Roche to Acquire Foundation Medicine for $2.4 Billion to Accelerate Broad Adoption of Comprehensive Genomic Profiling in Oncology

According to the official website of Foundation Medicine (hereinafter referred to as “FMI”), Swiss pharmaceutical giant Roche Holding announced on Tuesday that it has agreed to acquire all remaining shares of the U.S. genomic profiling company FMI at a price of $137 per share.The total value of this transaction is $2.4 billion, valuing FMI at $5.3 billion.

Roche Holding and FMI stated in a joint announcement that the transaction has been endorsed by both companies’ boards of directors and is expected to close in the second half of this year. Roche’s acquisition price for FMI represents a 29% premium over the latter’s closing share price on Monday. FMI’s shares closed at $106.45 on Monday, up 4.4% from the previous trading session. (Note from Translational Medicine Network: In 2015, the Roche Group acquired a 56% stake in Foundation Medicine for $1.04 billion.)

Headquartered in Cambridge, Massachusetts, FMI is a molecular information company specializing in cancer care. The company provides Comprehensive Genomic Profiling (CGP) services to identify genetic mutations in patients’ cancers, thereby facilitating targeted therapy, immunotherapy, and clinical trials.

On May 2, 2018, FMI announced its financial and operating results for the first quarter ended March 31, 2018. Highlights for the quarter included:

Achieved revenue of $52.8 million, a year-on-year increase of 101%;

Reported 21,861 clinical trials, a year-on-year increase of 57%;

Achieved broad insurance coverage through the final National Coverage Determination (NCD) by the Centers for Medicare & Medicaid Services (CMS) for FoundationOne CDx™, applicable to all solid tumors in patients with Stage III and IV cancer;

Pioneering the launch of FoundationOne CDx, the first FDA-approved comprehensive genomic profiling test for all solid tumors, encompassing multiple companion diagnostics;

Announced the expanded version of FoundationACT®, which will include expanded genomic biomarkers for microsatellite instability (MSI) and blood tumor mutational burden, designated as a Breakthrough Diagnostic by the FDA;

Announced a comprehensive Gene Expression Profiling (GEP) initiative that leverages deep expertise in DNA and RNA sequencing to support clinical research and development in precision oncology, and to identify novel genomic and expression-based biomarkers for personalized cancer therapy;

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Published 22 peer-reviewed manuscripts in medical and scientific journals, and delivered 35 oral presentations and poster presentations at scientific and medical conferences.

“Compared to the same quarter last year, our revenue has doubled, setting a new record in clinical testing,” said Troy Cox, CEO of Foundation Medicine.

In just the first four months of this year, our strategy has achieved breakthrough progress, including inclusion in the National Reimbursement Drug List (NRDL), coverage for patients with all solid tumors, and the identification of pharmaceutical partners in China and Japan. Furthermore, we remain committed to innovation by accelerating our pathway toward potential regulatory approval for an expanded version of our liquid biopsy assay, FoundationACT, and by initiating the development of a gene expression profiling platform. This platform will enable more effective discovery of tumor biomarkers, thereby providing enhanced support for the clinical application of immunotherapy. These achievements have consolidated our leadership position and competitive advantage, and most importantly, are helping physicians and patients realize personalized cancer treatment.

Summary of Revenue for the First Quarter of 2018 Compared with the First Quarter of 2017:

Clinical testing revenue increased by 62% year-over-year in the first quarter of 2018, driven by a rise in clinical volume. The company reported 21,861 clinical tests in the first quarter of 2018, a 57% increase from the same period last year.This figure includes 17,685 FoundationOne® tests, 2,005 FoundationOne® Heme tests, 2,123 FoundationACT® tests, and 48 FoundationFocus™ CDx BRCA tests.

Revenue from molecular information services for biopharmaceutical companies has grown rapidly, driven by testing of clinical research samples. The company conducted 7,184 tests for biopharmaceutical clients in the first quarter of 2018, compared with 1,802 tests in the first quarter of 2017.

Total operating expenses for the first quarter of 2018 were $62 million, compared with $55 million in the first quarter of 2017. The net loss for the first quarter of 2018 was $37.4 million, or $1.02 per share.

Cash and cash equivalents as of March 31, 2018 amounted to approximately US$60.3 million, which included US$30 million borrowed in the first quarter under the credit agreement between the Company and Roche Finance.

2018 Outlook Includes Three Aspects: First, revenue for 2018 is projected to be between $200 million and $220 million; second, it is expected that 90,000 to 100,000 clinical trial services will be provided in 2018; third, operating expenses for 2018 are anticipated to range from $250 million to $260 million.

