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Foundation Medicine Q4 Revenues Grow 11 Percent

This article has been updated with information and comments from Foundation Medicine's earning call.

NEW YORK (GenomeWeb) – Foundation Medicine reported after the close of the market on Wednesday that its fourth quarter revenues climbed 11 percent, driven by strong growth from its biopharmaceutical business.

For the three months ended Dec. 31, the Cambridge, Massachusetts-based firm, which has grown to more than 500 employees, booked $28.8 million in Q4 revenues, up from $26.1 million a year ago, but missing the average Wall Street estimate for revenues of $29.2 million.

Of the total, the firm said revenues from its biopharmaceutical customers rose 35 percent to $19.0 million, while revenues from clinical testing fell 18 percent to $9.8 million from $12.0 million a year ago.

Foundation reported 12,788 clinical tests in Q4, a 54 percent increase over the same period last year. These included 10,108 FoundationOne tests, 1,407 FoundationOne Heme tests, and 1,273 FoundationACT tests. An additional 1,860 tests were reported to biopharmaceutical partners in Q4. The average reimbursement for its tests in the US was approximately $2,700, about $100 less than in the third quarter.

Foundation's net loss for the fourth quarter widened to $35.6 million, or $.1.02 per share, from $19.0 million, or $.55 per share, in the year-ago quarter. The average analyst expectation was for a net loss of $.96 per share.

The firm's R&D expenses for the quarter rose 42 percent to $18.2 million from $12.8 million in Q4 of 2015. Its SG&A expenses increased 36 percent to $28.9 million from $21.2 million in last year's fourth quarter.

During a conference call to discuss the company's fourth-quarter and full-year earnings, Foundation Medicine's senior management highlighted recent developments and talked about their outlook for 2017.

In Q4, the company received approval from the US Food and Drug Administration for FoundationFocus CDxBRCA as a companion diagnostic for Clovis Oncology's PARP inhibitor Rubraca (rucaparib), the first next-generation sequencing-based test to obtain such approval.

In addition, Palmetto, the company's Medicare administrative contractor in North Carolina, recently issued draft local coverage determinations (LCDs) for comprehensive genomic profiling that would cover Foundation Medicine's clinical test for patients at the initial diagnosis for advanced or metastatic melanoma, colorectal cancer, and ovarian cancer.

CEO Tony Cox, who joined Foundation Medicine earlier this year, said during the call that the company will continue to work with Palmetto on finalizing the LCDs, and the firm expects the list of covered indications to grow this year.

Foundation Medicine also launched a clinical genomic database with Flatiron Health during the quarter that contains information on 20,000 patients and is designed to help researchers and biopharmaceutical companies developing targeted cancer drugs and immunotherapies.

The company's FoundationCore molecular information database, meanwhile, grew to more than 100,000 clinical cases during the quarter from nearly 100,000 at the end of Q3.

For full-year 2016, Foundation reported a 25 percent year-over-year increase in revenues to $116.9 million from $93.2 million in 2015, narrowly missing the analyst consensus estimate of $117.3 million.

Full-year revenues from biopharmaceutical partners rose 79 percent to $78.8 million from $44.0 million in 2015, while clinical testing revenues fell 23 percent to $38.1 million from $49.2 million.

The company said the drops in Q4 and 2016 clinical testing revenues were driven by various factors, such as the transition to in-network status with a large national payor for stage IV non-small cell lung cancer testing, which resulted in the termination of out-of-network payments for testing in other indications.

The firm reported 43,686 clinical tests in 2016, a 32 percent increase over 2015, including 36,327 FoundationOne tests, 5,008 FoundationOne Heme tests, and 2,351 FoundationACT tests.

The company's net loss for the year widened to $113.2 million, or $3.25 per share, from $89.6 million, or $2.73 per share, the previous year. Analysts had, on average, estimated a net loss of $3.20 per share.

The firm's R&D expenses for 2016 rose 54 percent to $67.4 million in 2016 from $43.9 million in 2015. SG&A expenses rose 7 percent to $106.6 million from $99.6 million in 2015.

Foundation finished the year with approximately $63.6 million in cash and cash equivalents, and $79.4 million in marketable securities. The company also has a $100 million line of credit, CFO Jason Ryan said during the call. Hinting at potential future investments, he said that "should we decide to that additional growth capital is needed for strategic investment in the business through our inflection towards profitability, we are confident in our ability to secure additional financing if and when the time is right."

"We believe 2017 will be a year of continued growth and value creation, particularly as we progress through Parallel Review of FoundationOne with FDA and CMS, and simultaneously collaborate with healthcare providers, payors, and biopharma partners to apply our molecular information to accelerate personalized cancer care," Cox said in a statement.

Last summer, FoundationMedicine submitted its FoundationOne test for parallel review by the FDA and the Centers for Medicare and Medicaid Services and expects a decision during the second half of this year.

At that point, "we anticipate having the only FDA-approved pan-cancer universal companion diagnostic," Cox said, which would also have national Medicare coverage.

"This could be catalytic for Foundation Medicine," he said. "[A national coverage decision] will reduce barriers to [comprehensive genomic profiling] utilization, facilitate access to matched therapeutics, and provides further leverage to securing coverage of FoundationOne from commercial payors."

In addition to advancing reimbursement this year, Foundation Medicine will work towards comprehensive genomic profiling becoming part of clinical guidelines, he said, and it will publish evidence and health economics data supporting the utility of CGP.

The company also started to commercialize its clinical tests outside the US last year, in partnership with Roche, and plans to continue doing so this year. Its laboratory in Penzberg, Germany, is expected to be operational by the end of 2017 and will "support continued test volume growth and market expansion across Europe," President and COO Steven Kafka said during the call.

Foundation Medicine is also planning to increase its biopharmaceutical business this year. Over the past year, it added several partners and is now working with more than 30 biopharma customers.

For 2017, the company expects revenues of $135 million to $145 million, a 20 percent increase over 2016, and plans to deliver between 53,000 and 56,000 clinical tests. Analysts, on average, are expecting revenues of $147.8 million for 2017.

Clinical revenue in particular is expected to grow 30 to 40 percent this year compared to 2016, Ryan said, driven by Medicare payments from Palmetto, increased market penetration, payments from other payors, and growth in international revenues through the Roche partnership.

Biopharmaceutical revenue is expected to grow between 10 and 15 percent, he said, driven by increased business from new and existing partners, though the firm does expect a sequential decline in the first quarter due to the timing of various projects. Biopharma revenue growth projections include expected milestone payments related to the Roche immunotherapy testing platform and CDx development programs, he added.

Foundation Medicine's shares fell about 3 percent to $23.15 in Thursday morning trading on the Nasdaq.