Tempus AI (TEM) risk factors, FY2025 10-K

Summary Risk Factors

1. 01Our current or future products may not achieve or maintain sufficient commercial market acceptance
2. 02Our diagnostic products, or our competitors’ diagnostic products, could have defects or errors or otherwise fail to meet the expectations of patients, physicians and third-party payers; in such cases our operating results, reputation and business could suffer
3. 03Our existing and any future debt may affect our flexibility in operating and developing our business and our ability to satisfy our obligations
4. 04International expansion of our business exposes us to business, regulatory, political, operational, financial, and economic risks associated with doing business outside of the United States
5. 05Certain of our tests are currently marketed as LDTs, and future changes in FDA enforcement discretion for LDTs could subject our operations to much more significant regulatory requirements
6. 06Our stock price may be volatile, and the value of our Class A common stock may declineNew

Risks Related to Our Business and Strategy

1. 07We have incurred significant losses since inception, we may continue to incur losses in the future, and we may not be able to generate sufficient revenue to achieve and maintain profitability33% rewritten
2. 08Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide
3. 09The success of our business depends on our continued access to, and ability to monetize, de-identified patient data23% rewritten
4. 10Our ability to execute our growth strategy and become profitable is highly dependent on a number of factors, many of which are interrelated25% rewritten
5. 11Our limited operating history and rapid growth make it difficult to evaluate our future prospects and the risks and challenges we may encounter
6. 12We may need to raise additional capital to fund our existing operations, develop our Platform, commercialize new products or expand our operations36% rewritten
7. 13Products that are under development have taken time and considerable resources to develop, and we may not be able to complete the development and commercialization of such products on a timely basis, or at all
8. 14We may not be successful in updating or otherwise enhancing our Platform and products
9. 15If we are not successful in leveraging our Platform to identify, develop and commercialize additional genomic and algorithmic tests, our ability to expand our business and achieve our strategic objectives would be impaired
10. 16If our existing and new products fail to achieve and sustain sufficient scientific acceptance, we will not generate expected revenue and our prospects may be harmed54% rewritten
11. 17Our diagnostic products, or our competitors’ diagnostic products, could have defects or errors or otherwise fail to meet the expectations of patients, healthcare providers, and third-party payers; in such cases our operating results, reputation and business could sufferNew
12. 18If we are unable to support demand for our current and future Diagnostics product line, including ensuring that we have adequate capacity to meet increased demand, or we are unable to successfully manage our anticipated growth, our business could suffer
13. 19Ethical, legal and social concerns related to the use of genetic information could reduce demand for our testsNew
14. 20If third-party payers, including commercial payers and government healthcare programs, do not provide coverage of, or adequate reimbursement for, or reverse or change their policies related to our tests, our business, financial condition and results of operations will be negatively affected35% rewritten
15. 21If we are unable to obtain or maintain adequate reimbursement for our Diagnostics product line outside of the United States, our ability to expand internationally will be compromised26% rewritten
16. 22Even if public or private reimbursement is obtained, it may cover competing tests, or the reimbursement may be limited to a subset of the eligible patient population or conditioned upon local performance of the tests or other requirements we may have difficulty satisfying
17. 23Labor relations matters could have a material adverse effect on our business, reputation, prospects, results of operations and financial condition46% rewritten
18. 24We use AI in our products and services which may result in operational challenges, legal liability, reputational concerns and competitive risks
19. 25Large Language Models are algorithms that can recognize, summarize, translate, predict, answer questions about, and generate content using very large datasets, such as our own multimodal clinical- molecular database
20. 26Our use of AI tools may pose particular risks to our proprietary software and systems and subject us to legal liability
21. 27We may experience challenges with the acquisition, development, enhancement or deployment of technology necessary for our businesses
22. 28If we cannot compete successfully with our competitors, we may be unable to increase or sustain our revenue or to achieve and then sustain profitability
23. 29The sizes of the markets for our current and future products have not been established with precision, and may be smaller than we estimate
24. 30The industries in which we operate are subject to rapid change, which could make our Platform, our current products and any future products we may develop obsolete
25. 31We may not be able to successfully market, sell or distribute our products, and if we are unable to expand our sales organization to adequately address our customers’ needs, our business, financial condition and results of operations may be adversely affected
26. 32If we are not successful in executing our strategy to increase sales of our Data and applications products to large pharmaceutical and biotechnology customers, our results of operations may suffer
27. 33If our existing customers do not renew their licenses, do not buy additional products from us, or renew at lower prices, our business and operating results will suffer37% rewritten
28. 34A significant portion of our Data and applications product line revenue are generated by sales to life sciences industry customers, and factors that adversely affect this industry could also adversely affect our Data and applications business sales
29. 35We have invested and expect to continue to invest in research and development efforts that further enhance our data analytics. Such investments may affect our operating results, and, if the return on these investments is lower or develops more slowly than we expect, our revenue and operating results may suffer
30. 36If we are unable to collect receivables from our customers, our operating results may be adversely affected41% rewritten
31. 37We rely on a limited number of suppliers or, in some cases, sole suppliers, for some of our laboratory instruments and materials and may not be able to find replacements or promptly transition to alternative suppliers
32. 38Certain disruptions in supply of, and changes in the competitive environment for, raw materials and components integral to the manufacturing of our products may adversely affect our ability to achieve and maintain profitability
33. 39If our existing laboratory and storage facilities become damaged or inoperable or we are required to vacate our existing facilities, our ability to perform our tests and pursue our research and development efforts may be jeopardized20% rewritten
34. 40We rely on commercial courier delivery services to transport samples to our laboratory facility in a timely and cost-efficient manner and if these delivery services are disrupted, our business will be harmed
35. 41If we cannot provide quality technical support and services for our Data and applications products, we could lose customers and our business and prospects will suffer
36. 42Seasonality may cause fluctuations in our revenue and results of operations

