Good day, and thank you for standing by. Welcome to the Sema4 second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star -one- one on your telephone. Please be advised that today's conference may be recorded. I would like to hand the conference over to your speaker today, Joel Kaufman, VP of Finance and Corporate Development. Please go ahead.
Thank you, Michelle. Good afternoon, everyone. Thank you all for participating in today's conference call. Joining me from the company today will be Katherine Stueland, Chief Executive Officer, and Kevin Feeley, SVP of Operations and Head of GeneDx. Rich Miao, the company's interim CFO, is recovering from a medical procedure and will not be able to join the call this afternoon. Earlier today, Sema4 released financial results for the second quarter ended June 30th, 2022. A copy of the press release and our second quarter earnings slide deck are available on the company's website. Before we begin, I'd like to remind you that management will make 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 differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. Additionally, these forward-looking statements, particularly our 2022 financial guidance and our expected cost savings, involve a number of risks, uncertainties, and assumptions. For a list and description of the risks and uncertainties associated with Sema4's business, please refer to the Risk Factors section of our Form 10-Q filed with the Securities and Exchange Commission today, August 15, 2022. 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 the 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 15, 2022. 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. With that, I will turn the call over to Katherine.
Thanks, Joel. Just three months ago, Sema4 closed on the acquisition of GeneDx and announced that we were restructuring the company to support a new foundation for the future, one focused on profitable growth, operating efficiency, and data-driven decisions. Given the immense market opportunity, our industry-leading technology, and consideration of the market conditions, we are well on our way to turning Sema4 into a stronger company than it ever has been. In the second quarter, our teams have continued to drive meaningful revenue growth. In fact, hitting record volumes in pediatrics, thanks to the GeneDx acquisition, while putting the company on track to deliver our target of approximately $50 million in cost savings this year. With the actions we've taken since the last conference call, we can confidently debut a target of approximately $200 million of cumulative cost savings through 2023.
Our new management team has been reviewing our business lines and is acutely focused on assessing what's working and what's not. 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. What remains the same is our vision: to deliver personalized health and wellness plans for patients based on comprehensive data. How we realize that vision will be very different by virtue of strategy, execution, and how we show up in the world. We're now operating Sema4 as a commercial business focused on profitable growth.
After comprehensive reviews of our business lines, we've decided to focus on an area where we're well-positioned to win and can drive profitable growth, helping families make better health decisions with our panels, exomes, and genome, fueled by an industry-leading interpretation platform designed for a genome's worth of information and a data engine built to combine genomic and clinical data to deliver better insights. Our business reviews led us to a clear decision to exit somatic oncology, which represented approximately 1% of our revenue with material negative growth margins. Given the number of companies focused on somatic oncology and Sema4's subscale position in that market, we've decided that investing further in the tumor testing business is not strategically or financially merited.
We plan to wind down somatic testing operations in the third quarter and cease operations by the end of the year, at which point we'll be closing our Branford facility. We're also redirecting our hereditary cancer testing from our Stamford clinical laboratory to our Maryland laboratory to drive down COGS as we continue to sell that through our commercial channels. We will also be reducing our physical footprint with plans to consolidate our headquarters into our Stamford laboratory. We've made a difficult decision to part ways with approximately 250 people who were notified today. In total, we've reduced the legacy Sema4 workforce by around 30% this year.
That's incredibly hard, and we are deeply grateful to all of those who have worked tirelessly for the company, and a special thank you to those who will continue to work as we wind down our efforts in Branford and transition a portion of our lab operations to Maryland. We want to thank the employees affected by today's announcement for their contributions and hard work during their time at Sema4. As I said earlier, our mission of delivering health insights from data remains strong, albeit with an evolution of that strategy. I want to walk you through three changes that we're making to support our new focus. One, profitable growth. Two, scalable R&D strategy. Three, operating efficiency. First, our focus on profitable growth.
