Foundation Medicine's CEO Discusses Q4 2013 Results - Earnings Call Transcript

| About: Foundation Medicine, (FMI)
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Foundation Medicine, Inc. (NASDAQ:FMI) Q4 2013 Earnings Conference Call February 25, 2014 4:30 PM ET

Executives

Matt Clawson – IR

Mike Pellini – President and CEO

Jason Ryan – VP, Finance

Steven Kafka – COO

Vincent Miller – Chief Medical Officer

Analysts

Isaac Ro – Goldman Sachs

Dan Leonard – Leerink Swann

Geoff Porges – Sanford C Bernstein

Tycho Peterson – J.P. Morgan

Operator

Good day, ladies and gentlemen and thank you for standing by. Welcome to the Foundation Medicine 2013 Fourth Quarter and Yearend Results Conference. During today’s presentation, all parties will be in a listen-only mode. From the presentation, the conference will be open for questions. (Operator Instructions). I would now like to the turn presentation over to Mr. Matt Clawson with the Investors Relations. Please go ahead, sir.

Matt Clawson

Thank you, Stanley and good afternoon everyone. Thank you for joining us for Foundation Medicine’s fourth quarter call. Here in the call this afternoon to discuss results for the fourth quarter and yearend December 31, 2013, our President and CEO, Michael Pellini, Senior Vice President of Finance; Jason Ryan; Chief Operating Officer, Steven Kafka and Chief Medical Officer, Vincent Miller. Management team will read some prepared remarks followed by question-and-answer period at the end of those remarks.

Before we begin the prepared remarks, I would like to remind everyone that comments made by management in responses to questions on this call will include forward-looking statements and information. Forward-looking statements include among others statements about our expected financial results. Our market and the implementation of our business strategy. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in such statements. Including the risks and uncertainties that are descried in our filings with the SEC including the section entitled – Risk Factors in our more recently quarterly report on Form 10-Q, as well as other risks and uncertainties detailed in our subsequent SEC filings. Except as required by law we have no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

With that I would like to turn the call over to CEO, Mike Pellini for his opening comments. Good afternoon, Mike.

Mike Pellini

Thanks, Matt, and good afternoon everyone. As Matt said thank you for taking the time to join us for our call today. As I promised last quarter, our prepared comments on this call will be a shorter so that we can focus on your questions and complete the call in a reasonable amount of time. So those of who you might be new to the Foundation Medicine story, we are molecular information company that is the first to put a comprehensive genomic profiling of cancer into the hands of practicing oncologist, both in academic medical centers and community practices as well as pharmaceutical companies. We provide a pan cancer orientation for both solid tumors and blood based cancers. We believe that single test philosophy and comprehensive information based approach is enabling a paradigm shift in the treatment of virtually all sizes of solid and liquid tumors. Our fourth quarter was very strong in terms of the commercial ramp with test and revenue again growing at accelerated rate as compared to prior period. We continue to be encouraged by the enthusiasm and interest of both oncologist and pathologist who are seeking us out and by their response to the actionable information we deliver. Also empowering them to provide new treatment plans for their patients with advanced cancer.

As talented industry veterans are added to our commercial team, these new hires are getting up to speed on our offering and our role in the oncology world. And their gain traction often visiting clients for the first time who have ordered FoundationOne and providing increasingly strong and medical and scientific information to educate the oncology community on potential application of this transformative approach.

Now for some commercial and financial highlights from the quarter. More than 3,750 clinical tests were reported in the fourth quarter, an increase from 2,577 tests reported in Q3. Revenue was $9.7 million in Q4 as compared to $8.2 million in Q3. More than half of that revenue was generated from clinical testing with the rest coming from our work with our biopharmaceutical partners. Lastly, our commercial mix continues to demonstrate uptake in community practices as well as in the academic medical centers as those categories grew in tandem. With community group slightly outpacing the academic centers. 55% of our reported test came from community based practices in the fourth quarter. These are all positive results for the quarter. Each category on or ahead of plan and we are encouraged with the progress and rapid growth. As we cautioned last quarter, we are still early in a commercial ramp for FoundationOne and even more so for FoundationOne Heme. Volumes and revenues are not yet fully predictable and they will likely be some variability going forward. We believe that the total addressable market for FoundationOne is approximately one million patients in the United States today, growing to nearly double that number over the next several years. As we discussed previously, this market opportunity is informed by our actual experience with now more 10,000 tests delivered and is focused on the key clinical scenarios which are driving our commercial adoption and reimbursement strategy.

