Personalis Inc

Note 8. Related Party Transactions

The Company determined that Tempus is a related party because they own more than 10% of the Company's common stock. Tempus acquired its ownership stake in August 2024 by exercising the Tempus Warrants and purchasing additional shares under the Investment Agreement (defined below).

Overview of Tempus Agreement

In November 2023, the Company entered into a Commercialization and Reference Laboratory Agreement (the “Tempus Agreement”) with Tempus pursuant to which Tempus markets the Company's NeXT Personal Dx test in the United States. The Company performs tests ordered by patients through Tempus and the Company bills the patients or payors. The Company compensates Tempus for orders obtained and results delivered on a per-test basis. The term of the Tempus Agreement is five years, which may be extended for successive one-year terms. Either party may terminate the Tempus Agreement for convenience upon 30 months' prior written notice.

Under the Tempus Agreement, the Company conducted development activities to analytically validate NeXT Personal Dx in three indications: breast cancer, lung cancer and immuno-oncology monitoring. In consideration of the Company performing such development activities, Tempus agreed to pay the Company fees of $12 million (the "Market Development Fees"), consisting of an activation fee of $3 million, a first milestone fee of $3 million (upon achievement of one clinical validation), and a second milestone fee payable in six quarterly installments totaling $6 million (upon achievement of the two remaining clinical validations). The Company has achieved all three clinical validations, thus both milestones have been met. Separately, the parties are performing co-promotion activities and the Company is compensating Tempus for promotional and commercialization services through the end of 2026 in an amount up to $9.6 million.

Additionally, as partial consideration of Tempus' obligations to the Company under the Tempus Agreement, the Company issued warrants to Tempus. See "Tempus Warrants" section below.

Tempus Warrants

In consideration of Tempus’ obligations to Personalis under the Tempus Agreement, on November 28, 2023, the Company issued to Tempus (1) a warrant to purchase up to 4,609,400 shares of Personalis common stock at an exercise price per share of $1.50, with an expiration date of December 31, 2024 (the “First Warrant”), and (2) a warrant to purchase up to 4,609,400 shares of Personalis common stock at an exercise price per share of $2.50, with an expiration date of December 31, 2025 (the “Second Warrant” and, together with the First Warrant, the “Tempus Warrants”). In August 2024, Tempus exercised in full the Tempus Warrants to purchase 9,218,800 shares of Personalis common stock for $18.4 million in cash, at an average exercise price of $2.00 per share, concurrently with the execution of the Investment Agreement (described below).

The Tempus Warrants included a provision under which the total number of shares issuable upon settlement were subject to adjustment. Consequently, the Tempus Warrants were classified as liability instruments while outstanding and subject to remeasurement at each balance sheet date, with changes in fair value recognized as Other income (expense), net in the consolidated statements of operations. Fair values of the warrants were estimated using the Black-Scholes option-pricing model. See Note 5 Fair Value Measurements for discussion of inputs used in the measurements of the Tempus Warrants and the resulting noncash losses recognized in the consolidated statements of operations.

Investment Agreement with Tempus

In August 2024, the Company entered into an investment agreement (the "Investment Agreement") with Tempus under which the Company issued and sold 3,500,000 shares of common stock at a price per share of $5.07, representing the last reported closing price of the common stock. The Company received $17.7 million of cash from the sale of the shares and incurred $1.1 million of issuance costs directly related to the sale, of which $0.8 million was paid as of September 30, 2024.

Impact of Tempus Agreement on the Financial Statements

The Company had achieved the first clinical validation milestone at the time of entering the Tempus Agreement and was therefore entitled to Market Development Fees of $6 million, consisting of the first milestone fee of $3 million and the activation fee of $3 million. These proceeds of $6 million were received in 2023 and treated as consideration for the Tempus Warrants.

The remainder of Market Development Fees—$6 million, payable in six quarterly installments—are recorded as a liability when received and offset against promotional fees as they are paid by the Company to Tempus. As of September 30, 2024, $2 million of such $6 million Market Development Fees have been received.

Amounts of transactions with Tempus during each income statement period presented, along with amounts due from or to Tempus as of each balance sheet date, follows: