IPO Report: Foundation Medicine (FMI)

Francis Gaskins  |

Foundation Medicine (FMI) is in the molecular diagnostic industry, commercially introduced its platform in June 2012.  FMI is focused on fundamentally changing the way patients with cancer are treated.

FMI is one of 12 IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

It looks like FMIs unique cancer tests are on the verge of being accepted by Medicare nationally for payments.

Revenue for the six months ended June 2013 was up 363% from the six months ended June 2012.

Based in Cambridge, MA,  FMI scheduled a $75 million IPO with a market capitalization of $395 million at a price range mid-point of $15, for Wednesday  September 25, 2013.   

The S-1 was filed September 12, 2013.  Manager, Joint Managers:   Goldman; J.P. Morgan.  Co-Managers:  Leerink Swann; Sanford C. Bernstein


Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing June 6 mos '13

Cap (MM)





in IPO

Foundation Medicine








Accumulated deficit of $64 million.


Buy FMI on the IPO.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:


FMI is in the molecular diagnostic industry, commercially introduced its platform in June 2012.  FMI is focused on fundamentally changing the way patients with cancer are treated.

Revinue is derived from selling products enabled by FMIs molecular information platform to physicians and biopharmaceutical companies.  The platform includes proprietary methods and algorithms for analyzing tumor tissue samples across all types of cancer, as well as information aggregation and concise reporting capabilities.

FMIs products provide genomic information about each patients individual cancer, enabling physicians to optimize treatments in clinical practice and enabling biopharmaceutical companies to develop targeted oncology therapies more effectively.

The principal competition comes from diagnostic companies that offer molecular diagnostic tests that capture only a single-marker or test panels that capture a limited number of the most well-known gene alterations, which are also known as hotspot panel tests. In addition, academic research centers, diagnostic companies and next generation sequencingNGS --platform developers are offering or developing NGS-based testing.

FoundationOne, the first clinical product

FMI believes FoundationOne is the only commercially available comprehensive molecular information product designed for use in the routine care of patients with cancer.

In November 2011, FMI first offered for sale FoundationOne for clinical use to a limited network of key oncology thought leaders and their colleagues and leading academic centers. FMI then commenced the  formal commercial launch of FoundationOne for solid tumors in June 2012 and expects to start a commercial launch of FoundationOne for blood-based cancers, or hematologic malignancies, by early 2014.

Prior to commercial sales of FoundationOne for clinical use, FMI generated revenue from its molecular information platform under relationships with biopharmaceutical partners, starting in December 2010. The molecular information platform is currently used by 18 biopharmaceutical partners to enhance the development of targeted oncology therapies.

Rapid adoption

FMI experienced rapid adoption of FoundationOne. More than 1,500 physicians from large academic centers and community-based practices have ordered FoundationOne since its formal commercial launch in June 2012.


Information provided in test results is branded as FoundationOne for clinical customers and is not branded for biopharmaceutical customers.

FMI seeks to increase sales volume of FoundationOne for solid tumors in the clinical setting. For the year ended December 31, 2012, which included only seven months of sales of FoundationOne subsequent to its formal commercial launch in June 2012, and for the six months ended June 30, 2013, FMI performed 1,750 and 2,766 FoundationOne tests for ordering physicians, respectively.

Similarly, FMI seeks to increase the volume of tests enabled by the molecular information platform that FMI performs for biopharmaceutical customers. For the year ended December 31, 2012, FMI performed  1,350 tests, and for the six months ended June 30, 2012 and 2013, we performed 479 and 1,218 tests for our biopharmaceutical customers, respectively.

National coverage

There is currently no national coverage decision that determines whether and how FMIs test is covered by Medicare.

In the absence of a national coverage decision, local Medicare contractors that administer the Medicare program in various regions have some discretion in determining coverage and therefore payment for tests.

FMIs local Medicare contractor, who would process FMIs claims on behalf of Medicare, requested that FMI  not submit claims for services provided to Medicare patients while the contractor assessed the appropriate coverage and payment for FoundationOne as a whole.

Pending the response, no claims have been billed to either Medicare or Medicare patients and FMI has  not generated any revenue from these FoundationOne tests.  FoundationOne tests for patients covered by Medicare represented 28% and 29% of total FoundationOne tests ordered by physicians in the United States during 2012 and the six months ended June 30, 2013, respectively.

Trade Commission-FREE with Tradier Brokerage

FMI intends to seek a national coverage determination from its Medicare contractor, which, if obtained, will establish a standard for the reimbursement for FMIs Medicare claims

Thought leader relationships

FMI has established relationships with leading oncology thought leaders at premier cancer institutions, such as the Memorial Sloan-Kettering Cancer Center, Vanderbilt-Ingram Cancer Center and The US Oncology Network.

