NEW YORK (GenomeWeb) – Cowen today initiated coverage of Foundation Medicine with an Outperform rating for its stock and a target price of $90 per share.
In a note to investors, analyst Doug Schenkel said that Foundation's clinical volumes are growing, and with the completion of a parallel review process that resulted in November in the approval of the FoundationOne CDx test by the US Food and Drug Administration and a preliminary national coverage determination by the Centers for Medicare and Medicaid Services, "momentum is likely to accelerate."
The "combination of this approval, assay breadth, and capacity renders it a go-to [companion diagnostic] development partner," Schenkel wrote.
In particular, he said the preliminary NCD by CMS could give the company a significant competitive advantage if it is finalized, a step that could occur late this month or in March.
"If finalized, we view the NCD (intended or not) as providing a material competitive moat for" Foundation, which would "drive a meaningful inflection in volumes and reimbursement in 2018," a view that Foundation's management also espoused following the decision by FDA and CMS.
Schenkel further noted that since 2012, Foundation has generated about 220,000 comprehensive genetic profiles in cancer, and test volumes grew 60 percent year over year in 2017 to about 83,000. By 2019, Schenkel estimates the aggregate number of profiled samples to reach 500,000.
Meantime, the number of cancer patients in the company's database could grow to around 400,000 by 2019, he said. At a minimum value per patient of $5,000, the total value of the database would be approximately $2 billion, which Schenkel added is a conservative estimate.
He was also bullish on Foundation's partnerships with biopharma and said that the company currently has more than 30 such partners, including Roche, which took a majority stake in Foundation in 2015. Others that Foundation works with include Bristol-Myers Squibb, AstraZeneca, Regeneron Pharmaceuticals, and Pfizer.
As part of the deal that made Roche the majority owner of Foundation — as of September 2017, Roche had a 58.1 percent stake in the company — Roche also has the option to acquire Foundation, and Schenkel said that when that part of the deal becomes effective in April, Roche could do so as soon as mid-2018.
In late-morning trading on the Nasdaq, Foundation's shares were up 3 percent to $67.60.
Last month, the company said that it expects its fourth quarter revenues to increase 70 percent year over year. Final Q4 and full-year 2017 earnings results are scheduled to be announced on March 7 after the close of the market.