Good afternoon. Thank you for standing by, and welcome to the Sema4 Second Quarter 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Vice President of Finance and Corporate Development. Joel Kaufman, Sir, give it to you.

Good afternoon, everyone. Thank you for participating in today's conference call. Participating for the company today will be Eric Schadt, Founder and Chief Executive Officer; Isaac Ro, Chief Financial Officer; and Jamie Coffin, President and Chief Operating Officer. Earlier today, Sema4 released financial results for the second quarter ended June 30, 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 statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. Actual results may vary materially from those expressed or implied in the forward-looking statements due to a variety of factors. Additionally, these forward-looking statements, particularly our target volume for 2021 and our target revenue for 2023, involve a number of risks and uncertainties and assumptions. For a list and descriptions of the risks and uncertainties associated with Sema4's business, please refer to the Risk Factors section of our definitive proxy statement filed with the Securities and Exchange Commission on July 2, 2021. 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 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 the Investor Relations section of our website. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 16, 2021. Sema4 disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. And with that, I'll turn the call over to Eric.

Great. Thanks, Joel, and thanks to everyone joining us this afternoon. Of course, this is a big day for Sema4 with our first earnings call as a public and independent company, a company that I conceived of in 2012 inside the Mount Sinai Health System. What inspired the company's formation was a foundational view that rapid advances in genomics and artificial intelligence, along with the exponentially growing oceans of molecular imaging and clinical data, could and should be integrated into an information platform able to deliver a broad array of algorithms that when appropriately wired into physician workflows, provides state-of-the-art, clinically actionable insights to patients and physicians, allowing them to more efficiently diagnose, treat and even prevent disease and maintain wellness. This vision became my and the company's main mission. And today, we are powered by more than 1,000 professionals focused on advancing the use of big data, advanced artificial intelligence developments and machine learning and probabilistic causal reasoning to deliver better patient outcomes and transform the practice of medicine. Our success is underpinned by our access to data and by Sema4's proprietary health intelligence platform, Centrellis, one of the largest, most comprehensive and fastest-growing integrated health information platforms in existence. Similarly, the software and the machine learning and other advanced artificial intelligence learning capabilities built into the software are among the most sophisticated in the world. At the end of Q2, the platform had access to roughly 20 million patients with de-identified deep longitudinal clinical records across 12 million of these patients, hundreds of thousands of matched genomic profiles and more general data assets comprised of more than 35 petabytes of genomic test, comprehensive medical record and among the most relevant life and biomedical science data in the digital universe. These data are organized, structured and annotated and curated…

Thanks, Eric. I joined the company in February of this year, and it has been an extremely exciting and busy stretch of time. I've enjoyed reengaging with many of you in the investment community already and look forward to continuing the productive dialogue with this audience in the months and quarters to come. As someone that has followed and analyzed this industry and its enormous potential, I've tracked Sema4 since inception, and I'm more excited today than in any other time for the process of this business, the value of its data and how it can change medicine. Here are a few anecdotes that underpin my excitement. First, we have one of the largest and most advanced NGS-based clinical testing capabilities anywhere, and we are still in the very early days of optimizing our new world-class lab in Stamford, Connecticut. In Q2, we reported nearly 72,000 tests, excluding COVID, which represents 85% growth year-on-year across our strategically important areas of reproductive health and oncology. Second, we are still expanding our menu of tests. In oncology, we grew over 300% year-on-year in Q2. This business is still less than 5% of our volumes today, so we are still in the early days of building out our capabilities and look forward to updating you on these efforts in the coming months. Thirdly, we have a rapidly scaling ability to partner with leading health systems with a differentiated go-to-market model. Finally, our volume momentum is very strong, growing 7% sequentially in Q2, excluding COVID. And while the impact of the COVID Delta variant is difficult to handicap, we think these core trends underscore our momentum as we gain share, sign new partnerships and expand our offerings. Now turning to our financial results. Total revenue for the second quarter of 2021 was $46.9 million,…

Great. Thank you, Isaac. Before we open the call up for any questions, I'd like to thank all of our employees and shareholders for their dedication and support that allowed us to complete our initial public offering. I also want to recognize their performance amidst the COVID-19 pandemic which required a tremendous reprioritization to assist in supporting patients. We have embarked upon a tremendous journey towards creating data and information-based clinically relevant insights to help patients, hospitals and therapeutic innovators. It has required a significant amount of energy and investment, and we are just beginning to push our technology and capabilities. Sema4 is growing rapidly, and we anticipate the pace of growth to flow with innovation, adoption and demonstrated success with our partners. We look forward to keeping the investment community up to date as we progress with our strategic initiatives as a public company. Now I would like to open the call for any questions. Operator?

