After Sema4 layoffs, what does the future hold for bioscence in CT?

Photo of Paul Schott

Since its founding in 2017, genomic-testing provider Sema4 has notched a series of milestones that have made it one of the most-celebrated bioscience firms in Connecticut.

It opened its headquarters to acclaim in Stamford’s South End, after spinning off from the Mount Sinai Health System in New York. A couple of years later, when Sema4 opened its laboratory in Stamford’s Waterside section, politicians including then-Mayor David Martin, Sen. Chris Murphy and Rep. Jim Himes again hailed the company’s progress.

Sema4’s transformation last year into a publicly traded company and acquisition this year of another genomic-testing provider, GeneDx, garnered yet more enthusiasm from Connecticut officials.

By contrast, the sweeping changes announced last week by the company received no such accolades. As it restructures in the wake of the GeneDx acquisition and tries to rein in costs, Sema4 is laying off about 240 people who work at or report to one of its Connecticut facilities, closing its laboratory in Branford and consolidating its real estate in Stamford.

The moves comprise one of the most-significant setbacks in recent years for Connecticut’s bioscience industry, a cluster that has established itself as a locus of research and development.

Bioscience firms have raised high hopes for growth as a key driver of jobs, income and prestige in Connecticut for many years, especially since the state spent lavishly a decade ago to bring in the Jackson Laboratory for Genomic Medicine in Farmington.

Although the industry does not rival the scale and influence of the largest biotechnology hubs in the United States, advocates remain confident that with an ever-growing contingent of companies and robust funding available to those firms, that bioscience can still fulfill its potential to become one of the state’s largest economic engines.

“I was surprised and obviously disappointed by Sema4’s announcement. They’ve been a great partner for the state,” Matthew McCooe, chief executive officer of Connecticut Innovations, the state-chartered venture capital organization, which has invested $2 million in Sema4, said in an interview. “But we can definitely absorb lots of employees into our other life sciences companies in Connecticut, whereas we couldn’t five or six years ago. The market has changed so fast — and for the better.”

Deep cuts in Connecticut

The layoffs will affect 143 employees at Sema4’s headquarters at 333 Ludlow St. in Stamford’s South End; 15 employees at the laboratory at 62 Southfield Ave. in Stamford; and 81 employees at the lab at 1 Commercial St. in Branford, according to a letter the company sent last week to the state Department of Labor. Among those affected workers, 122 of them are working remotely outside Connecticut, but they report to and/or have their work assigned from one of those locations.

Those job cuts represent about 13 percent of Sema4’s workforce, leaving the company with about 1,600 employees. Combined with downsizing in the first half of 2022, the company said it has eliminated approximately 30 percent of the positions from its original “legacy” business.

The planned closing of the Branford lab by Dec. 31 reflects the company’s exit from the “somatic” tumor-testing business — an area of operations that represents less than 1 percent of the company’s revenues, but about $35 million in annual expenses.

At the same time, Sema4 announced that it would move its hereditary cancer-testing operations from the Stamford lab to its lab in Gaithersburg, Maryland — the hometown of GeneDx. In addition, the company disclosed the departure of founder and President Eric Schadt, who had served as chief executive officer until the GeneDx acquisition.

Sema4’s second-quarter results highlighted why the company is seeking to cut costs. It recorded a quarterly loss of nearly $86 million, compared with a loss of about $46 million a year ago.

“Our new management team has been reviewing our business lines and is acutely focused on assessing what’s working and what’s not,” Sema4 CEO Katherine Stueland, who formerly served as GeneDx’s CEO, said during the company’s earnings call on Aug. 15. “As a result, we’re making changes to ensure we strengthen our foundation and financials, so we can continue to realize our mission of unlocking insights from data, leading to healthier lives, and in doing so, realizing value for our shareholders.”

The consolation for Connecticut is that despite the job losses and closing of the Branford lab, Sema4 will keep its headquarters in Stamford — although it is moving those offices from their current location into their Stamford lab.

‘I’m very optimistic’

Many in the state’s bioscience community remember when another much-touted firm, Alexion Pharmaceuticals, announced in 2017 that it would relocate its headquarters from New Haven to Boston . But today, Alexion’s trajectory ironically helps explain the widespread optimism about bioscience’s long-term prospects in Connecticut.

Despite moving the headquarters to Boston, the now-AstraZeneca-owned company operates with about 500 employees in New Haven, and it has committed to taking space in the under-construction bioscience research tower across the street from its current offices and lab on College Street.

Yale University, of course, is one of the catalysts of New Haven’s ferment of research and development and new companies. Among new initiatives, the university announced earlier this year the launch of Yale Ventures, to help students and faculty turn their research into commercial enterprises. Josh Geballe, who formerly served as the state’s chief operating officer in Gov. Ned Lamont’s administration, is leading the new program.

In addition to New Haven’s bioscience growth in recent years, the state benefits from mainstays such as Pfizer. The pharmaceutical giant’s largest research-and-development center is in Groton, a facility that played a key role in the creation of its COVID-19 vaccine.

