Corporate Counsel Daily, District judge declines, on renewed motion, to dismiss class action against diagnostics company, (Jun 24, 2025)

By Rebecca E. Hoffman, J.D.

Unlike the first motion to dismiss scenario, the plaintiff raised an inference of scienter, based on the testimony of three former employees showing the defendants had information about the shortcomings of the platform they publicly touted.

A class action, in which a health diagnostics company’s shareholders allege that false and misleading statements about the company’s data platform led the stock price to drop, may proceed, the District of Connecticut held June 23, finding that the statements, about how the acquisition of a company providing exome sequencies services would “significantly enhance the power” of its platform, were belied by testimony of former employees showing that the platform lacked the capabilities the defendants championed (Helo v. Sema4 Holdings Corp., No. 3:22-CV-01131 (D. Conn. Jun. 23, 2025)).

The corporate defendant, Sema4 Holding Corp., is a health company that uses artificial intelligence in connection with longitudinal patient data and genomics to enable personalized medicine. In 2022, Sema4 acquired GeneDx, a company that provided rare disease diagnostic and exome-sequencing services, for $623 million. Sema4 proclaimed that the acquisition would enhance its Centrellis data platform.

Later in 2022, the company announced that it had reversed $30 million in revenue related to prior periods and established a reserve of nearly $40 million for potential recoupments of payments by third parties. The company lowered its revenue guidance and disclosed that it was reducing its workforce by a third, causing the share price to drop.

The putative class action that followed was dismissed for failure to state a claim, and the plaintiff filed an amended complaint for violations of Exchange Act Sections 10(b), 20(a), and Rule 10b-5. Sema4 and four principals once again moved to dismiss.

Centrellis statements. The complained-of statements flaunted the abilities and potential of Centrellis. For example, in a March 2022 press release, the company said: “‘We continue to expect to close the acquisition of GeneDx by the end of Q2, which will significantly enhance the power of our Centrellis® platform and distance us as the market leader with the most comprehensive clinically relevant data set available for research and development purposes.’” Defendant former president said during a conference call, “‘[w]e believe that Centrellis is the most extensive and fastest-growing database of clinically relevant patient data in the industry.’”

The plaintiff asserted that the statements “painted a rosy picture for investors” about Centrellis, when, according to one of the former employees, Centrellis “never existed,” and the other former employees said that Centrellis could not handle the data they would acquire from GeneDx. “These allegations support with particularity the claim that statements regarding Centrellis were misleading,” the court found.

Forward-looking? The defendants argued that the statements were not actionable, because they were forward-looking. The Private Securities Litigation Reform Act includes a safe harbor that applies if a forward-looking statement is accompanied by sufficient cautionary language. However, the court said, “Defendants overlook that, in each of the statements flagged as forward-looking, the speaker necessarily represents that Centrellis presently exists.”

In addition, the supposed cautionary language, such as a mention in a quarterly statement that the company had “‘limited experience with the development or commercialization of clinical or research products in connection with the databases we manage,’” is vague and perhaps even boilerplate, the court said.

The defendants also argued that the statements were puffery that investors would not rely on, but “Defendants overlook the context of the statements, which includes descriptions of Centrellis’ then-existing capabilities that are plausibly misleading.”

Scienter. The court originally held that the first complaint’s scienter allegations fell short of the standard required by the PSLRA. This time, however, the court found that, because the plaintiff alleged with particularity that the testimony of the former employees showed that the defendants “probably possessed information related to Centrellis, provides strong evidence of scienter, showing that the Individual Defendants had knowledge or access to facts contradicting the public statements.”

The plaintiff also showed loss causation, the court found. Various disclosures in August 2022, such as that the company’s president and chief R&D officer was stepping down after primarily focusing on the Centrellis project, and that the company was changing its overall approach, were followed by a stock price “plummet[],” the court agreed.

The case is No. 3:22-CV-01131.

Attorneys: David A. Slossberg (Hurwitz Sagarin Slossberg & Knuff LLC) for Nabil Helo. Catherine Kevane (Fenwick & West LLP) and Joseph W. Martini (Spears Manning & Martini LLC) for Sema4 Holdings Corp., Eric Schadt, and Katherine Stueland.

Companies: Sema4 Holdings Corp.

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