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Foundation Medicine Q2 Revenues Grow 24 Percent

This story has been updated to include additional information from Foundation Medicine's earnings call with analysts. 

NEW YORK (GenomeWeb) – Foundation Medicine reported after the close of the market on Tuesday that its second quarter revenues rose 24 percent, driven by a higher adoption of its molecular information solutions by clinicians and biopharma partners.  

For the three months ended June 30, the Cambridge, Massachusetts-based firm reported $35.0 million in revenues, up from $28.2 million during the same period last year, and in line with the average Wall Street revenue estimate of $34.9 million.

Revenues from its biopharmaceutical customers grew 17 percent to $22.1 million from $18.9 million in the second quarter of 2016, while revenues from clinical testing grew 37 percent to $12.9 million from $9.4 million a year ago. Revenue increases in the clinical testing segment were driven by growth in overall volume and a local coverage determination for comprehensive genomic profiling in non-small cell lung cancer from Medicare contractor Palmetto.

The company said that it will now be reporting revenues in two components, molecular information services and pharma research and development services. The former comprises revenues from commercialized platforms and services such as sample profiling, data access, and SmartTrials, and includes revenues from clinical and pharmaceutical customers. The latter includes revenues from the development of assays and other services funded by pharmaceutical collaborators.

In Q2, Foundation's molecular information business contributed $30.3 million in revenues, $12.9 million of which came from clinical customers and $17.4 million from biopharma clients. Pharma R&D services brought in $4.7 million.

In June, Foundation submitted its final module for premarket approval to the US Food and Drug Administration for its FoundationOne CDx. The company is seeking parallel review for the companion diagnostic, and is expecting to receive a decision in the fourth quarter from the FDA and a draft national coverage determination from the Centers for Medicare & Medicaid Services. The company expects that the draft NCD will be subject to a 30-day comment period and a 60-day administrative window, ahead of CMS' final determination. The test may initially include indications where an FDA-approved CDx already exists — for example, in lung, breast, colon, gastric, and ovarian cancers, as well as melanoma. 

On a conference call with analysts following the release of the earnings, Foundation CEO Troy Cox said that an FDA-approved universal companion diagnostic "would be a highly differentiated and valuable product for biopharma, representing a streamlined, cost effective, and significantly de-risked regulatory process to companion diagnostic development and approval.". 

The company reported 15,924 tests to clinicians in Q2, a 55 percent increase over the same period last year. These included 12,442 FoundationOne tests, 1,608 FoundationOne Heme tests, 1,594 FoundationACT tests, and 280 FoundationFocus CDx BRCA tests. It also reported 4,762 tests to biopharmaceutical customers.

On the conference call, Foundation CFO Jason Ryan said that the average revenue across each CGP test that was paid in Q2, excluding payments from Roche for tests for patients outside the US, was approximately $2,500, down $200 from Q1. This payment amount, however, doesn't reflect in-network pricing the company has achieved through Palmetto and other payors, Ryan added.

Foundation's Q2 net loss widened to $44.3 million, or $1.24 per share, from $29.0 million, or $.84 per share, in the year-ago quarter. Analysts, on average, had expected a net loss of $1.11 per share.

The firm's Q2 R&D expenses rose 24 percent to $23.0 million from $18.5 million in Q2 2016. SG&A expenses increased 29 percent to $34.7 million from $27.0 million last year.

Foundation finished the quarter with $36.5 million in cash and cash equivalents, and $35.0 million in marketable securities.

On July 31, Foundation Medicine signed an agreement to expand its credit facility with Roche Finance from $100 million to $200 million, which the firm plans to use to develop and commercialize products, for corporate development efforts, and for working capital.  

For 2017, the company is maintaining revenues to be in the range of $135 million to $145 million. Analysts are expecting revenues of $138.2 million for the year. Foundation also increased its clinical testing volume expectation to between 61,000 and 64,000 for the year.

Ryan explained that Foundation is raising its volume based on the fact that community and academic physicians are increasingly adopting its tests. However, the company is not raising its revenue guidance for the year due to "the challenges of out-of-network payment," which he said has plagued the entire molecular diagnostics field.

Foundation's shares fell 6 percent to $32.83 in morning trading on the Nasdaq.