticipated cash flows to finance our operating requirements
•our expected losses;
•our expectations for incurring capital expenditures
•unforeseen circumstances or other disruptions to normal business operations, including supply chain interruptions and manufacturing constraints, arising from or related to the ongoing COVID-19 pandemic;
•our ability to realize the benefits expected from our April 2022 acquisition of GeneDx;
•our expectations regarding our plans to exit our somatic tumor testing business and the associated cost savings and impact on our gross margins;
•our expectations for generating revenue or becoming profitable on a sustained basis;
•our expectations or ability to enter into service, collaboration and other partnership agreements;
•our expectations or ability to build our own commercial infrastructure to scale market and sell our products;
•actions or authorizations by the U.S. Food and Drug Administration, or the FDA, or other regulatory authorities;
•risks related to governmental regulation and other legal obligations, including privacy, data protection, information security, consumer protection, and anti-corruption and anti-bribery;
•our ability to obtain and maintain intellectual property protection for our product candidates;
•our ability to compete against existing and emerging technologies;
•our stock price and its volatility;
•our ability to attract and retain key personnel;
•third-party payor reimbursement and coverage decisions, negotiations and settlements;
•our reliance on third-party laboratories and service providers for our test volume in connection with our diagnostic solutions and data programs;
•our ability to satisfy Nasdaq listing rules;
•our expectations for future capital requirements;
•our accounting estimates, including the adequacy of our reserves for third party payor claims and our estimates of the fair value of the milestone payments related to the GeneDx acquisition; and
•our ability to successfully implement our business strategy.
The forward-looking statements contained in this report reflect our views and assumptions only as of the date that this report is signed. Except as required by law, we assume no responsibility for updating any forward-looking statements.
We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
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Part I - Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements
6
Sema4 Holdings Corp.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
| June 30, 2022 (unaudited) | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Due from related parties | |||||||||||
| Inventory, net | |||||||||||
| Prepaid expenses | |||||||||||
| Other current assets | |||||||||||
| Total current assets | $ | $ | |||||||||
| Operating lease right-of-use assets | |||||||||||
| Property and equipment, net | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Restricted cash | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||||
| Due to related parties | |||||||||||
| Contract liabilities | |||||||||||
| Short-term lease liabilities | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | $ | $ | |||||||||
| Long-term debt, net of current portion | |||||||||||
| Long-term lease liabilities | |||||||||||
| Other liabilities | |||||||||||
| Deferred taxes | |||||||||||
| Warrant liability | |||||||||||
| Earn-out contingent liabilities | |||||||||||
| Total liabilities | $ | $ | |||||||||
| Commitments and contingencies (Note 10) | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred Stock, $ | |||||||||||
Class A common stock, $ | |||||||||||
Additional paid-in capital | $ | ||||||||||
Accumulated deficit | ( | ( | |||||||||
Total stockholders’ equity | |||||||||||
Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
Sema4 Holdings Corp.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
(unaudited)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 (1) | 2022 | 2021 (1) | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
Diagnostic test revenue (including related party revenue of $ | $ | $ | $ | $ | |||||||||||||||||||
Other revenue (including related party revenue of $ | |||||||||||||||||||||||
Total revenue | |||||||||||||||||||||||
Cost of services (including related party expenses of $ | |||||||||||||||||||||||
Gross profit (loss) | ( | ( | ( | ( | |||||||||||||||||||
Research and development | |||||||||||||||||||||||
Selling and marketing | |||||||||||||||||||||||
General and administrative | |||||||||||||||||||||||
Related party expenses | |||||||||||||||||||||||
Loss from operations | ( | ( | ( | ( | |||||||||||||||||||
Other income (expense), net: | |||||||||||||||||||||||
| Change in fair market value of warrant and earn-out contingent liabilities | |||||||||||||||||||||||
Interest income | |||||||||||||||||||||||
Interest expense | ( | ( | ( | ( | |||||||||||||||||||
Other income | |||||||||||||||||||||||
Total other income (expense), net | ( | ||||||||||||||||||||||
Loss before income taxes | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Income tax benefit | |||||||||||||||||||||||
Net loss and comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Weighted average shares outstanding of Class A common stock | |||||||||||||||||||||||
Basic and diluted net loss per share, Class A common stock | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
(1) As previously disclosed in Note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, certain adjustments were made to reclassify certain expenses between cost of services and operating expenses. The adjustments are reflected as disclosed.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
Sema4 Holdings Corp.