[Operator Instructions] And our first question will come from the line of Brandon Couillard with Jefferies.

Eric, maybe just to start off at a high level. It would be helpful if you kind of talk about maybe some of the key milestones that you would suggest that we monitor in terms of thinking about how the big health system deals are progressing. Clearly, you've added 3 to date. I think you're pretty comfortable with the 4 or so right now that you sort of have under the belt. But what are some of the key metrics we can sort of look at to sort of gauge how those are progressing and integrating?

Yes, thanks for that question. So, of course, again, our big focus is on driving volumes through the genomic testing solutions, engaging patients, engaging data around those patients and enabling those health systems to deliver precision medicine as a standard of care. So the way we think about success with those health systems is #1, how -- to what extent are we penetrating the health systems with respect to genomic testing solutions across the broad array of diseases and conditions, from reproductive health to oncology, to population health, to drug safety, to rare disorder diagnosis and so on. So what's the degree -- so the degree of uptake of those solutions into standard of care practices throughout the system is one of the key metrics. The amount of data, the percentage of data through the system that we're engaging to help inform on the patient care in the context -- either in the context of our testing solutions or even completely independently of those solutions, guidance we're delivering back to the system, back to physicians in terms of patient risks and so on. So it's the percentage of data in those systems that we're routinely managing and engaging. The other would be the percentage of patients that we're able to engage throughout that system. As our solutions get adopted, as they spread, the number of patients we're engaging and consenting and helping manage information and deliver insights should also be [ rung ]. So just to hopefully quickly summarize this. The adoption of the genomic testing solutions throughout the system, what's the degree of uptake and displacement of other vendors, what's the percentage of data available in the health system that we're gaining access to in partnership with the health system and then what are the -- what percentage of the patients flowing through that health system are we engaging.

Got you. And then in terms of M&A, can you sort of talk about the types of assets you're most interested in? And secondarily, the bandwidth of management to kind of absorb an asset at a time when you're also very focused on making sure that these new health systems, those customers are happy and that you're very hands on in terms of bringing [ sales numbers ] up.

Yes, for sure. So maybe I'll take a stab at that, what we're thinking. And then maybe Jamie can jump in, in terms of the ability to absorb and roll those out. So we're clearly in a very fast-moving field with opportunities to build out our technology, distribution, increasing total addressable market and so on, increasing, expanding the expertise of the team through acqui-hires. So all -- so a number of technologies that we have our eye on in terms of how to fill the gaps to enable better penetration, better acceleration and uptake of our solutions into the health system. So think of broadening, again, our portfolio of genomic testing solutions. So whether it's liquid biopsy-based technologies for oncology or whether it's long-read sequencing technologies for better characterization of genomes, better management of commoditized components of information and structuring to achieve scale across many different health systems, like those are the kinds of target areas that we're looking at to, again, fill out the portfolio of genomic testing solutions, but also better facilitate better information partnership and more rapid leveraging of that information for improved insights delivered to patients and physicians. So those are the -- some of the areas we're looking at and our ability. Again, we have the cash infusion on hand to, we think, make a number of those kinds of acquisitions and our ability to absorb and integrate into our culture will be driven by a seasoned team that has a long history in delivering complex solutions across the health IT and genomic testing space. Isaac or Jamie, I don't know if you have anything you want to add.

Yes. I mean, I would just add, Eric, that as you said, we brought a team on board from this industry that has a huge amount of experience in integrating into the customer's workflow, which is incredibly important to get uptake of these steps and data play. So we're very committed to making sure that we have the best people in front of these health systems. And we have to both do the uptake from the physician practice level also, but also from the enterprise level. It's something that this industry has not done a very good job of, but we have a very experienced team in doing that.

