In a Genentech Redux, Roche Pays $2.4B for Rest of Foundation Medicine

Xconomy Boston — 

Roche this morning agreed to acquire the part of Foundation Medicine it didn’t already own, another big vote of confidence in tests that analyze a patient’s cancer genes and the drugs that can target them.

Roche will pay $137 per share, or $2.4 billion, for the remaining stock of Foundation (NASDAQ: FMI), of Cambridge, MA. Roche already held a majority of Foundation’s shares through a wide-ranging alliance announced in January 2015. Today’s purchase values the company at $5.3 billion. Shares have been acquired at a 29 percent premium to Foundation’s $106.45 closing price on Monday. Foundation went public at $18 per share in September 2013.

The deal has been approved by both companies’ boards and should close later this year.

Roche’s move to buy Foundation harkens back to its similarly staggered acquisition of South San Francisco, CA, cancer drug maker Genentech. In January 2015, Roche paid more than $1 billion in cash to acquire a majority stake in Foundation, and in the process, formed a broad R&D collaboration to develop genomic profiling tests for both cancer immunotherapies and blood-based monitoring.

The move was a significant gamble on the unrealized potential of tests that aim for broad genetic profiles of cancer patients’ tumors. Foundation analyzes the alterations in tumor biopsy samples, or in tumor DNA shed into a patients’ bloodstream, and provides suggestions of treatments targeted to each patient’s genetic profile. It has developed several such tests, like FoundationOne, a diagnostic for solid tumors; and FoundationOne Heme, for blood cancers. With these tests, Foundation looks for hundreds of cancer-related alterations in patients’ DNA and uses that information to suggest treatment options to doctors, who read the reports through an Internet portal. For pharmaceutical companies, Foundation’s tests help identify the right patients for clinical trials and serve as so-called companion diagnostics for targeted drugs.

Foundation has lost money for years trying to boost the commercial uptake of these tests, which have struggled to gain traction with payers and community oncologists. But in the past year the company has made important strides, at least with regulators. In November, the FDA approved FoundationOne CDx as a companion diagnostic for 15 targeted therapies, among them the lung cancer drugs osimertinib (Tagrisso) and crizotinib (Xalkori) and the ovarian cancer treatment rucaparib (Rubraca). In March, the Centers for Medicare and Medicaid Services said that, going forward, it will start to reimburse for tests that use DNA sequencing technology to map the tumors of patients with advanced cancers once approved by the FDA. It’s too early to tell what effect these steps will have on the uptake and reimbursement for Foundation’s tests, but the company’s numbers have been climbing. Foundation sold 21,861 clinical tests in its most recent quarter, ending March 31, a 57 percent jump from the same quarter a year ago.

As these and other positive steps for targeted cancer medicines have been taken, Foundation’s share price has climbed. On Jan. 1, 2017, Foundation shares were worth just $19.55 apiece. They’re now worth almost seven times that total, and Roche has clearly seen enough progress to bet bigger on the ascent of targeted cancer drugs and Foundation’s future—much as it did with Genentech back in 2009, when it completed buyout of the South San Francisco, CA, cancer drug maker. Daniel O’Day, CEO of Roche Pharmaceuticals said in a statement that Roche will “preserve [Foundation’s] autonomy while supporting them in accelerating their progress,” though the company didn’t disclose more details.

“This is important to our personalised healthcare strategy as we believe molecular insights and the broad availability of high quality comprehensive genomic profiling are key enablers for the development of, and access to, new cancer treatments,” O’Day said in the statement.

Here’s more on the Foundation-Roche alliance, and the progress tumor profiling tests have made over the past year.

Image of lymphoma tumor cells by the National Cancer Institute