The Strongest Stock In The Market Builds Its Crowd

A stock builds a strong uptrend by building a crowd of investors who follow its fortunes. Thirty years ago the crowd following Apple was small. Now it is huge. A proxy for the crowd is the number of analysts who follow the stock. For the current year, 42 analysts offer profit forecasts for Apple. The company has 7,100 institutional shareholders.

The crowd can always get bigger, witness Apple, where the shares still look strong. Apple shares are rising as investors anticipate the impact of rolling out AI across the group’s ecosystem of devices. Looked at from another perspective Apple has 2.2bn active devices worldwide, a number, which is snowballing. This offers huge monetisation opportunities as Apple rolls out services to its fan club, adds to the types of devices available with an affordable iPad Mini just launched and sells more devices overall with its much-loved brand making for great pricing power.

From A World-Beating Giant To An Exciting Minnow

Now we can look at the other end of the telescope at a company followed by just five analysts with 154 institutional shareholders, which, incredibly, little more than a year ago was valued at just $27m. This means GeneDX may be one of the most spectacular examples of the rubbish theory of value I have encountered since 15 months later the business is valued at $1.6bn.

In January 2023, at the same time as changing its name to GeneDX, the company raised $150m to leave it with net cash of $138m. The implication is that absent that fundraising the business would soon have needed to stop trading. The scene was set for the fundraising by three key developments.

In June 2021 Katherine Stueland was appointed CEO of GeneDX which was then a private company. Although still young she is an important figure.

Her career has spanned supporting the FDA approval of several rare disease therapeutics, the first protease inhibitor for HIV/AIDS and the first cancer immunotherapy, all of which were made possible by the powerful voices of patient advocates. Over the past decade, Katherine has been a central figure in moving healthcare toward widespread use of genomic information to improve the accuracy and effectiveness of the diagnosis of rare disease and cancer.

In 2023, Katherine was recognized as one of the most influential people in biotech by Fierce Pharma and was a runner up for the most influential leaders by Modern Healthcare.  She serves on the JED Foundation Leadership Council, a nonprofit organization that works to prevent suicide and protect the emotional health of young adults and teens as part of her lifetime commitment to help improve mental health and fitness. Katherine is also passionate about mentoring women on effective leadership, creating human-centric business strategies, and generating career opportunities for emerging leaders. Katherine graduated from Miami University in Oxford, Ohio, in 1997 with a bachelor’s degree in Science and English Literature. 

GeneDx website

Secondly, on 9 January 2023, the company changed its name from Sema4 to GeneDX.

STAMFORD, Conn, Jan. 09, 2023 (GLOBE NEWSWIRE) — Sema4 (Nasdaq: SMFR) today announced it has changed its name from Sema4 Holdings Corp. to GeneDx Holdings Corp. GeneDx (Nasdaq: WGS), a leader in delivering improved health outcomes through genomic and clinical insights, is uniquely positioned to accelerate the use of genomic and large-scale clinical information to enable precision medicine as the standard of care.

GeneDx’s industry-leading exome and genome testing is enhanced by Centrellis®, its innovative health information platform. Powered by one of the world’s largest rare-disease datasets and millions of medical records, Centrellis integrates digital tools with artificial intelligence to ingest and synthesize clinical and genomic data. GeneDx is developing a more complete understanding of complex disease than ever before, which translates to faster diagnoses, more effective treatment plans and enhanced drug discovery.

“For more than 20 years, GeneDx has earned the constant trust of the world’s genetics experts, while pioneering and increasing the use of its clinically actionable exome and genome analysis. By combining the best of GeneDx and Sema4 to continue our growth, we sit at the intersection of diagnostics and data science, pairing decades of genomic interpretation expertise with an unmatched ability to analyze clinical data at scale. GeneDx now has the capability to combine the power of genomic insights with clinical data to improve health care for people and populations,” said Katherine Stueland, President and CEO of GeneDx.

In conjunction with the name change, GeneDx’s shares of Class A common stock will trade under the new ticker symbol “WGS,” in recognition of the Company’s role in pioneering whole genome sequencing (WGS). The company expects its shares of Class A common stock will begin trading on the NASDAQ Stock Market under the new name and stock ticker symbol on January 10, 2023.