Obviously, the somatic exit falls in line with this, and our focus will be in areas where we have a unique capability in the market, enabling us to drive volume, have a healthy reimbursement rate and ASP, provide clear value to clinicians, patients, payers, and health systems, as well as pharma partners, and importantly, areas where we have a path to true profitability. Our strong growth in the pediatric segment is a clear example of this. We've driven double digit year-over-year revenue growth since implementing a new commercial strategy to bring our industry-leading neurodevelopmental disorders, exome and genome, to the NICU and in the pediatric setting. We're generating data from our University of Washington study examining the benefits of exome and genome in the NICU and in the outpatient pediatric setting.
We're seeing payers, including state Medicaid, start to cover this, and we've begun to operationalize a statewide collaboration to sequence healthy babies at birth. It's this same rigor of commercial business planning that we'll continue to deploy as we formulate our plans for expanding utilization of carrier screening and reproductive health, where we currently are one of the leading partners for IVF centers across the country. We'll provide more insight on our commercial plans over the coming quarters to ensure our investors and partners have the line of sight they need to understand how we're evolving our strategy for driving growth designed to improve the overall health of our business while making an impact for patients. Second, our scalable R&D strategy. We're shifting from an academic spin-off strategy for R&D to a scalable one.
Data insights will continue to be the way that we design our product roadmap, but we need to start by having a deliberate and clear strategy that puts an equal premium on scale as it does innovation. This is true for how we're working with health systems as well as how we're going to productize our pharma offering. Our comprehensive data assets, including longitudinal clinical data, in addition to one of the world's largest data sets of approximately 400,000 clinical exomes, the vast majority of which are associated with rare disease, provide Sema4 an unparalleled platform for pharma to leverage. To lead our R&D evolution to a new chapter of innovation and scale, we are pleased to welcome Matthew Davis, former head of AI at Invitae, who is joining us as Chief Technology and Product Officer.
Together with Gustavo Stolovitzky leading our research and data sciences effort, we will continue to invest in the development of commercial products utilizing the data developed and curated on the Centrellis platform. Third, driving operating efficiency. We're bringing a level of operational rigor to the company in everything from our lab strategy to how we operate as a leadership team. With our operations team supported by Kevin's leadership, we've begun integrating the best of both Sema4 and GeneDx to drive down COGS, improve turnaround times, and strengthen our approach to revenue cycle management, which is critical to ensuring we also strengthen our partnerships with payers. With the migration of hereditary cancer testing moving to Maryland, our evolution has begun. With the changing needs of the business, we've also changed our team. Dr. Eric Schadt, founder of Sema4, will be leaving.
I'd like to thank Eric for his significant contributions to Sema4 over the years. He founded Sema4 at Mount Sinai, established it as a standalone private company, and led us to go public via a merger last year. His vision has been instrumental in getting Sema4 to where it is today. We wish Eric well in all of his future endeavors. Turning to the performance of the business in the quarter. I will provide the following metrics on a pro forma basis as if we had owned GeneDx starting January 1, 2021, to provide the most holistic view of combined Sema4 and GeneDx businesses. Test volume of 130,000 tests was up 19% on a year-over-year basis. Revenue, excluding COVID-19 testing and a one-time revenue adjustment that we'll discuss in a moment, was up 7% on a year-over-year basis.
We also experienced strong volumes in our reproductive health franchise as we continue to be a leader in the IVF setting. However, that strength in volume was partially offset by continued ASP pressures in reproductive health testing, and this relates back to the one-time revenue adjustment that Kevin will discuss shortly. We are transforming Sema4 for the better. There's a massive market opportunity in front of us. With the changes we've begun to make, and with the GeneDx integration well underway, with our exome, genome, and data insights engine, we're in the pole position to make health insights the new standard of care for everyone. With that, I'm pleased to pass the call over to Kevin.
Thank you, Katherine, and good afternoon, everyone. Since joining Sema4 upon completion of its acquisition of GeneDx, I've had the privilege of leading a number of our operational teams across the company, including, but not limited to, laboratory operations, genetic counseling services, supply chain management, and the revenue cycle across the combined company. In this past quarter, we've been focused on integration in all areas of the company and key initiatives to drive forward the third area of focus Katherine outlined, which is driving operating efficiency. All operational aspects of the company are under review to ensure proper resource management, automation, and enabling technologies are in place to drive cost efficiency. I look forward to updating you on our progress in future calls.
