Precision-medicine IPO deserves Groupon discount
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Robert Cyran
NEW YORK, May 31 (Reuters Breakingviews) -Personalized cancer treatments developed using genetic data crunched by artificial intelligence under the watch of a board that includes a Nobel laureate is the sort of business that should be an easy sell in today’s stock market. The hitch is that Eric Lefkofsky, the same man who co-founded Groupon GRPN.O, started and runs the company, Tempus AI. It’s one of several reasons to impute a valuation discount akin to ones disseminated by the online coupon pioneer.
The planned initial public offering will assess the stock market’s DNA for greed and fear. Tempus can determine things like which genes are active in a tumor and tailor medical responses accordingly. Collected molecular and other anonymized lab information is useful for drugmakers and the AI might yield algorithmic screening to see who is at risk of, say, suffering a heart attack.
Tempus is losing money, but revenue from testing now exceeds the expense of administering them. Its library of results also holds longer-term promise. The concern is that the marginal value may already be slipping. Tests in 2018 generated data sales about equal to the initial sequencing costs in the first year and then kept generating value. Five years on, such first-year data sales fell 80% short of costs. The company nevertheless reckons the market for AI applications could be larger than all its other opportunities combined.
This technology is in its infancy, though, and Tempus only tacked “AI” onto the end of its name last year, following earlier iterations as Tempus Health and Tempus Labs. The IPO prospectus contains sloppy charts, which reflect poorly on a company dedicated to precision medicine. Super-voting stock also will keep Lefkofsky in control, and his penchant for hype precedes him. Before Groupon went public in 2011, he said it would be wildly profitable and the company touted financial figures which excluded hefty marketing expenses. The stock has lost more than 95% of its value.
Source: Company filing
It’ll be a stretch for Tempus to reach the $8 billion valuation achieved in its 2021 fundraising round. Over the last four quarters, its top line tallied $562 million. Some diagnostic companies, like Guardant Health GH.O, trade at 5 times trailing revenue, but on rival Natera’s NTRA.O 10 times Tempus would be worth nearly $6 billion. AI-related companies fetch even higher multiples of sales. Snowflake SNOW.N, for example, trades at 17 times. Until Lefkofsky and Tempus prove they deserve a premium, however, investors would be wise to hold out for a Groupon-like deal.
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CONTEXT NEWS
Tempus AI, which collects and analyzes molecular and clinical data from patients, disclosed its plans for an initial public offering on May 20.
The company generated $532 million of revenue in 2023, a 66% increase from the previous year. Its annual net loss narrowed to $214 million from $290 million.
Tempus AI IPO Tempus AI IPO https://tmsnrt.rs/3XaZFi2
Editing by Jeffrey Goldfarb and Pranav Kiran
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