Condensed Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
(in thousands, except share amounts)
(unaudited)
| Three months ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Class A Common Stock | Additional paid-in capital | Accumulated deficit | Total stockholders’ equity | ||||||||||||||||||||||||||||||||||||||||
| Shares | Par value | Shares | Par value | |||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2022 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||
| Stock option exercises | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Shares issued for PIPE, net of issuance costs | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition (1) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Vested restricted stock units converted to common stock | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2022 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Six months ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Convertible Preferred Stock | Class A Common Stock | Additional paid-in capital | Accumulated deficit | Total stockholders’ equity | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Par value | |||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2021 | $ | — | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | $ | ( | ( | ||||||||||||||||||||||||||||||||||||
| Stock option exercises | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock based compensation expense | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Shares issued for PIPE, net of issuance costs | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition (1) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Vested restricted stock units converted to common stock | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2022 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
(1) Of the 80 million shares issued for acquisition, 8.3 million shares are held by an escrow agent for a one year escrow period During this period, the seller retains all rights with respect to the escrow shares, including voting rights and rights to receive dividends and other distributions on such escrow shares.
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Sema4 Holdings Corp.
Condensed Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
(in thousands, except share amounts)
(unaudited)
Three months ended June 30, 2021 (1)
| Redeemable Convertible Preferred Stock | Class A Common Stock | Class B Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Par value | Shares | Par Value | Additional paid-in capital | Accumulated deficit (1) | Total stockholders' deficit | ||||||||||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock option exercises | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended June 30, 2021 (1)
| Redeemable Convertible Preferred Stock | Class A Common Stock | Class B Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Par value | Shares | Par Value | Additional paid-in capital | Accumulated deficit (1) | Total stockholders' deficit | ||||||||||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2020 | $ | $ | $ | $ | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock option exercises | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
(1) As previously disclosed in Note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, certain adjustments were made which impacted previously reported net loss for the second quarter of 2021 and the adjusted net loss is reflected as disclosed.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
10
Sema4 Holdings Corp.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Six months ended June 30, | |||||||||||
| 2022 | 2021 (1) | ||||||||||
| Operating activities | |||||||||||
Net loss | $ | ( | $ | ( | |||||||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
Depreciation and amortization expense | |||||||||||
Stock-based compensation expense | |||||||||||
Change in fair value of warrant and earn-out contingent liabilities | ( | ||||||||||
| Income tax benefit | ( | ||||||||||
Provision for excess and obsolete inventory | |||||||||||
Non-cash lease expense | |||||||||||
| Amortization of deferred debt issuance costs | |||||||||||
Change in operating assets and liabilities, net of effects from purchase of business: | |||||||||||
Accounts receivable | |||||||||||
Inventory | ( | ( | |||||||||
Prepaid expenses and other current assets | ( | ||||||||||
Due to/from related parties | ( | ( | |||||||||
Other assets | ( | ||||||||||
Accounts payable and accrued expenses | |||||||||||
Contract liabilities | ( | ( | |||||||||
Other current liabilities | ( | ( | |||||||||
Net cash used in operating activities | ( | ( | |||||||||
Investing activities | |||||||||||
| Purchase of business, net of cash acquired | ( | ||||||||||
Purchases of property and equipment | ( | ( | |||||||||
Development of internal-use software assets | ( | ( | |||||||||
Net cash used in investing activities | ( | ( | |||||||||
Financing activities | |||||||||||
| Proceeds from PIPE issuance, net of issuance costs | |||||||||||
| Payment of deferred transaction costs | ( | ||||||||||
| Finance lease principal payments | ( | ( | |||||||||
