Foundation Medicine, Inc. (NASDAQ:FMI)
Q2 2016 Earnings Conference Call
August 02, 2016 04:30 PM ET
Kim Brown - Director of IR
Michael Pellini - CEO
Steven Kafka - President and COO
Jason Ryan - CFO
Vincent Miller - Chief Medical Officer
Dave Daly - Chief Commercial Officer
Taylor Kennedy - Goldman Sachs
Amanda Murphy - William Blair
Tejas Savant - JPMorgan
Sara Silverman - Wells Fargo
Paul Knight - Janney Montgomery
Raymond Myers - Benchmark
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Foundation Medicine Second Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call may be recorded.
I would now like to introduce your host for today’s conference, Kim Brown, Director of Investor Relations. Please go ahead.
Thank you, Charlotte, and good afternoon everyone. Thank you for joining us for Foundation Medicine’s 2016 second quarter call. Our earnings press release and related financial information are available on our website at foundationmedicine.com.
Before we begin with management’s prepared remarks, I would like to remind everyone that comments made by management and responses to questions on this call will include forward-looking statements and information. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied. Please refer to our SEC filings for a discussion of these factors.
Here this afternoon to discuss results for the quarter ended June 30, 2016, are Foundation Medicine’s Chief Executive Officer, Dr. Michael Pellini; President and Chief Operating Officer, Steven Kafka; and the company’s Chief Financial Officer, Jason Ryan. Foundation Medicine’s Chief Medical Officer, Dr. Vincent Miller; and its Chief Commercial Officer, Dave Daly will participate on this call as well.
And now, I’ll turn the call over to Foundation Medicine’s CEO, Dr. Michael Pellini for his opening comments.
Thanks, Kim, and good afternoon everyone. Thank you for joining us for our second quarter conference call. Foundation Medicine is molecular information company that is fundamentally enabling a precision medicine based approach to cancer care, one that is leading to improved patient outcome.
In the last six years, thousands of oncologists and pathologists across the globe and more than two dozen biopharmaceutical companies have turned to our molecular information platform for genomic insights and information that empowered them to deliver an improved standard care for those living with cancer.
Our comprehensive approach to molecular profiling which we believe is unmatched in the industry for its quality, accuracy and reproducibility has enabled Foundation Medicine to make tremendous strides growing our business while simultaneously having an outside impact on patient care.
The second quarter of 2016 was no different. As evidenced by strong volume and total revenue, as well as the achievement of several significant corporate objectives. Our accomplishments this quarter and year-to-date advance our leadership position and poised Foundation Medicine for continued growth and value creation in the near and longer term.
Earlier today we were pleased to announce a significant advancement towards the achievement of precision medicine and what could be one of the more impactful actions in the delivery of cancer care. FoundationOne which has been regarded as a gold standard in molecular profiling, this was launched at ASCO in 2012, has been accepted by the FDA and CMS for parallel review.
Importantly the FDA has also accepted FoundationOne for exploited access half way or EAP for breakthrough devices. Under the EAP, the FDA works with device sponsors to reduce the time and cost from development to an approval decision.
This innovative path marks tremendous progress towards the achievement of a universal companion diagnostic asset. Foundation Medicine is proud to once again blaze a new trial in cancer care and we welcome the FDA’s oversight to improve the quality and safety of patient care.
Upon successful completion of parallel review, FoundationOne could become the first Comprehensive Genomic Profiling assay or CGP to be FDA approved and with the national coverage determination for Medicare beneficiaries.
We believe this universal companion diagnostic will be transformational by setting a new standard in accessing the molecular blueprint of cancer to better informed therapeutic options.
Our strategy is to remove the guess-work for physicians by providing a comprehensive view of CDx claims through FoundationOne. Today given the increasing number of simple marker companion diagnostics, oncologists are quickly becoming overwhelmed with the complexity in selecting the appropriate test for each patient.
Our test will be single, validated CGP assay of 324 genes including a range of companion diagnostics providing physicians with much of the necessary genomic information to point them to the relevant approved cancer therapeutics and do so with documented regulatory level quality.
In addition to the clinical business, we believe new and existing biopharmaceutical partners may also realize tremendous value from an FDA approved FoundationOne assay since it should represent a streamlined, cost-effective and significantly de-risked regulatory process to companion diagnostic development and approval.
This step is an exciting one for Foundation Medicine. And it’s one that we’ve been working towards for some time. And back up first step in this direction was the development of the QSR lab as well as a submission of our first CDx in partnership with Clovis Oncology for its partner inhibitor rucaparib.
As for FoundationOne, we expect parallel review will be completed in the second half of 2017. Upon completion we would expect approval across the entire FoundationOne assay as well as a number of CDX claims. The initial claims may include FDA approved drugs for a range of solid tumor indication such as lungs, breast, colon, gastric, ovarian and melanoma. These tumor types alone make up approximately 43% of the advanced metastatic patient population in the U.S. for more than 450,000 patients annually, which represents almost one half of our total available markets.
While we proceed with a parallel review process, we also plan to continue our work with our local MACs including NGS in New England and importantly expanding our work with Palmetto GBA in North Carolina. We’re currently working with Palmetto in particular to expand coverage of CGP beyond the currently LCD.
As we accelerate our pace and look towards our future, it is imperative we have the necessary capital on hand to catalyze organic, strategic and opportunistic road. To this end, we completed a transaction with Roche providing us with a $100 million line of credit.