We believe that a fundamental driver of our growth is the value that ordering physicians see in our approach. This stem partly from the confidence of physicians can take in a quality of our test. We highlighted on our first earnings call the major biotechnology pay group that reported the analytical validation of FoundationOne. A critical step in setting the benchmark for our comprehensive genomic approach to clinical cancer care. This commitment to excellence in scientific rigor engenders user confidence in our test results and in our ability to find actionable genomic alteration step other tests cannot detect.

In fact, as many of you recall, our data shows that of the actionable alteration identified by FoundationOne only approximately 30% of them would be picked up from a collection of commercially available hotspot based next generation sequence in test. So what is this mean for patient? Well, if we apply similar methodology and look at 9000 patients we served in 2013, more than 5000 of them might have missed potentially useful treatment or clinical trial potentially useful treatment for clinical trial option. Even if the small percentage of these were successfully acted upon, many lives might have been favorably affected.

There are other notable highlights from the clinical and product development side including the following: In December, we launched FoundationOne Heme at 2013 American Society of Hematology Annual Meeting. Like FoundationOne, the Heme test is a fully informative genomic profile for blood based cancer such as leukemia, lymphoma and myeloma and is also well due to pediatric cancers and many sarcomas. The test was developed with Memorial Sloan-Kettering Cancer Center and is also designed to provide physicians with clinically relevant genomic information to help guide treatment decision. For now, I will say that we are pleased with the early results and we expect to share more detailed as we move through 2014.

In terms of the further development of clinical evidence, the pace of new studies coming to light using FoundationOne continuous to accelerate. 12 manuscripts were under review and 7 manuscripts were published in many of the top scientific and medical journals in the fourth quarter alone, which is really a tribute to our team’s effort together with our academic and community based collaboration. Going forward we anticipate a national evolution from reporting of analytic and clinical validation and discovery effort to an ever increasing number of studies reporting on clinical utility especially around ASCO in June.

I’ll now turn it over to Jason and Steve who will walk through the financial and operational highlights of the quarter. Jason?

Jason Ryan

Thanks, Mike. As Mike indicated we made solid progress in the fourth quarter in terms of commercial ramp, revenue growth and infrastructure investment. In addition to the rapid growth in volumes that Mike mentioned for the fourth quarter, for the full year we reported 9,095 tests compared to 1,750 tests in 2012. In the fourth quarter, we reported 1,593 tests to our biopharmaceutical customers, a significant increase over the 546 tests reported in the same period last year and 965 tests performed in the third quarter of 2013. For the full year we reported 3,776 tests compared to 1,350 tests in 2012. As we commented last quarter, we do anticipate a volume from our bio pharma customers will vary measurably from period to period. And fourth quarter represented particularly above average volume on the bio- pharma side.

Now turning to revenue. Total revenue for the 2013 fourth quarter was $9.7 million, up from $5.2 million in Q4, 2012, and up from $8.2 million in Q3, 2013. Our full year revenue for 2013 was $29 million as compared to $10.6 million in 2012. Revenues from FoundationOne test performed for our clinical customers during the fourth quarter was $5.3 million, a significant increase from the $1.6 million in Q4, 2012, an increase from the $4.4 million recorded in Q3, 2013. The average reimbursement per clinical test that was recognized in revenue during the fourth quarter was approximately $3,400, this was the slight increase from the prior quarter and as we stated previously we expected average payment to vary between periods until we attain broad coverage decision in the future. Regarding Medicare we are now submitting claims. As a reminder, we made a decision to begin submitting these claims primarily because the volume of our Medicare claims has grown substantially given our commercial growth. We expect that this will be a process that plays out over time. We also want to give some additional color on our initial approach to billing Medicare. We submitted these claims using a miscellaneous code, not start code as we have originally done with the non-governmental commercial payers. In addition, because current coding the current coding landscape is not content code specific enough for test or as comprehensive and precise as FoundationOne and FoundationOne Heme, we’ve submitted an application on the McKesson diagnostic exchange to establish to unique G code identifiers for these two asset. In its current form the system will map the code identifier to FoundationOne and FoundationOne Heme. The decode identifiers have already been adopted by Palmetto as part of the MolDX program that determines coverage and payment from Medicare in 17 states. While Massachusetts is not yet one of the state, the MolDX program is expected by many to be adopted broadly by other Medicare administrated contractors and by U.S. commercial payers. While it’s possible that other CPT coding options may become available for generic NGS type tests, it would be unusual that CPT code will be released initially that adequately represent by the FoundationOne and FoundationOne Heme. Therefore proactively have been recode will further distinguish these tests and allow us to move more quickly towards value based payments. As we previously noted, we are approaching reimbursement across the broad platform of activities and we will continue to as transparent as possible moving forward.