| Long-term debt principal payments | ( | ||||||||||
| Exercise of stock options | |||||||||||
Net cash provided by (used) in financing activities | ( | ||||||||||
Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
Cash, cash equivalents and restricted cash, at beginning of period | |||||||||||
Cash, cash equivalents and restricted cash, at end of period | $ | $ | |||||||||
Supplemental disclosures of cash flow information | |||||||||||
Cash paid for interest | $ | $ | |||||||||
Cash paid for taxes | $ | $ | |||||||||
| Stock consideration paid for purchase of business | $ | $ | |||||||||
Purchases of property and equipment in accounts payable and accrued expenses | $ | $ | |||||||||
Software development costs in accounts payable and accrued expenses | $ | $ | |||||||||
11
Sema4 Holdings Corp.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Unpaid deferred transaction costs included in accounts payable and accrued expenses | $ | $ | |||||||||
| Non-cash impact of shares reclass into APIC | $ | $ | |||||||||
(1) As previously disclosed in Note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, certain adjustments were made to certain liability accounts previously reported in the condensed balance sheets as of June 30, 2021. The adjustments are reflected accordingly as disclosed.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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1. Organization and Description of Business
Sema4 Holdings Corp. (“Sema4 Holdings”) through its subsidiaries Sema4 OpCo, Inc., formerly Mount Sinai Genomics Inc., a Delaware corporation (“Legacy Sema4”), and GeneDx Holding 2, LLC, provides genomics-related diagnostic and information services and pursues genomics medical research. Legacy Sema4 utilizes an integrated portfolio of laboratory processes, software tools and informatics capabilities to process DNA-containing samples, analyze information about patient-specific genetic variation and generate test reports for clinicians and their patients. Legacy Sema4 provides a variety of genetic diagnostic tests and information with a focus on reproductive health, including pediatric, oncology and other conditions. Legacy Sema4 primarily serves healthcare professionals who work with their patients and bills third-party payors across the United States, with a substantial portion of its diagnostic testing volume occurring in New York, California, Florida, Connecticut and New Jersey.
On July 22, 2021 (the “Closing Date”), CM Life Sciences, Inc. (“CMLS”) completed the acquisition of Legacy Sema4, pursuant to that certain Agreement and Plan of Merger (as amended, the “Business Combination Merger Agreement”), dated February 9, 2021. On the Closing Date, S-IV Sub, Inc. merged with and into the Legacy Sema4, with Legacy Sema4 surviving the merger as a wholly-owned subsidiary of CMLS (the “Business Combination Merger” and, together with the other transactions contemplated by the Business Combination Merger Agreement, the “Business Combination”). In connection with the consummation of the Business Combination, CMLS changed its name to “Sema4 Holdings Corp.” and Legacy Sema4 changed its name to “Sema4 OpCo, Inc.” All equity securities of Legacy Sema4 were converted into the right to receive the applicable portion of the merger consideration.
The Business Combination Merger was accounted for as a reverse recapitalization with Legacy Sema4 as the accounting acquirer and CMLS as the acquired company for accounting purposes. The shares and net loss per common share, prior to the Business Combination Merger, have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination Merger (1 share of Legacy Sema4 Class A common stock for 123.8339 shares of Sema4 Holdings Class A common stock (the “Class A common stock”) (the “Conversion Ratio”).
Prior to the Business Combination Merger, shares of CMLS Class A common stock, CMLS’s public warrants, and CMLS’s public units were traded on the Nasdaq Capital Market under the ticker symbols “CMLF”, “CMFLW”, and “CMLFU” respectively. On July 23, 2021, shares of Sema4 Holdings Class A common stock and Sema4 Holdings’ public warrants began trading on the Nasdaq Global Select Market (the “Nasdaq”) under the ticker symbols “SMFR” and “SMFRW,” respectively.
In addition, on April 29, 2022, the Company consummated the transactions contemplated by that certain Agreement and Plan of Merger, dated as of January 14, 2022 (as amended, the “ Acquisition Merger Agreement”), by and among the Company and GeneDx, Inc. (“GeneDx”), a New Jersey corporation and wholly-owned subsidiary of OPKO Health, Inc. (“OPKO”), GeneDx Holding 2, Inc., which held 100 % of GeneDx (“Holdco2”), at the Effective Time (as defined in the Acquisition Merger Agreement) and OPKO, which provided for, among other things, the acquisition of GeneDx from OPKO. After giving effect to the mergers and the other transactions contemplated by the Acquisition Merger Agreement (the “Acquisition”), GeneDx was converted into a Delaware limited liability company and became the Company’s wholly-owned indirect subsidiary.
See Note 3, “Business Combination,” for additional details regarding the Business Combination and Acquisition.