GeneDX, presentation, 9 January 2023

On The Brink Of Profitability And Positive Cash Flow

The company expected a cash burn of $135-$140m in 2023 and to turn profitable in 2025, which suggested quite a cliffhanger through 2024 if the company was not to run out of money.

The third development was that in May 2022 Sema4 acquired GeneDX in what looks like a reverse acquisition where the acquired company and its management formed most of the enlarged business.

 Sema4 (Nasdaq: SMFR), an AI-driven genomic and clinical data intelligence platform company, today announced it has completed the acquisition of GeneDx, LLC (“GeneDx”), a leader in genomic testing and analysis for rare disorders, from OPKO Health, Inc. (Nasdaq: OPK) (“OPKO”). The transaction establishes Sema4 as one of the largest and most advanced providers of genomic testing in the U.S. and further strengthens its health information database to transform patient care and improve therapeutic development. The acquisition accelerates Sema4’s ability to deliver precision medicine while driving efficiency in its platform.

Sema4 has streamlined its management team to enable focused execution across its top business priorities, including expanded molecular testing and data-driven health system and biopharma partnerships. Katherine Stueland, former President and CEO of GeneDx and former Chief Commercial Officer of Invitae, will serve as Sema4’s CEO and will serve on Sema4’s Board of Directors. Ms. Stueland brings more than 25 years of experience in the healthcare industry, having overseen multiple commercial organizations and corporate brand transformations.

“I am delighted to have the opportunity to lead Sema4 as we embark on this next chapter for the combined company, with a focus on growth, operating efficiency, scaling toward profitability, and transformational partnerships,” said Ms. Stueland. “Our vision is to accelerate the use of genomics and leverage large-scale clinical data to enhance the standard of care through extensive precision medicine solutions. I look forward to realizing that vision with Sema4’s unmatched health intelligence platform, enabling comprehensive family health, from planning a pregnancy through every stage of life.”

“The combined company has excellent momentum heading into the remainder of this year,” continued Ms. Stueland. “We look forward to providing a comprehensive financial update and forward looking guidance during our first quarter earnings conference call on May 12th.”

Eric Schadt, PhD, Sema4’s Founder, will serve as President and Chief Research & Development Officer, reporting to Ms. Stueland, and will continue to serve on the Board of Directors.

“We are very excited to add GeneDx’s complementary capabilities and are equally thrilled to welcome Katherine as our new CEO, given her extensive leadership, commercial, and operational experience,” said Dr. Schadt. “This transformative evolution in the scale of our business positions Sema4 to further revolutionise patient care and to provide more holistic support to health system and biopharma partners. I am excited by the opportunity to redouble my efforts to drive our data platform forward and transform not only clinical practice but the way biopharma companies use data to drive innovation.”

Summary of Transaction Details
Under the terms of the agreement, Sema4 has acquired GeneDx for an upfront payment of $150m in cash, subject to adjustment, plus 80m shares of Sema4’s Class A common stock, with up to an additional $150m revenue-based milestones over the next two years (which will be payable in cash or shares of Sema4 Class A common stock at Sema4’s discretion). Based on the closing stock price of Sema4’s Class A common stock as of April 29, 2022, the trading date on the closing of the transaction, the total upfront consideration represents approximately $322m, and the total aggregate consideration including potential milestones is approximately $472m.

The transaction was announced on January 18, 2022 and received approval from Sema4 stockholders on April 27, 2022.

In connection with the transaction, Sema4 has also closed a private placement financing in which it sold $200m of Sema4’s Class A common stock at a price of $4 per share with a syndicate of institutional investors, including Pfizer.

GeneDX, 2 May 2022

More on the deal.