Today, I'd like to focus on revenue cycle management and adjustments we've made as we take a fully integrated approach with our billing operations and relationships with our third-party payers. We disclosed today in our 10-Q filing that we're currently negotiating with one of our larger commercial payers regarding the potential recoupment of payments for Sema4 carrier screening services rendered from 2018 to early 2022. As a result of the negotiations to this point and an assessment of our current reimbursement landscape for third-party payers, Sema4 has reversed $30.1 million of revenue this quarter related to prior periods.
We believe this reversal of revenue accurately reflects and captures the potential risk of recoupment from our entire portfolio of third-party payers, which is a risk that is common in our industry. Our new leadership team is committed to strengthening our relationships and partnerships with the payers to improve access for our customers who need and require our services. Now I'd like to hand the call to Joel to bring you through our financial results and guidance.
Thank you, Kevin. For reference, we have provided a detailed breakdown of historical volumes and revenue on a pro forma basis beginning in the first quarter of 2021 in the appendix of the second quarter earnings presentation posted on our investor relations website. During the second quarter of 2022, total Sema4 revenue was $36 million compared to $47 million in the second quarter of 2021. When adjusting for the $30 million of revenue reversal related to prior periods recorded in the second quarter, second quarter revenue would have been $66 million. Regarding volumes, we achieved a new record this quarter with approximately 118,000 resulted tests excluding COVID-19. Pro forma resulted volumes in the quarter were 133,000.
This represents a 19% year-over-year increase versus the second quarter of 2021 on a pro forma basis. As a reminder, we completed the previously announced wind down of our COVID-19 business in 1Q 2022. Turning to gross margin, I'll be referring to non-GAAP results. I encourage you to review the reconciliation of GAAP to non-GAAP measures, which can be found in today's earnings release and 10-Q filed with the SEC. Adjusted gross margin, excluding the prior period revenue adjustment recognized in the second quarter, was 4% for 2Q 2022. Gross margin was also negatively impacted by lower recorded ASPs in the reproductive health business during the second quarter.
Turning to the balance sheet, as of June 30th, we had total liquidity of approximately $410 million, with cash and cash equivalents of $285 million and an undrawn revolver of $125 million. We anticipate most of the restructuring process Katherine reviewed will be completed by the end of the year. Combined with the announcements earlier this year, these actions will generate approximately $50 million in 2022 savings. These actions, combined with a focus on capital controls, will enable an additional $150 million in savings in 2023, the vast majority of which are recurring in nature. Now turning to our updated guidance. Starting with volumes, we are increasing our previous targets and now expect greater than 60% growth on a reported basis.
On a pro forma basis, this would imply 19% growth year-over-year. Turning to revenue, we are lowering our previous targets based on a combination of the revenue reversal mentioned previously and a more conservative ASP outlook on the legacy Sema4 business. These headwinds are partially offset by strength in the legacy GeneDx business. We expect Sema4's reported revenue to be in the range of $245 million-$255 million. Please note reported revenue guidance excludes approximately $48 million of revenue generated from GeneDx for the first four months of 2022 prior to the close of the acquisition. We are lowering our full year adjusted gross margin guidance to 4%-9% primarily as a result of the prior period revenue adjustment, which was a 700 basis point headwind to annual gross margin.
2022 gross margins will also be impacted by a reduction in ASPs in the reproductive health business. Given the complexity of the GeneDx acquisition closing intra-quarter and the revenue reversal recognized in the second quarter of this year, we will also provide guidance specifically for the second half of the year for clarity. We expect revenue in the second half in the range of $154 million-$164 million and gross margins in the range of 15%-20%. This trajectory will put us well on our way to our long-term target of greater than 50% gross margins. We plan to reduce our cash spend significantly throughout 2022 and finish 2022 with at least $165 million in cash and equivalents.
We expect our weighted average basic share count for the full year will be in the range of 335 million-340 million shares. We expect the fourth quarter 2022 basic share count to be in the range of 380 million-385 million shares. In closing, as we exit this year, we anticipate Sema4 will be a company with normalized pro forma revenue of $320 million, more than $165 million of cash on the balance sheet, $125 million undrawn revolver, cash runway into 2024, and an operating model that gives us the ability to achieve positive free cash flow by the end of 2025. We are encouraged by the progress we have made thus far in 2022, and look forward to the improved financial position of the company following the announcements made today. Now I'll turn it back to our CEO, Katherine Stueland.