Unless otherwise stated herein or unless the context otherwise requires, references in these notes to the “Company,” or “Sema4” refer to (i) Legacy Sema4 prior to the consummation of the Business Combination; and (ii) Sema4 Holdings and its subsidiaries following the consummation of the Business Combination.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the accounting disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
13
The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to state fairly the results for the interim periods presented. Interim results are not necessarily indicative of the results of operations or cash flows for a full year or any subsequent interim period.
The Company’s historical financial information includes costs of certain services historically provided by Icahn School of Medicine at Mount Sinai (“ISMMS”) pursuant to a Transition Services Agreement ("TSA") and service agreements. See Note 7, “Related Party Transactions”.
As discussed in the Company’s Annual Report, the Company identified the misclassification of certain expenses and out of period adjustments generally related to the recognition of cost of services. The impact of these adjustments were disclosed in the Company’s Annual Report and are reflected in the condensed consolidated statements of operations and comprehensive loss, condensed consolidated statement of redeemable convertible preferred stock and stockholders’ equity (deficit) and condensed consolidated statements of cash flows for the period ended June 30, 2021.
Although the Company has incurred recurring losses in each year since inception, the Company expects its cash and cash equivalents will be sufficient to fund operations for at least the next twelve months from the date of filing of this Form 10-Q.
Segment Information
The Company operates and manages its business as one reportable operating segment based on how the Chief Executive Officer, who is the Company’s chief operating decision maker (“CODM”), assesses performance and allocates resources across the business.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the unaudited condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. The Company bases these estimates on current facts, historical and anticipated results, trends and various other assumptions that it believes are reasonable in the circumstances, including assumptions as to future events. These estimates include, but are not limited to, the transaction price for certain contracts with customers, potential or actual claims for recoupment from third-party payors, the capitalization of software costs and the valuation of stock-based awards, inventory, earn-out contingent liabilities and earn-out Restricted Stock Units (“RSUs”). Actual results could differ materially from those estimates, judgments and assumptions.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.
The Company’s cash and cash equivalents are deposited with high-quality financial institutions. The Company has balances in financial institutions that exceed federal depository insurance limits. Management believes these financial institutions are financially sound and, accordingly, that minimal credit risk exists. The Company has not experienced any losses on its deposits of cash and cash equivalents.
The Company assesses both the self-pay patient and, if applicable, the third-party payor that reimburses the Company on the patient’s behalf when evaluating the concentration of credit risk. Significant customers and payors are those that represent more than 10% of the Company’s total revenues for the period or accounts receivable balance at each respective balance sheet date. The significant concentrations of accounts receivable as of June 30, 2022 and December 31, 2021 were primarily from large managed care insurance companies and a reference laboratory. There was no individual patient that
14
For each significant payor, revenue as a percentage of total revenues and accounts receivable as a percentage of total accounts receivable are as follows:
| Revenue | Accounts Receivable | ||||||||||||||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | As of June 30, | As of December 31, | ||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Payor A (**) | * | * | |||||||||||||||||||||||||||||||||
Payor B | * | * | * | * | * | ||||||||||||||||||||||||||||||
Payor C | * | * | |||||||||||||||||||||||||||||||||
Payor D | * | * | * | ||||||||||||||||||||||||||||||||
Payor E | * | * | * | * | * | ||||||||||||||||||||||||||||||
** This payor represented less than 10% of the Company’s total revenues during the second quarter of 2022 due to a reversal of revenue recorded for this payor in the quarter due to this payor’s allegation regarding certain overpayments the Company allegedly received from this payor for services alleged to be uncovered by, or were not otherwise properly billed to, this payor. Refer to Note 4, “Revenue Recognition.”
The Company is subject to a concentration of risk from a limited number of suppliers for certain reagents and laboratory supplies. One supplier accounted for approximately 13 % and 10 % for the three months ended June 30, 2022 and 2021, respectively and 13 % and 11 % for the six months ended June 30, 2022 and 2021, respectively. This risk is managed by maintaining a target quantity of surplus stock.