STAMFORD, CT and MIAMI, FL — January 18, 2022 — Sema4 (Nasdaq: SMFR), an AI-driven genomic and clinical data intelligence platform company, and OPKO Health, Inc. (Nasdaq: OPK) (“OPKO”), a multinational biopharmaceutical and diagnostics company, today announced they have signed a definitive agreement for Sema4 to acquire OPKO’s wholly owned subsidiary, GeneDx, Inc. (“GeneDx”), a leader in genomic testing and analysis, from OPKO. The acquisition strengthens Sema4’s leadership, growth, and scale for its market-leading health intelligence and genomic screening offerings. Together, Sema4 and GeneDx will be one of the largest and most advanced providers of genomic clinical testing in the U.S., with a projected $350m in pro forma 2022 revenue.
Following the completion of the acquisition, Sema4 will be optimally positioned to partner with health systems and biopharma companies to further transform the standard of care throughout the patient health journey. GeneDx’s leadership in rare disease diagnostic and exome sequencing services brings more than 300,000 clinical exomes and over 2.1m expertly annotated phenotypes to strengthen Sema4’s 12m de-identified clinical records for Centrellis®, its proprietary health intelligence platform, and Traversa™, its comprehensive genomic analysis platform for optimizing health screenings. Sema4 plans to leverage this combined health information database to transform patient care and therapeutic development and enable precision medicine for all.

“We are excited to join forces with Sema4, a market leader in using genomic and clinical data to deliver precision medicine,” said Ms. Stueland. “The complementary fit between our teams, missions, and capabilities is strong. We are eager to put those strengths to work and to make it easier to use data-driven insights to improve healthcare for all. I’m looking forward to partnering with Eric to create an unrivalled family health and health intelligence company, supporting patients making healthcare decisions throughout their lives, from pregnancy and newborn health to adult rare disease, risk assessment, and cancer care.”

---

Dr. Schadt added: “We are excited to announce this investment with the support of several key institutions, including Pfizer. We believe that genomics and data, when harnessed in partnership with health systems, can be a powerful tool to enable precision medicine by bringing novel therapies to patients faster and more effectively. We hope that this investment may serve as a foundation for potential future collaborations.”
Phillip Frost, M.D., Chairman and CEO of OPKO, added: “We believe the sale of GeneDx to Sema4 will unlock untapped value and maximise the value of GeneDx for the benefit of OPKO shareholders. In addition to bolstering our cash position, we will have a significant equity stake in Sema4 at closing, ensuring OPKO and our shareholders continue to participate in the rapidly growing genomics market through continued investment in GeneDx, which we believe is well-positioned to deliver long-term success.”
In conjunction with the Transaction, Jason Ryan, a member of Sema4’s Board of Directors, former CFO of Foundation Medicine and most recently Chief Operating and Financial Officer of Magenta Therapeutics (Nasdaq: MGTA), will assume the role of Executive Chair of Sema4’s Board of Directors. Mr. Ryan has outstanding leadership experience in the life sciences and biotechnology sectors, and an impressive background in finance and scaling businesses. Mr. Ryan succeeds Joshua Ruch, who will continue to serve on Sema4’s Board of Directors as the Chairperson of its Compensation Committee.
Based on Sema4’s closing stock price as of January 14, 2022, the purchase price is approximately $623m, including total upfront cash, stock consideration, and contingent consideration upon commercial milestones.
Sema4 expects total revenue for the fiscal year 2022 to be in the range of $215m to $225m, implying 23-29pc growth. Sema4 also expects to result in over 350,000 tests in 2022.

If we put all this together Sema4 bought Gene DX for $623m and raised $200m from investors including Pfizer. According to the chart the shares then collapsed but if we exclude whatever that was all about we could say that the current value around $1.6bn is double the value of the massively transformed business in the middle of 2022.

Given how well the business is going a doubling in value does not look at all excessive. Let us look at what is happening now.

The second quarter proved to be another strong quarter by all measures. We delivered nearly $69m in revenues, expanded gross margins to 62pc and achieved our ninth consecutive quarter of cash burn reduction. We’ve been relentlessly focused on these three metrics, and that focus continues to pay off.

Given the strength in the first half of the year, I’m happy to say that we’re raising our revenue guidance for the year to $255m to $265m, and we’re even closer to our goal of becoming profitable. This is an important milestone for us as a company because of the massive opportunity in front of us to serve an ever-growing number of families and to positively impact the future of health care.

Katherine Stueland, CEO, GeneDX, Q2 2024, 30 July 2024

Now sole CEO, Katherine Stueland, appears to be an effective manager.

The upshot of strong commercial execution has been amplified by our team’s operational and technological excellence. These teams continue to put additional wind in our sales by reducing costs, shortening turnaround times by identifying opportunities for improved efficiency, scaling our lab with support from AI and machine learning technologies and improving our billing workflows in service of better patient provider and payer experiences.

