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Janney Upgrades Foundation Medicine to Neutral

NEW YORK (GenomeWeb) – Investment bank Janney upgraded Foundational Medicine to Neutral from Sell today, citing a recent rebound in the company's shares which analyst Paul Knight attributed to an expected easy sequential earnings comparison for the company in the first quarter, among other reasons.

Earlier this month, Foundation Medicine announced that it had received the first payment from Palmetto GBA — its Medicare Administrative Contractor in North Carolina — for the Foundation One genomic profiling assay for Stage IIIB/IV non-small cell lung cancer.

With payments from Palmetto GBA factored in, an easy Q1 earnings comparison is expected for Foundation Medicine, Knight wrote in a note to investors. He added that Q1 revenues from clinical testing are expected to be $11 million versus the $9.8 million reported for the fourth quarter of 2016.

Knight sounded one note of caution, however, noting that clinical testing revenue declined year-over-year in both the third and fourth quarters of last year and must improve to growth of 8 percent, 22 percent, 49 percent, and 32 percent in the next four quarters of 2017, respectively.

Knight also stated Janney's $31 fair value price for Foundation Medicine's shares assumes that Wall Street's consensus revenue estimate of $198 million in 2018 for the company achieves a 5.6 times multiple — the average of historical industry M&A activity. The previous valuation of $15 per share assumed a roughly 5 times multiple on diagnostics revenue in 2018, 3 times on biopharma service revenue, and 2 times on Roche's portion of sales under the companies' ex-US co-promotion arrangement.

During midday trading on the Nasdaq, shares of Foundation Medicine were up 9.6 percent to $34.32.