Hello, everyone, and welcome to this next session of the twenty fourth annual Needham I'm Ryan McDonald, and I lead Needham's health tech research efforts. In this session, I'm pleased to be joined by Tempest AI CFO Jim Rogers. Jim, thanks for joining me today.
Thanks, Ryan. Appreciate you having me.
Absolutely. So for those of you who are dialed in and listening, we've got about forty minutes for a fireside chat. I've got a list of questions that I'm gonna go through with Jim. But, if you do have questions for Jim, please put them into the chat box, and we'll make sure to get those asked and answered, towards the end of the session. But with that, we'll, dive right in.
So, Jim, for those who are less familiar with Tempest AI, how about a brief overview of the business?
Yep. So Tempest AI is about ten years old. We're really focused on kind of AI precision medicine and and really focusing on positively impacting patients through our intelligent diagnostics. And so intelligent diagnostics are just lab tests that are kind of customized or tailored for the patient for which they're ordered. And so at the same time that we run kind of wet lab procedures, we connect to the hospitals kind of EHRs to pull clinical data and kind of tailor the results for the the individual patients.
The gen that represents our genomics business. We also have a large data licensing business where we deidentify all of the data that we've, kind of amassed over the years, license that pretty broadly to biopharma, our biopharma partners in their to help aid in their drug discovery efforts. And then lastly, we have an AI applications business, you know, leveraging all of the data that we have kind of flowing through Tempest as well as the the data connections that we have with the hospitals.
We're able
to do very interesting things like match patients to clinical trials or or close care gaps. And so while that business is still relatively new, it's is operating at some scale in terms of the number of algorithms that are being run. It just represents a small amount of revenue today given the lack of of reimbursement.
Makes sense. So, Jim, in my view, the tech backbone of Tempest is a real differentiator for the business. Can you talk a bit more about how Tempest's combination of data, AI, and diagnostics is really unmatched in the industry? And for those listening, how difficult would it be for another company to sort of replicate what Tempest has built today?
Yeah. So we've been focused, you know, on day one. You know, we're as much a technology company as we are a health care company. And so we have a very large technology footprint, both in terms of number of engineers as well as the amount of data that we've amassed over time. And it's really that infrastructure that has allowed us to enable each of the different product offerings.
So within genomics, again, the kind of layering on that layer of intelligence onto the actual diagnostic is only possible because we have built these integrations into institutions as well as a technology platform that can ingest that data, structure it, harmonize it, and kind of incorporate it into the test results. Similarly, on the data licensing side, you know, again, a massive amounts of data is is, something that people can do. But unless you have an infrastructure that allows your biopharma partners to make sense of that data, it it isn't as as useful. And then lastly, on the AI application side of things, you know, we're really leveraging the infrastructure that we built for the genomics business and the data business to deploy these algorithms into the into the clinic where they have, you know, clinical utility. So, you know, that focus from day one of building a platform that could bring in different data modalities, make sense of it, and unveil it to all those different, you know, constituencies is really what we've been focused on for the last ten years.
Makes sense. Now before we, dive more deeply into the core drivers of performance in the business and the fundamentals, I'd be remiss if I didn't ask about, you know, the macro regulatory environment and some of the material changes going on in the FDA. You know, on the one hand hand, it seems as though, you know, the new administration has been more favorable and forward thinking with their views on AI. But on the other hand, there has been a lot of layoffs in the organization, restructuring, and some big name departures at the FDA. So how do you view the current situation, and are there any first order or second order impacts on Tempus' business as things stand?
And maybe we can sort of roll tariffs into the discussion, obviously, given the events over the past week or so.
Yeah. So I would say broadly speaking, we think that, you know, the the initiatives of the new administration will be generally positive for companies like Tempus. You know, what we're focused on doing is incorporating data where it previously hasn't been incorporated, leading to more efficient outcomes is is kind of the goal of of TENS. And so we think, broadly speaking, that will be, you know, viewed positively under the new administration. I think in terms of kind of the some of the turnover at at agencies, that happens in every kind of transition.
We're evaluating it just like every other, you know, company. We have a very strong regulatory team to help us navigate that, and so we're really focused on kind of executing the business. With respect to tariffs, obviously, those this is a changing environment on the tariff side, something we're evaluating very closely, but we don't anticipate any significant impacts, as a as a result of this.