Impact of COVID-19
Beginning in April 2020, the Company’s diagnostic test volumes decreased significantly as compared to the prior year as a result of the initial outbreak of the COVID-19 pandemic and the related limitations and priorities across the healthcare system. In response, beginning in May 2020, the Company entered into several service agreements with state governments and healthcare institutions to provide testing for the presence of COVID-19 variants. While test volumes have since improved, the Company continues to experience changes in the mix of tests due to the impact of the COVID-19 pandemic. COVID-19 could continue to have a material impact on the Company’s results of operations, cash flows and financial condition for the foreseeable future.
In March 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law which was a stimulus bill that, among other things, provided assistance to qualifying businesses and individuals and included funding for the healthcare system. During 2020, as part of the stimulus provided by the CARES Act, the Company received $5.4 million, comprised of $2.6 million received under the Provider Relief Fund (“PRF”) distribution and $2.8 million received under the Employee Retention Credit (“ERC”) distribution which was recorded in other current liabilities and reflected in this balance as of June 30, 2022 and December 31, 2021.
During the three months ended March 31, 2021, the Company received an additional $5.6 million under the PRF distribution, which was recognized in other income in the condensed consolidated statements of operations and comprehensive loss.
Additionally, under the CARES Act, the Company deferred payment of U.S. social security taxes in 2020. As a result, $3.8 million of employer payroll tax payments were initially deferred as of December 31, 2020 with $1.9 million paid in December 2021 and the remaining $1.9 million payment will be made in December 2022. As of June 30, 2022, the remaining payable is recorded in other current liabilities.
Following the Company’s announcement that it would discontinue COVID-19 testing services by March 31, 2022, the Company no longer provides COVID-19 testing services. During the six months ended June 30, 2022, the Company wrote off an accounts receivable balance of $0.5 million related to COVID-19 testing services.
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Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist of amounts invested in money market funds. Carrying values of cash equivalents approximate fair value due to the short-term nature of these instruments.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the condensed consolidated balance sheets that sum to the total of the same amounts shown on the condensed consolidated statements of cash flows (in thousands):
As of June 30, 2022 | As of December 31, 2021 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total | $ | $ | |||||||||
Restricted cash as of June 30, 2022 includes $13.5 million escrow fund as restricted cash related to the closing of the GeneDx Acquisition. The escrow amount is to be held for a period of 12 months following the closing date of the Acquisition as a fund for OPKO’s indemnification obligations pursuant to the Acquisition Merger Agreement. In addition, restricted cash as of June 30, 2022 consists of money market deposit accounts that secure an irrevocable standby letter of credit that serves as collateral for security deposit operating leases (see Note 9, “Leases”).
Business Combinations
The Company accounts for acquisitions of entities that include inputs and processes and have the ability to create outputs as business combinations. The tangible and identifiable intangible assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair values as of the business combination date, including identifiable intangible assets which either arise from a contractual or legal right or are separable from goodwill. The Company bases the estimated fair value of identifiable intangible assets acquired in a business combination on third-party valuations that use information and assumptions provided by the Company’s management, which consider estimates of inputs and assumptions that a market participant would use. Any excess purchase price over the estimated fair value assigned to the net tangible and identifiable intangible assets acquired and liabilities assumed is recorded to goodwill. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, estimated cost savings, cash flows, discount rates, estimated useful lives and probabilities surrounding the achievement of contingent milestones could result in different purchase price allocations and amortization expense in current and future periods.
Goodwill
In accordance with ASC 350, Intangibles-Goodwill and Other, the Company’s goodwill is not amortized but is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Under ASC 350, the Company will perform annual impairment reviews of goodwill during the fourth fiscal quarter or more frequently if business factors indicate. The Company did not incur any goodwill impairment losses during the second quarter ended June 30, 2022.
Warrant Liability
As of the consummation of the Business Combination Merger in July 2021, there were 21,995,000 warrants to purchase shares of Class A common stock outstanding, including 14,758,333 public warrants and 7,236,667 21,994,972 warrants to purchase shares of Class A common
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stock outstanding, including 14,758,305 public warrants and 7,236,667 five years after the Business Combination or earlier upon redemption or liquidation, and entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share, subject to adjustment, at any time commencing on September 4, 2021.
