Roche Plans $1 Billion Collaboration With Foundation Medicine

Daniel O'Day, CEO

Roche has announced plans to acquire a majority stake in the molecular testing company Foundation Medicine for $1.03 billion, launching a partnership that will focus on the development of personalized medicine for patients with cancer.

The majority stake (a minimum of 52.4% and a maximum of 56.3%) will be gained through the acquisition of 15.6 million shares for $780 million and an additional 5 million in newly issued shares for $250 million. Additionally, under the newly formed partnership, Roche will sponsor broad research & development activities conducted by Foundation Medicine, with the potential of more than $150 million in research funding.

“We are very pleased to enter into this collaboration with Foundation Medicine, which has the potential to improve both the development of medicines and patient care,” Daniel O’Day, chief operating officer of Roche Pharma, said in a statement. “By combining Foundation Medicine’s pioneering approach to genomics and molecular information with Roche’s expertise in the field of oncology, we can bring personalized healthcare in oncology to the next level.”

The Foundation Medicine board of directors unanimously approved the transaction; however, it is still subject to shareholder approval. At this point, three shareholders who own 31% of the company's equity have supported the agreement (Third Rock Ventures, Kleiner Perkins Caufield & Byers, and Google Ventures).

The deal is expected to close in the second quarter of 2015.

Roche's investment in Foundation Medicine arrives approximately 15 months after the company's initial public offering, which occurred on September 25, 2013. In 2014, the company announced that it had secured $61.1 million in total revenue, representing a 111% increase over 2013.

Foundation Medicine’s success is largely predicated upon its two full genomic profile assays: FoundationOne and FoundationOne Heme. These tests utilize next-generation sequencing to identify actionable molecular alterations in a patient's tumor. In 2014, physicians ordered 24,271 FoundationOne tests, a 167% increase over 2013.

“The rapid revenue growth in 2014 was driven by progress across the three key pillars of our business, specifically, the continued adoption of comprehensive genomic profiling by oncologists in both the academic and community setting, an increase in demand from our pharmaceutical partners for clinical trial support, and expanded access to our molecular information platform,” Michael J. Pellini, MD, who will continue to lead Foundation Medicine as president and CEO, said in a statement.

The FoundationOne Heme test was first introduced in December 2013. The test is billed as an aid in identifying therapy for leukemia, lymphoma and myeloma, and also sarcomas and pediatric cancers.

Through the collaboration, Roche plans to broaden the reach of the Foundation Medicine tests. Roche will obtain rights outside of the United States to existing and future Foundation Medicine products. Within the United States, Roche will focus on medical education as it relates to the novel tests.

“We are excited to announce this strategic collaboration with Roche, which will help accelerate our business, and importantly, represents significant potential for individuals with cancer around the world," said Pellini.

At this time, Foundation Medicine maintains a number of partnerships with a variety of biotech companies. These agreements will not be impacted by the Roche collaboration, Pellini said.

“The structure of our agreement with Roche also allows us to maintain the entrepreneurial spirit at Foundation Medicine and ensures that our business model, network of partnerships and objectives are not altered,"