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| Dr. Michael Pellini, CEO of Foundation Medicine |
Foundation Medicine ($FMI) has been riding a wave of good fortune this year, striking a deal with diagnostics heavyweight Roche ($RHHBY) to bolster its industry footprint and accelerate product development. But the company hit a rough patch in Q2, with slower-than-expected reimbursement for its tests and results that missed the Street's expectations.
Foundation's revenues more than doubled to $22.5 million from $14.4 million during the same quarter last year, but fell short of the Street's $24.4 million projection. More customers are ordering the company's tests, with 8,846 clinical tests reported in Q2--a 50% jump year-over-year. But that number missed analysts' forecast of 8,979 tests and the Street's prediction of 9,770 tests for the quarter.
Part of the problem could be "slower than anticipated progress" toward nailing Medicare coverage for its tests, CEO Michael Pellini said in the company's earnings statement. The delay was enough to prompt Foundation to adjust its clinical volume and sales guidance for the year, with the company expecting 35,000 to 38,000 clinical tests in 2015 and revenue in the range of $85 million to $95 million.
According to some analysts, the reimbursement issue could have a negative long-term effect. "While we had never baked Medicare reimbursement into our 2015 forecast, we nonetheless assume the dampening impact on commercial volumes is greater than our prior view," Leerink analyst Dan Leonard said in a note to clients. "We have reduced our forecast accordingly."
Still, Foundation remains "focused on building and investing in this business to deliver growth and value creation by integrating our molecular information products into routine patient care," Pellini said in a statement. And the company is working hard to nail reimbursement and build out its offerings.
During the second quarter, Foundation nabbed coverage from HealthChoice Oklahoma and another regional payer in Southern California for its FoundationOne and FoundationOne Heme tests. Earlier this month, Medicare Administrative Contractor Palmetto GBA issued a final local coverage determination for the company's genomic profiling in a subset of patients with non-small cell lung cancer, dealing Foundation some good news as it struggles with reimbursement woes.
Meanwhile, the company is charging ahead with R&D after finalizing its $1.2 billion deal with Roche. Under the terms of the agreement, Roche sunk $250 million into Cambridge, MA-based Foundation and agreed to shell out up to $150 million over the next 5 years for research aimed at cancer diagnostics. The company recently launched a large, multicenter clinical study to build momentum for the launch of its liquid biopsy test. Foundation plans to release the product to biopharma partners by the end of this year.
The company's shares fell 23% in Thursday morning training on the Nasdaq to $22.60 upon news of the Q2 miss.
- read Foundation's statement