Got you. And then maybe a 2-part question for you, Isaac. Appreciate the comment around the $500 million target in '23. Does the $360 million target for '22 still stand? And then secondarily, how should we think about ASPs moving into next year? Should we think about another step down in '22? Or perhaps maybe '21 is perhaps the end of sort of that dynamic, and we should expect to see some stabilization as oncology becomes a bigger piece of the mix?

Yes. Good questions. Thank you. So let me just start with the framing statement to explain why we're thinking about building this business the way we are, which is that we're not providing 2021 revenue guidance because we're focused on volume. We think that is by far the most important KPI to measure value creation because the volumes are going to feed our flywheel. So as you know, we've got volumes that we're scaling already at a significant rate. And the more we do, the more patients that come into our platform to give us data to feed the database and to build out better algorithms for the future. And when I joined the company in February, I did have a chance to really dig into the business and our long-term strategy. Super excited about where we are. And Eric and I both believe that this game will really be about driving volume and data. And so those are the metrics that we're solving for. As we think about the near term and medium term, we can't, at this point, give you revenue guidance in part because there are a bunch of variables at play that could result in meaningful swings on revenue either way that are really related to payer contracts that we think are going to be, for the most part, transitory, very much something that you see in the industry when it comes to companies in diagnostics scaling rapidly and becoming more important counterparties to the payers. And as we go through that, we think that it's still going to be about volume. And so what this really means is that we need to sell for scaling the franchise. And as we said earlier, we're expecting 20% volume growth sequentially in the second half of this year. So we need to invest for that. We need to continue closing on health system partnerships. And if we do those things, we still think we're going to get to $500 million of revenue in 2023. So lots of moving parts in this environment, but the trajectory is unchanged.

And then in terms of -- just to address, I think, on the ASP part of that question, just again, off of some of Isaac's comments. I mean, just as a reminder, it's very typical for a lab to renegotiate contracts when the status in the eyes of the payer changes. And so in our case, we're moving from a hospital base system to independent, or we have made that move. And from there, to an even larger independent with a national footprint. So we've attempted to get out ahead of the many of our payer partners to provide as much near-term visibility on reimbursement. And that said, this process takes time, and no payer is the same. So it's reasonable to assume that over time, we'll end up with contracted rates that are in line with our industry peers. We have -- for which we have comparable testing solutions. But that said, we do provide very differentiated and advanced products that are often best in the class, and we provide these to physician and patients and hope that will garner more favorable reimbursement in those cases. So we can't say exactly like when we expect the remaining contracts to be negotiated and where we'll see the ASP stabilize. In some cases, the ASPs for a given test will likely go up. In some cases, they're going to go down. Like take on the oncology front, where we're working on [ molding x ] approvals and so on that should improve our reimbursement. But the exact timing of that is to -- is playing out now in real time. But yes, we think over the next several quarters will play out.

[Operator Instructions] And our next question is going to come from the line of Matt Sykes with Goldman Sachs.

Just maybe first. How should we think about when you bring on a new health system? How should we think about the onboarding process in terms of like duration and timing to get it kind of fully stood up and integrated?

Yes. So that's a -- it's a great question, and it's one we're improving upon as we bring on additional systems. So initially, the systems are a big lift and our first partners like NorthShore system in the Greater Chicagoland area was maybe 1.5 years to 2 years of discussions and planning and getting to the right kind of framework agreement that handles the major operation of the agreement. So think IP and scope and so on. And then you get into statements of work, which are kind of like where do you land and expand in terms of what are the initial problems you're solving with the health systems. All the health systems have the -- we want precision medicine, the common vision that we want precision medicine as a standard of care. But how they -- the initial projects to kind of motivate that and get some of that in play may vary. So you're working that all out with different consulting teams and so on. Once you hit some of the driver projects, so take NorthShore, which is around a genomic health testing solution that can then expand into assessing the risk of different conditions of a patient that may necessitate additional genomic testing like heritable cancer testing. Like once those kind of get in swing, they're pretty rapidly adopted and penetrate through the system and then you're going into different other areas beyond that to leveraging that success. So you kind of start seeing -- so it's 1.5 years to 2 years for those early systems to get to an agreement and begin delivering some of the solutions for precision medicine and standard of care. And then we expect those expansions to then progress much more rapidly given the earlier successes. With subsequent systems coming on, we found that we can significantly lower that 1.5- to 2-year cycle time and getting to an agreement and initial statement of work. We think 12 months -- we're at about the 12-month mark now and think we could probably get that down to 9 to 12 months for future systems. It's important to note, though, that we had initially indicated 5 systems. That $500 million 2023 number was based on 5 moderate to large size systems we've signed for as of today and have several others in the hopper that we think will deliver. So the aim wasn't to have 100. The aim was 5, maybe 5 to 10 and really learn in partnership with the system how you have to wire the various components together to deliver an effective solution. So we -- those are a big lift. They take a lot of delivery and support teams, a lot of engagement with different operational and physician workflow aspects of the systems and that's what we're primarily focused on to get acceleration and penetration of the system with our solutions.