Revenues from test performed for our biopharmaceutical customers during fourth quarter was $4.4 million, up $3.6 million during the fourth quarter of 2012, and up from $3.8 million during Q3, 2013. Our bio pharma agreement are comprised the both purchase pricing as well as multiple element deliverables such as capacity reservation and access to molecular information.

Moving down to P&L, gross margin for the 2013 fourth quarter was 56%, down from the 65% in the third quarter. The change in gross margin between the third and fourth quarter was driven by one: an increase in number of pharma test reported under fixed revenue agreement in the quarter; and two, effective test cost recognized in the period when they are reported while cash base revenue for those tests is often recorded in future period. This timing difference between cost incurred and revenue reported impacted gross margin in the fourth quarter. Important to note is that our underlying cost per test was consistent between third and fourth quarter. We expect the gross margin will likely vary between 55% to 65% during 2014 as our volume from clinical customers grows as a percent of total and will not all of those sample tests reimbursed. We fully expect gross margin to increase over time with scale efficiencies and coverage decisions will enable more of tests to be consistent in pay.

Operating expenses in the fourth quarter were $18.9 million including stock based compensation expenses $2.3 million. This compared to total OpEx of $16.5 million in the third quarter which included $3 million in stock based compensation. The increase in our operating expenses was driven by our extended commercial activities including the launch of FoundationOne Heme as well as by expenses related to our facilities move. For the full year operating expenses were $59.1 million inclusive of $7.3 million in stock based compensation as compared to $26.9 million in 2012 which included $1.5 million in stock based comp. our net loss was $13.1 million in the fourth quarter or $0.48 loss per share and net loss for the full year was $42.9 million or $4.64 loss per share. Keep in mind, the full year calculation is based on the weighted average common shares outstanding during the year and IPO currently ended the third quarter. Our cash balance at the end of 2013 was approximately $124 million as compared to $55 million at the end of 2012 and was bolster by IPO net proceed of $110 million during the third quarter.

Turning to 2014, let me offer a few comments on our key financial metrics for the year. And because we are in high grow stage we are providing only annual guidance at this point in time. We currently expect to report between 22,000 and 25,000 clinical tests in 2014, driven by both FoundationOne and FoundationOne Heme. At the midpoint that represents approximately 160% year-over-year growth. We anticipate that 2014 revenue will be in a range of $52 million to $58 million inclusive of both our clinical and biopharmaceutical customer revenues. We anticipate total operating expenses in the range of $85 million to $92 million, driven by the growth of our commercial infrastructure and by key investments in clinical trial, new product R&D and new features in our technology product including our interactive cancer explorer. And so before I handed it over to Steve, I’d want to reiterate that the company is in a strong financial position, we are pleased with our growth and we do believe the business has compelling leverage as we gain momentum.

With that I’ll turn to Steve.

Steven Kafka

Great, thanks, Jason. Operationally we had a great fourth quarter at Foundation Medicine. Supporting the volume ramp in the commercial business and growing our sales force continuing to extend our work supporting pharma clinical trial and launching FoundationOne Heme all were priority initiative. As a commercial enterprise we continue to grow volumes and broaden our reach and we are pleased with the mix of our business with the majority of cases now being ordered by physicians and community based practices. Growth has been bolstered by the addition in the past few months of sales professionals in new territories across the United States. Our direct U.S. sales force grew to 26 as of December 31. Our current business plan calls for us to grow to approximately 45 to 50 reps in U.S. by the end of this calendar year, and we continue to expect that we will ultimately grow to between 80 to 120 sales professionals that cover the United States. We also continue to build our sales effort internationally including expansion of our international sales team and we plan to share additional details with you over the coming quarters. We are executing at a high level as well, maintaining an average turnaround time of 14 days from received of tissues for FoundationOne and the testing success rate in excess of 95%.

Turning to the biopharmaceutical portion of our business, both the volumes of samples and the number of clinical trials were supporting with our customers continues to grow. A recent highlight of the expansion and three year extension of our relationship with Novartis, Novartis has been and continuous to be both a forward looking drugs developer and a terrific partner. The expanded agreement includes an annual commitment to reserve testing capacity to support clinical trial for Novartis to targeted therapy portfolio. In addition, the agreement also now include access to our molecular information and analysis services, enabling Novartis to take advantage of our unique and growing database of molecular information to support their oncology drug development strategy.

