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Foundation Medicine Books 57 Percent Revenue Growth in Q1; Clinical Revenue Declines 8 Percent

NEW YORK (GenomeWeb) – Foundation Medicine reported a 57 percent increase in first quarter revenues after the close of the market on Tuesday, driven by biopharmaceutical customers.

In addition, the company announced the commercial launch of its liquid biopsy assay for clinical use and a partnership with AstraZeneca to develop companion diagnostic assays.

The Cambridge, Massachusetts-based company had $30.4 million in first quarter revenues, up from $19.3 million during the year-ago quarter, and beating the average analyst estimate of $26.2 million.

Revenue from clinical testing amounted to $10.2 million, down 8 percent from $11.1 million a year ago and 15 percent sequentially from $12 million in Q4 of 2015. The average reimbursement for clinical tests that were recognized as revenue was approximately $3,100, down slightly from $3,200 during the fourth quarter. According to CFO Jason Ryan, the drop in clinical revenue was expected and primarily due to the fact that the company became an in-network provider for United Healthcare for non-small cell lung cancer testing, which meant that it is no longer getting paid for other indications by this provider. "We anticipated this near-term impact and it is assumed in our 2016 full year revenue guidance," Ryan said during a conference call to discuss the firm's earnings.

Revenue from biopharmaceutical customers more than doubled to $20.2 million from $8.2 million in Q1 of 2015, and increased 43 percent sequentially from $14.1 million in Q4. Included in the biopharmaceutical revenue was a $7 million milestone payment from Roche, related to the development of a circulating tumor DNA platform, which is also included in the full year revenue guidance, Ryan said. "We remain very positive about our pharma business and continue to see strong demand across our solution portfolio from both new and existing partners," he said.

Foundation Medicine reported 8,985 clinical tests in the first quarter, 14 percent more than in Q1 of 2015, and 8 percent more than in Q4, including 7,957 FoundationOne and 1,028 FoundationOne Heme tests. The firm also reported 2,622 test results to its biopharmaceutical customers.

CEO Michael Pellini said during a conference call to discuss the earnings that the rate of repeat orders from doctors improved over the first quarter, which he attributed to better education of oncologists about the benefits of comprehensive molecular profiling.

The company's cancer knowledgebase, FoundationCore, grew to nearly 80,000 clinical cases from 68,000 at the end of the fourth quarter.

Foundation's net loss for the first quarter totaled $17.3 million, or $.50 per share, compared to $17 million, or $.59 per share, in the year-ago quarter. The company beat analysts' average net loss estimate of $.72 per share.

The firm's R&D expenses for the quarter totaled $13.5 million, up from $8.7 million in Q1 of 2015. Its SG&A expenses increased to $23 million from $18.5 million in last year's first quarter.

The company also said on Tuesday that it has commercially launched FoundationAct, its circulating tumor DNA assay, to clinical customers. Last month, it had said in a regulatory filing that the launch would take place sometime in the second quarter, rather than in the first quarter as previously expected.

The blood-based test provides genomic profiling for cancer patients for whom a tissue biopsy is not feasible or no tissue is available. The assay analyzes alterations across 62 genes and fusions across six genes.

The firm also announced an agreement with AstraZeneca to develop novel companion diagnostic assays to determine which patients most likely benefit from targeted drugs from AstraZeneca's oncology pipeline.

In addition, Foundation Medicine said it will open a second laboratory at Research Triangle Park in North Carolina that it said will support innovation and expansion of its product portfolio, provide lab redundancies, increase operational flexibility, and broaden commercial opportunities.

As previously reported, the company expects revenues in the range of $110 million to $120 million for 2016, representing a midpoint growth of 23 percent over 2015 that will primarily be driven by pharma revenue, Ryan said. The firm expects to deliver between 37,000 and 40,000 FoundationOne and FoundationOne Heme clinical tests, a midpoint growth of 17 percent.

In addition, he said, the company expects operating expenses between $175 million and $185 million this year, driven in particular by R&D investments that will increase over the year, as well as costs related to the opening of the new lab.

Foundation Medicine finished the quarter with approximately $86.1 million in cash and cash equivalents, and $127.4 million in marketable securities.

The company's shares were up 10 percent to $16.75 in late morning trading on the Nasdaq.