Excellent. So while I may be a tech analyst that wants to talk all about the data and AI, this is a health care conference after all, and it's important to talk about the genomics business. So let's start start in that area. You know, it's it was about two thirds of revenue last year and was the source of top line upside for each of your first three quarters out of the IPO gates. For those getting up to speed, could you cover the tests within your genomic segment and maybe how you think about the growth prospects for each across the portfolio?
Yep. So, you know, our genomics business primarily focused in oncology, although we do have some small efforts in in neuropsych as well. Our first assays that we've launched are in kind of therapy selection. So we do solid tumor profiling as well as liquid biopsy, and so that makes up the majority of the revenues to date. We also have a had a small offering in inherited cancer screening.
We announced and enclosed the acquisition of Ambri in in February. And so for '24, that was a smaller part of the business, but certainly going forward, we'll play a bigger bigger role. And then the last kind of area of testing that we have is is MRD. We launched our MRD offering last June. We also have a partnership.
We're the we're the distributor of personalis' kind of tumor informed MRD offering. Our internal panel is tumor naive. We submitted that for reimbursement from Moldex January, and so we're, you know, gating the volume pending reimbursement. So the majority of the revenues come from therapy selection. Today, that's where all the growth has has been over the last several years.
But certainly, as MRD reimbursement, you know, comes online at some point, that will unlock additional volume, you know, to be a driver going.
Great. Great. And then, you know, as we think about, you know, the segment having a lot of nice upside, in 2024, you It was a combination of obviously pricing upside being a big driver, but also volumes being quite strong. So maybe first on the volume side of things, how how would you categorize the strength in 2024 on the volume side? And, you know, how much of it is a signal of sort of a strong end market growth relative to sort of market share gains by Tempest last year?
Yeah. So I'd say on the volume side, you know, the the growth is obviously a combination of those two. I think, you know, everyone in this space is experiencing growth, both in in kind of all of those areas that I've mentioned, inherited screening, therapy selection, and MRD. So everybody's experiencing some growth. Where we typically win is in the advantage that we have is, again, that layer of intelligence that we put on top of the test.
And that resonates with, you know, physicians, and so we certainly see some some market share gains as a result of of that as well.
Mhmm. And as you think about, like, you know, ability to, continue to expand your penetration amongst physicians, what are some of the gating factors about how quickly you can move there in terms of sort of increasing your penetration over time?
So some of it is is prevalence of genomic testing. As that becomes more and more prevalent, you obviously see some some volume gains that way. Again, kind of continuing to build out the data integrations, which make kind of the sharing of data easier, the result delivery a lot easier. That is also, you know, helpful in that that regard. But a lot of it is is really just execution.
Are you do delivering value back to the physicians? In our case, can we deliver additional insights by incorporating clinical data and really making it a seamless experience that presents the best information to the doctor at the right time is what we're what we're focused on.
Yeah. Makes sense. You kind of alluded to a bit there, but, you know, can you perhaps remind investors sort of how long the runway for volume growth is with for Tempus? You know, what percent of cancer patients receive NGS testing today, and what percent of these patients can you serve within sort of the existing portfolio of, of tests and assays that you have?
Yeah. So, you know, the the, market size is obviously a little bit difficult to calculate just given you have a lot of public, private, some hospitals that do this type of testing. We believe about a third of cancer patients receive some sort of genetic testing today at some point throughout their cancer journey. We think that likely goes to two thirds probably multiple times. Obviously, when you're talking about MRD, you're gonna get tests every, you know, several months or whatever maybe.
So there's there's definitely, you know, plenty of of growth in the market over the next several years, both in therapy selection and certainly in in MRD. And we think given our unique position of being able to offer everything will allow us to continue to gain market share and become kind of a one stop shop for treating our colleagues.
Yeah. Makes sense. And then, you know, question from the audience that just came in is, you know, keep remind us on the genomic side what the sort of main competitors that as you think about gaining and expanding share with within that end market are?
Yeah. So within therapy selection for solid tumor excuse me. Certainly, foundation, Keras are really we compete with on the solid tumor side within liquid biopsy gardens, and and to some some regards. And then in MRD, obviously, the is the big player, today, and we're just kind of getting off the ground. And then in inherited, cancer screening, you're dealing with Myriad and and similar companies.