Jason will provide more details but we believe this access to non-dilutive capital positions us to accelerate the trajectory of our business to invest in our innovative pipeline of products and to maintain our leadership position and create value over the long-term.
With the first half of the year behind us, I continue to be grateful for the energy and commitment of our organization and the team’s relentless dedication to make a difference in cancer care. Our biopharma partners who are leaders in oncology therapeutics had embraced molecular information as a catalyst for innovation and clinical development.
Likewise, despite many of the challenges faced in the communities, oncologists and pathologists are increasingly recognizing our precision medicine provides better outcomes for patients but primarily when it is coupled with access to the right set of comprehensive molecular information.
Our company, clients and partners sit at the center of this paradigm shift and we are uniquely positioned for continued growth and value creation.
With that, I’ll turn the call over to Steve.
Thanks Mike and good afternoon everyone. Foundation Medicine is having broad impact toward approved patient outcomes. And I’d like to elaborate on a few of our recent accomplishments and how they’ve been into our overall growth strategy.
Let me begin with biopharma, where revenue in the second quarter grew 88% year-over-year. Demand remained strong and this business is diversifying across partners and products. It’s important to note that the Q2 top-line growth was primarily generated from a broad mix of partners versus significant one-time milestone payments.
As Mike shared, we made major headways so far this year towards our universal companion diagnostic. Our current CDx plans and a growing pipeline of new partners are excited about the unique pathway we offer to universal diagnostic. In addition to advancing on schedule, our activities with Clovis Oncology, we also announced the first of what we expect to be multiple CDx initiative under our master agreement with AstraZeneca.
Growth in our pharma business is being driven in parts by foundation core, our molecular information data asset now approaching 90,000 real world’s genomic profile. As I previously explained, this asset is utterly unique not only because it’s large but also because it’s derived from real world patients primarily with aggressive and late stage disease. This is a population critical for drug developers as they assess targets and craft the clinical development strategies.
Case in point is the SmartTrial program. Tapping into the breadth and depth of FoundationCORE, we’re able to accelerate and reduce the cost of connecting genomic appropriate patients led by our pharma partners’ clinical trials. Not only that this drives incremental revenue for FMI, it also provides benefits to payers, seeking to reduce cost and facilitate applications, new medicines and to patients seeking new options.
While FoundationCORE is directly contributing to growth in our biopharma business, it also operates in a virtuous circle with our physician-pacing business and the broader cancer community. We’ve recently announced for example groundbreaking data sharing initiatives on both pediatric and adult cancers including the recent announcement to release approximately 18,000 genomic profiles from adult cancers via the National Cancer Institute genomic data comment.
We’re also facilitating powerful data access and sharing arrangements to members of our precision medicine exchange consortium, where in addition to providing access to our genomic data, we will also support outcomes data capture and sharing among member institutions to advance research and support better patient care decision.
In our clinical business, we’re very pleased to have reported for the first time in excess of 10,000 cases in Q2. This progress is testament first and foremost to the quality, breadth and value of our assays. We continue to leverage our commercial infrastructure by finding ways to make it easy for our customers who work with us and to take action on the molecular information we provide.
For example, our highly skilled and passionate sales team is creating ease of use for our tests from both the reporting and ordering perspective by driving integration into the workflow of physicians’ offices. With nearly two dozen EMR integrations completed this year, in addition, we’re expanding our educational efforts through our medical affairs and pathology team. One example is the virtual tumor boards we offer help more than a dozen clients understand and act on the complex genomic advanced bladder cancer.
Product innovation remains a core element for our strategy as we seek to broaden our abilities to support decision making throughout each patient cancer journey. In May we commercially launched our third Comprehensive Genomic Profiling Product FoundationACT. FoundationACT is our extensively validated liquid biopsy assay.
With this addition to our portfolio, we are now able meet clinicians where they are in clinical practice with multiple best-in-class products that inform optimal patient treatment decisions. We’ve taken a step-wise approach to this launch ensuring the physicians that both understand that tissue remains the gold standard and if there are tubing, a liquid based test for any reason, we are here to support them. Early feedback has been positive and we expect volumes to ramp throughout the year.
In addition, with nearly 100,000 cases accrued, we’ve also made significant strides with their ongoing clinical validation studies that will further decline the utility and appropriate clinical use of this assay.
We continue to publish novel discoveries and add features to our products to advanced cancer care. Among our 27 data presentations that after this year were two oral presentations which focus on tumor mutational burden as a predictor of response immunotherapy agents.
Data from these studies show that higher tumor mutational burden as estimated by profiling with FoundationOne successfully predicted a greater like response to cancer immunotherapies in patients with advanced bladder cancer, metastatic melanoma and several other tumor types.
With the market for immunotherapeutic agents estimated to exceed $30 billion by 2020 we believe that unique new feature further differentiates FoundationOne and offers significant value for providers and payers alike. For those of you who have followed us for a while, you’ll recall the commitments we’ve made to enhance our products without adding to the cost burden for payers. Tumor mutational burden will become a standard feature of FoundationOne later this month.
Finally, we’ve made significant progress on our operational expansion. We’re in the process of standing up lab operations in Pennsboro Germany that will support all of our CGP products. This lab will enable our partners at Roche to take advantage of public reimbursement in Germany for broad-based NGS assays in oncology and will serve as a regional hub for the expanding footprint of commercial activity across Europe.
