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Foundation Medicine Q1 Revenues Decline 13 Percent; Firm Receives First Medicare Payments

This article has been updated with additonal comments from Foundation Medicine's earnings call and from an analyst. 

NEW YORK (GenomeWeb) – Foundation Medicine reported a 13 percent revenue drop for the first quarter after the close of the market on Tuesday, driven by an expected decline in its biopharmaceutical business, while its clinical testing volume picked up considerably.

For the three months ended March 31, the Cambridge, Massachusetts-based firm reported $26.3 million in revenues, down from $30.4 million during the same period last year, and missing the average Wall Street revenue estimate of $29.1 million. The revenue decline was expected and related to the timing of research and development projects with biopharmaceutical partners.

Revenues from its biopharmaceutical customers fell 17 percent to $14.7 million from $20.2 million in the first quarter of 2016, while revenues from clinical testing grew 14 percent to $11.6 million from $10.2 million a year ago.

During a conference call to discuss the firm's earnings, CEO Troy Cox said that the company continues to believe its biopharma revenue will grow 10 percent to 15 percent during the year.

Clinical revenues included, for the first time, payments for Medicare patients, which CFO Jason Ryan called a "significant milestone" for the company.  

Specifically, these payments, at the allowable rate of $3,416, were for the FoundationOne test for patients with non-small cell lung cancer under a local coverage determination by Palmetto GBA, the firm's Medicare administrative contractor. According to Cox, "This progress helps remove a major barrier for ordering physicians, who now have confidence that Medicare beneficiaries with lung cancer who meet the eligibility criteria will be covered."

He said the company expects Palmetto to soon finalize draft LCDs for colorectal cancer, ovarian cancer, and melanoma, and is working with Palmetto to identify additional indications for coverage.

In the meantime, the parallel review process for simultaneous premarket approval of FoundationOne as a universal companion diagnostic by the US Food and Drug Administration and a national coverage decision by the Centers for Medicare and Medicaid Services continues, and the company anticipates a decision in the second half of this year. "We expect that at a minimum, the initial claims will include the biomarkers currently associated with FDA-approved drugs for a range of solid tumor indications, including lung, breast, colon, gastric, and ovarian cancers and melanoma," Cox said.

He said the company is in discussions with CMS about the implementation of a national coverage decision, which will likely be subject to a 30-day open comment period and an administrative period of up to 60 days.

The company reported 13,933 clinical tests in Q1, a 55 percent increase over the same period last year. These included 11,005 FoundationOne tests, 1,284 FoundationOne Heme tests, 1,355 FoundationACT tests, and 289 FoundationFocus CDx BRCA tests. It also reported 1,802 tests to biopharmaceutical customers.

The average revenue recognized per clinical test was approximately $2,700, similar to the fourth quarter and excluding payments from Roche for tests for patients outside the US.

Cox said that the strong pickup in clinical testing volume is due in part to the firm's educational efforts, which are "resonating with community oncologists."

Also, this was the first full quarter the FoundationFocus CDx BRCA test was available, and the firm is "pleased with the update and the feedback," he said.

Foundation's net loss for the first quarter widened to $46.5 million, or $1.31 per share, from $17.3 million, or $.50 per share, in the year-ago quarter. Analysts, on average, had expected a net loss of $1.01 per share.

The firm's R&D expenses for the quarter rose 73 percent to $23.3 million from $13.5 million in Q1 of 2016. SG&A expenses increased 38 percent to $31.7 million from $23 million last year.

During the quarter, the company announced a collaboration with Bristol-Myers Squibb in the area of immune-oncology, under which the pharma company will use Foundation's platform to identify predictive biomarkers, such as tumor mutational burden or microsatellite instability, across multiple tumor types in clinical trials for its cancer immunotherapies.

Foundation Medicine CMO Vincent Miller said during the call that the company continues to identify new predictive biomarkers for immunotherapy response. The firm already uses FoundationOne to report on tumor mutational burden and microsatellite instability, both used to predict immunotherapy response, and published a paper in Genome Medicine about this approach last month

More recently, it has discovered additional biomarkers for immune checkpoint inhibitor response in lung cancer patients, results presented last month at the American Association for Cancer Research annual meeting.

In addition, Foundation Medicine said that its FoundationCore molecular information database grew to more than 125,000 clinical cases during the quarter from 100,000 at the end of Q4.

Foundation finished the quarter with approximately $49.1 million in cash and cash equivalents, and $50 million in marketable securities. It also continues to have access to a $100 million line of credit from Roche if needed.

Research analysts seemed to take the increased clinical volume and initial Medicare payments as a positive sign, but some remained cautious. "Better reimbursement will help, but we think the company is long, long from profitability," said Tim Evans, senior analyst for Wells Fargo, in a research note for investors. 

The company's shares fell about 8 percent to $33.10 in Wednesday morning trading on the Nasdaq.

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