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United States securities and exchange commission logo
September 30, 2021
Eric Lefkofsky
Chief Executive Officer
Tempus Labs, Inc.
600 West Chicago Avenue, Suite 510
Chicago, Illinois 60654
Re: Tempus Labs, Inc.
Draft Registration
Statement on Form S-1
Submitted on
September 1, 2021
CIK No. 0001717115
Dear Mr. Lefkofsky:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
Draft Registration Statement
Cover Page
1. Please clarify that you
will be a "controlled company" on the cover page but have elected
not to take advantage
of the controlled company exemption to the corporate governance
rules for publicly
listed companies.
Prospectus Summary, page 1
2. Your disclosure on page
9 indicating that you have two algorithmic tests appears
inconsistent with your
disclosure elsewhere on page 30 indicating that you have three
algorithmic tests.
Please revise the disclosure to resolve this inconsistency or explain.
Eric Lefkofsky
FirstName LastNameEric Lefkofsky
Tempus Labs, Inc.
Comapany 30,
September NameTempus
2021 Labs, Inc.
September
Page 2 30, 2021 Page 2
FirstName LastName
3. Please provide additional context regarding your revenue in 2020 and
the six months
ended June 30, 2021. Disclose the portion of your revenue generated
from COVID-19
testing for each period. Also disclose that you expect your COVID-19
revenue to
decrease due to the expiration of your agreement with CVS in July 2021
and as the
prevalence of COVID-19 subsides and as other COVID-19 testing
providers enter the
market.
Our Three Product Lines, page 5
4. Please disclose the percentage of revenue generated from each of the
three product lines.
We note that the substantial majority of your total revenue is
generated from genomics
and the revenue from Algo has not been significant.
Data, page 6
5. Please revise your disclosures on pages 7-8 regarding the cohort
graphics as follows:
Clarify the differences (if any) between sequencing revenue
presented here and
genomics revenue as presented on the face of your financial
statements.
Describe the limitation of these analyses. For example, revise to
explain the types of
revenues and cost of revenues excluded from these analyses.
Since you do not present any gross profit measures on the face of
your GAAP income
statement, please remove references to the phrase "gross profit"
from these analyses.
Revise the note below the 2020 Cohort table on page 8 to quantify
the cost of
subsequent data revenue that is excluded from the cohort analysis
for each period
presented.
Make similar revisions as needed to the cohort analyses presented
on pages 105-106
and 147-148.
Risk Factors
Risks Related to Our Business and Strategy, page 22
6. Please discuss the material terms of your contract with the Illinois
Department of Health,
including any termination provisions.
7. You disclose on page 31 that mentions in peer-reviewed journal
publications are a good
indicator of success. We also note your disclosure on page 163
indicating that you have
self-authored 29 of 41 total articles in which you have been
mentioned. Please revise your
risk factor to include possible conflicts of interest related to such
self-publications.
We rely on a limited number of suppliers or, in some cases, sole suppliers...,
page 41
8. You disclose that you rely on sole suppliers such as Illumina, Inc.
for certain sequencers,
reagents, blood tubes and other equipment, instruments and materials
that you use in your
laboratory operations. Please disclose the material terms of your
agreement with Illumina,
including term and termination provisions. Tell us what consideration
you have to filing
Eric Lefkofsky
FirstName LastNameEric Lefkofsky
Tempus Labs, Inc.
Comapany 30,
September NameTempus
2021 Labs, Inc.
September
Page 3 30, 2021 Page 3
FirstName LastName
this agreement as an exhibit. See Item 601(b)(10) of Regulation S-K.
We have identified a material weakness in our internal control over financial
reporting, page 74
9. You state that you have taken steps to remediate the material weakness
in your internal
controls by hiring a Chief Accounting Officer and other key technical
accounting and
financial reporting roles to further develop and document your
accounting policies and
financial reporting procedures, including ongoing senior management
review. You also
state that you will continue to work to remediate this material
weakness by hiring
additional qualified accounting and financial reporting personnel,
training existing
personnel, and improving your accounting processes. Please disclose
how long you
estimate it will take to complete your plans and any associated
material costs that you
have incurred or expect to incur.