The Company may redeem the outstanding public warrants if the price per share of the Class A common stock equals or exceeds $18.00 as described below:
•in whole and not in part;
•at a price of $0.01 per public warrant;
•upon not less than 30 days’ prior written notice of redemption to each warrant holder; and
•if, and only if, the closing price of the Class A common stock equals or exceeds $18.00 per share (as adjusted) for any 20 trading days within a 30 -trading day period ending three trading days before sending the notice of redemption to warrant holders.
The Company may redeem the outstanding public warrants if the price per share of the common stock equals or exceeds $10.00 as described below:
•in whole and not in part;
•at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares based on the redemption date and the fair market value of the common stock;
•if, and only if, the closing price of the Class A common stock equals or exceeds $10.00 per share (as adjusted) for any 20 trading days within the 30 -trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders; and
•if the closing price of the common stock for any 20 trading days within a 30 -trading day period ending three trading days before the Company sends notice of redemption to the warrant holders is less than $18.00 per share (as adjusted), the private placement warrants must also be concurrently called for redemption on the same terms as the outstanding public warrants, as described above.
The private placement warrants were issued to CMLS Holdings, LLC, Mr. Munib Islam, Dr. Emily Leproust and Mr. Nat Turner, and are identical to the public warrants underlying the units sold in the initial public offering, except that (1) the private placement warrants and the common stock issuable upon the exercise of the private placement warrants would not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions, (2) the private placement warrants are exercisable on a cashless basis, (3) the private placement warrants are non-redeemable (except as described above, upon a redemption of warrants when the price per share of Class A common stock equals or exceeds $10.00 ) so long as they are held by the initial purchasers or their permitted transferees, and (4) the holders of the private placement warrants and the common stock issuable upon the exercise of the private placement warrants have certain registration rights. If the private placement warrants are held by someone other than the initial purchasers or their permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants.
The Company accounts for warrants as liability-classified instruments based on an assessment of the warrant terms and applicable authoritative guidance in accordance with ASC 480-Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815-Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether the warrants meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815. This assessment is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
Contingent consideration (GeneDx)
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In connection with the Acquisition of GeneDx, up to $150 million of contingent payments will be payable to OPKO in cash and/or shares of Company’s Class A common stock with such mix to be determined in the Company’s sole discretion,based upon achievement of 2022 and 2023 revenue milestones, pursuant to the Acquisition Merger Agreement (the “Milestone Payments”). If the Company elects to pay in shares of Class A common stock, the Acquisition Merger Agreement provides that the shares issues are to be valued at $4.86 per share.
Subject to the terms and conditions of the Acquisition Merger Agreement, (a) the first Milestone Payment of $112.5 million will become due and payable if the revenue of the GeneDx group for the fiscal year 2022 equals or exceeds $163 million and (b) the second Milestone Payment of $37.5 million will become due and payable if the revenue of the GeneDx group for the fiscal year 2023 equals or exceeds $219 million (each of clauses (a) and (b), a “Milestone Event”); provided that 80 % of the Milestone Payment for the first milestone period or the second milestone period, as applicable, will become payable in respect of such period if the GeneDx group achieves 90 % of the applicable Milestone Event revenue target for such period, which amount will scale on a linear basis up to 100 % of the applicable Milestone Payment at 100 % of the applicable revenue target. The fair value of the Milestone Payment which was determined to be $35 million as of June 30, 2022 is estimated using a Monte Carlo simulation valuation model.
Earn-out contingent liability
In connection with the Business Combination Merger, all Legacy Sema4 stockholders and option holders at that time became entitled to a pro rata share of 19,021,576 earn-out shares and earn-out RSUs. Based on an assessment of the earn-out shares for the Legacy Sema4 stockholders, the Company considered ASC 480 and ASC 815 and accounted for the earn-out shares as a liability. The Company subsequently measures the fair value of the liability at each reporting period and reports the changes in fair value recorded as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.
The Company determined the fair value of the earn-out shares issued to the Legacy Sema4 stockholders as of June 30, 2022 was $0.2 million. The estimated fair value of the earn-out is determined using a Monte Carlo valuation analysis.