Risks Related to Our Highly Regulated Industry

1. 43We conduct business in a heavily regulated industry, and changes in regulations or violations of regulations may, directly or indirectly, reduce our revenue, adversely affect our business, financial condition and results of operations90% rewritten
2. 44Modifications to our FDA-cleared, approved or CE marked products may require new 510(k) clearances or premarket approvals or certification, or may require us to cease marketing or recall the modified products until clearances are obtained
3. 45Our products may in the future be subject to product recalls. A recall of our products, either voluntarily or at the direction of the FDA or another governmental authority or regulatory authority, or the discovery of serious safety issues with our products, could have a significant adverse impact on us
4. 46Even if we receive regulatory approval or certification of our products, we will continue to be subject to extensive regulatory oversight
5. 47Any of these sanctions could also result in higher than anticipated costs or lower than anticipated sales of our products and have a material adverse effect on our business, financial condition and results of operations
6. 48The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be promulgated that could prevent, limit or delay regulatory clearance, approval or certification of our diagnostic tests
7. 49We may never obtain approval or certification in foreign jurisdictions for any of our products and, even if we do, we may never be able to commercialize them in any other jurisdiction, which would limit our ability to realize their full market potential
8. 50Failure to comply with federal, state and foreign laboratory licensing requirements and the applicable requirements of the FDA or any other regulatory authority, could cause us to lose the ability to perform our tests, experience disruptions to our business, or become subject to administrative or judicial sanctions
9. 51If the validity of an informed consent from patients regarding our tests was challenged, we could be forced to stop offering our products or using our resources, and our business, financial condition and results of operations could be negatively affected
10. 52We may be subject to fines, penalties, licensure requirements, or legal liability, if it is determined that through our test reports we are practicing medicine without a license
11. 53Our billing and claim processing are complex and time-consuming, and any delay in submitting claims or failure to comply with applicable billing requirements could hinder collection and have an adverse effect on our revenue
12. 54In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or the ACA, became law. This law substantially changed the way health care is financed by both commercial payers and government payers, and significantly impacted our industry66% rewritten
13. 55We face risks related to handling of hazardous materials and other regulations governing environmental safety
14. 56We could be adversely affected by violations of the FCPA and other anti-bribery laws

