The biotech IPO stampede this year hasn’t led to the same type of success for diagnostics companies—that is, until Foundation Medicine priced its offering late Tuesday.
Cambridge, MA-based Foundation upsized its IPO and then sold 5,888,888 shares to investors at $18 apiece, raising about $106 million. Foundation, two weeks ago, planned to sell 5 million shares at $14 to $16 apiece. It will begin trading on the Nasdaq under the ticker symbol “FMI” on Wednesday with a market capitalization of more than $500 million.
Foundation is the latest Third Rock Ventures portfolio company to go public this year, following the likes of Bluebird Bio (NASDAQ: BLUE) and Agios Pharmaceuticals (NASDAQ: AGIO), which both similarly priced their offerings ahead of the ranges they initially set. Third Rock held 30.9 percent of Foundation’s stock prior to the offering. Kleiner Perkins Caulfield & Byers (16.6 percent), Google Ventures (11.5 percent), LabCorp (5.2 percent), Bill Gates’ Gates Ventures (5.2 percent), and Wellington Management (5.1 percent) also owned significant equity positions heading into the IPO. Foundation has already raised $99 milion total since it was formed in 2009.
Goldman Sachs, J.P. Morgan Securities, Leerink Swann, and Sanford C. Bernstein are underwriting the offering.
Foundation’s offering is a rare recent example of a diagnostics company finding IPO success. The company has attracted a lot of interest from several pharmaceutical companies and big names like Gates and Yuri Milner because of its approach to cancer diagnostics. Using high-speed/low cost genomic sequencing technologies, Foundation doesn’t look for a single genetic abnormality, like today’s typical cancer diagnostics. Rather, it takes a tumor sample from a patient, mines it for 236 of the most prevalent molecular abnormalities that could be causing that tumor to grow or spread, and sends a report to clinicians that matches those alterations with targeted therapies and relevant clinical trials. This allows doctors to home in on specific abnormalities that appear to be driving an individual’s tumor, and then find targeted drugs or combinations that might have the best chance of working on that patient.
This approach has caused several pharmaceutical companies—Novartis, Celgene, AstraZeneca, Sanofi, and others—to sign service deals with Foundation, looking to tap into its diagnostics to help find the patients most likely to respond to their experimental drugs.
The question for Foundation—as with many other diagnostics companies—is how it will handle the reimbursement problem. Foundation began selling its diagnostic, known as FoundationOne, at the American Society of Clinical Oncologists in June 2012. And while demand has been rampant—-some 1,500 physicians in about 25 countries have ordered the test since—FoundationOne isn’t covered by any plan. Rather, coverage is determined on a case-by-case basis, meaning the company is likely going to have to gather meaningful evidence from clinical trials to prove to payers that its test is making a big difference for patients.
Right now, for instance, Foundation is only collecting an average of $3,800 per patient on its tests despite a $5,800 list price because of ongoing payer negotiations.
Foundation plans to fund the key clinical trials needed to support its reimbursement efforts and boost its sales force with the IPO cash.
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