Makes sense. Now in another segment of our coverage group, the the value based care enablers, you know, they've cited spikes in cancer prevalence within their member populations that began in the latter half of twenty twenty four but are expected to remain at elevated rates in '25. Are you seeing this phenomenon in your business as well? And and how, if at all, is it impacting your assumptions for volume growth in '25?
So I wouldn't say that we've seen a significant kind of change. Obviously, we're typically dealing with metastatic patients when it comes to therapy selection. And so, again, the the market is growing, and whether that's coming from increased prevalence rates or from increased testing of cancer patients is a little bit difficult to discern. But certainly, the market continues to expand as evidenced by, you know, kind of everybody in this space experiencing some some growth.
Makes sense. Alright. So shifting over to the reimbursement side of, things and and sort of pricing as a driver. You know, that that also was a a nice, contributor to upside in '24. Can you talk about last year what sort of drove, you know, pricing increases as you went throughout the year, and then we'll kind of talk about what's what to expect for '25 after that.
Yeah. So, you know, the evolution of reimbursement for us over time, obviously, getting Medicare reimbursement, in '22 and '23 We provided a catalyst. In '24, we had some positive wins on the commercial payer or private payer side as well that led to some some upside. And then as we get into '25, you know, we have our FDA approved version of our XT, which is our solid tumor assay that got ADLT status, went into effect on on January 1. And so we've been migrating volume over to that version of the assay.
About twenty percent will migrate by the end of q one, and then that will grow to forty percent by the by the end of the year. And so that along with some improvements in the liquid reimbursement rates for Medicare that went north back to the beginning of the year provide additional upside in 2025. And as that ramp of the FDA approved version continues in '26, we should continue to see some upside as well.
Makes sense. And as you think about yeah. You said, obviously, goal of of sort of, x p XT represents about 25% of volumes. Goal is to sort of migrate that to about 40% of XT to XT CDx by year end. How how has that migration and the pace of that migration gone thus far?
How much visibility do you have in sort of that rate of migration, and, you know, what are some factors that could accelerate or slow that migration in your view for this year?
Yeah. So I think we've been very thoughtful on that migration of making sure that doesn't impact customer experience, which is most most important to us. And that's why we've we've taken this approach of let's make sure that we're we're doing it very thoughtfully. People are are seeing the value out of the the FDA approved version of the assay and all those things. Mhmm.
And so we don't have any plans to ramp that more quickly than kind of the trajectory that we are on. There's obviously a host of operational things that go into kind of migrating the assay. You have kits in the field, EMR integrations that need to be updated, and all those things. And so that's the plan that we've laid out and that we're, you know, executing.
Is there any incremental sort of physician education with the migration of XT to CDx, as a part of that process?
No significant. I mean, the same education that we do with physicians on a regular regular basis.
Got it. Okay. Then in terms of further reimbursement upside, you know, there's two paths, sort of higher Medicare reimbursement like the XT example, but also reimbursement from private payers, which is relatively nascent. How do you think about these two buckets in terms of contributing to future pricing growth over the next couple of years here?
Yeah. I mean, I think we've spoken previously around kind of where our average reimbursement is today around, you know, slightly above $1,500 compared to that of others in the space. We still are lagging that a little bit. And so that demonstrates, you know, certainly, there's a path to increasing reimbursements that could come, you know, to your point, from various things, securing higher Medicare reimbursement if we bring in different additional assays through the ADLT process or by working with commercial payers where we've seen some wins in 2024 and certainly have conversations, in 2025 to to drive benefit there as well. Something like ADLT, know, while it primarily benefits Medicare, it does have a commercial payer impact as well as some of them pay a percentage of the Medicare fee schedule.
And so you don't see that immediately, but, you know, over the course of the next several years, we would anticipate continuing to see, you know, reimbursement.
And as you think about you know, obviously, it's a new administration. You know? Doctor. Oz just, you know, sort of confirmed and to lead CMS. Do you expect any impacts on sort of the pace of of sort of reimbursement approvals or anything along that process, as as sort of the the new administration kinda comes in and implements its own policies on the CMS side of things?
We we obviously haven't seen any any changes, to date, but something that we're, you know, continuing to monitor and evaluate.
Yeah. You know, building on the genomics business, you know, you recently closed a $600,000,000 acquisition of Ambri. You mentioned it early earlier and sort of when you were talking about the the breadth of the portfolio. And that obviously per you know, expands the the genomics portfolio quite nicely. You just talk about what attracted you to Ambri and, you know, why now was the time to sort of make that move in terms of portfolio expansion from a Yeah.
Week basis? Yeah.
So we had known the Ambri team, for quite some time. We had actually used them as our outsourced vendor for our XG panel, as I mentioned kind of earlier. And so we were, you know, familiar with the with the team. You know, in order for us to do an acquisition of that size, they had to check a couple different boxes for us. One is it had to be growing, which they they certainly have been, growing over the last last several years.
It needed to positively impact kind of each of our offerings, which I can hit on in a second. And then lastly, it had to be, you know, profitable or near profitable, so it didn't divert us from our path to profitability. They fortunately checked all those boxes. As it relates to the second one, which is kind of how they impact each of our product offerings, Obviously, the genomic one speaks for itself. They they run lab tests, no different than we do.
They will allow us to move into other disease areas. So while the the business is predominantly, cancer today, they do have a rare and undiagnosed offering as well. That's always been an area that we thought Tempest's platform could be applicable to, and so that will unlock that from a genomic standpoint. On the data side, you know, they interact with patients at a different time point than Tempest typically does, where ours our patients are typically later stage metastatic patients. A lot of their volume comes from early stage or or or early stage newly diagnosed or at risk patients.
And so building a dataset that tracks patients from that point all the way through their their treatment, we think will be powerful within oncology. And then, similarly, you know, building datasets in rare to undiagnosed where you have kind of the raw molecular data tied to, you know, clinical data will be beneficial to pharma. And so where most of our data licensing today has come has taken place in oncology, you know, we will build out some more datasets in rare and undiagnosed disorders that we think will allow us to expand that business.
Sounds you've noted that Ambria is a well performed business performing business on its own, and, you know, the plan is to let that sort of operate standalone in the near term. But, nonetheless, the profitability profile is allowing you to reach profitability in fiscal twenty five year. Whereas before we were that was sort of reserved for 2026 or at least a target for '26. How do you think about further integrating the businesses long term to sort of benefit from some of those synergies? And maybe talk through what you view as some maybe revenue and and and sort of margin synergies for the business over time?
Yeah. So, you know, given our interaction with our business to date within therapy selection, primarily interacting with oncologists, their call point is typically genetic counselors. And so there's not a lot of overlap between our two businesses, which is why we intend on kind of operating them independently because we're not forced to integrate them kind of broadly in the near term. Yeah. And as you noted, they're they're performing quite well, and so we don't wanna disrupt that by forcing an integration, you know, when it's when it's not necessary.
You know, longer term and the things that we are looking to integrate are how do we incorporate them in the data business? And so that's, you know, an obvious synergy that we're, you know, working on. Again, it doesn't disrupt the genomic side of things, but it's something that we could work on on the data side. In terms of revenue synergies, you know, they they are primarily an in network lab. I think over 90% of their volume is in network.
We're still as we just were talking about an out of network lab with most folks. So leveraging those relationships to hopefully expand commercial coverage for the Tempest test will also be a a synergy that we'll we'll like to explore.
Excellent. Moving to the the data side of the business, you know, we saw total contract value climb to 940,000,000 from from about 900,000,000. NRR hit a 40% from a 25%, you know, which I think really underscores the value of Tempus' data. You know, how sustainable do you think these metrics are over time? And you've commented that a 40% NRR is likely to be the high watermark, but, you know, how much account growth do you see out there today just in the current environment?
Yes. I think, you know, the 40 is is kind of best in class, in terms of net revenue retention. And so while we're thrilled with where we land up for '24, we we wanted to be clear that we don't anticipate it staying at a 40%, you know, for, for the next several years. But even at, you know, lower levels, anything north of a % is a win because it obviously implies that your customers are spending more in the current year than they spent in the previous year. You know, we have a very strong customer base.
We work with 19 of the top 20 big pharma companies, over 200 biotechs. And so, you know, when you think about kind of where does the growth come from, a lot of it comes from existing customers. These these relationships tend to evolve over time where someone may license a small amount of data to begin with, maybe one cohort of data to understand what they're gonna get to see if they see value of it. And then they typically come back and expand that to either multiple cohorts. And then eventually, you know, at least for the ones that we publicly announced, these strategic collaborations where they realize they're gonna incorporate it in kind of their drug development kind of processes and wanna commit to large amounts of spend in exchange for larger discounts.