Risks Related to Our Intellectual Property

1. 57Changes in patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our Platform and products
2. 58Issued patents covering our Platform or products could be found invalid or unenforceable if challenged
3. 59We rely on licenses from third parties to provide certain products, and if we lose these licenses or if our rights under these licenses are limited, then our business will be adversely impacted
4. 60If we do not prevail in such disputes, we may lose any of such license agreements, the license agreements may not be meaningful for our business and operations, and we may be subject to unnecessary or additional payment obligations84% rewritten
5. 61If we cannot license and maintain rights to use third-party intellectual property on reasonable terms, we may not be able to successfully commercialize our products. Our licensed or acquired technology may lose value or utility over time
6. 62We may not be able to protect or enforce our intellectual property rights adequately throughout the world
7. 63If we are unable to protect the confidentiality of our trade secrets, the value of our Platform and other technology could be materially adversely affected and our business could be harmed
8. 64We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed trade secrets of their former employers
9. 65We may not be able to protect and enforce our trademarks and we could infringe or otherwise violate others’ trademarks and if our trademarks are not adequately protected, then we may not be able to build name recognition in our markets of interest
10. 66We may be subject to claims challenging the inventorship or ownership of our owned or licensed intellectual property or claims asserting ownership of what we regard as our own intellectual property
11. 67Obtaining and maintaining our patent and trademark protection depends on compliance with various required procedures, document submissions, fee payments and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements
12. 68Patent terms may be inadequate to protect our competitive position for an adequate amount of time
13. 69Intellectual property rights do not necessarily address all potential threats
14. 70Our products contain third-party open source software components and failure to comply with the terms of the underlying open source software licenses could restrict our ability to sell our products or may require us to publicly disclose our proprietary software
15. 71The legislative, judicial and regulatory landscapes relating to AI are evolving and may impact our ability to use AI, and could limit our ability to operate and expand our business, cause revenue to decline and adversely affect our business26% rewritten

Risks Related to Our Convertible Notes

1. 72The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating resultsNew
2. 73The Capped Call may affect the value of the Notes and our Class A common stockNew
3. 74The option counterparties are financial institutions, and we will be subject to the risk that any or all of them might default under the Capped Call. Our exposure to the credit risk of the option counterparties will not be secured by any collateralNew

Risks Related to Ownership of Our Class A Common Stock

1. 75The dual class structure of our common stock has the effect of concentrating voting control with our Chief Executive Officer, Founder and Chairman, which will limit your ability to influence the outcome of important decisions
2. 76We have not elected to take advantage of the “controlled company” exemption to the corporate governance rules for publicly listed companies but may do so in the future
3. 77We cannot predict the impact our dual class structure may have on the market price of our Class A common stock
4. 78An active public trading market for our Class A common stock may not continue to develop or be sustained
5. 79Future sales of our Class A common stock in the public market could cause the market price of our Class A common stock to decline
6. 80We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our Class A common stock
7. 81Anti-takeover provisions in our articles of incorporation and under Nevada law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our Class A common stock51% rewritten
8. 82If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, the market price and trading volume of our Class A common stock could decline

General Risk Factors

1. 83Our business could be adversely affected by the effects of health pandemics or epidemics
2. 84Our business could be adversely affected by the effects of health pandemics or epidemics. For example, the COVID-19 global pandemic and the various attempts throughout the world to contain it created significant volatility, uncertainty and disruption
3. 85We may also experience losses related to investments in other companies, which could have a material negative effect on our business, financial condition and results of operations. We may not realize the anticipated benefits of any acquisition, technology license, strategic alliance or joint venture56% rewritten
4. 86Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited
5. 87Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added, or similar taxes, and we could be subject to tax liabilities with respect to past or future sales, which could adversely affect our results of operations34% rewritten
6. 88Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud
7. 89Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading
8. 90Legal claims and proceedings could adversely impact our business28% rewritten
9. 91Certain of our officers, directors and principal stockholders may pursue corporate opportunities independent of us that could present conflicts with our and our stockholders’ interests
10. 92If we were to be sued for product liability or professional liability, we could face substantial liabilities that exceed our resources
11. 93We depend on information technology systems, including on-premises, co-located and third-party data centers and platforms, and any interruptions of service or failures may impair and harm our business, financial condition and results of operations
12. 94In the ordinary course of our business, we and the third parties with whom we work process proprietary, confidential, and sensitive data, including personal data (such as large amounts of personal health and financial information), intellectual property, and trade secrets, or collectively, sensitive information
13. 95Remote work has increased risks to our information technology systems and data, as our employees utilize network connections, computers and devices outside our premises or network, including working at home, while in transit and in public locations