In addition, we expect our new lab in Research Triangle Park, North Carolina to be operational by the end of this quarter. This new facility will support continued expansion of our product portfolio, provide important lab redundancies and enhance our operational flexibility.
In addition, and given the work we’re continuing to do with Palmetto, we expect the location to provide advances as to Medicare coverage and payment in the future. As Mike outlined, we’re leaving no stone unturned with regards to obtaining broad Medicare coverage in both the near and long-term.
Foundation Medicine has accomplished a tremendous amount over the first six months of 2016. Our breadth of impact and investment which positions us to meet this year’s stated business objectives and enables us to drive growth and value over the years to come.
With that, I’ll turn the call over to Jason [ph].
Thank you, Steve. I’ll begin by reviewing our second quarter results and then turn to the outlook for 2016. Total revenue for the second quarter was $28.2 million which is a 26% increase over the $22.5 million recorded in the same period last year. Revenue generated from our biopharma customers was $18.8 million in Q2 compared to $10 million in the same period last year and $20.2 million in the first quarter. During the second quarter we delivered the results of 1,895 tests to our pharma customers.
Clinical volume was strong during the second quarter as we reported 10,286 clinical tests, a 16% increase over the same period last year and a 14% increase from Q1 of this year. Q2 reported tests included 8,864 FoundationOne tests and 1,248 FoundationOne Heme tests. It also included the initial 174 FoundationACT tests reported after launching the product during the quarter.
Clinical testing revenue in Q2 was $9.4 million compared to $12.4 million in the same period last year and $10.2 million in the first quarter. The decrease in clinical revenue was primarily related to three factors. First: as discussed on the Q1 call, our contract with a large national payer for non small-cell lung cancer testing means that we’re no longer receiving payment on other indications. In addition, we’ve also seen challenges getting paid with tests that are covered under that contract. And we’re continuing to work through those challenges.
Second: in Q2, we transitioned from billing certain institutions directly to billing their patients’ insurance plan, which resulted in fewer tests getting paid in the period. We anticipate some of those tests will be paid in future periods.
And third: as planned, we launched our ex-U.S. commercial efforts through Roche on April 7, which means for international volume, we now reimbursed the cost of each test plus a portion of the gross margin. By its design, this royalty model results in less revenue in the near term but much greater ability to scale efficiently over time.
The average reimbursement for clinical test recognized in revenue in the period, now excluding international tests that are paid through the Roche collaboration was approximately $3,000, down roughly $100 from Q1. The change was partly due to the exclusion of these international cases from the metric, which had previously been paid at a higher sub-pay rate.
Operating expenses in the second quarter were $45.5 million, an increase from $36.5 million in the first quarter. This increase was assumed in our full-year guidance and was driven in-part by investments in our QSR infrastructure and universal diagnostic platform, technology initiatives such as SmartTrials and precision enrollment, preparation for the FoundationACT launch and to a lesser extent incremental commercial investment.
These incremental activities are largely designed to drive increased leverage in growth in future periods.
We ended the second quarter with a healthy balance sheet and approximately $190 million in cash, cash equivalents and marketable securities. As Mike mentioned, we also secured a $100 million credit facility from Roche Finance. The use of proceeds related to this fund-raising includes new product development, corporate development and working capital.
The facility represents a line of credit available over the next three years at which point the outstanding principle balance converts to a term loan payable over the following five-year period.
The facility carries a 0.3% interest rate on the unused portion of the line during the three-year draw-down period and a 5% interest rate on amounts that are borrowed, payments on borrowed amount for interest only for first three-year drawdown period. We did not drive down any portion of the facility as of the closing.
Turning to our 2016 full-year outlook, we’re increasing our volume guidance range to 39,000 to 41,000 FoundationOne and Foundation One Heme tests up from 37,000 to 40,000 tests. Our volume guidance does not include FoundationACT as we’re still gaining commercial experience with the new product after just a couple of months in the market.
Our other guidance remains unchanged and we’re reaffirming total revenue guidance in the range of $110 million to $120 million and OpEx Guidance in the range of $175 million to $185 million.
With that I will turn the call back over to Mike.
Thanks, Jason. Thanks Jason. As we often do, I’d like to conclude this call with a patient case. Just a few weeks ago, we learned about an academic face physician who was concerned that the available tumor specimen would be inadequate for genomic analysis and a young woman with advanced non small-cell lung cancer.
The physician ordered a commercial available ctDNA assay which revealed no oncogenic drivers. Recognizing the need to look further, she spent the small amount of remaining tissue to FMI and simultaneously started to semi-chemotherapy because of the patient’s worsening symptoms. Our assay FoundationOne revealed a Ross One fusion which is very often effectively treated with ROS1-Fusion which is very often effectively treated with crizotinib.
Although her treatment had already started, our medical team and the clinician were curious as to whether FoundationACT, our ctDNA assay might be able to detect the same fusion in blood, just several days after receipt of a blood sample FoundationACT did identify the ROS1-driver Fusion as well.
This one patient case highlights the diversity and fidelity of our commercially available assays as well as the importance of using them to aviate uninformative and often possibly molecular testing and unnecessary or sub optimal treatment decision. We look forward to providing further updates on the course of this patient in a future venue.
