The impetus to match individual patients with personalized therapies gained major momentum with the decision by Roche Holding AG to acquire the outstanding shares of Foundation Medicine Inc. (FMI) in a cash deal valued at $2.4 billion. The Basel, Switzerland-based pharma took a majority stake in FMI in a $1.05 billion deal disclosed on the opening day of the 2015 J.P. Morgan Healthcare Conference in San Francisco. (See BioWorld Today, Jan. 13, 2015.)

Roche agreed to pay $137 per share (NASDAQ:FMI), a premium of 29 percent to Monday's closing price and premiums of 47 percent and 68 percent, respectively, to FMI's 30-day and 90-day volume weighted average, also based on the June 18 closing price of $106.45. The companies said the merger agreement was unanimously approved by the Roche board and a special committee of the independent directors of FMI and by its full board of directors, with Roche-designated directors abstaining from deliberations and voting. All current members of the FMI board indicated they intend to tender their FMI shares in the offer.

"It was only a matter of time," Cowen and Co. analyst Doug Schenkel concluded in his quick take, calling the valuation "fair" and unlikely to draw additional suitors. In addition to the size of the pharma's stake, Schenkel pointed to the growing bonds between the companies, noting that approximately one-third of FMI's sales are linked to Roche products, an FMI lab is co-located on a Roche campus and multiple members of FMI's senior management team migrated to Roche or an affiliate over the past 18 months. "Once the standstill agreement expired in April, we viewed this development as more of a question of 'when' rather than 'if,'" he wrote.

"Roche believes that the use of molecular information and the broad availability of high quality, comprehensive genomic profiling are essential to unlocking the potential of targeted medicines and aiding in the generation of insights for the development and registration of future treatments for the benefit of the entire health care ecosystem," Roche spokesperson Nicolas Dunant told BioWorld.

In evaluating FMI's performance over the three years since its initial investment, Roche concluded that "FMI's suite of services is of the highest quality standard in this rapidly evolving field, recognized, for example, by FDA approval of the Foundationone Cdx in November 2017," he added. "We want to replicate this acceptance globally to progress the delivery of precision medicine."

The pan-cancer detection Foundationone Cdx test, which was granted breakthrough device designation from the FDA, was heralded by FMI as a paradigm change in companion diagnostics (Cdx), making the company the "partner of choice" for biopharmas advancing therapies to treat genetically driven cancer. The FDA approved Foundationone Cdx as the first comprehensive genomic profiling (CGP) assay for all solid tumors incorporating multiple companion diagnostics. (See BioWorld, Dec. 4, 2017.)

Last week, Troy Cox, FMI's president and CEO, commented at the Goldman Sachs Global Healthcare Conference that the clinical volume associated with Foundationone Cdx "is growing at a rate of 50 percent plus, each and every quarter," which he attributed to "great traction with all of the awareness and recognition of the value that our test can provide."

The FMI acquisition also answers a question that's been on the minds of many diagnostics companies in light of the rapid movement toward targeted therapies: Who will pay for CDx? In the early 1990s, 5 percent of new drug approvals were for targeted therapies; in 2013, that percentage jumped to 45 percent. More than 80 percent of drugs approved by the FDA under the breakthrough designation have been for targeted therapies.

How those conversations play out – whether part of the cost is underwritten by a biopharma or third-party payer, for instance – often determines whether development of a proposed CDx moves forward. If a diagnostics company is on the hook for the entire development cost, it must also absorb all of the risk if the drug ultimately fails. Few firms in the genomic testing field have that kind of financial wherewithal. (See BioWorld Insight, March 23, 2016.)

At Goldman Sachs, Cox expressed the view that the biggest barriers to adoption involve "complacency and some confusion." Educating community physicians and teaching them the CGP language has been key, he said, and with "the first and only pan-cancer universal diagnostic that can be used across all their solid tumors, it just doesn't get any easier for that for them to be able to – with a molecular fingerprint – guide patients and themselves towards a clear route of targeted therapy, immunotherapy or clinical trials," he added.