Our proprietary genomics data set was built by patients across America. Thus offering one of the most representative and diverse looks at genomic data available. As we think about differentiation, we appreciate the steps we’ve taken historically to prioritize equitability and remove barriers to cost on our journey to servicing patients and providers in every circumstance, but we’re not done yet. There are millions of patients and families in the U.S. and globally that can benefit from the actionability of a genetic diagnosis.

The diagnosis can immediately change clinical management, unlock clinical trial opportunities, qualify patients for the financial support they desperately need, connect families to communities unified around their child diagnosis by way of patient advocacy groups and much more.

We recognize the privilege that a market-leading position offers us, and we are continuing to invest in accelerators for our business while balancing growth and scale with financial discipline and strength.

Katherine Stueland, CEO, GeneDX, Q2 2024, 30 July 2024

Katherine Stueland is doing a great job at GeneDx but her previous role at Invitae may have been less successful since that business is in bankruptcy proceedings. This may help to explain why her arrival at GeneDX did not seem like a magic bullet to take the company forward although Invitae shares only collapsed after she left.

The World’s Greatest Wealth Management Business

This is a long-term chart of asset management behemoth, Blackrock, but the performance is impressive. The shares have risen 81 times in the new millennium which compares with a rise of 25 times by the Nasdaq 100. I would expect this outperformance to continue because Blackrock is a leveraged play on US stock markets. Its funds under management rise with financial markets with no associated rise in costs and it benefits further from new money inflows attracted by the good performance which is also a function of rising stock markets.

The just-reported results were impressive, with record inflows of $221bn. Thus, 2024 inflows have already exceeded those of 2022 and 2023. And the general tenor of the report is bullish.

The growth in prosperity-generating power of the capital markets will remain a dominant economic trend in the coming decades, and BlackRock will be an important player in that growth. The opportunities ahead have never been better than we’ve seen now. We see this through unique deals and partnerships with BlackRock at the centre and are accelerating client activity. 2024 net inflows have already surpassed the full-year net inflows of both 2022 and 2023.

The assets we manage on behalf of our clients reached a new high, ending the third quarter at $11.5 trillion. AUM has grown $2.4 trillion or 26pc over the last 12 months. In that time, clients have entrusted BlackRock with $456bn of net assets, including a record $221bn in the third quarter. Third quarter net inflows and corresponding organic base fee growth of 5pc represents our highest level in the last three years, and 15pc technology services ACV [annual contract value] growth is also at a fresh high.

On our earnings calls earlier this year, we discussed with our shareholders our visibility to a strong pipeline. We shared how this would lead to accelerating organic growth in the second half, and we’re seeing that in our results today. We continue to grow our pipeline across the breadth of Aladdin, investment management mandates, and we expect momentum to further build into year end and 2025. We are effectively leveraging our technology, our scale, and our global footprint to deliver profitable growth.

Quarterly revenues and operating income both set new records, up 15pc and 26pc, respectively, year over year. And our 45.8pc operating margin is up 350 basis points. Importantly, organic growth has great breadth and is diversified across BlackRock. For both the third quarter and the first nine months of 2024, flows were positive in active and index, across all asset classes, across all client types, and across all regions.

Larry Fink, CEO, Blackrock, Q3 2024, 11 October 2024

I had not realised what a class investment Blackrock is.

Our relentless focus on clients, having a growth mindset, and a willingness to change and evolve has generated a compounded annual total return of over 20pc for our shareholders since our IPO 25 years ago. BlackRock has exceeded the total return of the S&P 500 in 19 of those 25 years, representing a business model to serve all our stakeholders. We are better positioned than ever to serve our clients and to deliver growth for our shareholders in the years to come.

I’ve never felt more optimistic in our positioning as I do today, even after 25 years of being a public firm and 37 years of being a firm. 

Larry Fink, CEO, Blackrock, Q3 2024, 11 October 2024

Share Recommendations (16 October 2024)

Apple. AAPL

GeneDX WGS

Blackrock Inc. BLK

Strategy – One For Speculators, One To Go Under The Bed

These are two very different types of investments. Blackrock is as high-quality a blue chip as possible, perfect for growth investors, widows and orphans while offering exciting returns. GeneDX is just exciting and much earlier in its growth journey and likely to be more volatile. Apple is the ultimate US brand/ way of life blue chip.