Operator, we can now open the line for Q&A.
[Operator Instructions]. And our first question comes of Isaac Ro from Goldman Sachs. Your line is now open. Isaac Ro, your line is now open.
Hi, this Taylor in for Isaac Ro. I just had a quick question on if you can give any sort of color on the large national payer that you had. What are the, kind of how are you taking in the challenges to get paid in that new contract? And any color on how the transitioning process to insurance directly is going?
Yes, this is Jason, thanks for the question. I think with a large national payer and this is one we signed back in fourth quarter of last year. It was a move in network for single-indication so we talk about not getting paid on case of that side non small-cell lung cancer, that’s actually not a surprise and built-into the guidance.
What’s been a bit challenging is getting paid under that contract but a covers claim which is non small-cell lung cancer claims. So that’s just, that is something that we are continuing to as something we’re continuing to work on with the United.
I could mention a couple of other institutions who, couple of other institutions where we were directly billing those institutions. We’re now billing the patients on behalf of the institution. So we don’t get paid on every single one of those. But we anticipate some of those tests will get paid in future period.
Okay, great. And just one quick follow-up question. Is there any sort of - congrats on the CMS FDA news. Are there any good milestones we can look for on that?
So Taylor, this is Mike Pellini. At this point what we’ve mentioned is that if we can look for the final outcome of this process towards the second half of 2017 and rest assured if there are some important milestones, there certainly if anything changes, we would bring that to your attention. But for now assume it’s about 12 to 18-month process that we’ve commenced.
And certainly as information emerges that we deem to be important for the investor community and for our shareholders, we’ll be happy to share that information with you.
Okay, great. Thank you so much.
Thank you. Our next question comes from the line of Amanda Murphy from William Blair. Your line is now open.
Hi, good afternoon. So, just a follow-up to that line of questioning. So, in terms of the FDA, CMS parallel review. I just want to make sure I understand. So this is incremental to or deferral to the Clovis opportunities. And then can you also maybe help us frame out this, I guess, what this might look like for you in terms of timing and revenue opportunity? It seems pretty meaningful so I just want to make sure we understand the implications of it?
Hi Amanda, this is Mike. And I have a choice there but I’ll turn over is some of the other aspects of the question to the rest of the team as well, so, it will be very clear. What we’re talking about is something that’s very different or it’s complimentary but deferred from what we are doing with Clovis. The work for the companion diagnostic I think in conjunction with rucaparib is work that we started a number of months ago. And we’re well into that process. That’s again very specific to their drug rucaparib.
What we are talking about today is a parallel review which means working with both the FDA and CMS, for our broad FoundationOne, our entire FoundationOne assay. And this is a strategy that we’ve really been working on for some time. You’d know by following us, probably a year and half or two years ago we started talking about the need for QSR laboratory.
Now certainly that was helpful in the work of the Clovis but it’s also critical for the extension of the work that we plan to do with ESPA, with FoundationOne perhaps, even additional products in the future.
Second of all, from the Medicare point of view, as you know, we’ve been not working, not only with the local MACs, both our MAC here in New England NGS and especially with Palmetto, but we’ve also been in conversations with National CMS for years as well. And I think we’ve adjusted that multiple times on earnings calls and others.
And so, together we think these two opportunities, we think bringing these two groups together, we believe bringing these two groups together for this parallel review is potentially transformational opportunity especially in terms of how we approach the market and also taking our reimbursement consideration.
Additionally in terms of how we think about revenue, Jason, I don’t know if you want to add a comment there?
Mike, and I would just add to your point, this is definitely very significant because it’s a much clear path right now at the national level so I think that’s I think important for many obvious reasons.
And do you have a sense of, if you think about other profiling methodologies that are being levered in that vein or give a sense of who else is going through similar path with CMS in the FDA, in other words, is this a competitive advantage for your or are there others they’re working with in a similar vein?
So, Amanda, we do not have a sense that anyone else is going through this particular path at least with a comprehensive genomic profile. And we do believe that this will continue to offer additional differentiation for our product. And maybe it’s best if I let Dave Daly comment on that as well.
Yes Amanda, this is Dave. Our market research shows there is a very strong desire on the part of the oncology community for directed diagnostics. And therefore as mentioned by Mike and Jason, having both the FDA and the CMS coverage, we feel that this combination which is unique will drive additional volume.
Okay, fair enough. And then just a question on Medicare, so you’ve obviously talked about kind of the relationship with NGS and what not and there has been a lot of noise around broader pricing for tumor panels. I guess I’m just curious, are you planning on moving, I mean, are you planning on providing Medicare services out of North Carolina and maybe you could give us a bit of context around timing, some perspective around when you think you might be able to get expanded coverage for therapies beyond lung cancer?
Hi Amanda, it’s Steve. Thanks for the question. I think with respect to North Carolina when we just framed this and as a reminder of that, that’s the expansion to North Carolina, is strategically important for us for a number of reasons that include our ability to scale and address sort of the efficiency to that from a cost of goods perspective, the redundancies, the ability to really expand our portfolio.
And in addition, being in a Palmetto jurisdiction, we believe that this may also have benefit to our Medicare strategy, reimbursement strategy through the LCD process. And we are working diligently as Mike said to expand the existing LCD with Palmetto. We would expect to begin, being able to bill against that equipping LCD later this quarter when we become operational in North Carolina and then continuing to work aggressively with Palmetto to expand that LCD over time.
Okay. I just have one more, quick one, but before I go there. So in terms of Medicare payments, is that something that you’ve already contemplated in guidance?
Yes, Amanda, this is Jason. We have until we have seen some level of Medicare payment in the second half of the year it’s difficult to be more specific on timing but sorting through that.
All right, I guess just last one. So, I appreciate the comments on United and the challenges getting paid there. Maybe you could just give a bit more context on what exactly you mean and sort of paperwork thing, I appreciate all sort of you’re not getting paid beyond lung cancer. But it sounds like there is something else going on?
And then just in terms of the direct patient payment, is that something that’s being directed by insurers or what was the underlying move there, just some more context would be helpful?
Yes, absolutely. I think I’m picking the pieces. For the United I think first and foremost, it’s mainly baked into our guidance. So the main effect here is our intentional decision to get in network and begin with non small-cell lung cancer and work through to expand that coverage as you know when we talked about that.
So, that piece is absolutely baked into guidance. I think the piece that frankly not is that on the smaller subset, the lung cancer cases are getting paid. And what I would - all I could say there and I can’t go too detail as you’ll understand is that it takes a while to really get the systems to work together. And this is not an SMI unit thing. So, we’re working diligently to correct this. And we have confidence that we’ll get it corrected.
On the second part, which is related to this other element of, we talked for some time, we have certain direct billed clients and that’s where, again, we’re billing to institution who wants to angle their billing for their patient on their own. And a few of those institutions and they make up the majority of those institutions where we have these arrangements have decided it would be hard to go ahead and bill those patients’ insurance plans like normal and not bill the institution.
That has been accrued revenue. Now we’re billing third party payers. And this is a fairly small portion of our volume. And I think the effect we’ve seen in the second quarter is likely the full-effect of that switch-over. So I think unlikely to get trends going forward beyond this.
Okay, so you’re not billing the patient, you’re billing the insurer?
We’re billing the insurer directly. We’ll get paid [indiscernible].
All right. Thank you very much. I appreciate it.
Thank you. Our next question comes from the line of Tycho Peterson from JPMorgan. Your line is now open.
Hi guys, it’s Tejas on for Tycho, first of all; congrats on the reimbursement of FDA. Just a couple of follow-ups on that, and perhaps Mike this is a bit of an impossible question. What do you, and how should we think about the likelihood of this timeline could get perhaps accelerated or extended beyond the second half of 2017. And then, is there any read across your tool sort of third party payers and how they might think about reimbursement between now and when that happens?
Hi Tejas, it’s Mike. Good question. In terms of the first question, it’s not an impossible question because we did - we do expect this process to play out over the course of 12 to 18 months. And as you know, with interactions with the FDA or any outside agency, things can happen to speed up a process or slowdown a process. But should anything like that happen, you can be sure that we’ll certainly come back to The Street with an update on those timelines. So, I think it’s hard to say much more than that at this point in time.
As far as the third party payers are concerned, and what should you and how might this affect the third party payer? We assume Tejas that the work with the third party payers and really the national payers in particular was going to be a fairly lengthy process. You’ve followed us for a long time we’ve always talked about that lengthy process.
But to be frank, it’s taken longer than even we expected. And one of the things I want to just maybe take an opportunity with your question to come back to a point that I have made multiple times on calls and even in person, and that is, we never had the sense that third party payers were waiting for Medicare before they made their own decision, it’s not the Medicare decision has never come up in any meetings before, it does not seem to be a central part of a third party payer’s decision process.
However, our thinking on that has evolved because while they might not be asking us about Medicare, we are now of the belief that a Medicare decision whether it’s a Medicare decision at the local level, at the MAC level or at the National level can in fact have a strong influence on that national third party payer.
So, we do continue to get wins along the way but when it comes to broad national coverage decisions, things that really move the needle in a significant way, we do think making progress with those the local MAC and then ultimately with national CMS is going to be an important piece of that puzzle.
Got it. Now that makes sense. And then in terms of your 2016 guidance, obviously clinical volumes were really good this quarter. What’s stopping you from increasing the clinical volume guidance beyond sort of the extent of the beat at least as it relates to our estimates. I mean, is there anything unusual about the quarter that you’d like to call out or perhaps some strength on the international side which you’re not yet confident will continue through the rest of the year?
Tejas, it’s Jason, it’s a good question. Yes, we are indeed pleased with the second quarter and the first half volume overall and the commercial team is executing quite well. As you know there are a lot of factors that go into setting guidance and expectations for the rest of the year. And I think we’ve taken all those into account. I mean, one of those just frankly includes number of selling days for example in the fourth quarter, some are holidays. Now that we’re getting to larger volumes, you need to start looking at those things and look at the core trends of that.
So, we really take all of it into account. But the guidance in the back half of the year does still assume it’s a mid-point growth, certainly still 20% plus year-on-year growth. So we’re looking on confidence but we want to take into consideration Q3 and Q4 trends as well in the marketplace.
Got it. And then just one final one here from me, just switching gears to liquid biopsy, are you beginning to see cases where you first had patients on their goal sort of FoundationOne solid tumor testing and followed by FoundationACT? And how important of a differentiator is it for from the physician and patient perspective to be able to do both on the same platform versus one with you guys and let the biopsy test with one of the competitors?
