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Roche to Invest up to $1.2B in Foundation Medicine, Take Majority Stake

NEW YORK (GenomeWeb) – Roche plans to take a majority stake worth more than $1 billion in oncology genomic testing firm Foundation Medicine, and will invest potentially more than $150 million in R&D, the companies said today. In addition, Roche will help to expand sales of Foundation's tests outside the US.

Roche will commence a tender offer for approximately 15.6 million shares of Foundation Medicine at $50 per share, for an aggregate value of about $780 million. The offer price is a 109 percent premium over Foundation Medicine's closing price last Friday.

In addition, Roche plans to invest $250 million in Foundation Medicine through new shares, issued at the same price, to fund operations and development.

Combining the tender offer and direct investment, Roche would own between 52.4 percent and 56.3 percent of Foundation Medicine on a fully diluted basis.

Under an R&D collaboration agreement, Roche also plans to fund research activities with more than $150 million over at least five years, and to contribute its expertise in oncology.

Foundation Medicine will continue to operate independently, and will be led by current President and CEO Michael Pellini and his management team. Also, Foundation's existing pharmaceutical business will not be impacted by the deal.

"By combining [Foundation Medicine's] pioneering approach to genomics and molecular information with Roche's expertise in the field of oncology, we can bring personalized healthcare in oncology to the next level," said Daniel O'Day, chief operating officer of Roche Pharma, in a statement.

"The structure of our agreement with Roche also allows us to maintain the entrepreneurial spirit at Foundation Medicine and ensures that our business model, network of partnerships, and objectives are not altered," Pellini said.

The R&D collaboration will initially focus on genomic profile tests for cancer immunotherapies and continuous blood-based monitoring. Roche plans to use Foundation's platform to standardize clinical trial testing in order to compare results for R&D and, eventually, for the clinic.

The collaboration and resulting tests are expected to support the development of combination therapies, novel targets, more accurate patient stratification for clinical trials, and new companion diagnostics.

In addition, Roche and Foundation Medicine signed a commercial collaboration agreement, under which Roche obtains rights to existing products outside the US under Foundation's brand, as well as future co-developed products. In the US, Roche plans to engage its medical education team to provide information to pathologists.

Foundation Medicine currently offers two clinical assays: FoundationOne for solid tumors and FoundationOne Heme for hematologic malignancies, sarcomas, and pediatric cancers.

Both the R&D and the commercial agreement will become effective once Roche's direct investment in Foundation Medicine and its tender offer are completed. The investments and collaborations are subject to approval by Foundation's shareholders and customary closing conditions.

The companies' boards of directors unanimously approved the transaction and three Foundation shareholders owning a combined 31 percent of the firm's equity – Third Rock Ventures, Kleiner Perkins Caufield & Byers, and Google Ventures – are supporting the deal.

The transaction is expected to close in the second quarter. Upon closing, Foundation's board of directors will increase to nine individuals, including three determined by Roche, among them Daniel O'Day. Foundation CEO Michael Pellini will remain an independent company director, along with five others. Alexis Borisy is expected to remain chairman of the board.

Roche is obtaining financial advice for the deal from Citi and legal counsel from Davis Polk & Wardwell. Goldman Sachs is Foundation Medicine's financial advisor, and Goodwin Procter is the firm's legal counsel.

Separately today, Foundation announced preliminary total revenue of approximately $18.7 million for the fourth quarter and $61.1 million for full-year 2014 — a 93 percent and 111 percent increase from $9.7 million and $29.0 million recorded in Q4 and full-year 2013, respectively.

Foundation reported 7,233 clinical tests to ordering physicians in Q4, compared to 3,752 tests in Q4 2013. The company reported a total of 24,271 FoundationOne clinical tests to ordering physicians for full-year 2014, a 167 percent increase over the 9,095 tests reported in 2013.