So the AstraZeneca's GSKs of the world, those are the types of relationships that we've fostered over the last several years.
Makes sense. And your strong data performance has really come in a tough macro for, you know, health care data purchasing. So, clearly, you're you're differentiating from other vendors in the market. But in our checks, it it seems like vendors compete mainly on two points, either uniqueness or proprietary nature of the dataset and data data visualization for ease of use, in sort of manipulating the data. Where do you see Tempus as being the most competitive or differentiated, you know, across those sort of two buckets today?
Yeah. So it's really both of them. You know, on the data side, the the data that we're typically licensing are kind of the the raw molecular data tied to, you know, the the longitudinal clinical information associated with those patients on a de identified basis. And so, you know, that is a unique dataset that we're obviously generating the molecular data internally, leveraging these integrations to to get, you know, treatment and response information for those patients as well. Mhmm.
And so we're uniquely positioned to to to supply that data to biopharma. Separately, as we've talked about before, is you really need a a data infrastructure that allows researchers to make sense of it. And so we have a tool called Lens that our our biopharma partners kinda leverage to interrogate the data. They can do their model building right in Lens. And so it's not just the data.
It's how do you present it to your customers so they can get value out of it very quickly, and that's what we've been focused on. Obviously, amassing a lot of data that can be a driver, but then also making tools, for folks to make sense of it sensible.
Yeah. Makes sense. And as you think about the current environment, obviously, you know, we're we're getting sort of real time updates on, you know, potential tariffs, you know, into pharma companies, biopharma. So there's there's sort of no place to hide here. But as you've sort of spoken with your life sciences customers on the data side, you know, over the course of the last few months here, you know, it's a very uncertain macro.
Like, what's what's sort of the the appetite or demand, you know, picture look like, you know, for incremental data purchases relative to past years here? Are you seeing any big changes there?
So we haven't seen any any significant changes, to date. I mean, I think there's two things. One is, you know, we talked about remaining total contract value. Obviously, that gives us some visibility because we have these multiyear subscriptions in place, and that allows us to kind of just execute on the agreements that are already there. The other thing that we would say is that, you know, in times when budgets and and farming kind of tighten or or become constricted, they often oftentimes look for partners such as Tempest that can allow them to spend money more efficiently.
Mhmm. And so by leveraging our data to design a trial that, you know, may be more, possible more possibly resulting in success, they're willing to make that small investment upfront relative to the side you know, amount of money that's spent on the trial. And so we actually see a little bit of a benefit as, you know, budgets tighten primarily because people are looking to spend money more efficiently, and that's what our data allows them to do.
Makes sense. We got one another question from the audience about, sort of value of the the data by cohort. You know, one of the, I think, impressive aspects of when when you went public is sort of the the the the metric or about, you know, how long you've been able to monetize, you know you know, original cohorts of data. You know? How how has that trended in terms of, ability to the longevity of ability to monetize cohort data?
And are you seeing specific cohorts that are showing strength versus your weakness relative to to, you know, other years?
Yeah. So the intent in sharing the cohort data was really a demonstration of how our business model was kind of fundamentally different from a diagnostic company that would run a test, bill insurance, and get paid or not get paid, and that was kind of the business. What we intended to kinda set out to do is we had kinda have multiple transactions with this data. We're obviously running a test, billing insurance upon kind of data creation and report delivered to the physician, but then deidentifying all that data and licensing it downstream to biopharma. And that's what results in kind of those transactions that occur over kind of multiple years.
Mhmm. In terms of we we it's the cohort metric isn't something that we track on a regular basis because, again, when a a pharma company shows up and says, I wanna cohort these patients, we don't go in and pick from cohorts. We're gonna have them choose the records that are most, you know, relevant to the analysis that they're looking to to do. But, again, we so they all behave very similarly, but it's not something that we intend on disclosing going forward because it's not really meaningful to look at the 2019 cohort versus the 2020. As long as the data business continues to grow, that overall data asset is really what's driving that that growth.
And then, you know, as you think about scaling the TCV number, how much of future growth do you expect sort of from new logos versus ability to expand for existing? And I know we talked about this a little bit on the NRR side, but just kind of, as you think about how you think about mix of growth and within the data business over time.
Yeah. It's a combination of of both. I'd say on the total remaining contract value, I think we had a question on the last earnings call around, you know, how should we think about growth within that TCV. Mhmm. And, you know, at the level that it's at today relative to the size of the business from a revenue perspective, obviously, we have, you know, multiple years of of visibility.
Over the long term, that number should continue to increase, but we're not focused on it quarter to quarter. If you went back three or four years, that number was probably 300 or $400,000,000. And so we have seen growth over a long time horizon and would expect that to continue. Excuse me. But not any short term.
We're not we're you know, any nuance quarter to quarter, we're not worried.
Another audience question we got is is maybe a follow-up to sort of the Ambry aspect and sort of not having a data biz large data business today. And as you try to integrate that in, can you just talk speak to, like, what, from an infrastructure perspective investment wise do you need to do to be able to, better capture that data in ahead of a monetization, and how difficult is that to build out over time?
Yeah. So we're we'll be able to leverage the integrations that we've already built with hospital systems. And so that's really when you think about the combination of they have this very long very, you know, strong genomics business and and test volume that obviously generates molecular data, but then leveraging the connections that we have to over, you know, 50% of the hospitals in The US. It's really the combination of those two things. And the infrastructure in terms of a technology build is what we've been doing for the last ten years.
And so we don't have to create something new. It's really leveraging the infrastructure that's already been been built.
Makes sense. Maybe on the, on the m and a front, you you made a recent small acquisition of Deep six AI. Can you talk about the value proposition and and what sort of that piece of technology brings to the business?
Yeah. So Deep six has been, you know, focused on kind of clinical trial matching. They have a strong network, a strong technology platform. We obviously do clinical trial matching, and so it's kind of a natural natural fit from a connectivity standpoint. And then I think getting access to more, excuse me, more patients will allow us to more efficiently match those to drops.
Excuse me.
Well, we'll we'll give, you know, we'll give you a minute to
Yeah. Come over there. And just
a reminder, it's a great questions from the audience so far. If you have more, please put them in the chat box, and we'll, we'll continue to filter those through in the the last ten minutes or so that we've got here. You know, within the data business, you also have the AI applications, and you kinda talked about at the beginning, you know, which you continue to value validate and gain reimbursement for, like with the ECG, AF algo, which was recently approved, you know, to generate a hundred and $38 per test, reimbursement to Tempest. You know, reimbursement for algos is sort of a long term catalyst, but how do you view the frame that the framework for that reimbursement developing? And should we think of it as an eventual, sort of inflection point, or when when should we see sort of that inflection point in the business, or is it more of a slow grind that you sort of, you know, continue to sort of gradually build momentum in over, you know, a multiyear period here?
Yeah. So the advantage that we have in the AI applications business, again, we're leveraging the same infrastructure data and connections that that drive the genomics and the data business. And so, you know, developing new algorithms and kind of deploying those is relatively easy for us to do. As you mentioned, reimbursement is not there for for the majority of them, although there are some positive signs with the the A fib predictor. And so, you know, the nice thing is is we're able to make these investments relatively easily such that one reimbursement does kick in, we would see an acceleration of revenue, you know, relatively quickly.
And so we're still in all of the the days of kind of laying the groundwork, getting these algorithms in the market. Certainly, getting reimbursement will be a a long game, and we have to participate that and convince payers of the clinical utility of these types of algorithms. But it's when that actually comes, you will have an inflection point because, again, these things are already out there. They're already being run, you know, tens of thousands of time. And so when reimbursement kicks in, you can scale it very, very quickly.
Yeah. And and do you do you envision needing a separate sort of stand alone sales motion for this, or do you view it as sort of an extension, amongst the portfolio of tests that, you know, your existing sales organization already has, you know you know, in their toolkit, if you will?
I think it depends on on the disease area. Right? Within oncology, obviously, we have a a field sales force that interactions oncologists on a regular basis. Something like cardio is something new, right, that may require, though those those conversations to happen. But you can have them both at the system wide and also at the individual physician standpoint.
Mhmm. And so we'll evaluate each on a case by case.
Mhmm. And and what does this do from a margin perspective for the business? How does the gross margins on the algos, you know, compared to the that of the core businesses?
Yeah. The the algos from a margin perspective is is very high, kind of north of 85%. And so to the extent that that grows dramatically, that would, you know, positively impact markets.
