GeneDx Holdings Corp.ReportsResearch

Insiders Attest That GeneDx (Nasdaq: WGS) Is Actively Committing Widespread Fraud

  • GeneDx is a genetic testing company that specializes in advanced genomic testing, particularly for rare and ultra-rare genetic disorders.
  • The stock has surged over 2,500% since the start of 2024, making it one of the year’s top performers. This steep growth reflects the company’s reported success in significantly increasing revenue while stemming its cash burn.
  • We believe the company’s growth is largely an illusion, driven by fraudulent schemes and illegal tactics deliberately aimed at exploiting Medicaid and Medicare systems to artificially inflate revenue.
  • Testimonies from former employees and ongoing litigation suggest that GeneDx has inflated its revenue through an illegal practice known as “code stacking”. This tactic enables the company to bill insurance providers for services that do not meet the required criteria. Code stacking is prohibited since 2013.
  • Notorious microcap fraudster Phillip Frost’s OPKO Health sold GeneDx to Sema4 for only approximately $330 million. Sema4’s operations shut down almost entirely following the acquisition. Only 1.5 years later, GeneDx is now worth $2 billion on the stock exchange, nearly seven times the selling price.
  • CEO Katherine Stueland and CFO Kevin Feeley have consistently sold their shares immediately upon vesting, without ever engaging in open market purchases. This pattern suggests that insiders may be aware of an imminent risk that will significantly impact the company.
  • GeneDx, before its name change from Sema4, had a dispute with UnitedHealthcare in 2022, resulting in a settlement to repay $42 million over four years. Our research reveals that the reason for this dispute was unbeknownst to investors due to fraudulent code stacking.
  • According to multiple former employees, the company has continued the illegal code stacking practice, which we estimate inflates revenue by approximately 25%.
  • A former Vice President of the company stated that the scale of the code stacking scheme necessitates the active involvement of key executives, including CEO Katherine Stueland, CFO Kevin Feeley, and Chief Technology & Product Officer Matt Davis.
  • We anticipate that Medicare, Medicaid, and other health insurers will seek to recover overpayments made to GeneDx due to illlegal code-stacking practices.
  • During our research we became aware of an undisclosed whistleblower action against GeneDx. Whistleblowers told us that the company is operating illegal “independent” counselor entities that direct patients exclusively to GeneDx testing services.
  • Industry sources indicate that the Department of Justice is ramping up efforts to combat Medicare and Medicaid fraud, with a particular focus on scrutinizing billing practices. Over $800 million in fines were already issued against perpetrators and we believe that GeneDx is next in line for a hefty fine.
  • Since the name change from Sema4 to GeneDx, ex-employees testify that the company’s relationship with Mount Sinai, the prestigious school and hospital network, has worsened.
  • Former employees testify that the company’s previous healthcare data platform, Centrellis, was all smoke and mirrors. GeneDx was using it to tout itself as a data company rather than a diagnostics company to gain a higher multiple on the stock market. They would have required billions of dollars and several additional years of effort to achieve the company’s objectives for Centrellis.
  • Clinical geneticists and industry experts have expressed concerns that GeneDx’s tests do not offer superior accuracy compared to competitors, and the company lacks any sustainable competitive advantage in the marketplace.
  • GeneDx is facing internal morale issues after Katherine Stueland laid off more than half of the company’s staff. Many former employees cite nepotism and favoritism towards ex-Invitae employees.

Introduction

GeneDx (Nasdaq: WGS), formerly known as Sema4, was a 2021 SPAC. Initially founded in 2017 as Sema4, the company was a strategic spinout from Mount Sinai, led by Eric Schadt, a founding Director of the Icahn Institute at Mount Sinai. According to Mount Sinai’s management, the spinout was designed to enable Sema4 to raise the capital necessary to scale its genetic testing business and develop a digital platform, eventually branded Centrellis.

Today, the company’s core business currently centers on exome and genome testing, primarily focusing on rare disease diagnosis and identifying hereditary conditions in patients and newborns. This segment has become the key driver of revenue and margin growth. GeneDx has emphasized “Exome/genome can be the best test for patients. They are also best for our business.”

The company spent some time as a private company for a few years after the spinout, but in 2021 Sema4 went public through a SPAC merger with CM-Life Sciences. Key appointments following the merger included Eli Casdin (Casdin Capital, a sponsor of the SPAC), Emily Leproust, CEO of Twist Biosciences (Nasdaq: TWST), and Jason Ryan, COO and CFO of Magenta Therapeutics (Nasdaq: MGTA).

Within six months of becoming a public company, Sema4 announced the acquisition genomic testing and analysis company from OPKO Health, Inc. (Nasdaq: OPK) to create “an AI-driven advanced health intelligence company.” Alongside the announcement, Sema4 said GeneDx’s CEO and Former Invitae CCO Katherine Stueland would be joining as a co-CEO and getting a seat on the board. She would become the sole CEO once the acquisition was completed in May 2022.

Following the merger, GeneDx faced significant restructuring, including a series of layoffs that reduced its workforce by over 50%, from 1,900 to 900 employees, alongside the closure of several labs, including its flagship lab in Connecticut. Shortly after its acquisition of GeneDx, in January 2023, the company officially rebranded from Sema4 to GeneDx. Around the same time, the company also received a notice of delisting from the Nasdaq but addressed the issue by implementing a one-for-thirty-three (1:33) reverse stock split to regain compliance to stay on the exchange.