Thanks, Joel. With our focus on profitable growth, scalable R&D strategy, and improved operating efficiency, I'm confident that these changes will result in better outcomes for our patients, providers, payers, partners, team members, and importantly, the shareholders who entrust us to realize our mission. We're grateful for the opportunity to do so. I would now like to open the call up for questions. Operator?
Thank you. To ask a question, you will need to press star- one- one on your telephone. Please stand by while we compile the Q&A roster. Our first question is going to come from the line of [Dave Djalleta] with GS. Your line is open. Please go ahead.
Hey, guys. Any additional color you can provide on the outlook for signing additional health system partnerships?
Thanks, Dave. Yeah, absolutely. That's a fantastic place to put some attention. First, what we are doing is taking a look at the existing health systems that we're working with. I think historically they've been characterized as learning partnerships. What we're doing is working with them to figure out exactly how to ensure we can scale before we add additional health partnerships. Right now, each one has a unique focus. One is focused on hereditary cancer screening, another is focused more on healthy mom and healthy baby. That gives us an opportunity to be able to bring to a health system the GeneDx suite of products in the pediatric setting.
We've actually hired somebody to join the team to be able to work with our new R&D leads to really build that roadmap to scale health systems before we continue to invest in yet another learning system. That is what our plan is. Once we have an approach to being able to scale them, I think we'll be able to provide a better insight in terms of how we might be able to go to market to bring more online.
Great. On the biopharma partnership side, any additional color you can give us on the level of demand you're seeing in the market?
Yeah, absolutely. First, in terms of the selling approach that we're taking with biopharma, it really was previously a group of Sema4 folks who were coming together and really ideating with different biopharma companies, in the same way that we're trying to bring some commercial and commercial rigor and scale to health systems as well as the entire business. We want to do the same with biopharma. I would say with the close of the GeneDx acquisition, we've been really pleased, particularly in the rare disease space, the types of partnerships that we have in the pipeline. We have a lot of work to do to really pull those through and realize them into partnerships that will be gross margin positive. What we'll want to do is spend some time figuring out how to productize that, so we can actually go to health systems with a very clear suite of services that we can provide to them, rather than approaching each one as kind of a unique go-to-market approach. More to come on that.
Great. Thank you.
Thank you. Our next question comes from the line of Brandon Couillard with Jefferies. Your line is open. Please go ahead.
Thanks. This is Matt on for Brandon. Just quickly first on the updated guidance, appreciate the color on the quantifying the adjustment to the prior period changes. On the other part of the lowering of the guidance related to volume and pricing within the reproductive health, could you just talk a little bit more about, you know, what changed there and, you know, any way to kinda quantify what you're assuming for ASP there now versus prior, to quantify the magnitude of the step down there? Thanks.
Yeah, absolutely. Glad you heard the message loud and clear. It's really two factors, one being ASP, and the other being volume related. It was a pretty aggressive back half of the year. As we have a new commercial lead in place and a new commercial leadership team, we're just trying to be really clear-eyed in terms of the volume that we see right ahead of us. Obviously, Sema4 has been really focused in the IVF setting. There is an entire universe of OB volume that is also out there that we may focus on, but that also requires a different commercial strategy. What I really tried to talk through in some of my remarks was the commercial rigor that we're bringing to bear.
Jennifer Brendel is leading that effort. She was an advisor at Bayer and Invitae and really has developed, I think, an elegant strategy that provides all of the things that you need to deliver on volume, on strong ASP. We have a full operational plan to continue to drive down our COGS to deliver on stronger growth margins. So all of this, I would say, we're seeing play out very nicely in the pediatric setting, and it's that same approach that we need to drive in terms of reproductive health. For the back half of this year, I think we wanted to take the most conservative approach in terms of what we could see by way of ASP and by way of volume that would accompany that.
