Note: This story has been corrected to note that Tempus went public at $37.00 per share, not $40.00 per share.
NEW YORK – Three months after raising $410.7 million in its initial public offering, AI diagnostics firm Tempus has submitted one of its key assays to the US Food and Drug Administration for regulatory approval while continuing to build out its portfolio among its three businesses.
The Chicago-based company had been considering going public since late 2021, during a period when many other diagnostics and life sciences firms launched large IPOs, but following a pandemic-fueled market that saw many firms try to cash in on heady, and unrealistic, expectations, the markets changed "and interest rates began to go up, and companies in our sector were under pressure," CEO Eric Lefkofsky said, so "we held off for a couple of years."
After monitoring its own business and the broader markets and "trying to decide when it felt right," the opportunity arrived earlier this year when the business was performing well and the company decided to move ahead with its plans, he added.
"In general, when you're a company like ours that has raised a bunch of capital over the years, both from venture capital firms and later-stage investors, and you have people who invested in the company, and you also have many employees who own stock, at some point going public is a natural part of the process," he added. "It's really just a function of timing."
Since going public at $37.00 per share on June 14, the firm's stock has bounced up and down, going as low as $24.96 per share later in June and as high as $71.47 in August. On Thursday, Tempus’ shares on the Nasdaq closed at $51.87, up nearly 6 percent.
Going public hasn't changed the firm's strategy or business model, which is based around bringing the technology and benefits of artificial intelligence to healthcare and, more specifically, diagnostics, Lefkofsky said. It's a "very large mission … one that's going to take a long time to evolve, and so we're just continuing to plug away at that."
While going public provides an influx of capital that typically allows for new investment in other areas of the business or new priorities like reimbursement or regulatory approval, Lefkofsky said that Tempus is fortunate because it was able to raise a significant amount of money as a private company — about $1.5 billion. "As a result, we were able to make significant investments in building out our portfolio and technology platform, as well as invest in generative AI solutions," he said.
"Those investments position us well today, and as a result, even though we are public, we do not need to ramp up our investments beyond their historic levels to achieve our long-term objectives."
To address its mission, Tempus has broken its business into three categories: genomics, data and services, and applications. The genomics business consists of Tempus' assays, including those for inherited cancer risk and therapy selection. Post-IPO, the growth of those assays and the firm's entrance into minimal residual disease testing are a priority for the business, Lefkofsky said. The firm has multiple assays in development, although Lefkofsky declined to provide specifics because the company "tends to bring them to market at strategic moments in time."
Tempus is "very focused" on advancing its platform across inherited cancer risk for both solid tumor and liquid profiling, therapy selection, and a "whole range of categories" in MRD testing, both tumor-naïve and tumor-informed testing. For tumor-naïve testing, the firm has begun with its own MRD assay, called xM, that is currently available for colorectal cancer and will later be expanded to other subtypes, while for tumor-informed testing the company has partnered with Personalis to jointly commercialize the xM (NeXT Personal Dx) test for early-stage non-small cell lung cancer and breast cancer following curative intent treatment. The assay can also be used for immunotherapy monitoring in late-stage cancer across all solid tumors.
Tempus currently offers many of its assays as laboratory-developed tests but is in the midst of taking its tests through regulatory approval, Lefkofsky said. Lauren Silvis, senior VP of external affairs at the company, added that Tempus broadly wants its assays "to be available to support interesting and innovative pharma partnerships" and to be used in clinical trials.
Earlier this month, the firm submitted its xR test for RNA sequencing-based tumor profiling to the FDA for 510(k) approval after offering it as an LDT for six years. Meanwhile, its xT CDx next-generation sequencing-based test for solid tumors received FDA premarket approval last year. The xT CDx test also received Advanced Diagnostic Laboratory Test status from the US Centers for Medicare and Medicaid Services earlier this year, establishing a reimbursement rate of $4,500 per test until March 31, 2025.
The company’s roadmap for the xR test from an LDT test to an FDA-approved test follows the same path it charted for its DNA profiling test, Lefkofsky said. Having a regulatory submission to the FDA will make RNA profiling "widely available to patients and potential partners," Silvis added, and the firm plans to follow that pattern with its liquid biopsy tests, as well.
Lefkofsky noted that the firm's assay development decisions are largely driven by clinical use case rather than the needs of pharmaceutical partners and that it is focused on comprehensive tests that are "solving very large diagnostic needs for big populations clinically." The goal is "to generate the kind of comprehensive data clinically that would serve the needs of almost any biotech or pharmaceutical company," he added.
Meantime, the data and services business includes the Insights and Trials products for drug discovery and development. With the Insights product, the firm licenses out libraries of data and provides informatics tools to pharmaceutical and biotechnology companies, while the Trials offering is a suite of clinical trial support services for pharma companies.
