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Foundation Medicine's Revenues Climb 54 Percent in Q3 as Net Loss Widens

NEW YORK (GenomeWeb) – Foundation Medicine after the close of market Tuesday reported a 54 percent increase in revenues for the third quarter, driven by strong growth from its biopharmaceutical business, along with a widening net loss and a sequential decrease in the number of clinical tests it provided.

Investors reacted negatively to the shortfall in clinical tests and a lowered forecast for 2015 clinical test volume, sending Foundation Medicine’s shares down 21 percent in Wednesday morning trade on the Nasdaq to $18.91.

The Cambridge, Massachusetts-based company booked $24.5 million in third-quarter revenues, up from $16.4 million a year ago, and beating the consensus Wall Street estimate of $24 million.

Of total revenues, $13.7 million derived from clinical testing, a 40 percent year-over-year growth from last year's $9.8 million, and $11.7 million from biopharmaceutical customers, a 75 percent increase. 

The strong growth in the firm's biopharma business "is reflective of the expanding group of biopharma customers who rely on our molecular information and recognize the value we deliver to their clinical development programs," said CEO Michael Pellini during a conference call to discuss the earnings.

"We are excited about the future for this business, both in terms of new partners and a growing interest to utilize our ctDNA assay when it's launched before year end," he said.

The company conducted 8,012 clinical tests in the third quarter, 25 percent more than during the same period last year but 10 percent fewer than in the second quarter, including 7,000 FoundationOne and 1,012 FoundationOne Heme tests. The firm also reported 2,676 test results to its biopharmaceutical customers.

Average reimbursement per clinical test was approximately $3,200 for the quarter, down from $3,400 in the second quarter, according to CFO Jason Ryan. "We do expect this number to vary from period to period as we work toward contracted coverage, and we don’t believe that this change has any impact on long-term pricing," he said during the call.

"While our third quarter clinical revenue and volume increased significantly year over year, these numbers also reflect that we have work to do in this nascent market," Pellini said in a statement.  

During the call, he added that the number of clinical tests "certainly fell short of our expectations" and said that the firm has a number of initiatives underway to increase the utilization of its tests by physicians.

"The quarter did not end where we wanted it to from a clinical volume perspective," Pellini said. "At the same time, we did have our best quarter both in terms of pharma and clinical revenue, which is a measure of our developing business."

The company's cancer knowledgebase, FoundationCore, grew to about 60,000 clinical cases from more than 50,000 in the summer.

Foundation's net loss for the third quarter climbed to $20.6 million, or $.60 per share, from $13 million, or $.46 per share, in the year-ago quarter. Analysts, on average, expected a net loss of $.56 per share.

The firm's R&D expenses for the quarter amounted to $12.2 million, up from $7.2 million in Q3 of 2014. Its SG&A expenses increased to $23.4 million from $14.6 million in last year's third quarter.

Foundation Medicine finished the quarter with approximately $250.2 million in cash and cash equivalents.

For full-year 2015, the company continues to expect revenues in the range of $85 million to $95 million. It lowered the expected number of clinical tests for 2015 to between 32,000 and 33,000, from a previous estimate of between 35,000 and 38,000. It was the second quarter in a row that Foundation Medicine lowered its clinical test volume guidance.