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Foundation Medicine's Revenues Double as it Readies Hematological Cancer Panel

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This story was originally published Nov. 8.

The newly-public Foundation Medicine saw its quarterly revenues more than double to $8.2 million in the third quarter compared to $3 million in the previous year's third quarter, and it's finalizing its second next-generation sequencing-based cancer panel for hematological malignancies, the company said this week.

"We see FoundationOne as our starting point, not the finish line," President and CEO Michael Pellini said during a conference call discussing the company's earnings.

Foundation Medicine, based in Cambridge, Mass., launched its next-gen sequencing-based cancer test, FoundationOne, which screens over 200 cancer-related genes, earlier this year to physicians and recently published in Nature Biotechnology an analytical validation study of the assay in over 2,000 patients. It plans to release data on what will be its second commercial product for hematological cancers at the American Society of Hematology annual meeting in December with a commercial launch planned for early 2014. That panel will incorporate both DNA and RNA sequencing and is being developed in conjunction with Memorial Sloan Kettering Cancer Center.

Also this week, the firm announced that it has been selected to provide genomic testing for patients with squamous cell carcinoma of the lung within a Master Protocol study — a biomarker-driven, multi-drug, multi-arm, multi-center Phase II/III registration trial. Foundation's test will be used to stratify patients into the appropriate target-specific arms of the trial. The study collaborators include Friends of Cancer Research; National Cancer Institute; Foundation for the National Institute of Health; US Food and Drug Administration; and members of the SWOG cancer research cooperative Yale Cancer Center, MD Anderson Cancer Center, University of California Davis Cancer Center, University of Colorado Cancer Center and Fred Hutchison Cancer Center.

Foundation Medicine officials said on this week's call that oncologists ordered 2,577 of its FoundationOne test during the quarter. Tests ordered in the third quarter were up from 1,626 ordered in the second quarter of 2013. Slightly more than half of orders in the third quarter came from community-based oncologists, while clinical testing as a whole comprised more than half of its revenues. The other half of its revenues were generated from its partnerships with biopharmaceutical companies.

"The third quarter was strong in terms of the commercial ramp up, with test and revenue both growing at accelerated rates as compared to prior periods," Pellini said during the call. To support growth of its business, over the next several years it plans to have a sales force of between 80 and 100 individuals.

"We were very encouraged by the level of interest from oncologists and pathologists who were seeking us out and by their response when we delivered actionable information, often allowing them to provide new treatment roadmaps for their patients."

Revenue from clinical customers in the third quarter was $4.4 million, an increase from $500,000 in the prior-year period. The biopharmaceutical side of the business, meantime, generated $3.8 million in revenue, up from $2.6 million in the third quarter of 2012.

Biopharmaceutical revenue is based on negotiated price per test, which for the third quarter was approximately $3,700 per test, down from $3,900 in the previous quarter, "driven by volume-based pricing in clinical trials," said Jason Ryan, VP of finance, during the call.

"Foundation Medicine offers the only routinely actionable and accessible comprehensive molecular solution for both oncologists, and for pharmaceutical companies and academic centers that are utilizing, developing, or investigating targeted therapy," Pellini said.

Reimbursement

One issue all developers of NGS-based clinical tests have faced has been obtaining reimbursement from third-party payors. In the third quarter, average reimbursement was $3,300 per test, which was down around 8 percent from the second quarter due to new CPT codes issued by the Centers for Medicare & Medicaid Services this year.

Additionally, around 573 of the test orders in the quarter were for patients on Medicare, and the firm said it plans to begin submitting Medicare claims before the end of the year.

During the call, the company said a major focus going forward would be to continue to develop relationships with payors. In September, the firm raised $111 million in its initial public offering, and during the call, Steve Kafka, the firm's COO, said one use of those proceeds would be to execute on its reimbursement strategy. He described a five-pronged approach that involves maintaining a high bar for clinical validation, driving adoption among key opinion leaders and the broader oncology community, engaging advocacy groups, developing relationships with and educating third-party payors, and building a body of clinical utility evidence.

Pellini added that because the test spans a variety of cancers, "it's important to reframe the way we think about gathering data for a specific coverage policy decision." Coverage decisions will not be based on one clinical study, he said, but rather an entire "body of evidence."
He added that while he cannot predict whether payors would put into place policies that covered only a specific cancer or whether they would reimburse for all cancers, Foundation's strategy is to not differentiate based on body site of origin.

"Our sense is that it's going to be payor dependent," he said. "In some cases, we do expect to get a policy decision that spans cancer types."

He said a more likely scenario would be a policy decision based on the state of the cancer. "The greatest utility right now is in metastatic disease," he said.

Patient outcomes

Foundation Medicine is also putting in place systems to track patients' clinical outcomes.

Pellini said the company has three different methods it is implementing for following up with patients. Currently, the main process is manual. The company hosts weekly internal meetings of its tumor board and will flag cases where it wants to reach out to the oncologist to see if the oncologist and patient want to work with Foundation to collect outcome data.

Additionally, the company recently launched a registry as a way to move to a more automated process for collecting clinical outcome data. Pellini said that the registry could potentially allow the company to follow up on hundreds or thousands of patients.

Finally, Pellini said that the company is developing technology that will allow it to capture data from tens of thousands of patients and will enable oncologists to share data with each other. He said the firm would provide more information on those tools in 2014.

Financials

The company's third quarter R&D expenses were $7 million, nearly double the $3.6 million it spent in Q3 2012, while SG&A expenses more than tripled year over year to $9.5 million from $3 million.

Foundation Medicine posted a net loss in the third quarter of $12.5 million, or $3.51 per share, compared to a Q3 2012 net loss of $5.5 million, or $2.39 per share.

As of Sept. 30, the company had $138 million in cash, cash equivalents, and short-term restricted cash.

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