And then secondly, when can we expect to see the multi-central clinical stud data on liquid biopsy? Is that sort of as no event now when you expect that initial read-out? And any commentary in terms of when does sort of use of FoundationACT move beyond therapeutic selection to prognosis and monitoring? And would you be open to perhaps introducing a narrower panel at a much lower price point to capture some of these used cases?
Tejas, I’m glad we were all taking notes, for that one. Dr. Miller?
That a packed tripod type question there, I hope it wasn’t more than three parts there Tejas. Regarding the first one, I do think the fact that we have such a strong presence and positive track record as far as a tissue based assay gives people tremendous confidence in our FoundationOne assay. And also the ability for a subset of patients, who had FoundationOne previously, to have FoundationACT say at a time of recurrence, allows an interpretation across I guess you alluded to essentially the same platform.
As far as the timing of data release for our clinical utility study, as were alluded to in the remarks, now accrued over 1,000 patients who’ve had both like FoundationOne test and then FoundationACT test in the context of that study. And it continues to accrue quickly. So we would anticipate it in the, say in the not too distant future. But I don’t think we can be more specific than that at this point.
And then Tejas, in terms of future products and whether is it monitoring products and others. We continue to develop a robust pipeline on the R&D side of Foundation Medicine. We continue to do it to focus on the company’s future just as we launched re-clinical, important clinical products over the course of the past four years.
We expect to launch additional important clinical and commercial products going forward. But at this time, we really can’t give any additional specificity there. You want to add there to your question about a cheaper targeted panel. We, even as the data emerges and as the market evolves, we actually feel more and more convinced rather than less convinced that the comprehensive profile is the important way to go through clinical care for the long-term.
We think the opportunity is still very strong. We believe that we are still extremely uniquely positioned in this Phase II to deliver this type of offering, this type of information to our clients. And we’ll continue to build the data to support that belief.
Got it. Thanks guys. I appreciate all the color.
Thank you, Tejas.
Thank you. Our next question comes from the line of Tim Evans from Wells Fargo. The line is now open.
Hi guys, this is Sara Silverman in on for Tim today. I just want to ask a question on the biopharma revenue. We’ve seen that kind of be greater than commercial revenue for some time. So, were you expecting this trend to continue for the foreseeable future or when do you see that converging?
And then furthermore, would you like to able to breakout your biopharma revenue of Roche versus other clients?
Sure, hi, this is Jason and I’ll take a shot at that. We are definitely feeling good about our biopharma revenue. And it’s continuing to grow not only through Roche or Roche is obviously a critically important pharma partner but also really even beyond Roche. So Roche in the second quarter is around $7.5 million in revenue. And so even excluding, if you would exclude Roche in revenue, year-over-year partner revenue even increased I think a bit more close to 90%.
So, we’re feeling great both with Roche as a great partner as well as outside of Roche because of the expense of other partners as well as the different offering that they’re receiving. So we are feeling good there.
With respect to the mix of revenue I alluded to, I think looking at this year, because we don’t do multi-year guidance, our guidance is unchanged so it’s that $110 million to $120 million in revenue. We think the mix shift slightly towards pharma because we’re feeling bullish on pharma, we’re feeling bullish frankly on clinical volume as well because we’ve increased the guidance there.
And then we’re being a little bit more conservative in the short-term and clinical revenues because it’s some of the factors we talked about. And we do think they’re short-term factors. So with respect to when you see those converge, little bit hard to say because we haven’t guided to next year.
But I do think as we, Sara as we get toward the end of this year and converge there beginning of next, we’ll talk more about what we see in ‘17. And frankly this parallel review with FDA and CMS is going to be a big factor there.
Okay, thanks. And just one follow-up. You had mentioned you are kind of bullish on your clinical test volume. What’s really do you see driving that trend of improvement, that wasn’t maybe there before when you initially hit back?
Yes Sara, this is Dave Daly. I think as we’ve mentioned on prior calls, the landscape and the noise in the marketplace has been fairly distinct. But while the market continues to be crowded, much of the noise that we’ve encountered in product orders is beginning to dissipate primarily due to our effectiveness in educating our clinical customers and their ability to actually act on the molecular information that we’re providing.
So our messaging is resonating and it’s really helping us to gain traction. Likewise we’re seeing a nice increase in our repeat order rate. So, really looking at our ability to be effective with our customers and getting them to utilize the information and to repeat orders is driving a lot of our volume growth.
And Dave, the only other thing I would layer on top of that is just the sheer number of publications that continue to emerge from the clinical and R&D teams at Foundation Med has been also from our collaborators. So there have been over two dozen manuscripts already published this year in high-profile journals. So we just continue to layer on top of the information that’s out there with both quality as well as real quantity of new data.
Okay, great. Thanks guys.
Thank you. Our next question comes from the line of Jonathan Groberg from UBS. Your line is now open.
Hi guys, this is actually Admin [ph] on for Jonathan. Congratulations on the FDA and CMS parallel review. In regards to that I actually got disconnect earlier, so I understand that test volume increase is attracting this review. But can you give a little more details on the specifics of the trial requirements and any other additional requirements of this process?
So, now I’ll start that question then maybe turn it over to Dr. Miller. I apologize if we don’t answer the complete question because it was the, for some reason it was hard to hear the first half of the question. But in terms of the process, really the information requirement are primarily geared towards the FDA in these.
