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Signify Premium Insight: Tempus’ Arterys Acquisition and AI’s Turning Tide

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Medical imaging AI vendor Arterys recently announced it has been acquired by Tempus Labs (Tempus), in a move that ranks among the largest acquisitions of an AI vendor to date. The move continues AI’s march beyond its radiology bastion, with Tempus, backed by $1.3bn in VC funding, among the leaders in the precision medicine and treatment discovery segment.

The price Tempus has paid for Arterys – a vendor which has raised more than $70m in funding – or the exact nature of its plans for the company, have not been disclosed, although it is likely that Arterys will continue to offer its core radiology products, alongside supporting Tempus’ other operations in the preclinical and life science sectors.

The Signify View

Consolidation has appeared inevitable in the growing AI market for several years, however, until 2020, most acquisitions were small, as AI vendors sought to take advantage of competitors’ technology and add it to their own portfolios. Examples of such moves include Terarecon’s acquisition of McCoy Medical Technologies (for its Envoy AI platform) and Circle Cardiovascular Imaging’s acquisition of Corstem in 2019.

Latterly, however, acquisitions have begun to adopt a new timbre. Increasingly, when AI vendors have sought to incorporate a peer’s functionality into their own tools, they have turned to partnerships, rather than acquisitions, a far more flexible approach. In 2022, however, a new motivation for acquisitions grew. Companies whose core business is outside radiology, have more commonly looked to radiology AI companies to bolster their capability, with outpatient imaging Radnet acquiring Aidence and Quantib and nference acquiring Predible. Similarly some AI vendors themselves have pivoted towards lifesciences, a bid, in part, to avoid some of the challenges that the clinical use of AI presents.

Tempus’ acquisition of Arterys continues this trend. Tempus, with a heritage in life sciences, has now moved to capitalise on the success seen in radiology AI. In this regard, the precision medicine vendor has also been bold in its choice of target. At 11 years old, Arterys is one of the longer established medical imaging AI vendors in the space, and one of the first to receive US-FDA approval for a deep learning algorithm.

One Swallow Does Not a Summer Make

However, as seen in other instances, an effective algorithm alone does not necessarily translate into a successful business. Despite Arterys early success, it has also modified its strategy multiple times, transitioning from a cardiac algorithm developer, into a more generalist algorithm developer, and then more recently becoming one of the first independent algorithm developers to commercialise a native platform. Such pivots are driven by both ambition and necessity as medical imaging AI is, after all, a very competitive market, with many players competing for often-scarce dollars.

Amidst this competition, the acquisition will give reassurance to Arterys and ensure it can continue to offer its radiology products, while also benefitting from greater investment and allowing it to target a much more sizable life sciences opportunity as part of Tempus. Thanks to the funding, it will, in the near term at least, continue to be able to enhance its native algorithms, some of which are highly differentiated from those of their competitors such as its cardiac and neurological 4D flow solutions. It will also bolster the vendor in its efforts to become among the largest independent platform vendors, with the backing of its new owner giving it the war-chest to battle many of the segments’ other AI platform vendors.

Over the longer term, however, the boundaries between Arterys and Tempus are likely to be blurred. There will be less ability for the vendors to run as distinct entities and Arterys will be consumed by Tempus. As this happens, Tempus, leveraging the strengths of Arterys, will harbour a much stronger offering in life sciences and pharma, making strong headway on its precision medicine ambitions.

Using the acquisition’s medical imaging AI capability, Tempus will aim to enhance or even alter the diagnostic pathway, in a manner comparable to some of medical imaging AI’s most successful vendors.

Pharma Focus

Further to these designs on diagnostic pathways, Tempus is also set to use Arterys to redouble its efforts on the pharmaceutical space. Vendors have made commercial headway with some applications of medical imaging AI, with detect and triage applications gaining most success to date. Another use, quantification, has so far struggled to gain traction in radiology, and AI some vendors have instead focused on detect and triage capabilities.

Now, however, the opportunity for collaboration between Tempus and Arterys, and the combining of their portfolios, will enable the value propositions of both companies to be brought to the fore in pharmaceuticals, as well as clinical practice. As such, Tempus will continue towards its precision medicine ambitions, using Arterys’ capabilities to help develop an overarching platform that can leverage lots of sources of data, including real world data, to deliver the best personalised treatment for the patient.

These ambitions will, however, not be realised without first confronting come significant challenges. This will be particularly true for Arterys’ hopes in radiology. Other vendors have whole-heartedly focused on radiology, developed broader solutions which they have then pushed forward, fought to qualify for reimbursement, and have ultimately given providers a clear reason to adopt their solutions.

For Arterys, on the other hand, the motivations for adoption may not be so clear. While it does offer competitive solutions, unlike some of its most successful peers, it has not yet qualified for reimbursement in the US. What’s more, although platforms are one of the areas that have garnered the most interest in medical imaging AI of late, it is also a space that has become increasingly crowded. Given many of Arterys’ successes have come through third-party tools hosted on its platform, with only limited success from its natively developed solutions, it risks losing these third-party partners to other competitors, diminishing or at least undermining the value of its platform play.

Broader Approach

These challenges mean that the newly combined company may, over time, cease to focus so heavily on medical imaging AI. Any vendor that is to succeed in medical imaging must offer significant clinical value to providers. Tempus will hope to be able to offer this value, quickly scaling Arterys’ platform with an even broader range of algorithms.

Whether they choose to do this, however, is an entirely different question. So far, payoffs in life sciences have frequently dwarfed those in radiology AI, so Tempus may simply prioritise that market, letting Arterys’ traditional ambitions fall by the wayside.

Either way, for Arterys, the acquisition will be welcome news. The vendor has raised considerable funds, but, considering some of the extraordinary funding rounds, the qualification for reimbursement, and clinical guidance secured by some others in the medical imaging AI space, Arterys could start to look like an underdog. As it is, the acquisition by Tempus gives Arterys’ early investors a healthy exit, while also providing the vendor with the funds to fight battles in the radiology AI market and beyond.

There are other vendors that would also consider such an approach welcome news. Earning revenues to justify investors’ funding is proving harder for many vendors than they may originally have expected. Funding the clinical validation and sales activities that will enable them to target reimbursement and greater clinical adoption is tough, and unless vendors have the resource for such activities, they may increasingly struggle as their capital runs out.

Against such a backdrop, hindsight might make it clear that Arterys has been fortunate in its timing. Increasingly, larger companies, whether life science firms, modality vendors or even imaging IT firms might start to pick up successful AI vendors at ever more attractive prices as their funding dwindles. A daunting prospect for AI vendors, but perhaps the next step forward in the technology’s broader adoption.

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This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify ResearchTo view other recent Premium Insights that are part of the service please click here