The data business is about giving biotechnology and pharmaceutical companies tools to "interrogate multimodal data at scale, so they can do better discovery and development," Lefkofsky said.
The broader Tempus platform includes proprietary software and dedicated data pipelines that connect to more than 2,000 hospitals across the US that provide Tempus with data either when it provides services for a patient, such as next-generation sequencing, or when it acts as a business partner, such as providing clinical trial matching services. They also provide data to the company through paid license agreements, according to its Form S-1 filed with the US Securities and Exchange Commission.
The firm has amassed more than 900 million documents across more than 5.6 million de-identified patient records, and its database includes more than 1 million records with imaging data, of which more than 900,000 are matched with clinical records linked with genomic information and more than 220,000 are matched with full transcriptomic profiles.
Kyle Mikson, an analyst with Canaccord Genuity who is familiar with Tempus, said that in his view, the applications business is the "path forward" for Tempus once investors ascribe more value to its offerings, as that business is currently "small and unproven," so there is little from this segment included in the total value of Tempus' stock, he added.
While there's limited reimbursement for AI-based diagnostics today, if that changes, the applications business could eventually be transformative for the company due to the vertically integrated infrastructure Tempus has already built that enables it to use data from providers, structure and harmonize the data into a common database, provide laboratory diagnostic testing, and deliver personalized results that provide clinical context by leveraging Tempus' data, Mikson said.
Once AI-based diagnostics receive reimbursement, Tempus would "theoretically generate meaningful revenue relatively rapidly as the company would be able to 'hit the ground running,' given its impressive data-based infrastructure connected to the healthcare ecosystem," Mikson said.
According to Mikson, Tempus is holding its own against established players in the oncology sequencing market like Guardant Health and Roche’s Foundation Medicine, although it is facing a patent infringement lawsuit from Guardant related to liquid biopsy sequencing methods, but as people get more comfortable with artificial intelligence being used in healthcare that "could be a differentiator" for the firm and help it compete better. In its Form S-1, Tempus noted that many of its tests are connected to clinical data in some way, which "allows our suite of tests to be self-learning, becoming more accurate and precise with each new test that we run."
The MRD business may also help Tempus gain more market share, as it is a "prime time" to launch an MRD test, Mikson added.
The firm's xM tumor-naïve assay, which launched earlier this year and uses high coverage methylation sequencing, showed clinical sensitivity of 61 percent and specificity of 88 percent and longitudinal sensitivity of 83 percent and specificity of nearly 90 percent in data presented at the American Society of Clinical Oncology's annual meeting earlier this year.
In data also presented at ASCO, a positive result from the xM (NeXT Personal Dx) tumor-informed test was associated with high risk of future relapse and shortened overall survival. MRD was identified in all patients who eventually relapsed, while no individuals with a negative test result relapsed during the follow-up period.
The MRD space is particularly hot right now, as companies small and large are launching MRD tests for a variety of cancers. Larger players like Natera and Exact Sciences, as well as smaller firms like Foresight Diagnostics and AccuraGen, have all developed or launched MRD assays despite questions about its utility.
Being competitive in the precision oncology space, including in a booming area like MRD, is "key" to gaining more market share, Mikson said.
Mikson also noted that the company's key priorities should be continuing to bring costs down, decrease its cash burn, and get its customers to continue to buy new products annually and "deepen their penetration in the customer wallet share."
Right now, the company is largely focused on the US, although Tempus had been looking at large oncology markets for potential expansion, including some countries in Europe, Japan, and Australia. Earlier this year, when the opportunity arose to expand to Japan, the firm took it, Lefkofsky said, and established a joint venture with SoftBank Group to bring the benefits of its portfolio to that country.
However, he emphasized that Tempus intends to be "diligent and thoughtful" about entering international markets due to the required time and resources, and he noted that there is a lot of opportunity still in the US in oncology and other disease areas. "I wouldn't expect us to be too aggressive entering other markets, but we'll likely enter selective additional markets on a conscientious basis," he added.
Overall, the company has seen a "fairly significant" growth rate since it opened its first laboratory seven years ago, which Lefkofsky attributes to its central thesis that "technology was going to become increasingly important in helping physicians … make data-driven decisions in [the] clinic, that there were just going to be this growing amount of data elements that physicians would have to take into consideration when determining the right next step for patients."
"We wanted to help gather all those data elements and present them to physicians in a way that they could analyze that data in an easy manner when they were in clinic treating patients," he said.
According to its S-1 form, Tempus' offerings have been used by about 95 percent of the largest public pharmaceutical companies, its clinical NGS volume has risen from about 31,000 samples in 2018 to about 288,000 samples in 2023, and more than 7,000 physicians have used its products.
The firm's entire technology platform has been built around that central thesis of the importance of technology and has in turn driven the adoption of its tests by clinicians because "we're providing a true data advantage in their ability to personalize care for the patients that they're seeing every day," Lefkofsky said.