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Foundation Medicine Q2 Revenues Grow 26 Percent; Firm Obtains $100M Credit Facility From Roche

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

NEW YORK (GenomeWeb) – Foundation Medicine reported a 26 percent increase in second quarter revenues after the close of the market on Tuesday, largely driven by biopharmaceutical customers.

Separately, the company said that its FoundationOne test has been accepted for parallel review as part of the Expedited Access Pathway program with the US Food and Drug Administration and the Centers for Medicare and Medicaid Services. If the review is successful, the test could become the first FDA-approved comprehensive genomic profiling assay that includes multiple companion diagnostics for cancer and would also be offered as a covered benefit to Medicare beneficiaries nationwide.

"This step is an exciting one for Foundation Medicine, and it’s one we’ve been working towards for some time," said CEO Michael Pellini during a conference call to discuss the earnings.

For the three months ended June 30, the Cambridge, Massachusetts-based company booked $28.2 million in Q2 revenues, up from $22.5 million during the year-ago quarter, and beating the average analyst estimate of $26.7 million.

Revenue from clinical testing totaled $9.4 million, down 24 percent from $12.4 million a year ago. According to CFO Jason Ryan, the decrease was driven in part by the company moving in network with a large national payor for stage IV non-small cell lung cancer testing, so it no longer receives payments for other indications. It also experienced payment delays for the covered indication, he said.

He further added that for certain institutions, the company started billing patients' insurance plans directly instead of billing the institutions as it had done before, which resulted in fewer tests getting paid, though some of these will likely be paid in the future.

Also, Roche started selling Foundation Medicine's tests outside the US in April, so the company is now paid for these tests under a royalty model, which "results in less revenue in the near term but much greater ability to scale efficiently over time," Ryan said.

The average reimbursement for paid clinical tests in the quarter — now excluding international tests — was approximately $3,000, about $100 less than in Q1, he said. The drop was caused in part because international cases, which had a higher self-pay rate, are no longer included.

Revenue from biopharmaceutical customers grew 88 percent to $18.8 million from $10 million in Q2 of 2015. "Demand remains strong and this business is diversifying across partners and products," said President and COO Steven Kafka, noting that the growth came from a "broad mix of partners" rather than one-time milestone payments from a single customer.

Growth in the biopharma business is partly driven by the company's cancer knowledgebase, FoundationCore, which grew to nearly 90,000 clinical cases — primarily patients with aggressive and late-stage disease — from 80,000 at the end of Q1. "This is a population critical to drug developers as they assess targets and craft the clinical development strategies," Kafka said.

Foundation Medicine reported 10,286 clinical tests in the second quarter, 16 percent more than Q2 2015, and for the first time breaking the 10,000-test mark. This included 8,864 FoundationOne and 1,248 FoundationOne Heme tests. In addition, the company delivered 1,895 test results to pharmaceutical customers.

Also, since the commercial launch of its FoundationAct liquid biopsy assay in May, the company reported 174 of the tests in Q2. In addition, it has recruited nearly 100,000 cases for a clinical validation study of FoundationAct "that will further define the utility and appropriate clinical use of this assay," Kafka said.

Foundation's net loss for Q2 narrowed to $29.0 million, or $.84 per share, from $33.1 million, or $.98 per share, in the year-ago quarter. Analysts had estimated an average net loss of $.79 per share.

The firm's R&D expenses for the quarter totaled $18.5 million, up from $10.3 million in Q2 of 2015. Its SG&A expenses decreased to $27.0 million from $36.3 million in the year-ago quarter, which included a one-time expense of $14.4 million related to the closing of Foundation's strategic collaboration with Roche.

Foundation Medicine finished the quarter with approximately $62.3 million in cash and cash equivalents, and $128.1 million in marketable securities.

The company continues to expect revenues in the range of $110 million to $120 million for 2016. It increased its volume guidance, now expecting to deliver between 39,000 and 41,000 FoundationOne and FoundationOne Heme clinical tests this year. Its previous guidance had anticipated between 37,000 and 40,000 test for the year. The guidance does not include FoundationAct, for which the firm is still gaining commercial experience, Ryan said.

Foundation also said that it secured a $100 million credit facility from Roche Finance this week, a three-year line of credit that it intends to use for product development and commercialization, corporate development, and working capital management. As of the closing, the company had not used any of the credit.

Following the Q2 results, financial services firm Janney Montgomery Scott downgraded its rating of Foundation Medicine to Sell, saying that the Expedited Access Pathway and Parallel Review programs "may take longer than expected."

Foundation's shares were down nearly 1 percent to $23 in late morning trading on the Nasdaq.

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