And so, obviously we would not take this step forward unless we believe that we had adequate coverage for the appropriate indication on which we’re focused. And I think the team has done a really nice job of generating that data, and certainly the discussions have already started with the FDA.
On the CMS side, the way the data is designed is in a parallel review, CMS would ultimately cover what is FDA approved. And so, just like a therapeutic, this is unusual in the diagnostic space but kind of learning from the therapeutic world, we focused on the FDA and then the CMS would largely take their cues from what the FDA decides.
Vince, do you have any additional color on the studies and requirements?
I would just say, this is speaking more in generality than specific to this case. But there would be no classic clinical trial required per say in this context but rather the component trials that led to companion diagnostics being developed, established the merits of the drugs. And it turned “trials” or “studies” really are providing adequate concordance from transiting those companion diagnostics to what you know as FoundationOne.
Got it. Can you hear me better now?
We can hear you.
Okay, so just to be clear, there is no risk that the FDA will approve of this while the CMS with plain no, it’s very small, usually whatever case that CMS looks at?
So, I think the answer, we do not expect a decision to be, a CMS decision to be disassociated from the FDA decision. So one can never say no risk but because we’re in uncharted territory here for a diagnostic company. But having said that, our expectation is that the CMS decision is tied to the FDA decision. And the good thing is, we have relationships with both organizations.
And even before we talk about relationship with national CMS, it’s important to understand that we’ve spent years interacting with the local MACs as well. And again, it’s a culmination of activity by our extended team over the past couple of years that puts us in a position where we feel confident going forward here.
Got it. Thanks for the color.
Thank you. Our next question comes from the line of Paul Knight from Janney Montgomery. Your line is now open.
Hi, my question is regarding this FDA and the parallel review. These programs have been around a while. Has something happened that’s new there or is it that you finally think you’ve got to go down this pathway?
Hi Paul, it’s Mike. I’ll start the answer there. And you’re absolutely correct. This is a program that’s been around for a number of years. What’s interesting is that I was sitting in a meeting in October with several members of the FDA this was a meeting in Southern California in a broad forum, when both [indiscernible] said we’ve had this program available for a number of years and no one has ever taken advantage of it. And a number of diagnostic company CEOs were sitting in the room and everybody looked at one another and said we had no idea this program was even available.
So, the part of the answer is that, it’s not something that the FDA really focused on or certainly CMS and FDA did, so they really didn’t do very much promoting. Second thing is, in our interactions with the FDA and CMS, those discussions ultimately led to the belief that this is the best path for us to proceed on which to proceed.
And again, it goes to the relationships that we believe we have build with these two organizations not over the course of the past several months but over the course of the past several years.
And this EAP process, EAP program is really an important element here which is also incredibly novel as far as we can tell for a diagnostic, for somebody for a company with a diagnostic test to think that we might - that we can work through this process in a fashion that brings us to a decision in the second half of 2017. It’s also an exciting element here.
So, there is no shift in focus. This is a culmination of work by Foundation Medicine over the course of years. Again it goes back to EBITDA build-out, the QSR allowed in support of companion diagnostic development with our partners and just years of learning that suggested to us that FoundationOne might be a great candidate for this parallel review process under the EAP.
And then the last question is, you had mentioned earlier in this call about pricing and is this correct, what $3,100 pricing in the first quarter, $3,000 Q2. Could you restate what that pricing is for? Thanks.
Yes Paul, this is Jason. I do want to take a chance to differentiate pricing from average revenue received per test paid. So in metric we offer is on average when we are paid for a test, and we’re very clear we’re not paid on every test. When we’re paid on those tests what do we get paid?
A lot of that’s out of network, some of that is in network in contracted and those have prices. So that metric was $3,000 this quarter and $3,100 last quarter. I think importantly and we’ll talk about this more going forward especially this year, we’re really focused on contracting and pricing for example; United which we talked about with Palmetto, with a number of regional players where we have been able to stay in a very good price. And we believe we have a good price for example through the LCD through Palmetto, just very differentiated from the price that people are talking about, the 5 to 50 gene codes with CMS.
And so, price wise we feel very good with where we are with the payers that were contracted. This metric that we give in that average payment per test now which includes a lot of network. Hopefully that’s helpful.
Thank you very much.
Thank you. And our next question comes from the line of Raymond Myers from Benchmark. Your line is now open.
Yes, thanks for the questions. Let me ask you to kind of distinguish and kind of compare these three issues. One is the EAP process for FoundationOne versus progress toward the universal companion diagnostic. And third is the FDA’s recent NGS proposed guidance. Can you help us - walk us through kind of how they relate to one another, and how they are separate?
Raymond its Mike, let me start this, in fact other key members will jump in. Let me start with your last question first because that’s very straight forward. The FDA, they weren’t, it wasn’t guidelines. Basically these were ideas that, and those ideas of the FDA put forward but not around tissue based NGS testing, it was strictly based on germ-line testing.
And so, it was just coincidence that that language happened to come out a few weeks ago and we’re now seeing this today. So, in some ways the timing should be completed associated from the work that we’re doing. But at the same time, again, we’ve been working with the FDA for years, gearing up for an eventual submission likely submission to the FDA.