We are highly dependent on the services of Eric Lefkofksy ..., page 77
10. We note your disclosure that you are highly dependent on the services
of Eric Lefkofsky,
your Founder, Chief Executive Officer and Chairman of your board of
directors. Please
disclose the percentage of his time that he devotes to the business of
the company given
his other responsibilities as the co-founder and Executive Chairman of
the board of Pathos
AI, Inc. and the managing partner and co-founder of Lightbank LLC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations, page 112
11. You state that the increases in Genomics revenue in 2020 and the six
months ended June
30, 2021 were attributable primarily to the increases in the number of
next generation
sequencing clinical tests delivered. Please disclose the number of
clinical test that were
delivered for each period presented.
Comparison of the Six Months Ended June 30, 2020 and 2021, page 112
12. For all periods presented, please revise to provide greater context to
your discussion of
changes in revenue between periods. For example, please revise to
quantify the extent to
which increases are attributable to increases in prices or volume of
tests performed in the
Genomics product category or the number of new subscription agreements
in the data and
other product category. Please refer to Item 303(a)(3)(iii) of
Regulation S-K.
Cash Flows, page 117
13. In order to provide investors with a better understanding of your
business as a whole,
please revise your discussion of cash flows for all periods presented
so that the causes for
changes in cash flows are addressed, rather than simply repeating the
numerical data
contained in the consolidated financial statements. Please refer to
Instruction 4 to Item
303(a) of Regulation S-K.
Eric Lefkofsky
FirstName LastNameEric Lefkofsky
Tempus Labs, Inc.
Comapany 30,
September NameTempus
2021 Labs, Inc.
September
Page 4 30, 2021 Page 4
FirstName LastName
Contractual Obligations and Commitments, page 118
14. We note that the amount of total purchase obligations shown here is
not consistent with
the amounts presented on page F-25. Please revise to clarify the
nature of the purchase
obligations shown here and how the amounts presented were determined.
For example, to
the extent that these represent obligations under data license
agreements, it is unclear if
amounts presented include estimates for additional payments contingent
on the
commercialization of data. Please also make any conforming changes, as
necessary, on
page F-25.
Critical Accounting Policies and Estimates
Revenue Recognition, page 119
15. You disclose on page 166 that you only received payment on
approximately 50% and
48% of your clinical oncology NGS tests during 2019 and 2020. It is
unclear if you
anticipated this level of reimbursement when you developed your
estimates of variable
consideration. Please revise to discuss the significant judgements
made in the application
of your revenue accounting policies and the likelihood of materially
different reported
results if different assumptions or conditions were to prevail. Refer
to Item 303(a) of
Regulation S-K, SEC Interpretive Release No. 33-8350 and SEC Release
No. 33-8040.
16. We note from your disclosures on pages 34 and 181 that all claims
summitted to the Local
MAC for NGS oncology tests performed for Medicare beneficiaries in
your Chicago lab
after March 25, 2021 have been denied. We further note that this type
of testing
represented 30% of your clinical testing volume as of June 30, 2021.
While you have
begun the process of appealing these denials, it is unclear how you
accounted for these
claims and how your financial statements have been impacted. Please
refer to SEC
Release No. 33-8040, Item 303(a) of Regulation S-K and ASC
606-10-50-17.
Please revise your disclosures here, in your MD&A and in your
financial statement
footnotes, as applicable, to:
Discuss any changes to your estimates of variable consideration.
Quantify the amount of unpaid receivable balances as of June 30,
3021 related to
these denied claims.
Explain if and how you plan to pursue reimbursement from other
sources if your
denial appeals are not successful.
Quantify the amount of revenue recognized for NGS oncology tests
performed for
Medicare beneficiaries in your Chicago laboratory after March 25,
2021.
To the extent you continue to recognize revenue associated with
NGS oncology
tests performed for Medicare beneficiaries in your Chicago
laboratory, tell us how
you considered ASC 606-10-32-14.
Business
Ingestion and Generation of Data, page 129
17. You disclose that you have approximately 200 direct data connections,
many of which are
Eric Lefkofsky
FirstName LastNameEric Lefkofsky
Tempus Labs, Inc.