'Potential for additional services' under Roche ownership

With Roche as an owner, FMI is now in a position to help drive that momentum.

"To date, FMI has needed to focus on enhancing profitability for the short term," Dunant said. "A more decentralized – with a kit-based rather than a central laboratory-based – model would enable greater access in ex-U.S. markets, helping to drive broad availability globally for patients and biopharma partners and generating more value in the long term and a more sustainable leadership position for FMI."

The pharma also is cognizant of "further potential for additional services FMI might develop with the security of Roche ownership, such as monitoring and early cancer detection services," he added. David Spetzler, president and chief scientific officer at privately held molecular profiling company Caris Life Sciences, agreed.

"The acquisition of FMI by Roche Pharma provides clear indication that tumor profiling has direct implications in the sale of cancer therapeutics," Spetzler told BioWorld. "With the completion of this acquisition, Roche can completely control the information that physicians receive. With the emergence of targeted therapies, physicians need to understand tumor biomarkers and molecular signatures to better direct patient treatment strategies."

He added, "The high valuation that FMI commanded shows the importance of molecular profiling in oncology."

Although Roche is its biggest client, FMI has more than 30 biopharma partnerships. Dunant insisted that Cambridge, Mass.-based FMI will continue to operate as a separate and autonomous legal entity but he pointed to collaborative efforts that will likely accelerate following full ownership.

"Working together, FMI has commercialized its services in more than 29 markets outside the U.S. and opened three ex-U.S. labs, in Switzerland, Germany and China," Dunant said. In addition to the genetic profiling assay, Foundationone CDx, the companies are co-developing an expansion of the liquid biopsy assay, FoundationACT (Assay for Circulating Tumor DNA), which would incorporate more than 70 genes and genomic biomarkers for microsatellite instability and blood tumor mutational burden. In April, the FDA granted breakthrough device designation to the expanded FoundationACT panel, which FMI expects to take through its first modular submission by year-end. (See BioWorld, April 30, 2018.)

Roche also intends "to access high quality, meaningful data from the databases of both Flatiron Health, which we acquired earlier this year, and FMI," Dunant said, referring to the $1.9-billion purchase of the oncology-specific electronic health record software company. "The most powerful insights come when we combine the two sources of data, creating deep, genomic profiling that is linked to outcomes over time."

Flatiron and FMI have already begun to link their respective data, "but moving to full ownership will allow us to accelerate these efforts," he added.

The transaction will be completed under the terms of a merger agreement through which Roche will make a tender offer for outstanding shares of FMI not already under its ownership. Following completion of the tender offer, Roche will acquire any remaining shares at the same price through a second step merger. Closing is expected in the second half of the year, subject to customary conditions.

Separately, Roche disclosed Tuesday that it plans to implement its NAVIFY Tumor Board software for the first time in the U.S. following a collaboration with the University of Missouri (MU) School of Medicine. The software solution is designed to streamline and standardize the management of tumor boards – the multidisciplinary meetings oncology care teams hold to make treatment decisions for cancer patients.

NAVIFY Tumor Board was designed to streamline and standardize tumor board work flows by combining relevant patient data from disparate sources into a cloud-based work flow solution and dashboard, helping to facilitate more efficient team collaboration with fewer errors while providing team members with more time to evaluate potential treatment options.

After piloting the software and providing feedback to Roche during development, MU Health Care is using the newly launched commercial software product for tumor boards with two of its nine oncology care teams and plans to adopt the software across the remaining teams in the near future.

However, Roche has "no such plans" to transfer to FMI any of its existing diagnostics or related technologies, such as NAVIFY, even if they align closely with FMI's CGP footprint, according to Roche spokesperson Patrick Barth.

On Tuesday, shares of Roche (ROG.VX) closed on the Swiss exchange at CHF211.05 (US$212.21) for a gain of CHF1.05 (US$1.06). FMI shares closed at $136.75 for a gain of $30.30, or 28.5 percent.