The company first disclosed a billing issue that impacted their revenue on the earnings call in August 2022, they describe this billing issue as a “dispute” with a certain payor, as a result the company lowered their quarterly revenue by $30.1 million.

Moving to March 2023, the company disclosed that they had reached a settlement with a certain payor “to settle the claims related to coverage and billing matters allegedly resulting in the overpayments” for $42 million.

As of early 2025, GeneDx has seen its stock price surge by over 2,500%, making it one of the best-performing stocks of 2024. This remarkable growth follows the company’s achievement of breakeven cash flow and its guidance for breakeven operating costs, driven by the expansion of its exome/genome testing business. The company’s leadership and analysts celebrated this milestone during its third-quarter earnings call, highlighting that “This quarter marks our tenth consecutive quarter of cash flow improvement.”

We believe this is because the company is using an illegal practice called “code stacking”.

Key Dates and Timeline

What is Code Stacking

Code stacking, a term specific to genetic testing, refers to the practice of using multiple billing codes to represent distinct steps in the molecular diagnostic testing process. Traditionally, separate CPT codes were assigned to each phase of the testing, resulting in a stacking effect. This allowed companies to maximize reimbursement across all categories of payors, including Medicare, state Medicaid programs, and commercial payors, and take advantage of patients suffering from rare diseases.

However, in response to concerns about this practice, the Centers for Medicare & Medicaid Services (CMS) introduced updates in January 2013 to improve the coding structure for molecular pathology. These updates aimed to reduce the possibility for code stacking by creating subgroupings and more streamlined codes specific to molecular testing. Since then, CMS has continuously refined and introduced additional guidelines to address potential abuses within the industry.

For example, in the context of women’s cancer testing, genetic testing for BRCA1/2 mutations identifies negative genetic variations linked to a significantly higher risk of breast cancer. Prior to 2013, Myriad Genetics, which was the leader in BRCA1/2 testing in the U.S., used over 80 distinct codes for billing purposes. In contrast, CMS now provides a consolidated set of codes that cover the entire testing procedure.

As the genetic testing industry has evolved over the past decade, code stacking has largely been phased out. CMS has developed comprehensive codes that encapsulate multi-step tests, thereby reducing the need for multiple individual codes. Despite these advancements, the issue of code stacking remains prevalent in certain areas of the genetics sector. We describe multiple charges and settlements the Department of Justice has made over the last 6 years later in the report.

Insiders Attest That GeneDx Is Code Stacking, an Illegal Process to Inflate Revenue, and Committing Medicare/Medicaid Fraud

According to our research, GeneDx’s $42 million reimbursement to a third-party payor was to UnitedHealthcare, a fact previously unknown to investors. This payment was in response to the company’s involvement in code stacking, the specifics have not been previously disclosed by the company or reported before.

We talked to numerous former employees and confirmed that, since then, the company has not changed its billing practices and is still illegally code stacking. We believe the company is committing Medicare and Medicaid fraud by engaging in this illegal practice and defrauding tens of millions of American taxpayers.

A former company Vice President stated that the code stacking scheme’s scale necessitated active involvement from key executives, including CEO Katherine Stueland, CFO Kevin Feeley, and Chief Technology & Product Officer Matt Davis.

GeneDx Is Repaying UnitedHealthcare $42 Million for Illegal Code Stacking Claims

  • In 2022, GeneDx was discovered to be engaged in code stacking by UnitedHealthcare, a fact previously unknown to investors when the company was operating under the name Sema4. The company settled with UnitedHealthcare for $42 million, which accounted for between 20% to 25% of the revenue generated from UnitedHealthcare.
  • A former employee revealed that former CEO Eric Schadt was aware that the company was billing insurance providers for tests without sufficient evidence to support the charges. The CEO instructed the Chief Health Information Officer to urgently produce a paper demonstrating improved outcomes from the comprehensive panel test to substantiate reimbursement claims.
  • The same employee stated that the company “would always test them the same way—which was to test about 500 genes” and would invoice for the full test, even when the physician would only order a test for 7-10 genes.
  • Former employees said they would receive calls on behalf of insurers “regularly” requesting refunds for overpayments—“a bare minimum of two or three times a month.”

GeneDx has been paying back $42 million dollars to UnitedHealthcare for previous code stacking issues. The company first disclosed this reimbursement to an undisclosed payor during its second-quarter results 2022, taking a $30.1 negative revenue adjusting. On the earnings call on August 15th, 2022. The then senior vice president of Operations, Kevin Feeley, now the full-time CFO, tried to downplay the issue by calling it a simple dispute, saying that the payor “had significantly higher contracted rates than standard commercial lab rates” as a reason for the reimbursement. He failed to mention that the company was code stacking, which was the reason for the overpayment.

It took GeneDx almost 9 months to come to a settlement. The company disclosed that “on December 30th, 2022, the company entered into a settlement agreement with the payor to settle the claims related to coverage and billing matters allegedly resulting in the overpayments to legacy Sema4 by the payor to the company. Under the settlement agreement, the company will pay the payor $42.0 million in installments over the next four years.”

We estimate that the $42 million dollars represent around 20-25% of the total revenue Sema4/GeneDx generated from UnitedHealthcare between the second quarter of 2022 and 2019. Using the company’s disclosure in their second quarter 2022 financial statements, we know that UnitedHealthcare was “Payor A”. According to their 10-K, Payor A represented between 22% and 36% of total revenues for 2019 through 2021. This is roughly $168.3 million, and the $42 million settlement is approximately 25% of the total revenue generated by this single payor.

