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Wells Fargo Downgrades Foundation Medicine to Market Perform

NEW YORK (GenomeWeb) – Wells Fargo's Equity Research Department today downgraded Foundation Medicine's stock to Market Perform from Outperform, following the company's first ever analyst day on Tuesday.

Wells Fargo also increased its 2016 estimated loss per share for Foundation Medicine to $1.36 from $1.29, and reduced its stock valuation range to $25 to $27 per share from a previous $35 to $40 per share.

In a report to investors, senior analyst Tim Evans noted that Foundation Medicine was unable to offer "meaningfully improved visibility on broader reimbursement and revenue progression" during the analyst day.

"While we believe FMI has a differentiated platform, payors have taken longer than expected to embrace the test, and competitive noise has created physician confusion," he wrote. "We think these trends are likely to persist in the near term," leading him to downgrade the stock.

In particular, he wrote, Foundation's local Medicare contractor has not yet made a coverage decision regarding the company's FoundationOne assay, "leaving FMI without Medicare reimbursement and leaving management without a clear expectation for when we can expect it."

The company has made progress with private payors, he noted, with United Healthcare recently announcing coverage of molecular profiling for non-small cell lung cancer, citing FoundationOne in its decision, but "the stock's current valuation factors in this progress."

Regarding Roche's purchase of a majority of Foundation Medicine's stock earlier this year, Evans said that the bank "admittedly failed to downgrade the stock" at the time.

"At the time, we did not fully appreciate the misalignment of Roche's incentives with the rest of FMI's shareholder base," he wrote. While Roche's drug development will benefit from the partnership immediately, the firm's clinical diagnostics business, which is of greater interest to Foundation's other shareholders, might take longer to gain from the alliance.

Shares of Foundation Medicine were down around 8 percent at $22.15 in afternoon trading on the Nasdaq today.