Note: This story has been updated to note that Ambry is owned by Konica Minolta.
NEW YORK – Tempus AI's $600 million acquisition of Ambry Genetics is expected to accelerate the company's path to cash flow breakeven and be "highly synergistic," according to Tempus CEO and Founder Eric Lefkofsky.
While announcing its Q3 financial results on Monday, the firm also said that it has entered into an agreement to acquire Ambry from Konica Minolta for $375 million in cash and $225 million in shares at closing. The deal is expected to be financed in part through a $300 million increase in short- and long-term debt from Ares, Tempus' current lender. Ambry is held by Japanese digital technology firm Konica Minolta through Realm IDx, which operates the precision medicine business, and was acquired by Konica Minolta in 2017.
On a conference call to discuss Tempus' financial results, Lefkofsky said that Ambry currently serves as Tempus' largest reference lab for hereditary cancer screening, and so it is a "business we've come to know well," adding that the transaction is "not materially dilutive to our equity."
Earlier this year, the two companies entered into a strategic collaboration to provide a combined comprehensive, germline, and somatic testing service.
Lefkofsky said that Ambry's business has been accelerating and it has been taking market share from competitors, and "we don't see any signs that that's going to slow down."
Ambry ran a competitive acquisition process, he noted, hiring banks and exploring options for M&A. "We were fortunate that we knew the business well, we were watching it closely, we were interacting with them as a partner, and we were able to watch their performance over long horizons of time to really get comfortable that this business was durable."
The combined business is expected to grow in the 23 percent to 25 percent range, although Lefkofsky said that the firm hasn't fully built its financial models for 2025. The combined business will also be cash flow positive.
Ambry "fits squarely within our strategic plans and current activities," as hereditary cancer testing is one of Tempus' main product categories, he said. "It's critical to us because we want to capture patients early, we want to be there for them when they're being treated, we want to be there monitoring their disease over time," he added.
"More and more physicians and care teams and oncologists are going to want to work with those labs that can help them treat their patients from beginning to end," according to Lefkofsky.
While there is some product redundancy between Tempus and Ambry in the hereditary cancer testing space, the "vast majority is not overlapping," Lefkofsky said. The firm's inherited cancer risk test xG is a newer offering and "still relatively small in terms of its overall piece of our larger genomics business."
Tempus CFO Jim Rogers noted that much of Ambry's testing volume comes through genetic counselors, while most of Tempus' comes from oncologists, so it's "very complementary."
Ambry will operate "kind of independently" in the near term, although there "certainly are some synergies," Rogers said. Ambry is largely an in-network provider with payors, while Tempus is largely out-of-network, so Tempus hopes it will be able to leverage Ambry's relationships with payors. In addition, Tempus will be able to incorporate Ambry into its large data business.
The deal will allow Tempus to expand into new disease categories, including pediatrics, rare disease, immunology, women's reproductive health, and cardiology, Tempus said in a statement.
The firm also on Monday reported that its Q3 2024 revenues rose 33 percent year over year to $180.9 million from $136.1 million, slightly beating Wall Street average estimates of $179.5 million.
Data and services revenues grew 64 percent to $64.5 million in the third quarter from $39.2 million in Q3 2023, and growth was led by an 87 percent increase in the Insights data licensing business, Lefkofsky said. The business saw additional tailwinds in recent years when biotechnology companies were going public in large numbers and research and development budgets were larger, and some of those tailwinds have subsided, he added. "A few years ago, there were just a plethora of biotechs that were flush with capital … that were looking to buy data," he said. Now, biotechnology companies are aiming to preserve capital because the markets are more difficult.
However, the overall business "remains really strong," although the company doesn't expect the growth rate of its data licensing business to stay quite as high. The firm is "far more focused on long-term growth … as opposed to short-term accelerants that … make the business highly volatile," he added.
Rogers said that the fourth quarter of the year has historically been its largest quarter in terms of the data business and that it is "not atypical" to have a step up in Q4 in the licensing business.
Lefkofsky noted that the firm is seeing "continued strong interest" in its data offerings and has added many large clients to its portfolio, such as BioNTech.
Genomics revenues were $116.4 million, up 20 percent compared to $96.8 million in the prior-year quarter. The total volume of tests was about 69,000 in the third quarter, excluding the firm's minimal residual disease tests.
Lefkofsky said that the firm's MRD portfolio is "the right portfolio to capture share" and said the demand for its products has been "quite strong." However, the company is "gated by reimbursement," and until it and its partner Personalis achieve reimbursement, "it's hard to really unshackle those products."
Rogers noted that the firm has made progress with reimbursement from commercial payors, particularly with its therapy selection and inherited cancer panels. The firm is also pursuing ADLT status for its xT CDx test and is targeting $4,500 for reimbursement for that test.
The firm saw a net loss of $75.8 million, or $.46 per share, compared to a net loss of $53.4 million, or $1.03 per share, in Q3 2023. Adjusted EPS was $.25 per share, beating Wall Street analyst estimates of a loss of $.31 per share.
The Chicago-based company ended the quarter with $388.0 million in cash and cash equivalents.
Tempus said it expects full-year 2024 revenue of approximately $700 million.