A few months before the settlement was announced, a class action was launched in September 2022 against Sema4, Eric Schadt, the company’s former CEO; Katherine Stueland, the company’s CEO; Isaac Ro, the company’s former CFO; and Richard Miao, the company’s then Interim CFO, for federal securities law violations and false and/or misleading statements.

An amended complaint filed on January 30th, 2023, exposes that GeneDx, alongside several former employees, knew the company’s reimbursements were at risk as early as mid-2020. The lawsuit states that a former employee received an email from then-CEO Eric Schadt stating “[t]he reimbursements are under attack.”  The same employee attests “that payors and health systems were claiming that they did not have to pay the Company’s bills at the full rate because the payors and health systems were claiming that the Company was charging prices that were too high.”

The former even recalls that CEO Schadt told chief health Information officer Rong Chen to draft a paper “that would demonstrate better outcomes from the comprehensive panel test” as urgently as possible. Schadt did this because, according to the former employee, “the Company’s reimbursements were going to suffer if the Company did not have a publication to back up the reimbursements” and that Sema4 “knew that the Company’s billing was not supported by the current standard of care or science.”

The same former employee would describe the code stacking scheme from 2020 to the end of 2022 (GeneDx was acquired by Sema4 in January 2022). This employee stated that physicians would order tests on one or two genes or a disease-specific panel of 7-10 genes. Instead, the company “would always test them the same way – which was to test about 500 genes” and would invoice for the full test. Another former director confirmed this and state that they “did not feel that the Company was adhering to the gold standard in genetic reporting, noting that there was no peer-reviewed validation of the Company’s testing.”

A third former employee who worked as a Billing Authorization Supervisor at Sema4 from February 2018 through September 2020 said that they would personally receive calls on behalf of insurers “regularly” requesting refunds for overpayments— “a bare minimum of two or three times a month.”

These concerns and complaints were echoed by, once again, a separate former senior vice president who worked at Sema4, now GeneDx, between October 2021 and October 2023 (GeneDx was acquired by Sema4 in January 2022 and subsequently changed its name to GeneDx in January 2023). This former vice president filed a lawsuit against GeneDx – Higashi v. GeneDx Holdings Corp. (3:24-cv-00815) for fraudulent misrepresentation and inducement, negligent misrepresentation, and discrimination.

The former employee stated that less than a month into his job, he became aware “of a serious issue with a major payor, UnitedHealthcare,” and was asked to generate new evidence to counter the UnitedHealthcare claim that Sema4 was overcharging for its primary testing. The former employee states that in his task to find fresh evidence to help with Sema4’s claim against UnitedHealthcare, the finance department shared with him a spreadsheet that showcased “a massive code stacking scheme that they executed against all major commercial payors and several State Medicaid programs.”

Insiders Report That GeneDx Is Continuing Illegal Billing Practices to This Day

  • A former employee testified “a code-stacking scheme is still actively employed by GeneDx,” and that the scale of the scheme “requires active involvement from the CEO, Katherine Stueland; CFO, Kevin Feeley; and Chief Technology & Product Officer, Matt Davis.”
  • GeneDx is reportedly generating nearly 25% more than the standard reimbursement rate through code stacking. A specific example highlighted in a lawsuit illustrates that GeneDx utilized CPT code 81479, a miscellaneous code, when submitting reimbursements for Cystic Fibrosis and Spinal Muscular Atrophy testing.

In the ongoing lawsuit Higashi v. GeneDx Holdings Corp. (3:24-cv-00815), a former vice president who was terminated in October 2023, provided testimony regarding a project he was involved in called “Claims Denials.” As part of this project, he investigated reasons for insurance claim denials and had access to GeneDx’s billing system. The former vice president claimed that GeneDx continued to employ a code stacking scheme aimed at maximizing payments from various payors, including Medicare, state Medicaid programs, and commercial payors. He stated that this practice exposed payors to the risk of being charged multiple times for the same test, a scheme that required the active participation of CEO Katherine Stueland, CFO Kevin Feeley, and Chief Technology & Product Officer Matt Davis. According to the former vice president, the company simply transferred this code stacking practice from adult testing to newborn and pediatric rare disease testing to further maximize revenue.

The former employee provided an example around doing work for Cystic Fibrosis and Spinal Muscular Atrophy. GeneDx (still called Sema4 at the time) submitted billing codes:

  • 81220, the code for Cystic Fibrosis genetic testing
  • 81320, the code for Spinal Muscular Atrophy test
  • 81479, a set of “stacked codes” including Cystic Fibrosis and Spinal Muscular Atrophy

For example, in the case of Cystic Fibrosis and Spinal Muscular Atrophy testing, the company submitted 3 separate instances of CPT codes to Aetna, a health insurance payor.

For Cystic Fibrosis genetic testing, they billed Aetna using CPT code 81220, for which Aetna had a contracted reimbursement rate of $500 per test. However, Sema4’s average reimbursement from Aetna for these tests was $592 per test, approximately 18% more than the contracted rate.

For Spinal Muscular Atrophy, they submitted CPT code 81329 to Aetna. While Aetna did not have a contracted rate with Sema4 for this code, they received an average payment of $144 per test. They also utilized CPT code 81479, a miscellaneous code that allows for the inclusion of multiple “stacked” procedures, including additional tests for Cystic Fibrosis and Spinal Muscular Atrophy.

Using CPT code 81479, Sema4 was able to increase their average reimbursement to $3,127 per patient from Aetna. This approach effectively allowed them to maximize revenue by billing payors multiple times for overlapping services.

The lawsuit highlights improper billing practices by GeneDx, including misleading patients about prior authorization statuses. The company falsely claimed that authorization was not approved when it had not been submitted. This misrepresentation aimed to avoid delays from proper submission. GeneDx also made patients pay out of pocket for genetic tests instead of waiting for insurance reimbursement. Additionally, when prior authorization requests were submitted, documentation was often mishandled.

The former vice president’s testimony provides further observations during the final months of his position at GeneDx in October 2023. During his review of the billing system, he discovered that the company persisted in its illegal billing practices. He highlighted that all payors, including Medicaid and Medicare, were at risk of being billed multiple times for the same test. Additionally, he emphasized the extensive nature of the code stacking scheme, stating that it necessitated active involvement from the company’s senior executives, including the CEO, Katherine Stueland, CFO, and Kevin Feeley.

In the lawsuit he went on to say “When the new GeneDx Management Team exited the Women’s Health and Oncology businesses, they did not abandon the code stacking scheme. They simply transferred the code stacking scheme to maximize revenue from testing newborns and pediatric patients for rare diseases.”

GeneDx has also emphasized the increasing importance of Medicaid coverage for genetic testing in its quarterly calls, stating “Recently, CMS issued quote historic guidance to quote to state Medicaid agencies underscoring their obligations to provide all medically necessary services under the early and periodic screening diagnostic and treatment program for EPSDT, which entitles every Medicaid enrolled child to services that meet their unique medical needs including diagnostic tools like exome and genome sequencing.”

Clinical geneticists have told us that GeneDx handles all Medicaid reimbursements. We believe this process is a way for GeneDx to code-stack without any oversight from the geneticists and limit physicians and geneticists’ ability to review or adjust what GeneDx charges Medicaid and Medicare. This lack of oversight has raised concerns about potential fraudulent billing practices by GeneDx towards Medicaid programs and taxpayers.

Another former employee, who was very familiar with the billing situation at GeneDx, told us that he believes the company grew too quickly and, because of that, was hiring billing staff who did not understand the reimbursement landscape and were not trained.

We believe that the company is continuing these illegal practices and is defrauding Medicaid programs and by extension taxpayers.

Reading through employment reports on Indeed and Glassdoor provides some examples of what previous employees saw. One complaint states “Stay away! Will set you up to fail if you complain or turn in dishonest employee. (And there are many!) Will never have your back no matter the issue. Management protects only themself.”

Another states “The job was stressful because the billing department did not know how to bill the insurance and people were sent these astronomical bills they couldn’t pay.”

Looking through the company’s Better Business Bureau (BBB) complaints and social media posts regarding patients getting testing done also confirms our theory.

Source: https://www.reddit.com/r/ehlersdanlos/comments/15x79xu/genedx_rant/

The Yelp reviews are just as scathing—the company has 16 total reviews with 15 being one star. Every single review is related to overbilling/unexpected billing to the patient.

Whistleblower Told Us GeneDx Utilizes a Network of Illegal ‘Independent’ Counselors to Drive Sales

  • GeneDx is allegedly utilizing groups of genetic counselors, operating under different names that are ultimately owned by GeneDx to recommend genetic testing. This practice is illegal in most states.
  • A whistleblower revealed that GeneDx established front companies that functioned as independent counseling entities, which directed individuals to undergo genetic testing exclusively with GeneDx.
  • Individuals were informed about genetic testing options but were only recommended tests conducted by GeneDx.
  • The whistleblower also stated that the group of genetic counselors involved in this practice often lacked the necessary licenses to operate, which is illegal in most states.

Genetic counselors play a crucial role in both the process of genetic testing and in ensuring proper reimbursement for these tests. Historically, it was a requirement for individuals seeking genetic testing to undergo pre-test genetic counseling, where counselors provide the patient with detailed information about the test, including its costs, expectations, and medical relevance. This process ensures that patients give informed consent and that the necessary documentation is in place, as both private insurance providers and state Medicare/Medicaid programs required proper medical justification for reimbursement.

The role of genetic counselors became particularly important because some companies exploited the lack of a comprehensive framework from the Centers for Medicare & Medicaid Services (CMS), often using telemedicine to encourage individuals to undergo genetic tests that were not medically necessary or lacking sufficient evidence to support their use. This raised concerns about the integrity of the testing process and the potential for unnecessary tests conducted solely for financial gain.

However, some companies began offering genetic counseling services alongside their test recommendations, which introduced ethical and legal concerns. A potential conflict of interest arises when genetic counselors working for these companies recommend tests from their own employer, leading to questions about the transparency and impartiality of these recommendations. While this practice is not illegal in all states, it remains ethically questionable and raises concerns about the integrity of the testing process. In many cases, individuals running “third-party” genetic counseling companies lacked the required licensure that is mandatory in most states.

We learned that there is an ongoing whistleblower action against GeneDx specifically related to this issue. One whistleblower told us that for the last four years, GeneDx has set up fake fronts that pose as independent third-party genetic counselors that recommend GeneDx tests. Sometimes the individuals who work there don’t have a genetic counseling license, which is also illegal in many states.