Makes sense. And what's private payer thinking been around, you know, reimbursement for the algos? And how's that evolving?
I think it's it's still too early to tell on that front. You know, I think, obviously, you need to demonstrate that these, have clinical utility and can help route patients to the appropriate therapy at the right time. But once you do that, there's no reason why commercial payers would treat this treat them any differently than Medicare or Medicare Advantage would.
Got it. Another one from the audience is, around the CRO business. Obviously, that was an area of maybe a little bit of slow you know, slowdown, you know, last year, a bit of a a drag on on the overall, you know, sort of data and other business. You know, how do you think about sort of the the what's the right magnitude of investment, you know, for that business moving forward? And, you know, when do we start to maybe see a a reacceleration in that business if if one comes at all?
Yeah. I'd say we're not you know, it is not a core offering to our data licensing clients. We originally purchased the CRO as we kinda launched our clinical trials matching network to get an understanding of kind of how clinical trials operated because it wasn't the expertise that we had in house. I'd say that they primarily serve biotech customers who, you know, have have had some funding challenges, and that certainly had an impact on 2024. It's not a a business that we're gonna invest dramatically in, but it does meet a need for some of our, biotech partners, and we'll continue to offer that.
And as they as funding comes back, my guess is you would see some positive impact, but it's not something that we're baking in in in '25.
Makes sense. And then now that you're expecting profitability in '25, you know, you're ahead of schedule, maybe help investors think about sort of capital allocation and, you know, what your appetite for future m and a is. You know? And and what's what's the framework that we should look at? Because you made, obviously, a big more transformative acquisition with Ambri.
You've made some smaller tuck in ones, obviously, with Deep six. How do you kind of view sort of the opportunities, on that front moving forward?
Yeah. So we've long said that as gross profit dollars increase, you know, some amount will be reinvested in the business. Some amount will will be drop dropped to bottom line such that we could reach, you know, adjusted EBITDA breakeven or or positive in in 2025, and that's the path that that we're on. In terms of m and a, you know, we've we've also said that on the genomic side, with the the addition of Ambri, we think our portfolio is is, you know, rounded out and that we don't need any additional kind of assets on the genomic side. If we do anything, it would be one of the data or AI application side, something like Deep six, but smaller tuck in acquisitions.
It's not, you know, a very large acquisition. And all of these things are are the way that we look at them is we don't want them to divert our path to profitability. And so as we evaluate, you know, assets, that's how we we count the the framework that we use.
Makes sense. And then as we think about sort of the structural profitability of the business, just given the the acceleration sort of to profitability that you're you're hitting now, You know, where are the main points of leverage, you know, with it across the p and l? You know, what do you what do you view as the key drivers there? And has the inclusion of Ambri structurally changed the way you think about sort of the the long term profitability targets of the business?
So in in terms of the you know, obviously, reimbursement going up provides, you know, some some upside from a profitability standpoint. The data business operates at a very high high margin. So if that continues to grow and margins improve on the genomic side, that is what ultimately is leading to kind of that improvement in the core business. And then Ambri, you know, was already profitable before we purchased them and and will continue to be so. And so the combination of those two things is how we're getting to kind of positive adjusted EBITDA in 2025.
I think as we go forward, identifying kind of where we wanna make investments is done on a case by case basis. We wanna make sure that we're investing such that we can have this business grow at a at a healthy rate for the long term. And so striking that balance between, obviously, getting the profitability and demonstrating the leverage in the business, but also continuing to invest for the future is really what we're what we're focused on.
Makes sense. Maybe one more call for questions from the audience. Oh, one on wondering about the an update on on sort of partnership with Personalis and how that continues to trend in the marketplace.
Yes. The the receptivity of the, reception of the test has been great. You know, it's it's obviously a very high performing test. Similar to Tempest, though, they don't have reimbursement yet. And so, you know, we're in the same spot where we're going to gate volume until reimbursement kicks in.
But the, you know, reception within the marketplace has been great.
Excellent. Well, it looks like there's no other questions from the audience. So, Jim, we'll give everyone a few minutes back. But certainly a very exciting business and growth opportunity in what is a uncertain and volatile market. So I wanna thank you for taking the time to sort of educate investors on on the Tempest AI story and the opportunity here, and wanna thank everyone, for joining us today.
Thanks, Ron. Really appreciate you having me.
Thanks. Have a good day.