Comapany 30,
September NameTempus
2021 Labs, Inc.
September
Page 5 30, 2021 Page 5
FirstName LastName
bi-directional. Please revise to clarify if you are paying for the
data you acquire and/or
ingest. Please explain if there are any goods or services you provide
to these entities in
exchange for the data you receive. Please also revise to address what
happens to the data
you have acquired if the providers who gave you access to data cease
doing business with
the Company. For example, it is unclear if you retain rights to sell
and/or license the data
acquired into perpetuity or only for a specific period of time.
Customer Facing Applications, page 132
18. Please revise to more clearly explain the relationship between your
customer facing
applications (Hub and Lens) and your three product lines (Genomics,
Data and Algos),
including your primary Data products, Insights and Therapies.
Therapies, page 148
19. Please revise to more fully describe the billing process for your
Therapies product. For
example, your disclosures on page 119 and F-15 indicate that the
performance obligation
is delivery of a notification of a matched patient for clinical trial
or enrollment of a patient
in a clinical trial. It is unclear how customers are notified that
these performance
obligations have been fulfilled.
Clinical Testing, page 166
20. So that we may better understand your business, please revise to
explain your
responsibilities (if any) for finding a replacement patient or issuing
a refund in the event
that a patient you matched to a clinical trial decides not to proceed
with (or unenrolls
from) a clinical trial. Please also clarify if the Company is
obligated to identify a specific
number of potential clinical trial candidates or enroll a certain
number of patients into
clinical trials over a given period.
Consolidated Financial Statements
2. Summary of Significant Accounting Policies, page F-10
21. You disclose on page 41 that some of your agreements with customers
require you to
cover the initial setup costs for Data products. If material, please
revise to provide
accounting policy disclosure for costs to obtain and/or fulfill
contracts. Please refer to
ASC 340-40.
Concentration of Credit Risk, page F-12
22. Please revise to disclose revenue and accounts receivable customer
concentrations as of
and for the period ended June 30, 2021. For all periods presented,
please also disclose
concentrations in revenue due to COVID-19 testing. We note your
disclosures on page
145 that you have shifted resources away from COVID-19 testing and do
not expect the
level of COVID-19 testing to be material to your business going
forward. Please refer to
ASC 275-10-50-16 through 50-18.
Eric Lefkofsky
FirstName LastNameEric Lefkofsky
Tempus Labs, Inc.
Comapany 30,
September NameTempus
2021 Labs, Inc.
September
Page 6 30, 2021 Page 6
FirstName LastName
Revenue Recognition, page F-14
23. We note your disclosure on page 132 that you sometimes charge for
access to Lens when
a customer is interested in either a broader integration or some form
of customization.
Please tell us how you considered if access to Lens should be
considered a separate
performance obligation within your Data and other product offering.
Please refer to ASC
606-10-25-14 through 25-22.
24. You disclose on page 146 that for your Insights offering, customers
pay either on a per file
basis or through multi-year subscription agreements. You also indicate
that you have
signed contracts with a total remaining contract value of $172 million
that you expect
deliver to over the next several years. Please revise your revenue
recognition policy for
data and other to describe the types of contracts available to
customers, to disclose the
average length of your multi-year subscription agreements, and to
provide the disclosures
required by ASC 606-10-50-13.
25. On page 107, you disclose that through your Insights product, you
license libraries of de-
identified data and provide a suite of analytical services. Please
tell us the nature of
analytic services provided and explain how you determined those
services did not
represent a separate performance obligation. Additionally, we note
your disclosure on
page 146 that data profiles regularly update with clinical outcome and
response data over
time. Please tell us and revise your filing as appropriate to explain
your process for
providing license updates to customers, the specific features and
functionality that your
updates and upgrades provide and how you account for those updates.
Please specifically
address how you considered if those updates represent a distinct
performance obligation.
Please refer to ASC 606-10-25-21.
Cost of Revenue, Genomics, page F-15
26. You disclose on page F-15 that your cost of revenue, genomics includes
third-party
laboratory costs. So that we may better understand your business,
please explain the
nature of your contractual relationships with third-party
laboratories, including the types
of services performed by these labs. Please tell us how you considered
the involvement of
third party labs in determining if you were acting as a principal or
an agent in your
contractual arrangements with customers. Please refer to ASC
606-10-55-36 through 55-
40.
