Genetic Testing Labs: Winter is coming
Beyond the numbers — the lives impacted within the industry and the patients they serve
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Today's post is not a deep dive, but a quick update for providers and investors about what's been happening within the genetic diagnostics market. Since publishing my piece on the unit economics of genetic testing, I've gained a lot of knowledge from private conversations and messages from industry insiders. I'm grateful to those who reached out. I plan to write Part 2, but it will take some time to synthesize everything. This topic is complex and I want to do it justice.
I also want to take a moment to honor the sudden and tragic loss of Lauren Ryan. Lauren was the first genetic counselor to message me and offer to talk during the hardest and most traumatic year of my life. She spoke up about the outrage on Twitter, but more importantly, she was there to lend an open ear and heart with empathy and curiosity — as she has done for so many others. I never got a chance to thank her in person for what her presence meant to me. I'm so incredibly heartbroken, and my eyes are welling with tears as I write these words that Lauren will no longer be able to read. We can only hope to pay it forward half as well as she championed inclusivity, courage, and resilience. 🌹
In genetic counseling, one of the hardest parts of clinical work is delivering bad news. These past few weeks my heart has been heavy as the genetic testing industry continues to falter amidst current headwinds. Winter is coming.
Q3 earnings season hammered home what the most important omics of all is:
Economics.
The era of free money is over — to be replaced by leadership changes, layoffs, and shutdown of specific business segments and products. Notice Sema4’s Q3 earnings eerily echoed what I mentioned in my piece the week before:
Need to cut low-margin tests (reproductive health)
Focus on higher-margin ones (pediatric and rare disease for Sema4)
A sudden emphasis on improving margins and road to profitability by 2025
I'm disappointed that my article anticipated Sema4's restructuring announcement a little too well. It wasn't totally unexpected, though. In good times, investors choose to focus on upside — audacious long-term visions reign supreme. In bad times, investors focus on margin of safety afforded by high visibility and high confidence metrics. To illustrate this with an example in genomic diagnostics, nobody — even the bulls — is talking about the “value of data” anymore.
When it comes to Sema4, what really worries me is that reproductive health was such a major part of their test volume and revenue. If they cut all of that, I'm not sure where growth will come from. While pediatric and rare disease testing have higher margins, the market size is fundamentally capped. It's all very concerning.
Not to vilify anyone (never my intention), but management can often say one thing and then decide to do the exact opposite. For example, this August, Sema4 declared they would double down on reproductive testing.
“It's this same river of commercial business planning that will 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 had 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.”
Many labs are now reevaluating their business strategies. If their current cash balance is barely enough to cover their cash burn, there’s little room for error in 2023. Execution must be flawless, which is a difficult standard to meet. Solvency risk remains high for many.
A word about layoffs
In recent months Invitae, Sema4, Ambry Genetics, PerkinElmer, Illumina, 10x Genomics, Genome Medical, and others have all laid off workers. Anecdotally, private companies have also been struggling. These tend to happen in waves — Q2 saw Sema4 lay off 250 people before the larger restructuring in Q3.
These numbers represent real lives impacted in the life sciences tools and diagnostics industry, and the patients they serve. Layoffs have gone from "who's next" to "who's left".
If you or someone you know has been affected, I am deeply sorry. I can't promise I have all the answers, but I can promise to listen with an open heart and mind. Everyone goes through hard times. Let's help each other out.
I don't identify strongly with the genetic counseling community, but this industry shake-up has made me fiercely protective of the clinical genetics community. I know many to be incredibly thoughtful, empathetic, and wicked smart people. Truer words were never spoken:
Closing thoughts
I share these thoughts with you not to be a negative Nancy, but because I see winter is coming and know things will not be easy. I remain optimistic about the long-term future of genomics — you could call me a pragmatic cheerleader.
I've been reflecting on this tweet from
at which I think applies aptly to genetic testing. It's easy to compare who offers the "cheapest" genome like some kind of horse race, but it's hard to understand what's actually happening beneath the surface in the clinic. I always strive to seek the truth, even if it's unfashionable.
I have more thoughts on insurance reimbursement, etc., but I'll leave it at this for now.
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May you have a peaceful, loving, and restful holiday season ✨.
Christina