As for the earn-out RSUs for the Legacy Sema4 option holders, a total of 2.7 million RSUs were granted on December 9, 2021. The vesting of such arrangement is conditioned on the satisfaction of both a service requirement and on the satisfaction of a market-based requirement. The market-based requirement would be achieved if the Company’s stock price is greater than or equal to $13 (Triggering Event I), $15 (Triggering Event II) and $18 (Triggering Event III) during the applicable performance period, based on the volume-weighted average price for a period of at least 20 days out of 30 consecutive trading days. Therefore, the Company accounts for this arrangement in accordance with ASC 718- Compensation — Stock Compensation (“ASC 718”) and stock-based compensation expense is recognized over the longer of the expected achievement period for the market-based requirement and the service requirement. The Company recorded $0.9 million of stock-based compensation expense in relation to the earn-out RSUs for the six months ended June 30, 2022. In the event that any earn-out RSUs that are forfeited as a result of a failure to achieve the service requirement, the underlying shares will be reallocated on an annual basis to the Legacy Sema4 stockholders and to the Legacy Sema4 option holders who remain employed as of the date of such reallocation. The Company accounts for the re-allocations to Legacy Sema4 option holders as new grants.
Capitalized Internal-Use Software Costs
The Company capitalizes certain costs incurred related to the development of its software applications for internal use during the application development state. If a project constitutes an enhancement to existing software, the Company assesses whether the enhancement creates additional functionality to the software, thus qualifying the work incurred for capitalization. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred. Once the project is available for general release, capitalization ceases and the Company estimates the useful life of the asset and begins amortization.
Emerging Growth Company
The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. As such, the Company is eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including reduced reporting and extended transition periods to comply with new or revised accounting standards for public business entities. The Company has elected to avail itself of this exemption and,
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Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”), which requires lessees to recognize right-of-use assets and lease liabilities for most leases on their balance sheets. Expense recognition for lessees under ASC 842 is similar to current lease accounting. ASC 842 requires enhanced disclosures to help the financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted ASC 842 as of January 1, 2022, utilizing the modified retrospective adoption approach. In transition to the ASC 842, the Company elected to use the package of practical expedients permitted under the transition guidance that allowed us to not reassess: (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, or (iii) initial direct costs for any existing leases. Additionally, the Company did not elect the hindsight practical expedient which would have permitted the use of hindsight in determining the lease term and assessing impairment. The Company elected to combine lease and non-lease components that are fixed and also elected not to recognize right-of-use assets and lease liabilities for leases with terms of 12 months or less (“short-term leases”). The adoption of the ASC 842 as of January 1, 2022, resulted in the recognition of operating lease right-of-use assets and operating lease liabilities of $39.2 million and $42.2 million, respectively. The adoption did not have material impact on finance leases. The adoption did not have material impact on the condensed consolidated statements of operations and comprehensive loss. Refer to “Note 9 Leases” for a discussion of the Company’s lease accounting following the adoption of ASC 842.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities About Government Assistance, which requires entities to provide disclosures on material government assistance transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The Company adopted ASU 2021-10 effective January 1, 2022. The Company did not receive any such grants during the six months ended June 30, 2022.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The new credit losses standard changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, contract assets recognized as a result of applying ASC 606, loans and certain other instruments, entities will be required to use a new forward looking “expected loss” model that generally will result in earlier recognition of credit losses than under today’s incurred loss model. As an emerging growth company, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, with early adoption permitted. Application of the amendments is through a cumulative-effect adjustment to the opening retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.
3. Business Combinations
CMLS Business Combination
On July 22, 2021, the Company consummated the Business Combination and received net cash proceeds of $510.0 million.
Pursuant to the Business Combination, the following occurred:
•Holders of 10,188 shares of CMLS’s Class A common stock sold in its initial public offering (the “public shares”) exercised their right to have such shares redeemed for a full pro rata portion of the trust account holding the proceeds from CMLS’s initial public offering (the “IPO”), which was approximately $10.00 per share, or $101,880 in aggregate.
•Each share of CMLS’s Class B common stock was automatically converted into common stock of the Company.
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•Each share of the Legacy Sema4 Class B common stock was converted into 1 /100th of a share of Legacy Sema4 Class A common stock and each share of Legacy Sema4 common stock and preferred stock was canceled and received a portion of the merger consideration, resulting in certain Legacy Sema4 stockholders receiving
•$230,665,220 of cash and the Legacy Sema4 stockholders receiving an aggregate of 178,336,298 shares of common stock of the Company.
