Tempus AI (TEM) is a health technology company operating at the forefront of the precision medicine revolution. The company uses AI-driven insights to personalize medicine.The company addresses the issue of fractured, siloed, and unstructured healthcare data that traditionally prevents physicians from seeing a full picture of patient health.Their approach uses a patient’s genetic profile, lifestyle, and environment to predict, prevent, and treat diseases, particularly in oncology, cardiology, and neuropsychiatry.The Total Addressable Market (TAM) for Tempus is estimated at approximately $200B, covering a wide range of data-driven healthcare services.Subscribe nowSegmentsGenomic Diagnostics (73% of Q1 revenue)The segment provides a broad portfolio of Next-Generation Sequencing (NGS) tests, including solid tumor, liquid biopsy, and hereditary cancer tests. Revenue in this segment is driven by volume growth and increasing reimbursement rates, with management projecting a 30% rise in rates over the next two years.Key products include Minimal Residual Disease (MRD) tests, which detect minute amounts of circulating tumor cells before they are visible on imaging. MRD testing has a huge growth potential, despite a difficult reimbursement landscape, from the Q1CC (our emphasis):If the word I would use to describe our CGP growth rate is “accelerating”, the word I would use for our MRD growth would be “explosive.” With an extremely small sales force selling MRD, highly gated due to reimbursement, we still ran over ~4,700 tests in Q4, representing 56% growth quarter over quarter and the volume is growing exponentially even with the constraints we are placing on growth. To put that in perspective, if we rolled our MRD product out to our entire sales force and had a roughly equal number of people selling MRD as selling our CGP assays, the volume could be ~20x higher.Revenue in this segment more than doubled in Q1, largely driven by the acquisitions of Ambry Genetics, Paige, and Deep 6 AI. Oncology revenue reaccelerated to 39% growth, reaching $168M for the quarter.Hereditary testing (primarily the Ambry business) grew by 15%, which management argued was considered a significant over-attainment.Data and Applications (Insight, 27% of Q1 revenue)This segment carries a higher gross margin (73% non-GAAP gross margin). Tempus licenses de-identified medical data to biopharma companies for drug discovery and clinical trial support. Tempus is on a roll, and the increase in reimbursement rates is especially encouraging (Q1CC):Within the Tempus diagnostics revenue bucket, there are two major components, Oncology and Hereditary; Hereditary is the business component that had been Ambry. Oncology revenue growth substantially reaccelerated to 39% last quarter. That brought Oncology revenues to $168 million last quarter or about 48% of Tempus’s total revenue. Part of this growth reacceleration has been a function of volume growth and part of this is the growth in reimbursement rates which rose 2.5% sequentially. Management has projected that reimbursement rates will rise by about 30% over the next 2 years.The segment also includes the Insight platform, which grew 69% year-on-year in recent quarters, and the Lens platform for researchers.This high-margin segment grew 40% y/y to approximately $87M. Insights grew 69% y/y. There are also new products and AI integration (Q1CC):The company recently launched foundation models, which are a key component in monetizing the company’s data library. Part of the data licensing business is called ‘Insights’ and that component of revenue grew 69% year-on-year last quarter and contributed to strong overall gross margins. Insights functionality is delivered to users via offerings called Tempus Lens and Tempus One. Tempus now integrates AI insights into its genomic reports and that has increased the revenue per test because of both higher volume growth and higher reimbursement rates.The Data Flywheel and Competitive MoatTempus utilizes a closed-loop system where the diagnostics business generates massive amounts of data, which is then used to train AI models and LLMs. As more physicians and biopharma companies use the platform, the database grows, making the AI insights more accurate and attracting even more users.The company has amassed one of the world’s largest libraries of clinical and molecular data, exceeding 500 petabytes and containing records from 8.6M de-identified patients.Tempus is embedded in the workflows of over 50% of US oncologists and connected to 65% of academic medical centers, and 19 of the world’s top 20 pharmaceutical companies utilize Tempus’s services, creating a significant barrier to entry for competitors.Below the paywall, the company’s finances, valuation, and some additional considerations.Subscribe now