Sema4 was a hot CT startup. Then came a boost from Annie Lamont’s firm
The coronavirus was spreading rapidly, workplaces were locked down, and Connecticut could barely turn around a virus test result in less than two weeks.
It was April of 2020. The state was desperate for help from any laboratory that could process COVID tests quickly. Much of the laboratory space at Sema4, a Stamford-based healthcare technology startup, was sitting idle, its genomic data analysis business largely suspended by the pandemic. So Sema4 pivoted.
In less than three weeks, as the virus continued to rampage across the state, Sema4 obtained federal certification to do coronavirus antigen testing, responded to the state’s Request for Proposals for COVID testing and signed its first of two state contracts that eventually paid more than $25 million.
But one of Sema4’s financial backers — Oak HC/ FT, a well-regarded healthcare venture capital firm that invested millions of dollars in the startup — has what some see as an uncomfortably close connection to the governor’s office: One of its founders and managing partners is Ned Lamont’s spouse, Annie Lamont.
After a months-long investigation into the timeline of Oak HC/FT’s investments – including filing Freedom of Information requests with state agencies and reviewing testing contracts, ethics rulings, emails, loans, venture investment data, Securities and Exchange Commission filings, laboratory certificates and more – a story emerged of a state desperate for assistance amid a pandemic and a high-tech startup with the capacity to help.
The narrative has one constant: Annie Lamont has remained a managing partner at Oak HC/FT, even while the state was awarding multimillion-dollar contracts to one of the companies in which Oak HC/FT had a significant investment, Sema4. And even though Annie Lamont said she had no role in procuring Sema4’s contracts with the state, and no formal ethical lines were breached, her company expanded its investment in Sema4 as the startup’s COVID-testing work for the state of Connecticut grew.
In turn, those state contracts boosted Sema4’s laboratory volume, and highprofile investors supplied fresh funding, steering the company toward a public offering — with a valuation of $3 billion — in the summer of 2021. Connecticut taxpayer money may have helped get Sema4 to that point.
The Mirror’s reporting shows that Oak HC/FT invested in Sema4 twice — first in August of 2019, after Gov. Dannel P. Malloy’s administration awarded the company two start-up loans, and a second time, in July 2020, two months after the Lamont administration signed the $17.2 million contract with Sema4 to do COVID testing. Later that year, the state awarded Sema4 a second no-bid testing contract, worth an additional $8.4 million.
The little that was known about Oak’s investments in Sema4 eventually created a political problem for Ned Lamont. The state Republican party, sensing a vulnerability as Lamont inched closer to announcing his reelection plans, began agitating on social media, framing the issue as an ethics violation.
When Sema4 signed its first contract with the state to conduct COVID testing, a lawyer with the governor’s office told state ethics officials in an email that the couple wished to donate “any benefit that they may derive from the contract” to charity.
The Mirror’s findings raises one key question about Annie Lamont’s company’s investments in Sema4: Was it improper for her firm to increase its stake in Sema4 after the state’s COVID testing contract lifted the company’s testing volume and boosted its revenue?
When Sema4 went public in July of this year, Oak HC/ FT’s stake was worth more than $66 million, according to SEC filings.
Annie Lamont declined to be interviewed for this story. Instead of responding to specific questions submitted by the Mirror, she provided an emailed statement via the governor’s spokesman.
“Ned and I had no involvement with the decision to enter into a contract with Sema4 or the terms of its contract with the State of Connecticut. Decisions involving Sema4 and the terms of the testing contract were negotiated by the Office of the Comptroller without any involvement from me or Ned,” the statement reads. “Finally, I have recused myself from all decisions relating to our investment in this company. To date, I have not earned any profit from the investment in Sema4, and I will keep our promise and pledge to donate any and all proceeds to charity.”
Gov. Lamont issued a written statement through his spokesman: “The State of Connecticut had a choice in March and April of 2020: sit back and let the Trump administration — which at the time was describing this global pandemic as ‘the flu’ and was notoriously inept in its response — dictate the state’s future when it came to testing and understanding the spread of the virus. Or, at a time of national crisis, when states were competing against each other for tests, masks, and resources in order to contain COVID, take our fate into our own hands by utilizing testing capacity within our state’s borders — all through an independent selection process and executed through an independent committee.”
While Annie Lamont’s venture capital firm may have benefited from Sema4’s COVID-testing contract with the state, there is no evidence the governor violated any state ethics rules.
Based on written guidance provided to the Lamonts by the Office of State Ethics, as well as an interview with the agency’s executive director, the Sema4 contract posed no conflict of interest under state law on the part of the governor or first lady.
For some, that raises questions about the rules themselves.