We think the FDA is focused on something that’s very important and that’s acknowledgement that comprehensive genomic profiling such as what is do is FoundationOne, FoundationOne Heme as well as FoundationACT is extraordinarily difficult to do well. And very important patient based decisions are being made with this information.
We think the FDA gets that, we certainly get that, we’ve always made that very clear. And so it feels like the industry is moving in the appropriate, is moving in the appropriate direction here with some additional regulatory oversight.
In terms of your question around the EAP as well as the universal diagnostic, one way to think about FoundationOne in the future and we’ve called this out multiple times is yes, as a comprehensive genomic profile but also as a universal companion diagnostic where a pharmaceutical company that as a therapy on the market along with an associated biomarker can utilize not just a one-off PCR based test or a one-off fish based test or IAC test at that particular companion diagnostic, but they can use FoundationOne and the entire, all the information contained within FoundationOne adds a companion diagnostic for their test.
So, we are replacing potentially, certainly maybe dozens in the near term but with a development of the molecular oncology industry, perhaps many more than dozens in the long-term of individual tests with one comprehensive solution.
Now we’re continuing to work backwards here around the EAP, think about the EAP really as nothing more than I’ll use an analogy maybe not perfect but I think it’s close, just like a breakthrough designation for a therapy, whereas really focuses on the timeline for potentially important medical devices, or these medical devices that the FDA deems to be important. So I hope that covers the three areas but I’ll pause there.
Yes, that’s very helpful. And just so I understand, in effect, what this does is, it makes FoundationOne become the universal companion diagnostic by virtue of its presumed clearance by the FDA.
I think that’s really well said and I want to layer on one more thing. As Steve mentioned in his comments, but as we think about additional information as part of FoundationOne and even in terms of it being a universal companion diagnostic, also think about the other type of information that is now being layered on to FoundationOne, with the exact same test, there is now MSI status which is now tumor mutational burden status. And the list will continue to grow even though that test itself will look very much the same and the price point will be very consistent over time.
It’s really the root, it’s really the core of our model. And this is what we’ve been building towards for the past five or six years and we expect the work just to continue. Vince?
I just want to add one thing from the clinicians’ perspective is that you sit in front of a patient with a given tumor type not knowing what their genomic blue print is, this simplifies one life so much to have a single assay that not only qualifies you for any approved therapy but also qualifies you simultaneously for many of the available clinical trials that require molecular data for entry.
Yes. That’s all very exciting. Let me ask a procedural question here. One of the important distinctions of laboratory-developed tests was their ability to evolve with the very rapidly-progressing technology. And you mentioned the mutational burden, MSI and other information that will be added with this test. One of the downfalls of an FDA-approved process traditionally was its inability to quickly evolve, because every change then had to be reviewed by the FDA yet again. How does the agency intend to address that issue?
Yes, so this is Vince Miller again, so that’s a great question. And I think I’ve been just so impressed with how the FDA has handled how quickly this deal is evolving and not staying in their same approach of thing. They fully realize the need that there will be genes and associated therapies migrating from the back page or a later page of our report to that front page where the FDA approved therapies and their associated CDxs are listed.
And are working progressively with us to define that process. But we think it will be something that is supportive, understood and facilitated rather than it’s resisted.
Right. Details to follow because the FDA is still working through it. But certainly the interactions, the language has been very supportive in terms of acknowledging this need to adjust.
That’s great. Super. And now just a few more picky questions, if I could. Last quarter, we had some outstanding Roche milestone biopharma revenues that drove strength in the overall biopharma business. This quarter you had almost as strong biopharma revenue, but I didn’t hear anything about a particular milestone. Where did that strength come from?
As I mentioned this in my prepared comments, you’re exactly right. The growth that we saw, the strength that we saw in Q2 was really driven by the diversity of our client base as well as the product, the solutions that we’re offering to those clients. So there was no single one-time milestone that was really driving that Q2 revenue. So this is really across the board.
Raymond, in terms of our core support for clinical trials to data solutions that we’re offering and the access to FoundationCORE and new solutions like SmartTrials and then also the growth and diversification of our companion diagnostic effort we have four partners now that are signed partners in the CDx platform. So I think it speaks to the breadth of clients, to the breadth of solutions.
Excellent. And then just one last question. You’ve previously comments during the call - something about getting reimbursement perhaps, soon, in Germany? What was that?
Yes, so, fairly recently the German government has started to offer reimbursement of the single payer system, public reimbursement for broad based NGS panels in Oncology. There are some details here about reinstatements of some covers that had existed previously. But it’s very exciting news and opportunity for our relationship with Roche as they begin to undertake commercial activities in Germany.
And so we anticipate that this is one of the reasons why we’re building operations in country there, so that we could really take advantage of that public reimbursement which by the way is a very I would say sort of attractive price point as well.
Excellent. Well, thank you very much for the - taking the questions.
Thank you. I’m not showing any further questions at this time. I would now like to turn the call back over to Dr. Michael Pellini for closing remarks.
Great. Thanks operator. So, just in conclusion, we do appreciate the support of our employees, customers and shareholders. And we remain excited about the direction of Foundation Medicine’s - of our entire company.
Today we’ve made tremendous progress to believe we are well positioned for continued growth in value creation. We really do appreciate everyone joining us for this call today. And certainly look forward to keeping you posted in the coming quarters. Thank you.
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. And you may all disconnect. Everyone have a great day.
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