Roche’s move to purchase a majority interest in cancer diagnostics firm Foundation Medicine Inc. bears some of the markings of its early relationship with Genentech Inc. and suggests that just as it used the big biotech to cement its leadership in oncology, it intends to remain a major force in the diagnostics field as well.

The arrangement with Genentech, of course, ended up with Roche acquiring full ownership of the big biotech – and some analysts expect Foundation ultimately to end up under the Roche umbrella too.

Roche has a long and winding relationship with Genentech, first acquiring a controlling interest in the then-private biotech in 1990 before helping it with an IPO (retaining an interest) and successfully partnering over the years, culminating in Roche’s $46.8 billion purchase of the remaining interest in March 2009 [See Deal]. As with the initial relationship with Genentech, the deal structure with Foundation will enable that company to continue on its entrepreneurial path for now, with the Swiss pharma to benefit from the metabolic information specialist’s expected growth and its product offerings.

Announced Jan. 12 at the beginning of the J.P. Morgan Healthcare Conference, Roche will acquire between 52.4% and 56.3% ownership of Foundation Medicine, through a tender of $50 per share for the company’s outstanding stock – a 109% premium over the Jan. 9 closing price – as well as a $250 million purchase of 5 million new shares. [See Deal] Three investors representing 31% equity in Foundation – Third Rock Ventures, Kleiner Perkins Caufield & Myers and Google Ventures – already have agreed to tender a majority of their shares to Roche.

The complex agreement also includes an R&D partnership, and Roche will market Foundation’s diagnostic products outside the U.S. [See Deal]

During a Jan. 12 investor call, Foundation President and CEO Michael Pellini called the agreement one “that can have a profound and positive impact on patients and physicians by harnessing the power of comprehensive genomic profiling and molecular information to accelerate the ongoing paradigm shift in cancer care. Upon the close of this deal, two of the leading companies in the fight against cancer will work side-by-side to drive that fight into the molecular age.”

Coming together will leverage Roche’s 120 years of expertise and global resources with Foundation’s operational independence and entrepreneurial approach, the exec said.

“This collaboration will add momentum to the universal shift in diagnosing and treating cancer from a tissue-of-origin approach to a precision approach based on the molecular drivers of each patient’s disease,” Pellini said. “For Foundation Medicine specifically, this partnership provides us with what we believe are significant advantages related to the strengthening of our R&D pipeline, as well as commercial advantages that can broaden our first-mover position in comprehensive genomic profiling for the long term.”

Roche will provide R&D funding of up to $150 million over five years enabling Foundation to continue its work in developing genomic profile tests for cancer immunotherapies and for continuous blood-based monitoring Also see "Foundation Medicine Seeks "Go-To" Companion Diagnostic Status For Sequencing Test" - Pink Sheet, 20 June, 2011.. At the same time, the pharma will be able to use Foundation’s molecular information technology to standardize clinical trials of its oncology candidates ([A#00140609013]).

In addition, Roche obtains ex-U.S. commercial rights to Foundation’s commercial products, such as the solid tumor diagnostic Foundation One, and its future products. Roche will market those products outside the U.S., which should enable access to and sales of those diagnostics to increase much more quickly than Foundation could do on its own. Through Genentech’s medical education team, Foundation also will gain about 1,000 potential new accounts in the U.S.

“This collaboration will add momentum to the universal shift in diagnosing and treating cancer from a tissue-of-origin approach to a precision approach.” – Foundation Medicine CEO Michael Pellini

In a same-day note, JMP Securities analyst J.T. Haresco applauded the deal from Foundation’s perspective for all of those reasons, noting it provides a $400 million cash infusion for the Cambridge, Mass.-based company. Only founded in 2009, Foundation had raised more than $89 million in venture funding across two rounds – with Roche Venture Funds participating in the Series B – and then netted $113 million from an oversubscribed IPO in September 2013 [See Deal] and [See Deal].

Dx Helps With Lung Cancer Care

On Jan. 9, Haresco issued a bullish note on Foundation, rating its stock “market outperform,” pointing out that a recent article in the journal Clinical Cancer Research had detailed the role Foundation One played in identifying actionable genomic alterations in 65% of non-small cell lung cancer patients whose courses of therapy had not benefited from conventional molecular testing. “Not only did the [Foundation One] approach yield potentially life-saving information in 65% of the patients in the study, but it preserved tissue and subjected patients to fewer invasive testing procedures,” the analyst wrote.

Wedbush Securities analyst Zarak Khurshid, in a Jan. 12 note rating Foundation shares “outperform,” said the deal would benefit both partners as Roche could use Foundation’s diagnostic products “for better design and optimization of clinical trial results” while the deal would not curtail Foundation’s ability to provide services to other biopharma third-party clients. Foundation has a biomarker-identification agreement in place with Johnson & Johnson and partnered with WuXi PharmaTech Inc. last October to provide its services to Chinese drug developers [See Deal] and ([A#14141030006]).

Khurshid said the price Roche is paying for its stake in Foundation indicates either desperation to realize its oft-stated intent to be a leader in patient-based cancer care or a competitive bidding process. The technology fits right into the strategy of “smart development” Roche has prioritized to take advantage of biomarker data and precision medicine approaches for its cancer pipeline ([A#00140609013]).

Foundation Chief Operating Officer Steven Kafka explained during the conference call that the company’s executive team would remain in place, while the board would expand by four members, with three to be placed by Roche – one of whom will be Roche’s COO Daniel O’Day.

Kafka said the R&D collaboration would be aimed at bringing new medicines, diagnostic tests and services to the oncology field. Meanwhile, Roche’s use of Foundation One and other diagnostic tools under the partnership will play a key role in bringing about those therapeutic advances.

“This will enable Roche to create a common basis of genomic information across its clinical development activities, which when combined with the results of Roche clinical trials, creates an unparalleled resource for the advancement of Roche therapeutic programs,” Kafka said. “As part of this effort, Roche will also gain access to our knowledge base of genomic data, which currently has approximately 35,000 cases and is growing daily, further supporting Roche’s insight into development of new medicines for cancer care.”

Roche long has maintained that in the new world of personalized medicine, there is an advantage to having in-house diagnostics capabilities Also see "Roche's Diagnostic Foothold Gives Genentech A Leg Up In Oncology" - Pink Sheet, 2 June, 2011.. The Foundation Medicine arrangement is part of a long line of business development – such as the 2011 acquisition of [MTM PLC] for roughly $180 million [See Deal].

Roche is not only using its diagnostics business to further its own pharmaceuticals portfolio – it has been very active in designing diagnostics for other biopharmas through its Ventana Medical Systems Inc. division in recent years, inking deals with Clovis Oncology Inc.[See Deal], Syndax Pharmaceuticals Inc.[See Deal], AEterna Zentaris Inc.[See Deal], Pfizer Inc.[See Deal], Bayer AG[See Deal] and Seattle Genetics Inc.[See Deal] during a six-month timeframe spanning late 2011 to early 2012.

Roche Could Repeat Genentech Success With Foundation Medicine Partnership

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