Yes. And I'll just add one thing, which is that if I think a little bit about where we are in the health system journey, there's a term that Eric uses a lot, which is learning-based partnerships. I mean these are opportunities where the partners have given us tremendous trust and access. And so we want to be respectful of implementation. So I wouldn't expect that there'd be a cookie-cutter number for every system. They're all going to be a little bit different, but so far so good. And our first mission is to ensure that, that partnership remains collaborative and extremely constructive. So that's been the spirit with which we've invested behind these programs. And so I just want to come back to the earlier question on the outlook for how all this kind of maps back to revenue. I think it's important to point out that with the existing business that we have, we have a tremendous amount of reach both in women's health and increasingly in cancer. And the way our contracts are set up with payers, we believe that we're absolutely in a position where we have healthy relationships and the reimbursement that we get is appropriate, and we're not in any way over earning our share of the work we do. What we're really talking about doing is growing this business to $500 million in a couple of years, doing it largely through health systems and to scale all that the right way. We want to make sure that we work in partnership both with health systems and payers to do that in a way that is consistent with industry best practices. So we're making pretty good progress on all those fronts. And we appreciate the support from our investors because it is a multifaceted lift, and we think we're going to have a really compelling run over the next 3 years.

Great. And just maybe one last one. Just on the commercial ramp. You talked about the increase in head count and investments you're making. Where do you feel you are right now in terms of that investment and head count and in terms of either what inning are you in or where do you feel you're at right now in terms of the overall business? And what do you think about sort of the next 6 to 12 months in terms of commercial ramp-up?

Yes. Great question. So as was mentioned in the script, we've got about 1,000-plus FTEs today, it's a substantial operation. And one of the things that really drew me to the components of that 1,000 people is Eric's been able to assemble a world-class team of laboratorians, of course, and all the support functions you need to be a public company. But on top of that, we've got over 150 computational biologists, the likes of which I don't think you see elsewhere in the industry. And so our ability to really lean into these health systems with cutting-edge technology, not just tests, but also the data science and all that curation work that you need to do to bring the technology to life in a clinical context, we have that today. And I think the marginal investment for us is going to be around the edges. So think about the staff and resources you need to implement in these health systems, each of them being a little bit different, number one. And then number two, in the G&A side, the finance department, as an example, made tremendous progress over the last 6 months. And I want to point out that there's more opportunity across the G&A side, which doesn't tend to get a lot of attention in high-growth companies, but I think that's going to be absolutely impactful to the operational output that you expect to see from us.

Yes. Maybe just quickly to add on top of that. Isaac said it in the previous response on learning-based partnerships. Like the kind of staffing we're doing today, the uptake into these systems, like the precision medicine of standard of care solution does not exist today. Like it doesn't exist in any company. Sema4 is at the forefront of how do we wire all the components you need, wire those together, whether it's the clinical labs, the genomic testing solutions, the patient physician engagement, the data structuring and curation, the analytics, all of those pieces you need to bring together and you need to learn with the system the best way to bring those together to support the physician workflows. Like that's the game. And once we have that figured out with these 5 to 10 systems, we're going to scale that to all systems. And -- but for the 2023 $500 million number, it's focusing learning 5 to 10 systems and getting the uptake good penetration to those systems.

And at this time, I see no further questions. So I will turn the call over to Eric Schadt with -- for closing comments.

Okay. Well, great. Well, thank you, again, all for joining us today and for your interest in our progress. We remain dedicated to increasing value to all of our stakeholders and keeping you updated on our progress. And we look forward to the next call in Q3.

Once again, we'd like to thank you for your participation on today's Sema4 Second Quarter 2021 Earnings Conference Call. You may now disconnect.