Yeah, Matt, just sort of walking through the ASP dynamic embedded in the guidance. I'd point you to the updated table we provided both in the press release and within the appendix of the investor presentation that was posted on our website today. If you sort of normalize for the out-of-period revenue adjustment in the quarter, ASP in our complex reproductive health segment here were about $520 in the quarter. That compared to about $712 in the quarter prior. I would say we're expecting for the remainder of the year, at least double-digit sequential declines from 2Q into 3Q for those ASP in the reproductive health business. Stabilization thereafter.
Okay, great. That's really helpful color. Jumping over to the additional $150 million of annualized cost savings. You know, you guys laid out a number of items from somatic tumor testing, you know, further reorganization, moving the lab and some commercial moves. I guess, can you kind of talk about maybe the relative, you know, kind of size and comfort with that another $150 million? Going forward, you know, to 2023 and beyond, kind of what do you think is the right size of the commercial organization? Thank you.
Sure thing. I'll share my perspective, and then we'll hand it over to Kevin as well. We've had a full transformation management office that has been leading a pretty thorough effort in terms of being able to ensure that we can deliver on the cost savings, particularly given the market that we're all living in. It's everything from revenue optimization, that's something that Kevin is focused on, to lab and footprint optimization, in addition to taking a look at, you know, the last possible elimination that you want to have to make a decision on is your people. Today, as I said on the call, you know, with the 250 folks that we're parting ways with, that is about 30% of the legacy Sema4 team. I would say that we have made, you know, a pretty multidimensional approach here in terms of being able to realize that cumulative $200 million in savings. Some of it is a matter of timing, so I'll let Kevin talk a bit more.
Yeah, Matt, some of the confidence comes through leveraging a blueprint that GeneDx has previously established, running a full suite of germline tests. The move down to Maryland allows us to leverage a fair bit of automation and other laboratory techniques that have been in place at GeneDx in that lab in Maryland for a number of years. This shift down to the Maryland lab really gives us the ability to run costs at a level of efficiency that would have taken Sema4 a fair bit of time to accomplish on their own.
Really was one of the premises of the integration was to rationalize the laboratory footprint and leverage some of the investments that GeneDx had been making over the past decade into laboratory automation and techniques in the laboratory. Across other operational functions, we see the implementation of other automation and technology that should help us get more efficient in servicing our products. Looking at some operational groups outside the laboratory as well and finding meaningful cost reductions as we turn the page into 2023.
Super. Thank you.
Thank you. Our next question comes from the line of Max Masucci with Cowen. Your line is open. Please go ahead.
Hi. Thanks for taking the questions. Just a question on the second half guide, you know, with the revenues being a bit below, but it also looks like you raised the adjusted test volume guidance. Appreciate the comments around reproductive health. You know, outside of that segment, you know, would love to hear, you know, which other, you know, products and services, you know, are driving that upward revision, you know, for the full year volume growth guidance.
Yep. That is exactly the place to zero in. You know, about a year ago, we assembled an overall business strategy for the GeneDx suite of products, which includes, you know, neurodevelopmental disorders, really for rare disease. Those are rapidly being adopted into the developmental delay setting in addition to other places as well in the pediatric sector. We put together, I think, a pretty elegant commercial strategy to ensure that we could drive volume growth, that it was revenue driving volume, and that we could make an impact on the reimbursement landscape as well to ensure that we're opening up access, we're getting paid for this volume.
We're seeing now a year later, we started making the investments in the commercial team, commercial leadership, medical affairs team. A year later, we're seeing those investments paying off. As we're continuing to evolve the reproductive health strategy, it is really the pediatric sector where we're seeing a lot of uplifts as we think about the back half of the year.
Yeah, Max, just like some in the mechanics in terms of the updated guidance, you know, the way I would think about it is you have, you know, the one-time out of period revenue adjustment that was a headwind in the quarter. The legacy Sema4 business, we're taking a more conservative view on both volume and ASP, but we are revising our underlying assumptions at the legacy GeneDx business up based off of, you know, the demand we're seeing for the whole suite of GeneDx's products to date.
