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Delayed Medicare Reimbursement, Competition Hamper Foundation Medicine's Growth Plans

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NEW YORK (GenomeWeb) – Foundation Medicine no longer assumes that it will receive any Medicare payments in 2015 for its tumor profiling tests, due to a delay in a local coverage determination from its regional Medicare Administrative Contractor. As a result of the delay, coupled with increased competition, the firm expects lower-than-anticipated clinical test revenues this year.

In the meantime, Foundation Medicine is validating its liquid biopsy circulating tumor DNA test in a multi-center study, an assay it plans to launch for pharmaceutical customers by the end of this year and commercially in 2016.

The company, which late yesterday reported a 55 percent increase in second quarter revenues, lowered its testing volume and revenue guidance for the year because of the delayed Medicare reimbursement. It had previously projected revenues of $105 million to $115 million for 2015, but lowered that forecast to a range of $85 million to $95 million while revising its expectations for clinical test volumes downward to between 35,000 and 38,000 tests from a previous range of 43,000 to 47,000.

During a conference call to discuss the firm's second quarter earnings yesterday, CEO Michael Pellini explained that the original guidance was based on the assumption that a local coverage determination, or LCD, from Foundation Medicine's regional Medicare Administrative Contractor, or MAC, would be in place in the first half of 2015 for at least some of Foundation's Medicare patients. However, that did not turn out to be the case, and the company no longer assumes any Medicare payments for 2015.

Lack of Medicare coverage impacts the number of clinical tests being ordered, not only for Medicare patients but also for non-Medicare patients, Pellini said, referring to a "spillover effect." However, "we are continuing to grow the business despite some of the reimbursement challenges out there," he said, expanding "at least on pace with the overall market growth."

According to Pellini, the company worked closely with Palmetto GBA, even though its own regional MAC that determines coverage for its tests is not Palmetto but National Government Services, NGS. "While there was no direct precedent for this approach, Palmetto was the only MAC with expertise in assessing cutting-edge molecular testing, and it was strongly suggested that other MACs including ours … would look to Palmetto for guidance on this important area," Pellini said.

Palmetto indeed issued a draft LCD in January, proposing coverage for comprehensive genomic profiling of a subset of advanced non-small cell lung cancer patients, which became final on July 6, and Pellini said he expects Palmetto to come out with a "reasonable payment approach" for this type of testing in the third quarter.

Based on the Palmetto LCD, he said, Foundation expected NGS to be "more proactive," but so far, NGS has not made a coverage decision of its own, and "we now realize this next phase is going to take more time to play out." As a result, the company no longer expects Medicare coverage in 2015.

Once an LCD from NGS is in place, it "will be an important accelerator of clinical testing volumes in the future," he said. Foundation Medicine is hopeful that coverage by NGS might be less narrow than Palmetto's, encompassing additional indications. "They have told us one of the things they are assessing is whether or not the initial LCD from Palmetto is in fact a bit too narrow around non-small cell lung cancer," Pellini said. "We can't predict where they will go with that, but that's a question they are currently evaluating."

On the positive side regarding reimbursement, CFO Jason Ryan noted during the call that Foundation is "making stepwise progress with innovative regional payers." For example, HealthChoice Oklahoma and a regional payer in Southern California each enacted broad, pan-cancer coverage policies that cover FoundationOne and FoundationOne Heme tests for their members, and Ryan said the company expects additional regional coverage decisions before the end of the year.

In addition, the company is "seeing continued momentum with certain national payers" and expects to share "meaningful progress" on this in the near future. The average reimbursement per clinical test was approximately $3,400 in the second quarter, similar to the first quarter.

Increased competition is another reason Foundation Medicine lowered its guidance, Pellini said. Competition in the second quarter did not come from a single laboratory but from several players, he noted, including providers of hotspot cancer assays, comprehensive assays, liquid biopsy tests, and certain competitors who are giving their tests away for free to gain market share.

On track with ctDNA

According to Foundation Medicine President and COO Steven Kafka, the company remains on track to launch its own ctDNA assay to pharma customers in the fourth quarter and commercially in 2016. Despite the general excitement about liquid biopsy tests, he said, this must be balanced "with appropriate caution by supporting new liquid biopsy tests with validation data and by ensuring that these tests are being used in the correct patient sub-populations."

Earlier this week, Foundation Medicine said it had initiated a large-scale multi-center prospective clinical study to validate its ctDNA test for multiple, solid, and hematologic tumor types. The study will compare results from the blood-based ctDNA test with alterations detected in tissue biopsies by the company's FoundationOne test.

The study, which involves investigators from UC Irvine Health and Florida International University, is expected to be completed in 2016 and will include patients who will most likely benefit from liquid-based genomic profiling, such as patients who relapsed after standard non-targeted treatment. Also, about 20 percent of patients in the study will have earlier-stage disease, so the company can assess how different tumor types shed DNA into the bloodstream at different stages of growth and metastasis.

Kafka said the new ctDNA assay will not replace but complement the company's existing tissue-based assays and will have utility in disease areas and settings where tissue is not readily available.

Hinting at competitors, Kafka said that "physicians should be concerned about the potential false-positive rates of certain ctDNA assays," citing data from such assays presented at the recent American Society for Clinical Oncology meeting that identified MET alterations in 15 percent of breast cancer patients, while tissue-based tests by others only found such mutations in 1 percent of breast cancer patients. "This higher-than-average frequency of MET alterations has the potential to negatively impact the care of patients who could be misdirected to MET-targeted therapeutics," he said.

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