Biopharma relationships

FMI has entered into agreements with biopharmaceutical companies in the cancer field including, for example, Agios Pharmaceuticals, Inc., ARIAD Pharmaceuticals, Inc., Array BioPharma Inc., AstraZeneca UK Limited, Celgene Corporation, Clovis Oncology, Inc., Eisai Co., Ltd., Johnson & Johnson, Novartis, and Sanofi, among others. In each of the years ended December 31, 2011 and 2012 and the six months ended June 30, 2013, the alliance with Novartis accounted for more than 10% of our revenue

Third party payors

In both domestic and foreign markets, sales of FoundationOne or any future molecular information products FMI develops will depend, in large part, upon the availability of reimbursement from third-party payors.

These third-party payors include government healthcare programs such as Medicare, managed care providers, private health insurers, and other organizations. In particular, FMI believes that obtaining a positive national coverage decision and favorable reimbursement rate from the Centers for Medicare and Medicaid ServicesCMS -- for FoundationOne will be a necessary element in achieving material commercial success.

Physicians and patients may not order FoundationOne unless commercial third-party payors and government payors pay for all, or a substantial portion, of the list price, and certain commercial third-party payors may not agree to reimburse FoundationOne if CMS does not issue a positive coverage decision.


FMI does not currently receive any payment for FoundationOne provided to patients covered by Medicare.

FMIintends, before the end of 2013, to begin submitting claims to CMS for FoundationOne tests provided to Medicare patients.

Intellectual Property

FMIs patent portfolio includes pending U.S. provisional and utility applications, and strategically focused corresponding international applications filed via the Patent Cooperation Treaty, or PCT. FMI will be filing foreign national or regional counterpart applications, with the first such filing beginning in late June 2013.

These applications fall into three broad categories:

applications relating to FMIs genomic testing procedures, including claims directed to process advances in solution hybridization, bait selection and capture, mutation calling algorithms, somatic versus germline alteration differentiation and reduction of off-target hybridization;

applications relating to genomic discoveries, including claims relating to novel genomic alterations correlated to various cancers and associated methods of treatment of patients harboring such genomic alterations; and

applications relating to genomic information delivery, including claims directed to web-mediated systems for capturing, managing, tracking and reporting genomic information and associated clinical outcome data.

Competition & Risks

Competitors include laboratory companies such as Bio-Reference Laboratories, Inc., Laboratory Corporation of America Holdings, Quest Diagnostics Incorporated, as well as companies such as Abbott Laboratories, Qiagen N.V., Roche Molecular Systems, Inc. and Sequenom, Inc. that manufacture or may manufacture diagnostic testing kits.

In addition, companies such as Genomic Health, Inc. and Myriad Genetics, Inc. have well-established commercial organizations that sell molecular diagnostic tests for cancer to physicians and may develop tests which compete with FoundationOne.

Many hospitals and academic medical centers may also seek to perform the type of molecular testing FMI performs at their own facilities. As such, competition may include entities such as the University of Michigan, Baylor Medical Genetics Laboratories, Washington University in St. Louis and other academic hospitals and research centers.

In addition to developing kits, certain diagnostic companies also provide NGS platforms. Illumina, Life Technologies Corporation, and other companies develop NGS platforms that are being sold directly to research centers, biopharmaceutical companies and clinical laboratories. While many of the applications for these platforms are focused on the research and development markets and others are focused on testing for non-cancer conditions, each of these companies has launched and will continue to commercialize products focused on the clinical oncology market.

FMI believes diagnostic platform providers will seek to place sequencing machines in laboratories to develop NGS-based laboratory-developed tests, or LDTs. In addition, FMI believes these companies will also develop their own FDA-approved diagnostic kits, which can be sold to the clients who have purchased their platforms.

Also, many private companies are developing information technology-based tools to support the integration of NGS testing into the clinical setting. These companies may also use their patent portfolios, developed in connection with developing their tests, to allege that FoundationOne infringes their patents, and we could face litigation with respect to such allegations and the validity of such patents.

In addition, because FMIs proprietary molecular information platform consists largely of trade-secret protected technology and know-how and has only limited patent protection, new and existing companies could seek to develop molecular tests that compete with FMI. These competitors could have technological, financial and market access advantages that are not currently available to us.

5% stockholders pre-IPO

Third Rock Ventures, L.P., 30.9%

KPCB Holdings, Inc., 16.6%

Google Ventures 2011, L.P., 11.5%

Laboratory Corporation of America Holdings, 5.2%

Gates Ventures, LLC, 5,2%

Wellington Management Company, LLP, 5.1%

Use of proceeds

FMI expects to net $66.9 million from its IPO.  Proceeds are allocated as follows:

$18.0 million for the expansion of commercial operations, including the growth of the sales force within the United States and internationally;

$10.0 million for the expansion of laboratory operations to support future growth;

$12.0 million to fund ongoing and new clinical trials to demonstrate the utility of products and support our reimbursement efforts; and

$10.0 million to continue the expansion of technology infrastructure and capabilities for molecular information platform.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.


Symbol Last Price Change % Change