It is reported that after this merger and acquisition,There are three implications:

First, these companies will jointly leverage their expertise in genomics and molecular information to strengthen the development of personalized medicines and provide care for cancer patients;

Second, Merger is committed to driving the ubiquity of Foundation Medicine’s high-quality Comprehensive Genomic Profiling (CGP) testing and innovative data services, thereby realizing Roche’s vision for personalized healthcare;

Third, FMI will continue to operate as an independent legal entity.

Let us first examine the process of this merger and acquisition.In Basel, RocheandFMIAnnounced that the two parties have reached a final merger agreement to acquire FMI’s outstanding common shares not already owned by Roche and its affiliates at a cash price of $137 per share.

This equates to a total transaction value of $2.4 billion on a fully diluted basis, and a total company valuation of $5.3 billion on a fully diluted basis.This price represents a 29% premium over FMI’s closing price on June 18, 2018, and premiums of 47% and 68% over FMI’s 30-day and 90-day volume-weighted average share prices (VWAP) as of June 18, 2018, respectively.

The merger agreement was unanimously approved by Roche’s Board of Directors and the Special Committee of Independent Directors of FMI, with all directors designated by Roche’s full Board of Directors waiving their rights to review and vote on the matter. All current members of FMI’s Board of Directors have indicated their intention to tender their FMI shares in the tender offer.

Roche CEO Daniel O’Day stated, “This is highly significant to our personalized healthcare strategy, as we believe that broad access to molecular insights and high-quality, comprehensive genomic profiling is a key enabler in the development and delivery of new cancer treatments. We will preserve FMI’s autonomy while supporting them in accelerating their progress.”

“Foundation Medicine and Roche share the belief that every cancer patient should have access to information enabling personalized treatment through validated molecular profiling. Operating as an independent company alongside Roche allows Foundation Medicine to continue collaborating with Roche and our biopharmaceutical partners, driving the widespread adoption of comprehensive genomic profiling (CGP) testing and innovative data services,” said Troy Cox, CEO of Foundation Medicine.

Pursuant to the terms of the merger agreement, Roche will immediately commence a tender offer to acquire all outstanding shares of FMI common stock not already owned by Roche for $137 per share in cash. The consummation of the tender offer is conditioned upon Roche acquiring a majority of the issued and outstanding shares of FMI not tendered in the offer. Additionally, the transaction is subject to other customary closing conditions.

Upon completion of the tender offer, Roche will acquire all remaining shares through a second-step merger at a price of $137.00 per share. The transaction is expected to be completed in the second half of 2018.

Citigroup served as Roche’s financial advisor, and Davis Polk & Wardwell LLP served as Roche’s legal counsel. Goldman Sachs acted as the financial advisor to the FMI Special Committee, and Goodwin Procter LLP served as legal counsel to the FMI Special Committee.

About Foundation Foundation

Foundation Medicine (NASDAQ: FMI) is a molecular information company dedicated to transforming cancer care by leveraging insights into the genomic alterations that drive each patient’s unique cancer. The company offers a comprehensive suite of genomic profiling tests to identify molecular alterations in patients’ cancers and match them with relevant targeted therapies, immunotherapies, and clinical trials. Foundation Medicine’s molecular information platform is designed to advance the science of molecular medicine in oncology by meeting the needs of clinicians, academic researchers, and drug developers, thereby improving everyday patient care.

About Roche

Roche is a global pioneer in pharmaceuticals and diagnostics, dedicated to advancing science to improve people’s lives. The combined strengths of pharmaceuticals and diagnostics under one roof have positioned Roche as a leader in personalized healthcare—a strategy aimed at delivering the right treatment to each patient in the most effective way.

Roche is the world’s largest biotechnology company, with truly differentiated medicines in oncology, immunology, infectious diseases, ophthalmology, and diseases of the central nervous system. Roche is also the world leader in in vitro diagnostics and tissue-based cancer diagnostics, as well as a pioneer in diabetes management.

Founded in 1896, Roche continues to seek better ways to prevent, diagnose, and treat diseases while making sustainable contributions to society. The company is also committed to improving patients’ access to medical innovations through collaboration with all relevant stakeholders. Thirty medicines developed by Roche are included on the World Health Organization’s Model List of Essential Medicines, including life-saving antibiotics, antimalarials, and anticancer drugs. For nine consecutive years, Roche has been recognized as a group leader in sustainability within the pharmaceuticals, biotechnology, and life sciences industry by the Dow Jones Sustainability Index (DJSI).

Headquartered in Basel, Switzerland, the Roche Group operates in more than 100 countries and employed approximately 94,000 people worldwide in 2017. In 2017, Roche invested CHF 10.4 billion in research and development and achieved sales of CHF 53.3 billion. Genentech is a wholly owned subsidiary of the Roche Group in the United States. Roche is a majority shareholder of Japan’s Chugai Pharmaceutical.