Okay, great. Second one, you know, related to gross margins. In the second half gross margin guide, you know, just as we think through the pacing of the gross margins in Q3 and Q4, you know, how should we think about, you know, the timing of some of these key, you know, milestones or factors you're solving for in terms of the lab operations and the movement there? Just more generally, if we sort of, you know, separate the opportunity for organic gross margin improvement, you know, that's, you know, unrelated to say, reclassification of items between OpEx and gross margin. You know, just trying to get a sense for how we can best track, you know, your progress towards, you know, the organic gross margin improvements and the pacing in Q3 and Q4 in the context of the guide.
Max, I'll start with the pacing. If you think about the mechanics of the exit of the somatic business, well, which will essentially be a wind down of that product line throughout the remainder of the year, and we're going to essentially stop accepting samples in November. You're going to likely see somatic volumes decline, which will be less of a drag on gross margins for the remainder of the year, a greater impact in Q4 than Q3. And then thinking about the move of hereditary cancer from Stamford down to Gaithersburg, again, that will not impact the third quarter. That will be a benefit that we realize in the fourth quarter. And then on top of that, you know, highly encouraged by the trajectory of gross margin that we're seeing at GeneDx.
Margins continue to, you know, beat our internal expectations and are up, meaningfully, relative to the exit trajectory out of last year. If you think about, you know, that is a part of the business that's growing, let's say above the corporate average, contributing more gross margin in the fourth quarter than the third quarter. That's how I would think about the pacing. I'll kick it over to Kevin, though, who may have some more details around underlying operations and how that will impact the gross margin.
Yeah. Thanks, Joel. Not much to add there, except, beyond those identified items. We've now established a transformational office, really looking at all other additional levers that we could pull to explore strategic options to drive down costs, not just in COGS, but operationally as well, and look forward to providing further updates as the year progresses.
Okay, great. Final question. You know, just want to first wish Eric the best in his next chapter. You know, second, Matt is stepping in as Chief Technology and Product Officer. Can you just maybe give us a sense for some of the initiatives or efforts that Matt spearheaded, you know, during his time at Invitae, you know, where he could have an immediate impact at Sema4? Just generally if there are any, you know, major changes to the R&D and biopharma strategy going forward.
You've got it. You're asking one of my favorite topics, Matthew Davis' contributions. You know, I worked with him for several years. Matt, h e's uniquely capable in being able to think through vision in terms of where we're going with exome and genome and a data strategy, while also being able to sit in a business review, hear a problem, and think about, "If I had a squad of, you know, five of my people, we could probably solve that issue." Whether it's on a revenue cycle issue or an ordering issue, he's able to really do both the high science and vision work that we need him to do in partnership with Gustavo, while also being able to look at the business problems, the business operation opportunities that we have in front of us to really run the company more efficiently.
He also brings, thanks to his time at IBM and some work that he and I partnered on while at Invitae, you know, a design approach to product development. We're really excited about the many different ways that Matt's going to be contributing, including, you know, what we've talked about today in terms of being able to develop a roadmap for scale for R&D. I think part of the, like, the immense excitement about Sema4 in the early days being a spin out from Mount Sinai, very academically minded, were all of the different places that you can go from a data perspective and being able to place a lot of bets.
Now we want to move into a new chapter from an R&D perspective, where we're placing fewer, bigger bets, that have behind them a business plan and a full product roadmap, and a clear approach to being able to take, an idea, turn it into a product or service, and turn that into a revenue generating approach. That's really the kind of shift that we want to see out of the team here at Sema4 in terms of product, technology, data science, how do all of those come together to really ensure that we're able to support a commercial stage growth company that has an incredible market opportunity in our hands? We're thrilled to have Matt. Gustavo is stepping up into a fantastic role, and we're just thrilled to be able to have them both leading us in this new chapter.
Gr eat. Well, I appreciate the detail.
Thank you. Again, if you have a question at this time, please press star -one- one. Our next question comes from the line of Mark Massaro with BTIG. Your line is open. Please go ahead.