As of last year, more than 2,700 of its R&D professionals worked in the state, across the Groton site and its New Haven clinical research unit. Its in-state headcount, however, appears to be a long way from previous peaks — such as the approximately 6,500 people that it reportedly employed across its Groton and New London facilities in 2005, a year that marked the opening of the New Haven testing lab, but also included the announcement of a cost-cutting plan aimed at saving $4 billion by 2008.

But Pfizer’s long-term commitment to Connecticut remains indisputable. Further demonstrating its confidence in the state, the company announced in May that it would acquire New Haven-based BioHaven Pharmaceuticals for $11.6 billion.

There is also significant activity in the state’s southwest corner. Ridgefield is the longtime host town of Boehringer Ingelheim’s U.S. headquarters. In Stamford, Sema4 and a number of other companies founded in recent years have put the city on the biotech map. Other members of the Stamford-based contingent include Loxo Oncology, which was acquired in 2019 for $8 billion by Eli Lilly & Co.

“We complain a lot about the cost of living in Connecticut, but for biotech executives and other employees, Connecticut is a bargain compared to other places like Boston and California,” Paul Pescatello, executive director and senior counsel for the Connecticut Business & Industry Association’s Connecticut bioscience Growth Council, said in an interview. “I’m very optimistic.”

About 23,000 people were employed in the bioscience industry in Connecticut, with research and development and medical equipment and supplies accounting for the most positions, according to a state Department of Labor report published last year.

“Overall, the bioscience industry cluster in Connecticut has grown from 2017 to 2019, shown tempered employment declines during the pandemic, and is projected to add jobs in coming years,” DOL economist Matthew Krzyzek said in the report.

Conn. loans and

contracts for Sema4

Connecticut’s status as an emerging hub for biotech firms is reinforced by the robust funding available to companies that operate in the state.

During the administration of then-Gov. Dannel P. Malloy, the state Department of Economic and Community Development awarded a total of $15.5 million in loan funding to Sema4. Of that total, $4.5 million has been forgiven as a result of Sema4 meeting job objectives, while the company could earn an additional $7.75 million in forgiveness if it meets other job targets.

In the meantime, the company is currently making monthly interest-only payments on the remaining $11 million principal, a DECD spokesman said.

Sema4 has been the subject of debate over its role as a state contractor in testing for COVID-19, from April, 2020 until earlier this year.

Among the firm’s early investors was Oak HC/FT, the venture capital firm of Annie Lamont, Gov. Ned Lamont’s wife. That connection led Gov. Lamont to recuse himself from decisions regarding Sema4, which received significant work from the outset of testing in the coronavirus crisis.

There has been no public evidence of wrongdoing by Lamont or his administration. But Republicans including Bob Stefanowski, the GOP nominee for governor, have said Sema4 should have been barred from the state work. Lamont, in response, said the state quickly contracted with all four companies available to test for COVID-19, saving lives.

In response to the company’s announcement of the layoffs and Branford lab closing, state Sen. Henri Martin, R-Bristol, the ranking Senate Republican on the state legislature’s Commerce Committee, sent a letter last week to DECD Commissioner David Lehman, asking about the repayment and forgiveness of Sema4’s loan funding.

Lehman said in a response Thursday that the state is still investigating.

“I have been in contact with the company regarding the cost-saving measures they announced on August 15, 2022, and will continue to evaluate what impact, if any, these have on the contract between DECD and the company,” Lehman said in a letter to Martin. “With the Branford location closing, we are currently evaluating the impact on our collateral, if a paydown is required, and other ways to ensure we remain secured.”

‘Punching above our weight’

Alexion had also received a large assistance package under Malloy’s First Five program. The company repaid DECD about $28 million to cover the loan and grant that it had received, after relocating its headquarters.

Public funding for other biotech ventures has also sparked debate — none more than the $291 million approved by the State Bond Commission in 2012 to support building work and the creation of 300 jobs at the Jackson Laboratory, which opened in 2014 at the University of Connecticut Health Center campus in Farmington.

Some Republican legislators criticized the state’s outlay as excessive for the number of jobs being created, but Malloy, a Democrat, countered that the state’s investment would reap economic and research dividends that would extend well beyond the headcount at Jackson. His DECD estimated that JAX, as the nonprofit company is known, would spin off at least 4,000 bioscience jobs in Connecticut.

At Connecticut Innovations, bioscience and health care companies have long comprised a large share of the investments. Today, they account for 114 of the 220 companies in the New Haven-based organization’s portfolio, with CI having invested $149 million in bioscience and health care firms.

“We are definitely not yet Cambridge-Boston or New York — the true elite of hubs for bioscience — but I think we’re in the next tier, which is a great place to be for a state of about 3.5 million people,” McCooe said. “If we can keep punching above our weight like that, we’ll be in good shape.”; twitter; @paulschott