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Leerink Downgrades Foundation Medicine to Market Perform

NEW YORK (GenomeWeb) – Leerink today downgraded Foundation Medicine's shares following Roche's announcement that it will acquire a majority stake in the cancer genomics diagnostics firm. 

Analyst Dan Leonard downgraded Foundation to Market Perform from a previous Outperform rating, while he raised the target price on the company's shares to $50 from $30. 

Earlier in the week, Roche said that it plans to take a majority stake in Foundation by buying about 15.6 million shares of Foundation at $50 per share for an aggregate value of $780 million. Additionally, Roche will invest $250 million in Foundation through new shares at $50 per share.  

In a research note, Leonard said that the $50 share price offered by Roche now becomes the baseline value for Foundation's stock. Roche's offer "augments our view that Foundation has built a valuable molecular tumor profiling franchise and should further its leadership in a $3 billion-plus US market opportunity," he said. 

However, "it will take time for investors not named Roche to grow into the new valuation," Leonard said, adding that reimbursement is likely to remain a concern for investors as more data about the advantages of broad tumor profiling is needed. 

Leonard also said that that a competing bid is unlikely, and under the terms of the deal, Roche is not allowed to increase its ownership stake in Foundation for three years following its completion. 

In afternoon trading on the Nasdaq on Friday, shares of Foundation slipped a fraction of 1 percent to $47.55