“Even if it isn’t nepotism, it certainly looks like it to the public,” said Craig Holman, government affairs lobbyist for the watchdog group Public Citizen. “It causes damage to the public’s view of who government is serving.”
Peter Lewandowski, the executive director of the Office of State Ethics, said a 16-page advisory opinion produced in response to questions posed by the Lamonts two months after he took office gave clear guidance on how to comply with the law.
But Lewandowski, speaking generally and not about the Lamonts, said compliance with the law is not necessarily the standard that the public will apply.
“In some ways, it’s left to the public officials discretion on how much tolerance they have for bad optics,” Lewandowski said.
How Sema4 and Annie’s Oak came together
Annie Lamont is a managing partner of Oak HC/FT, a
venture investment fund targeting health care and financial tech startups that she and two co-founders, Andrew Adams and Tricia Kemp, spun out of Oak Investment Partners in 2014.
The firm is well-regarded in the healthcare venture capital world, according to Matt McCooe, chief executive of Connecticut’s own quasipublic venture capital arm, Connecticut Innovations.
“She’s one of the top health care investors on the planet, probably top five,” McCooe said.
The state’s history with Sema4 dates back to 2015, when Gov. Malloy’s Department of Economic and Community Development agreed to loan $9.5 million to the Icahn School of Medicine at Mount Sinai in New York, where Sema4 was created.
The first portion of that loan, $9.5 million, was released in two stages, according to the DECD contracts: first, $5 million to build a laboratory in Branford, where most of the COVID-19 testing is now conducted; and second, $4.5 million, which was released when Sema4 established its headquarters in Stamford. Sema4 was approved for another $6 million loan in June 2018 to establish a second laboratory in Stamford.
The loan agreements were all signed before Lamont was voted into office, although the last $6 million wasn’t disbursed by DECD until March of 2020. DECD spokesman James Watson said that’s because that’s when Sema4 found space in Stamford to build the second laboratory and also open a headquarters. A performance audit is scheduled for next year, but Watson said the company has met the job quotas required by the state.
By the summer of 2019, Sema4’s business was growing and gaining attention in the investor community.
On Aug. 1, 2019, Gov. Lamont spoke at a press conference in Stamford where construction was commencing for Sema4’s second laboratory location in Connecticut — a 70,000square foot facility capable of processing 5,000 patient samples a day. “As a health technology company on the leading edge of science, we are thrilled to be part of Sema4’s expansion,” Gov. Lamont was quoted saying in a press release that day.
That same day, Oak HC/ FT announced it had raised $800 million for its third round of investments. And before the month was out, Oak HC/FT also became part of Sema4’s expansion.
Annie Lamont’s venture fund contributed to a $127 million fundraising round, according to data from research firm PitchBook. Private equity giant Blackstone led the Series B round – meaning it contributed the most. Oak HC/FT, Connecticut
Innovations and a handful of other firms participated, according to a post on Sema4’s website.
Oak HC/FT’s Adams was the lead partner for his firm on that deal, according to the Oak HC/FT website. That means all of the firm’s Sema4 investments were handled by Adams, similar to how partners in a law firm each lead their own cases and manage their own client relationships.
Oak HC/FT did not respond to questions about how much it invested in Sema4’s two rounds of outside fundraising, first with the August 2019 Series B and again in the July 2020 Series C. Connecticut Innovations invested a total of roughly $2 million in Sema4 over those two fundraising rounds. According to SEC filings, Oak HC/FT held more than 10 times the number of shares that Connecticut Innovations held at the time Sema4 went public.
Coronavirus emerges, and Sema4 steps up
In April 2020, the numbers were starting to look bad for Sema4. The onset of the COVID-19 pandemic had temporarily shuttered doctors’ and specialists’ offices, leading to scores of canceled appointments and a steep decline in the genomic testing services and data analytics those clinics sought from Sema4.
“The COVID-19 pandemic, together with related precautionary measures, began to materially disrupt our business in April 2020 and may continue to disrupt our business for an unknown period of time,” the company wrote in a filing, known as an S-1, with the Securities and Exchange Commission after going public this year.
Then the lab-testing startup found a role for itself amid the crisis. On May 1, 2020, the state Department of Administrative Services, led by the state’s Chief Operating Officer Josh Geballe, put out one of several Requests for Proposals asking laboratories and hospitals to submit plans for large-scale COVID testing. (Geballe is a former IBM executive and tech entrepreneur; Annie Lamont’s investment fund, Oak HC/FT, was a major funder of Geballe’s tech startup.)
State Comptroller Kevin Lembo said Geballe called the Comptroller’s office on May 3 to ask for help. Geballe asked Lembo to take on the responsibility of contracting and coordinating COVID testing, Lembo recalled.
“I talked to my team because my first instinct was, A, this is big, and, B, this isn’t really our thing,” Lembo said. “But in light of the public health emergency and what was going on, we decided to pursue it, so I dedicated some resources in the office,
and we got to it.”
Geballe said the RFP was designed to get some of the local laboratories involved in COVID testing. At the time, the only options were the state public health laboratory, which was doing barely 100 tests a week in late April, and Quest Diagnostics, which was sending samples to its main laboratory in California, and turnaround time was 10 days to two weeks.
“The strategy was we needed to take advantage of all the laboratories we had here in Connecticut to speed up the test results. Sema4 didn’t get any special treatment. They went through the same process as every other laboratory because we needed all hands on deck,” Geballe said.
Several of the RFP respondents, including Sema4, needed to update a federal laboratory certification known as the Center for Medicare and Medicaid Services Clinical Laboratory Improvement Amendments in order to be able to conduct COVID antigen testing. “None of the labs were validated for COVID testing because it had never been done before,” Geballe said. Sema4’s CLIA certificate shows an update on May 4, 2020.
By May 8, the Department of Administrative Services had received at least 10 responses to the RFP from hospitals and laboratories. Sema4 was among them. (McCooe has taken credit for suggesting to Geballe that the state consider Sema4 as a testing partner.) DAS asked the Department of Public Health to vet the responses, looking specifically at each applicant’s testing capabilities.
“Any laboratory that wanted to do COVID testing needed approval from DPH. Sema4 was treated no differently than any other lab whether it was Yale or Jackson or Genesys,” Geballe said.
DPH spokesman Christopher Boyle said the hospitals and laboratories that submitted proposals “were evaluated by a state review team that included Dr. Jafar Razeq, director of the laboratory for the Connecticut Department of Public Health as well as representatives from the State Comptroller’s Office and the Connecticut National Guard.”
Boyle said “a smaller group of proposals were selected based on their qualifications and were then forwarded over to the State Comptroller’s Office.” The Comptroller’s office then began negotiating contracts with each applicant.
The value of the COVIDtesting agreements ultimately ranged from about $800,000 to more than $84 million with Quest Diagnostics, according to records reviewed by The Mirror. The
Comptroller didn’t initially release the terms of that round of contracts, claiming what the state was paying for each laboratory per test was a trade secret.
Sema4 signed its first contract – worth about $17.2 million – with the Comptroller on May 20, 2020. Of all the laboratory partners who submitted responses to the RFP and who were quickly signed on as testing providers, Sema4 would go on to earn the second-most in COVID testing dollars behind Quest.
On the same day the contract was signed, the associate general counsel in the governor’s office notified the Office of State Ethics that Oak HC/FT is an investor in Sema4. The director of the office said “the Governor and First Lady are under no legal obligation to donate the financial benefits that they may derive from the contract.”
But state contracts weren’t Sema4’s only financial boost.
A lucrative investment
Sema4’s success amid the pandemic chaos quickly caught the attention of more private investors. Having risen to the occasion and proven how quickly it could pivot, the company may have bolstered its prospects with the private investor community. Oak HC/FT was one of eight investors who clambered to raise an additional $121 million for Sema4 in July 2020. The round pumped Sema4’s valuation to over $1 billion, officially making it a “unicorn,” in VC parlance.
The Series C, announced July 20, 2020, was oversubscribed – meaning investors were competing with each other and offering more money than the company had set out to raise. That included funds managed by another behemoth in the investment world, BlackRock, as well as two other new investment funds. But those new players didn’t knock out any of the previous investors. Connecticut Innovations and Oak HC/FT both raised their stakes incrementally.
At the time, no one appeared to have raised red flags about Annie Lamont’s firm’s second investment in a company that was in the process of contracting with the state to carry out COVID testing — or the potential for her to personally benefit, albeit indirectly, from taxpayer money.
It’s also unclear whether it would have been necessary under current state ethics laws for the governor to disclose such an investment. State ethics officials said the Lamonts’ initial disclosure at the time of the first contract had been voluntary.
What is clear is that state contracts helped Sema4 — and its investors.
COVID-19 contracts buoyed Sema4’s 2020 testing volume by 131%, according to the company’s S-1 Registration Statement, filed August 4, 2021. And the company did more COVID testing this year. In Sema4’s most recent quarterly earnings filing on Nov. 15, it reported it had conducted more than 270,000 COVID tests in the first nine months of this year. Its total revenue from diagnostic testing rose 31% to $149 million in the first nine months of 2021, compared to the same period a year earlier. “The increase was primarily attributable to a 303% increase in COVID-19 test volumes and overall increase in volumes of 125%, partially offset by the change in the mix of tests performed and reduced reimbursement rates,” the report stated. The company projected COVID testing revenue would amount to an additional $3 million in the final three months of this year.