Hey, guys. Thank you for the questions. Maybe the first one, I don't think I heard the topic of Centrellis come up, so maybe can you just talk about how important sort of the big data platform strategy is at Sema4 at this time? I know that about a quarter ago, I think Dr. Schadt indicated that he was planning to focus on, you know, big data, the information platform, you know, helping with health systems and pharma companies. Maybe just an update on the Centrellis strategy, how core is it? And then on a related question, can you maybe update us on who may be stepping in for R&D, or is that a position that you're looking to fill?
Great question. First, yes, Centrellis is central to all of this. When I talk about the data engine and how we are combining genomic data with longitudinal data, clinical data, that's what we're referring to. Centrellis is absolutely a key part of the data strategy moving forward. We're continuing to build on that by working with health systems and continuing to ensure that we have got a strong pipeline of genomic volume coming in through our commercial channel.
Yes, when I'm talking about the interpretation platform that we've built, in that case, I'm referring to the interpretation platform that we built at GeneDx, which is the most advanced platform in terms of being able to take an exome or genome's worth of data and be able to deliver it with fewer VUSs with every patient that we're running through that platform. I think there's those two platforms that we're talking about that I think really help contribute to a richer data strategy moving forward. That interpretation platform gives us a really important commercial competitive advantage because we've been running these exomes and genomes, and that platform's been getting smarter over the past eight years. It's one of the reasons that our exome nobody can compete with it.
Yes, absolutely central to the data strategy moving forward, and we're excited. In terms of R&D leadership, that is Gustavo and Matt coming in. All of the folks who are reporting into Eric and others on the R&D or product teams will be reporting into Matt and Gustavo. Research and development is, I suppose, rebranded as a technology product, data science moving forward.
Okay, that's a great answer. I also wanted to ask about the, I think it was the $30 million adjustment in the quarter. Would you be willing to provide a little more information about what some of the changes in estimates were related to? Then was this one payer or was it multiple payers? Do you think there could be any impact to either pricing of these tests or potentially the contract status of any of these payers?
Yeah, Mark, thanks for the follow-up there. First, I'm sure hopefully you can appreciate we're in ongoing negotiations with a payer, so I'll share as much as we can at this point, but potentially more limited than you would like. In the second quarter, a large payer of ours completed an audit that spanned back three years, the results of which is a refund request on previously paid claims. These were services provided by Sema4, so the dispute really comes down to a coverage decision with the payer requesting recoupment of amounts previously paid. We've taken reserves on our balance sheet that, based on current information to date, captures what we believe is the potential risk of recoupment from this and other third-party payers in our portfolio.
To your question on contracting in the context of this dispute, we're working to finalize an updated contract with this particular payer on a combined company basis. I'll note that this was one payer that had significantly higher contracted rates than standard commercial lab rates. Hopefully you can appreciate that discussions are ongoing, but we look forward in the days to come to resolving not only dispute, but the go-forward contract and disposition with this payer. Believe the reserves on the balance sheet cover off on what we'd expect as risk in the portfolio at large.
Okay, that's helpful. I totally understand the closure of the lab in Branford, Connecticut, given the somatic testing business was quite small. It certainly makes sense to lower your cost structure and move hereditary cancer testing elsewhere, like Maryland. Maybe can you just remind us where the bulk of the carrier screening testing is being accessioned at this time? Like how strategic is operations in Connecticut at this time and are you contemplating, you know, potentially moving operations to other lower cost jurisdictions?
Our expanded carrier screening or carrier screening testing is germline in nature and run in this laboratory in Stamford. We're exploring all options for the rest of the reproductive women's health line of testing and where that should be performed and how, frankly. With respect to your question on Connecticut, look, the company's headquarters is in Connecticut. I think we mentioned in our prepared remarks our headquarters space, which is office space, probably unlike many other companies. We found we have far more office space than individuals to fill it at the moment. A beautiful laboratory facility right down the street from the headquarters office space. We'll be looking to consolidate that space in Stamford, Connecticut over the coming months.
Okay. Thanks very much. Appreciate the color.
Thank you. I'm showing no further questions, and I'd like to turn the conference back over to Katherine Stueland for any further remarks.
Great. Well, thank you for joining us. A really important thank you to our team members, who have been working with us, and we look forward to catching up with you sometime in the coming weeks and months. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect, everyone.