•Pursuant to subscription agreements entered into on February 9, 2021, certain investors agreed to subscribe for an aggregate of 35,000,000 newly-issued shares of common stock at a purchase price of $10.00 per share for an aggregate purchase price of $350,000,000 (the “Business Combination PIPE Investment”). Concurrently with the closing of the Business Combination, the Company consummated the Business Combination PIPE Investment.
•After giving effect to the Business Combination Merger, the redemption of public shares and the conversion of the CMLS Class B common stock as described above, and the consummation of the Business Combination PIPE Investment, there were 240,190,402 shares of the Company’s common stock issued and outstanding.
In 2021, the Company recorded $51.8 million of transaction costs which consisted of direct, incremental legal, professional, accounting, and other third-party fees that were directly related to the execution of the Business Combination Merger in additional paid-in capital. Upon consummation of the Business Combination Merger, $9.0 million of the transaction costs relates to costs incurred by Legacy Sema4 and reclassed to offset against equity from prepaid expense and other current assets.
GeneDx Acquisition
As discussed in Note 1, on April 29, 2022, the Company completed the Acquisition of GeneDx. At the closing of the Acquisition, the Company paid OPKO gross cash consideration of $150 million (before deduction of transaction expenses and other customary purchase price adjustments) and issued to OPKO 80 million shares of the Company’s Class A common stock ($172 million based on the closing date share price of $2.15 per share). A portion of this cash ($13.4 million) and share consideration (8.3 million shares) will be held in escrow for 12 months following the closing date of the Acquisition. In addition, up to $150 million is payable following the closing of the Acquisition, if certain revenue-based milestones are achieved for each of the fiscal years ending December 31, 2022 and December 31, 2023. These milestone payments, if and to the extent earned under the terms of the Acquisition Merger Agreement, will be satisfied through the payment and/or issuance of a combination of cash and shares of the Company’s Class A common stock (valued at $4.86 per share, subject to adjustment for stock splits and similar changes), with such mix to be determined in the Company’s sole discretion. Concurrently with the closing of the Acquisition, the Company also issued and sold in private placement 50,000,000 shares of the Company’s Class A common stock to certain institutional investors for aggregate gross proceeds of $200 million (the “Acquisition PIPE Investment”).
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| Cash and cash equivalents | $ | ||||
| Accounts receivables | |||||
| Inventory | |||||
| Prepaid expenses | |||||
| Other current assets | |||||
| Property and equipment | |||||
| Other non-current assets | |||||
| Trade names and trademarks | |||||
| Developed technology | |||||
| Customer relationships | |||||
| Accounts payable and accrued expenses | ( | ||||
| Other current liabilities | ( | ||||
| Deferred tax liabilities | ( | ||||
| Long-term lease liabilities | ( | ||||
| Fair value of net assets acquired | |||||
| Goodwill (1) | |||||
| Aggregate purchase price | $ | ||||
(1) Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The Acquisition of GeneDx resulted in the recognition of $181.2 million in goodwill as of June 30, 2022, which represents the excess of consideration transferred over the net assets recognized and represents future economic benefits arising from other assets acquired that could not be individually identified and separately recognized, such as assembled workforce. $0.2 million of the acquired goodwill is expected to be deductible for tax purposes.
The following table reflects the fair values and useful lives of the acquired intangible assets identified based on the Company’s preliminary purchase accounting assessments:
| April 29, 2022 | June 30, 2022 | Life (in Years) | |||||||||||||||
| Trade names and trademarks | $ | $ | |||||||||||||||
| Developed technology | |||||||||||||||||
| Customer relationships | |||||||||||||||||
| $ | $ | ||||||||||||||||
Amortization expense for trade names and trademarks and developed technology of $1.5 0.8 million was recorded in selling and marketing for the three months ended June 30, 2022 within the condensed consolidated statements of operations and comprehensive loss.
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| 2022 (remainder of the year) | $ | |||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total estimated future amortization expense | $ | |||||||
Pro forma financial information
The pro forma information below gives effect to the GeneDx Acquisition as if it had been completed on January 1, 2021 (“the pro forma acquisition date”). The pro forma information is not necessarily indicative of the Company’s revenue results had the Acquisition been completed on the pro forma acquisition date, nor is it necessarily indicative of the Company’s future results. The pro forma r