These organizations would promote GeneDx’s genetic tests, sometimes without the counselors’ knowledge that they were indirectly employed by GeneDx—an illegal practice. One whistleblower stated it got so bad in his organization that they ended up going to the attorney general to help police the use of these front offices.

According to the whistleblower, many of the counselors involved were unaware that they were indirectly working for GeneDx, and the company made no efforts to disclose this relationship, even to geneticists. A clinical geneticist we spoke with confirmed that the creation of such front companies has been a focus of investigation by the Department of Justice (DOJ). He emphasized that this practice presents a significant ethical issue, as many of the counselors involved lacked licensure and were unable to properly ensure informed consent, which is essential.

DOJ Has Routinely Targeted Genetic Companies for Code Stacking and Fraudulent Medicare/Medicaid Testing Practices

  • The Department of Justice has charged more than 125 individuals, excluding companies, in connection with Medicare fraud and illegal kickbacks/bribes related to genetic testing, amounting to over $4.8 billion in fraudulent activity.
  • Over the past six years, the Department of Justice has successfully recovered more than $800 million from companies and individuals involved in fraudulent Medicare billing and the provision of kickbacks or bribes for patient referrals.

The expansion of genetic testing over the past ten years, along with the inclusion of genetic testing in state Medicare and Medicaid programs, has coincided with an increase in Department of Justice (DoJ) actions against individuals involved in defrauding Medicare/Medicaid and engaging in illegal kickback schemes.

When genetic testing fraud occurs within private companies, such as the practice of code stacking, it is typically handled as a private matter between the genetic testing company and the insurance provider. In such cases, settlements are often reached, as seen with GeneDx’s settlement with UnitedHealthcare. This is primarily due to the lack of a dedicated regulatory body to effectively enforce laws against these illegal billing practices.

However, in the last five years, the DoJ has charged 128 individuals, and four companies involved in fraudulent schemes, collectively resulting in over $800 million in fines so far due to illicit Medicare/Medicaid reimbursements. Additionally, the DoJ has charged 21 individuals for Medicare fraud and illegal kickbacks, involving over $4 billion in fraudulent claims.

A review of DoJ settlements from the past six years related to fraudulent genetic testing reveals that the majority (71%) of cases involve kickbacks or bribes for referrals for unnecessary genetic tests. Often, these schemes involve telehealth companies and online counselors who persuade individuals to undergo genetic testing that is not medically justified or supported by clinical evidence.

One prominent case involved Progenity Inc., a provider of molecular and diagnostic tests. The company was charged with fraudulent billing practices and kickback schemes related to its use of billing codes that misrepresented the tests provided. Specifically, Progenity was found to be overbilling Medicaid and the Department of Veterans Affairs (VA) by using CPT code 88721, which corresponds to fluorescence in situ hybridization (FISH) procedures misrepresenting the services they actually provided. These procedures are reimbursed at higher rates, and Progenity ultimately settled with the DoJ for $49 million while admitting to the wrongdoing.

One of the largest settlements came in June 2024, when 36 individuals were charged with Medicare fraud after submitting over $1.1 billion in fraudulent claims to Medicare. The indictment revealed that these individuals had provided kickbacks and bribes to telemedicine companies, which employed genetic counselors to facilitate the ordering of unnecessary genetic tests. In one case, individuals involved in the fraud worked at a call center, targeting Medicare beneficiaries and convincing them to accept medically unnecessary genetic tests, which were subsequently billed to Medicare.

Source: 2024 National Health Care Fraud Enforcement Action Summary of Criminal Charges

Discussions with clinical geneticists and industry participants confirmed that the DoJ remains active, but slow, in addressing fraud within the genetic testing industry. There is widespread agreement that fraudulent practices, such as the pushing of unnecessary tests, continue to be a significant issue, and the DoJ is committed to keeping the industry clean from such abuses.

Mount Sinai Relationship With GeneDx Deteriorating After Months of Strain

  • Mount Sinai is GeneDx’s second-largest shareholder and recently began selling tens of millions of dollars’ worth of shares, getting under the 10% reporting threshold.
  • GeneDx/Sema4 leveraged its relationship with Mount Sinai to enhance its credibility with hospitals and secure additional contracts with existing clinics. A professional in the field remarked, “They’re still perceived as Mount Sinai, which grants them significant credibility, and this has considerable value in the industry.”
  • The company’s relationship with Mount Sinai has deteriorated since the acquisition and name change from Sema4 to GeneDx in 2022. Following the acquisition, CEO Katherine Stueland spent a year shutting down several legacy Sema4 business divisions to a point where today, the company only derives 2% of its revenue from legacy Sema4 operations, which had royalties under the licensing agreements with Mount Sinai for specific tests that were ultimately discontinued.

According to multiple people who work in the genetics’ field, the association with Mount Sinai, along with leadership under Eric Schadt, significantly bolstered the company’s credibility during its early years. The company was able to leverage the Mount Sinai name, presenting itself to physicians and potential partners as “Mount Sinai Genomics, DBA Sema4,” thus capitalizing on the reputation and relationships associated with Mount Sinai’s established network, licenses, and technology.

One geneticist described it to us as them effectively saying, “We are Mount Sinai Genomics, we’re not Sema4. We are Mount Sinai Genomics, DBA Sema4. And we came from Sinai, we’re the same people, the same license, the same technology and methodology, and we should inherit the Sinai contract, from you guys.”

