Roche inks $2.4B deal to buy out Foundation Medicine

Roche
The Roche Tower. (Roche)

Roche is set to spend $2.4 billion to buy the rest of genomic profiling company Foundation Medicine. The deal will further Roche’s precision medicine plans while allowing Foundation to retain autonomy and continue to work with other biopharma companies.

News of the agreement comes three years after Roche paid $1 billion for a 56% stake in Foundation. The value of that stake increased sharply over the past year as Foundation filed for and secured an FDA nod and Medicare coverage for pan-cancer FoundationOne CDx diagnostic. With Foundation trading at more than three times its 52-week low, Roche has decided to make its move.

Roche has offered $137 to get the deal done. That is a 29% premium over Foundation’s closing price on Monday, and a 68% premium over the volume-weighted average for the past 90 days. Foundation has agreed to the merger, which values it at $5.3 billion.

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In return for its outlay, Roche will reap the potential financial and strategic benefits of owning a firm that is well placed to address the testing component of the growing precision medicine sector. The NGS-based FoundationOne test approved last year positioned Foundation to provide an accelerated, de-risked companion diagnostic option to cancer drug developers.

Since then, Foundation has landed companion diagnostic deals with Merck and Pfizer. Roche will leave Foundation free to continue serving these and other customers while providing support to help it grow. Foundation has previously talked up how Roche, under the previous relationship, could cut the time and resources required to expand overseas.

Roche’s willingness to have an arm’s length relationship with Foundation echoes the approach it is taking with Flatiron Health, the oncology EHR startup it agreed a $1.9 billion deal for in February. In both cases, Roche is betting tightening its ties to the sources of oncology information will improve its ability to profitably develop and deliver cancer drugs. But opting against forcing the companies to serve it exclusively.

Vontobel analyst Stefan Schneider thinks the Foundation deal can yield multiple benefits for Roche. 

“This isn’t only an advantage for the patients, but also should allow Roche to have more effective and targeted drugs, which should improve drug development and ultimately pricing power,” Schneider told Reuters. 

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