27. You disclose on page 110 that, for the genomics product offering,
costs associated with
performing your tests are recorded at the time of report delivery.
This seems inconsistent
with disclosures on page F-15 indicating that costs are recorded as
the tests are processed.
Please revise as appropriate to correct this apparent discrepancy. If
costs are recorded at
the time of report delivery, please explain to us the basis for this
policy and describe to us
Eric Lefkofsky
FirstName LastNameEric Lefkofsky
Tempus Labs, Inc.
Comapany 30,
September NameTempus
2021 Labs, Inc.
September
Page 7 30, 2021 Page 7
FirstName LastName
the typical time delay between processing of tests and report
delivery.
Research and Development, page F-16
28. Please revise to explain how you differentiate between expenses
classified as Research
and Development and those classified as Technology. To the extent that
technology
expenses do not qualify as research and development costs under either
ASC 985-20-25 or
730-10-25, please tell us how your policy of excluding technology
costs from cost of
revenues and/or selling, general and administrative expenses complies
with Rule 5-
03(b)(2) of Regulation S-K.
5. Goodwill and Intangibles, page F-23
29. Please revise to more fully explain the nature of your licensed data
intangible asset,
including how you acquired it, how it is used in your business and the
relationship, if any,
between this asset and your liabilities for accrued data licensing
fees.
7. Stockholders' Equity, page F-26
30. Please revise to address the conversion rights associated with Class B
common stock as
described on page 211.
9. Stock Based Compensation, page F-30
31. Please provide us with a breakdown of the details of all stock-based
compensation awards
granted since January 1, 2021, including the fair value of the
underlying stock used to
value such awards. To the extent there were any significant
fluctuations in the fair
values, please describe for us the factors that contributed to such
fluctuations, including
any intervening events within the company or changes in your valuation
assumptions or
methodology.
10. Convertible Promissory Notes, page F-32
32. Please revise to explain how you account for principal reductions to
your convertible
promissory notes that are based upon the value of Google Cloud
Platform services you
use. Please also clarify the extent to which these notes require any
minimum principal
and/or interest payments prior to the maturity date. We note
disclosure on page F-23 that
your current liabilities include $15.5 million of interest payable as
of June 30, 2021 but it
is unclear if these amounts pertain to your convertible promissory
notes.
15. Subsequent Events, page F-38
33. Please revise to clarify if the negative impacts to your business as a
result of COVID-
19 were also minimal for the six months ended June 30, 2021.
Additionally, we note from
your disclosure on page 22 that your COVID-19 testing agreement with
CVS expired in
July 2021. Considering that this contract represented 24% of your
revenues for the year
ended December 31, 2020 and 42% of your revenues for the six months
ended June 30,
Eric Lefkofsky
Tempus Labs, Inc.
September 30, 2021
Page 8
2021, please revise to disclose the expiration of this agreement. Please
refer to ASC 855-
10-50-2 and ASC 275-10-50-16 through 50-18.
Exhibits
34. Please file the master agreement with Pathos AI, Inc. as a related party
agreement. See
Item 601(b)(10)(ii)(A) of Regulation S-K.
35. Please file the convertible promissory note with Google LLC and the
Google Cloud
Platform Agreement as exhibits. Refer to Item 601(b)(4) of Regulation
S-K.
General
36. Please supplementally provide us with copies of all written
communications, as defined in
Rule 405 under the Securities Act, that you, or anyone authorized to do
so on your behalf,
present to potential investors in reliance on Section 5(d) of the
Securities Act, whether or
not they retain copies of the communications.
You may contact Lisa Etheredge, Senior Staff Accountant, at
202-551-3424 or Robert
Littlepage, Accounting Branch Chief, at 202-551-3361 if you have questions
regarding
comments on the financial statements and related matters. Please contact Kyle
Wiley, Staff
Attorney at 202-344-5791 or Jan Woo, Legal Branch Chief, at 202-551-3453 with
any other
questions.
Sincerely,
FirstName LastNameEric Lefkofsky
Division of
Corporation Finance
Comapany NameTempus Labs, Inc.
Office of
Technology
September 30, 2021 Page 8
cc: Courtney Tygesson
FirstName LastName