Initially, Mount Sinai had agreed to provide the company with millions of patient records for use in the development of its AI platform, Centrellis. However, this platform proved to be far less advanced than the company had represented.

Furthermore, Mount Sinai facilitated the company’s development by assigning a $15.5 million loan from the Connecticut Department of Economic and Community Development, which was intended to support the company’s genetic sequencing laboratory in Branford, Connecticut. This loan, granted in April 2016, predated the spinout by over a year. In November 2022, the company decided to shut down this facility, leaving the remaining balance of the loan, valued at $6.1 million, on its books.

In addition to the financial support, the GeneDx remained closely tied to Mount Sinai through various space license agreements, sublease agreements, and ongoing access to specific research, clinical, and development services. The company also licensed intellectual property from Mount Sinai, obligating it to make regular payments. Mount Sinai played a crucial role in several aspects of the company’s operations.

In 2022, to curb operating losses, the company made significant organizational changes, including the dismissal of Eric Schadt and other original employees. The company also closed several testing labs and repaid grants provided by the state.

Following Katherine Stueland’s appointment as CEO and GeneDx’s acquisition by Sema4, the company began to phase out legacy Sema4 products, such as its reproductive health and oncology divisions. During this period, tests that generated royalties for Mount Sinai were discontinued, which is believed to be the start of the strained relationship between the two organizations, according to former employees.

According to the Higashi v. GeneDx Holdings Corp. (3:24-cv-00815) lawsuit, in late 2022, Mount Sinai began to restrict GeneDx’s access to personal health information stored in its data. This move coincided with the Office for Civil Rights and the Substance Abuse and Mental Health Services Administration’s issuance of a Notice of Proposed Rulemaking related to HIPAA regulations.

A former employee reported that management refused to explain the issue when inquiring about it. Shortly thereafter, CEO Katherine Stueland reportedly disclosed that the fractured relationship with Mount Sinai had been discussed with the GeneDx Board of Directors.

From our reading of the situation, the tensions has culminated in Mount Sinai selling a significant portion of its holdings over the month of November: 1 million shares, or over a quarter of its total holdings. We note that the healthcare company is now below the 10% ownership threshold, which now only requires it to report its total ownership on a quarterly basis.

We believe this is not an isolated incident and that GeneDx has been facing an internal morale issues for many years now, reading through employment reports on Indeed and Glassdoor showcase that many former employees are upset at the mass firings, reporting that individuals who are getting hired to replace some of these workers are all friends of CEO Katherine Stueland from Invitae.

Source: https://www.glassdoor.com/Reviews/Employee-Review-GeneDx-RVW81451489.htm

Source: https://www.glassdoor.com/Reviews/Employee-Review-GeneDx-E382258-RVW84413280.htm

Source: https://www.glassdoor.com/Reviews/Employee-Review-GeneDx-E382258-RVW88401363.htm

Source: https://www.indeed.com/cmp/Genedx/reviews/terrible-environment?id=47edac9c814689b1

GeneDx’s Failed Centrellis Platform Misrepresented Capabilities, Lawsuit Alleges

  • Centrellis, a big-data platform that was marketed as a revolutionary tool to “transform the disease diagnosis and treatment paradigm for patients, physicians, health systems, payors, and biopharma companies”, has been described as an elaborate illusion in a lawsuit.
  • GeneDx CEO Katherine Stueland praised the platform following the business combination in May 2022, stating, “This is an incredible opportunity to create a data engine capable of delivering improved and personalized health insights, with our exome and genome as the backbone. This enables a unique offering not seen from any other company in this space.”
  • Former employees assert that the Centrellis platform did not exist as marketed and that the company used it to position itself as a tech company, rather than a diagnostics company, to achieve a higher market valuation.
  • The same former employee said that the company would have needed “billions of more dollars and many years of additional work before Centrellis would have been able to achieve its stated capabilities.”
  • Centrellis was ultimately shut down after GeneDx was unable to secure commercial clients, with the company realizing that the platform was far from the capabilities outlined in its promotional materials.

Part of the key factor behind Sema4 going public was its AI health information platform, Centrellis, which was marketed as an all-encompassing tool. According to the company’s 2022 10-K, Centrellis was described as “a sophisticated data management and analytics engine” that could mine and analyze health data “across multiple therapeutic areas” using “state-of-the-art AI, probabilistic causal reasoning and machine learning approaches” to “construct predictive models” that would “transform the disease and diagnosis treatment paradigm for the entire healthcare ecosystem: patients, physicians, health systems, payors, and Biopharma companies.”

The acquisition of GeneDx was partly motivated by the wealth of clinical exomes data and annotated phenotypes that could enhance Centrellis. As stated in a press release, “GeneDx’s leadership in rare disease diagnostics and exome sequencing brings more than 300,000 clinical exomes and over 2.1 million expertly annotated phenotypes to strengthen Sema4’s 12 million de-identified clinical records for Centrellis.”

However, as of today, the Centrellis platform appears to be absent from GeneDx’s website and marketing materials. A former vice president of operations revealed that Katherine Stueland, following her appointment as CEO, discontinued the project and terminated most of the team involved after they failed to secure any commercial clients.

Our investigation, which included former employee testimony, indicates that the healthcare platform did not possess the capabilities that management had promoted to investors. Several former employees expressed concerns about the discrepancy between the public statements made in press releases and earnings calls and the reality behind the scenes. One employee mentioned feeling uncomfortable with the company’s claims, noting that it could take GeneDx five more years to reach the level of functionality suggested by the marketing materials.

