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Roche teams with Foundation Medicine
February 2015
by Lloyd Dunlap  |  Email the author
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BASEL, Switzerland—Roche and Foundation Medicine Inc. (FMI) will enter into a broad strategic collaboration to further advance FMI’s position in molecular information and genomic analysis while providing Roche a unique opportunity to optimize the identification and development of novel treatment options for cancer patients.
 
“We are very pleased to enter into this collaboration with FMI, which has the potential to improve both the development of medicines and patient care,” said Daniel O’Day, chief operating officer of Roche Pharma. “By combining FMI’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.”
 
“Roche has been working with Foundation Medicine through the Lung Cancer Master Protocol, or Lung-MAP (SWOG S1400),” media relations spokesperson Ulrike Engels- Lange tells DDNews,  “which is a multidrug, multiarm, biomarker-driven squamous cell lung cancer clinical trial that uses cutting-edge genomic profiling to match patients to investigational treatments that may target the genomic alterations, or mutations, found to be driving the growth of their cancer.” Initially, Foundation Medicine will be integrated into late-stage oncology trials run by Roche’s Pharmaceutical Development.
 
The emerging field of molecular information and genomic analysis will play an increasingly important role for future medicines and diagnostic solutions, in particular for cancer patients. FMI supports physicians by providing comprehensive molecular information to characterize a tumor that is being matched with approved targeted therapy options and novel treatments under development. Understanding the comprehensive genomic profile of a cancer patient’s disease will enable better personalized healthcare solutions to optimize treatment outcomes for patients.
 
“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. We believe that putting molecular information at the center of cancer care will help transform the delivery of care for patients and speed the pace of drug discovery and development,” said Dr. Michael J. Pellini, president and CEO of Foundation Medicine. “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.”
 
Roche and Foundation Medicine have agreed that FMI should remain operationally independent, Engels-Lange notes, as this will give Foundation Medicine the necessary autonomy to navigate and adapt in the emerging molecular information market. “Roche is well experienced and was able to prove success with somewhat similar deal structures (Chugai, Genentech),” Engels-Lange adds.
 
Under the terms of the R&D collaboration agreement, Roche is committing to R&D funding of potentially more than $150 million for a minimum of five years and will contribute its expertise and breadth in oncology. FMI will contribute its experience in the development of comprehensive genomic profiling tests for oncology. The initial focus of the R&D collaboration will be on developing genomic profile tests for cancer immunotherapies and for continuous blood- based monitoring.
 
Roche will be able to utilize FMI’s proprietary molecular information platform to standardize clinical trial testing. This aspect of the relationship is designed to enable comparability of clinical trial results for R&D purposes and, ultimately, in the clinic. FMI’s pharmaceutical business will not be impacted and could be enhanced as FMI capabilities increase with the investments and experience in working with Roche as a customer.
 
The R&D collaboration and FMI’s current and future tests are expected to deliver insights to support development of combination therapies, novel targets, more accurate patient population identification/inclusion in clinical trials and next-generation companion diagnostics. The intention is to improve decision-making and support optimization of patient care as oncology management becomes more complex.
 
In addition to the R&D collaboration, both parties also struck a commercial collaboration agreement designed to broaden FMI’s position across clinical and molecular information markets. Specifically, Roche will obtain rights ex-U.S. (under the FMI brand) to existing FMI products, as well as to future co-developed products. In the United States, Roche will engage its U.S. medical education team in providing medical information to pathologists.
 
The collaboration agreements will become effective upon the completion of Roche’s direct investment in FMI and tender offer.
 
Under the terms of the contemplated transaction, Roche will invest $250 million in FMI at a per-share issuance price of $50 (five million shares) to fund FMI operations and development. In addition, Roche will commence a tender offer at a per-share price of $50, which, when combined with Roche’s direct investment in FMI, will result in Roche owning a minimum of 52.4 percent and a maximum of 56.3 percent of FMI on a fully diluted basis. The offer price constitutes a 109-percent premium over the closing price on Friday, Jan. 9.
 
The completion of Roche’s direct investment in FMI and the successful outcome of the tender offer, as well as the execution of the collaboration agreements, are all cross-conditional subject to Foundation Medicine shareholder approval, clearance under the Hart-Scott-Rodino Antitrust Improvements Act and other customary closing conditions.
 
Third Rock Ventures, Kleiner Perkins Caufield & Byers and Google Ventures, three shareholders owning a combined approximate 31 percent of FMI equity, have entered into a support agreement pursuant to which they have each committed to vote in favor of the transaction and to tender at least a majority of their shareholdings in the tender offer.
 
Upon the closing, FMI’s board of directors will be increased to nine directors and will include three designees of Roche, including O’Day. Four existing independent directors of Foundation Medicine and Pellini will continue as directors, and one new independent director will be added. It is anticipated that Alexis Borisy will remain chairman.
 
The transaction is expected to close in the second quarter of 2015.
 
Both the Roche and FMI boards of directors have unanimously approved the transaction. Pellini and FMI’s management team will continue to lead FMI post-closing, and the company will maintain operational independence, with Roche obtaining minority representation on the expanded FMI board of directors.
 
According to financial analyst Leerink Partners, the Roche deal “augments our view that FMI has built a valuable molecular tumor profiling franchise and should further its leadership in a $3-billion- plus U.S. market opportunity. While Roche’s offer shines daylight onto the value of FMI, we nonetheless think it will take time for investors not named Roche to grow into the new valuation. We see the current risks more fairly balanced with the risks over the next 12 to 18 months, and thus downgrade to Market Perform from Outperform. Price target to $50 from $30.
 
“We think Roche’s offer of $50/share will serve as the center of gravity for FMI’s stock in the foreseeable future. A contesting bid is unlikely in our view, and Roche itself is precluded from increasing its ownership for three years following deal close.”
 
Code: E021502

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