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According to a market report, the use of AI in medical diagnostics is expected to grow at 25% CAGR from $0.8 billion in 2022. Chicago-based Tempus AI (Nasdaq: TEM) is a leading player in the market that recently went public to a weak market response.
 

Tempus’s History

Tempus was founded in 2015 by Groupon co-founder Eric Lefkofsky after his wife was diagnosed with breast cancer. He set up Tempus to bring technology and artificial intelligence capabilities to cancer care. Tempus has been working to make laboratory tests more accurate and customized to a patient’s needs. It makes lab testing intelligent by connecting laboratory results to a patient’s own clinical data, thus personalizing the results and helping technology guide therapy selection and treatment decisions. It works on the belief system that the recommended drugs, clinical trials, care pathways, and adverse events can all be refined and enhanced when test results are connected to a patient’s personal profile.

The Tempus Platform has access to a large library of clinical and molecular oncology data that it uses to train its AI. Its goal is to embed AI, including generative AI, throughout every aspect of diagnostics to help physicians and researchers make personalized, data-driven decisions to improve patient care.

AI deployment in diagnostics is relatively new, and remains extremely dependent on mostly disconnected and unstructured data. Traditional diagnostic tests are also mostly based only on a single data modality such as a blood-based biomarker or a genomic mutation. They are not able to connect and integrate other forms of relevant clinical data, such as outcomes, or adverse events that are essential for many clinical decisions.

To address this issue, Tempus began by rebuilding the foundation of how data flows in and out of healthcare institutions. They established data pipes across that allow for the free exchange of data between physicians and diagnostic and life science companies.

Tempus’s resulting integrated Platform is now being used in oncology, neuropsychology, radiology, and cardiology, with expectations that it will be released in other disease areas globally. In 2020, Tempus had also launched the PCR COVID-19 test that was followed by their at-home COVID-19 test. Revenue generated from COVID-19 testing accounted for a significant portion of its revenues when the tests were launched. For 2023, Covid testing contributed a more modest 0.5% or $2.7 million in revenues. Tempus has stopped offering COVID-19 PCR diagnostic tests since the first quarter of 2023.
 

Tempus Offerings

Tempus has built a successful flywheel operation within its three key product lines – Genomics, Data and Services, and AI applications. Genomics leverages the laboratories to provide diagnostics, molecular genotyping, and other anatomic and molecular pathology testing. However, unlike other diagnostic testing providers, its tests are connected to clinical data to allow its suite of tests to be self-learning, becoming more accurate and precise with each new test that it runs.

Data and Services facilitates drug discovery and development for life sciences companies by leveraging the large amount of molecular data generated by Genomics. AI Applications, or Algos, is focused on developing and providing diagnostics that are algorithmic in nature, implementing new software as a medical device, and building and deploying clinical decision support tools. Within Data and Services they are licensing de-identified data, which has allowed it to provide data-related services to the life sciences customers. Over time, Genomics and Data and Services together will help facilitate the deployment of these AI Applications.

The primary product of AI Applications is Next, an AI platform that leverages machine learning to apply an intelligent layer onto routinely generated data to proactively identify and minimize care gaps for oncology and cardiology patients. As this product gains adoption, Tempus plans to leverage LLMs, generative AI algorithms, and its database of de-identified data to develop algorithmic diagnostics designed to identify these patients earlier in their disease progression, when treatments are most effective.

Tempus competes with diagnostics companies including Guardant Health, Neogenomics and ResolutionBio within the genomics market and with players like Quest and LabCorp within the precision oncology tests. It has acquired a significant market share. Its offerings are used by approximately 95% of the largest public pharmaceutical companies in 2023. Its network includes approximately 450 unique data connections across over 2,000 healthcare institutions. Tempus product offerings are being used by over 7,000 physicians across hundreds of provider networks, including 65% of all academic medical centers in the US.
 

Tempus’ Financials

Tempus has been growing at a strong clip. Its revenues increased from $257.9 million in 2021 to $320.7 million in 2022 and to $531.8 million last year. For the three months ended March this year, revenues grew to $145.8 million. But the company continues to incur losses. Net losses have reduced from $289.8 million in 2022 to $214.1 million in 2023. For the three months ended March this year, the losses grew from $54.4 million to $64.7 million.

By segment, Genomics revenues grew from $198 million in 2022 to $363 million in 2023. During the same period, Data and Services revenues which includes AI grew from $122.7 million to $168.8 million. Within the segment, AI revenues grew from $1.4 million to $5.5 million.

Till recently, Tempus was privately held. It had raised $1.3 billion in funding over nine rounds of funding. Its last funding round was held in 2022 when it raised $200 million at a valuation of $8.1 billion. It went public earlier last month when it raised $410 million by selling 11.1 million shares at $37 apiece at a valuation of $6 billion. The stock has not had a strong run so far. It is currently trading at $33.20 with a market capitalization of $5.7 billion. The stock had climbed to $43.88 soon after listing but hit a low of.

Analysts believe that Tempus has huge market potential because of its flywheel operation. Analysts peg Tempus Platform’s addressable market at $190 billion with $70 billion in Genomics and $120 billion in Services and AI application. Its multimodal, de-identified database has grown to 50 times the size of The Cancer Genome Atlas already. I think Tempus is working within a very high potential area where AI can make a huge impact. The recent weak stock run appears to be a market correction.

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