A lawsuit, Helo v. Sema4 Holdings Corp. (3:22-cv-01131), sheds light on additional challenges Sema4 faced in its efforts to develop the Centrellis platform. One of the major obstacles was the company’s inadequate understanding of the highly regulated nature of human health data usage. Without proper patient consent and adherence to relevant regulations, Sema4 could not leverage the health data it obtained from its health system partners.

According to former employees, the company lacked a regulatory department, which we were told is essential for navigating the complex landscape of personal health data. This gap in regulatory oversight was described as a significant issue by the former Chief Information Officer, who acknowledged that Sema4’s approach was “particularly immature.” LinkedIn research confirms that the company still lacks a dedicated regulatory department, which is crucial for ensuring compliance in the evolving field of health data monetization.

The former vice president of business development said in the lawsuit that their impression from working with former CEO Eric Schadt for over 4 years on finding ways to monetize Sema4’s data was that it was a “mad race to try to obtain Centrellis partnerships, hire as many skilled resources as possible, and build Centrellis so that it could use the data obtained through its partnerships, while at the same time, trying to raise enough cash to keep the Company going.”

They added that “though the company was able to obtain a substantial amount of human health data, ultimately, the data was unusable for Centrellis. Centrellis lacked the ability to utilize the data in a correct or appropriate way in accordance with its objectives,” and ultimately, the company failed to secure any sort of real commercial client.

We corroborate this statement with the former who worked closely with the team before they were let go, who told us that Centrellis “didn’t get any contracts, and it seems they just moved away from the platform.”

The business development Vice President further emphasized that, in their opinion, the company would require billions of dollars and several more years of work to achieve its objectives for Centrellis.”

The discontinuation of the Centrellis project and the subsequent laying off of the involved team members highlight significant challenges and shortcomings within the company. Despite initial promises, it became apparent that the AI health information platform was not delivering the capabilities that were marketed to investors and partners. The inability to secure commercial clients for Centrellis further evidenced the platform’s shortcomings.

The internal struggles were compounded by the company’s lack of regulatory compliance, which hindered the effective use of health data. Without proper patient consent and adherence to health data regulations, the data collected could not be leveraged as intended, rendering the platform ineffective in achieving its objectives. The absence of a dedicated regulatory department only exacerbated these issues, showcasing a critical gap in the company’s approach to handling personal health data.

The experience with Centrellis reveals a pattern of over-promising and under-delivering, raising serious doubts about the company’s current ability to produce a functional and commercially viable AI database. Former employees have consistently pointed out that the company would need significant time and financial investment to reach the levels of functionality and compliance that were initially promised. This historical failure casts a long shadow over any current claims of their capabilities in developing a robust AI database today.

GeneDx Lacks Any Competitive Edge, According to Clinical Geneticists

  • One geneticist expressed concerns that genetic companies may be exaggerating the value of their datasets, stating, “they are often very guarded about their actual competitive advantages. Companies claim to outperform one another, asserting they offer better yields or superior bioinformatic pipelines, but none of them are willing to conduct large-scale clinical trials to validate these claims. Much of the data and evidence used to suggest superiority is subjective and lacks solid comparative foundation.”
  • Another geneticist shared the view that most genetic tests are essentially identical, and no competitor has pricing power, with databases of previously sequenced genes serving merely as “bells and whistles.”.
  • Geneticists we interviewed highlighted publicly available government-run databases, such as ClinVar, which contains millions of sequenced genes accessible to the public.
  • Several industry professionals noted that monetizing databases of previously sequenced genes would require significant time and resources.
  • They also cautioned that whole genome and exome sequencing carries the risk of issues related to penetrance—the challenge of predicting whether an individual with a genetic variant will develop the associated genetic disorder—and the potential for false positives.

We believe that publicly accessible genetic databases, such as ClinVar and dbSNP, as well as subscription-based platforms, present a significant challenge to the monetization potential of GeneDx’s genetic data. These biobanks, which house extensive genetic sequences, are often used by clinicians and genetic researchers for a variety of purposes.

We talked to numerous clinical geneticists and rare disease geneticists who downplayed the idea that GeneDx could successfully monetize their genetic data in any meaningful way. One geneticist said that she has “never seen peer-reviewed rigorous scientific data which has compared the diagnostic yield of Baylor vs. GeneDx” and that ”I don’t think there’s anything convincing.”

They warned us that all these companies like to be very guarded about their competitive advantage in testing and potential monetization of their historical data.

Another clinical geneticist shared a similar viewpoint with us, stating that their team places little value on these sorts of databases and would prefer working with companies that focus on one or two specific tests so that they know “It’s not just computerized algorithms predicting things.”

A recurring concern raised by clinical geneticists, professors, neurologists, and genetic testing residents was the issue of penetrance—the phenomenon where individuals may test positive for a genetic mutation but never develop or show symptoms of the associated disorder. One genetic resident explained it as follows: “If I were to sequence your DNA today and you appear to be a perfectly healthy individual—holding down a job, paying taxes, etc.—I would likely find between five and ten pathogenic variants in genes. These mutations could be linked to diseases, but you may never be affected, or if you are, it would be in such a mild form that it would not be clinically significant.”

To mitigate this issue, many experts agreed that testing both parents and children together provides a more comprehensive understanding of the family’s genetics. However, this approach effectively triples the cost of whole genome or exome sequencing, and securing insurance coverage for the additional testing of parents is a significant challenge.

As one professional put it, “The costs related to penetrance remain high, and as a field, we have yet to find an effective solution.” Additionally, they expressed concerns about the risks involved in informing a parent that their child or an adult has tested positive for a genetic condition that is either dormant or would never manifest clinically in their lifetime.

Active Insider Selling: CEO and CFO Plan to Sell Majority of Shares Under 10b5-1 Trading Plan

  • CEO Katherine Stueland and CFO Kevin Feeley have never made any market purchases but are aggressively selling the shares they are granted almost immediately. If insiders are so keen to get rid of shares so quickly, how can investors be comfortable with holding GeneDx stock?

Katherine Stueland and Kevin Feeley have divested a majority of their holdings and are expected to sell additional shares over the coming year. In August, Both the CEO and CFO implemented massive 10b5-1 trading plans, authorizing Katherine to sell up to 313,000 shares and Kevin up to 118,000 shares—exceeding their ownership at the time. Considering this is their first trading plan and they have held their roles for less than two years, the aggressive nature of these plans raises questions about the rationale behind such large trading programs by the two most senior executives.

According to the company’s proxy statement, as of April 15, 2024, their ownership stood at 115,642 and 41,595 shares, respectively, suggesting they intend to sell all shares acquired through their vesting RSUs. Which we can see from their form 4’s, is exactly what is happening.

Since the adoption of their trading plans, Katherine has sold over 114,000 shares (and counting), generating approximately $9.4 million, while Kevin has sold nearly 60,000 shares, generating approximately $5 million. Notably, all their shares sold were from RSU grants, and there are no instances of these two making open market purchases even though their positions since August 2022.

Their recent selling activity has notably coincided with a 25% increase in the company’s stock price, despite no material news. On January 7, 2024, SEC Form 144 filings disclosed their most recent transactions: Katherine sold 51,420 shares at an average price of $93.93 per share, generating $4.8 million, while Kevin sold 35,506 shares at an average price of $94.07 per share, generating $3.3 million.

With the company’s stock options and RSUs vesting on a quarterly basis, we believe these two will continue to sell their shares until the LTIP is completed.

OPKO Health, Led by Notorious Microcap Fraudster Phillip Frost, Sells GeneDx to SEMA4 for $330 Million, a Fraction of GeneDx’s Market Cap Now

  • GeneDx was acquired for approximately $330m from OPKO Heath, nearly one-seventh of the valuation today, which is associated with notorious microcap fraudster Phillip Frost
  • GeneDx has shut down all legacy operations, leaving the acquired GeneDx as the core business. The company now valued at nearly 7 times the acquisition cost of GeneDx.

In January 2022, Sema4 announced the acquisition of GeneDx from OPKO Health, presenting the deal as a transformative step to enhance its “AI-Driven Genomic and Clinical Data Platform.” The announcement claimed that GeneDx’s genomic testing and analysis capabilities would complement and strengthen Sema4’s data platform, Centrellis. According to the press release, GeneDx’s expertise in rare disease diagnostics and exome sequencing would contribute over 300,000 clinical exomes and 2.1 million annotated phenotypes, bolstering Sema4’s existing 12 million de-identified clinical records.

However, the company throughout the next two years would wind down these operations after being unable to secure significant contracts. Following the announcement of the completed acquisition, Katherine Stueland stated on a investor call “This acquisition by Sema4 is a perfect move at the perfect time. Our team has spent years developing these capabilities, and they’re an absolute complement to Sema4’s approach.”

The company initially projected that the combined entity would achieve pro forma revenue of $350 million in 2022, with $215–$225 million attributed to Sema4’s standalone business and $130 million from GeneDx. In reality, Sema4 generated only $234 million in revenue for 2022 and reported a net loss of $549 million for the year.

The purchase price for GeneDx included $150 million in cash and 80 million shares (pre-1:33 reverse split), totaling $322 million, with an additional $150 million contingent on revenue milestones. GeneDx issued 700,000 shares (post-reverse split) to meet the first milestone but failed to achieve the second, bringing the total acquisition cost to approximately $330 million.

Given that the company subsequently shuttered nearly all of Sema4’s legacy operations and currently derives only 2% of its revenue from those operations, it is unclear how investors can justify a valuation close to seven times the purchase price.

OPKO Health’s CEO is notorious fraudster Phillip Frost, who was charged with manipulating “the share price of the stock of three companies in classic pump-and-dump schemes” by the Securities and Exchange Commission back in 2018 and settled with in 2019 for $5.5 million.

Conclusion

GeneDx is, in our opinion, a terrible company whose secret ingredient is fraud. Multiple high-ranking formers went on record to attest to an active code stacking scheme that aims to defraud both private and public insurers. We estimate the impact of this fraudulent scheme to amount to approximately 25% of the company’s revenue. It is consistent with the picture that insiders and whistleblowers told us about GeneDx operating an illegal and undisclosed network of counselors that drive traffic.

The company once praised its Centrellis database, using terms like “state-of-the-art AI.” Insiders, however, reveal it was merely a façade. We believe this is a precedent for the company’s use case for AI technology going forward.

Pulling back the two main investment theses’, GeneDx appears to be a genetic testing company operating within a highly competitive market and facing challenges in achieving profitability. We believe that once regulators, insurers, and investors become fully aware of the company’s strategies, its prospects may diminish. The significant insider selling indicates potential concerns regarding fines and payor clawbacks.

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