Further evidence of how we are contributing to a fundamental change in the cancer treatment paradigm, was the announcement last quarter of our participation in a lung cancer mater protocol. The friends of cancer research in collaboration with federal agencies, pharma companies and several cooperative groups in patient efficacy organizations announced their selection of FoundationOne as the comprehensive genomic profiling platform for this effort. As a reminder, the master protocol is a Phase 2, 3 registration trial of patients with squamous cell lung carcinoma, a common subtype of non-small cell lung cancer which is leading cancer killer of men and women in the United States. Our platform will be used for patient’s stratification into appropriate target specific on to the trial, each testing different targeted drug regimen. From the field of possible platform examine by this coalition we are honored to have been selected as cornerstone platform to this new approach to clinical trial and viewed as a great endorsement of what we developed at Foundation Medicine.

On the product development front. In December, we launched ahead of schedule our second commercial production FoundationOne Heme. This breakthrough product uses both RNA seek and DNA seek to better enable identification of the unique genes alteration and gene fusion that are characteristic of hematologic malignancies. As Mike mentioned this still early days and we are encouraged by both early adoption and the results we are producing. I will add that like FoundationOne, FoundationOne Heme has undergone extensive analytic validation as presented at ASH in December. Test performance of the DNA component matched the high accuracy achieved by FoundationOne to all facets of genomic alteration. And test performance of the RNA component demonstrated similarly high sensitivity, detecting greater than 99% of known gene fusion that 20% tumor content and 97% of known gene fusion that 10% of tumor content. We are already beginning additional studies that will further support our reimbursement efforts for this product.

As we learned from our market experiences for the test, we expect to share additional insight with you about the addressable market for FoundationOne Heme. Today, we are approaching the market much as we have for FoundationOne. Focused on later stage patients who either lack viable systematic treatment option or who exhausted existing options. Looking ahead at 2014, as we highlighted in our preliminary results and guidance announcement in January, we anticipate introducing an updated version of FoundationOne in the first half of this year that will include an expanded set of genes for solid tumors. In addition, we are building a technology product team led from Silicon Valley and this team is already hard at work and are planned to introduce by the second half of 2014, new features to our interactive cancer explorer that we expect to include outcomes collection capabilities.

Again, it was a great quarter and we look forward to a productive year ahead. With that I’ll turn it over to the operator for questions. Operator?

Question-and-Answer Session

(Operator Instructions). And our first question is from Isaac Ro with Goldman Sachs. Please go ahead.

Isaac Ro – Goldman Sachs

Thanks for taking a question. First of just I want a little bit more about the reimbursement update you offered for us specifically you mentioned working with McKesson code, I just want to make sure I understand that the logic here would be that by getting in code here and hopefully getting that matched up with Palmetto, you could then take that back to your local provider to get a similar level of reimbursement and do you had a view on any other material kind of steps in that process that are worth noting. I am assuming that you have a lot to say in terms of specific timing but any additional color that will be great.

Mike Pellini

Hi, it is Mike. I think you described really nicely in fact and this is part of the comprehensive strategy around reimbursement, and I think there is recognition that specific CPT coding has generated from the AMA is going to play out over time and so we continue to work with the third party payers directly as you know. We have been doing that for fairly extended period of time at least in terms of working with the biggest four five or six third party payers. And at the same time we have been developing this strategy for not only our Macs but also working with national CMS and other Macs around the country. As we work through that process we want to maintain as much as transparency as possible and one of the ways to maintain transparency is not only go into direction of the miscellaneous code which is what we recently did with our Medicare submission but it is also to uniquely identify FoundationOne and FoundationOne Heme with the G code. So we do believe this is something that will lead the reach of all these codes will expand over time and we frankly want to make sure that as we build this relationships we continue to live up to the – I think to the bar that we set in terms of those delivering appropriate clinical utility and being extremely transparent with what we are doing with those government and non-governmental payers.

Isaac Ro – Goldman Sachs

Great, thanks. And just a follow up on utilization. I wondered if you could put some color around how repeat business so to speak look this quarter in terms of the solid tumor and then just sort of what your expectation are for this year as you sort of at the full kind of growth in your volume so how much that you think you can – how much call you can put on the repeat use assumption you are making. Thanks.

Mike Pellini

Yeah, in terms of I think the first question related to the reorder rate size and actually we are still early in the commercialization process so we have just not disclosed this specific reorder rate. We have said its majority of test that come in each week are ordered from physicians who have ordered the test at least once before and as we learned more and as we believe this metric we will continue to add value for I think how the investor community use our sales growth and the growth of our commercial team, we will certainly pass that color and those metrics along to the industry community. I think your second question just related to how we view growth over the course of this year – over the course of going forward – over the course of 2014 and the end of the day we are still learning. We’ve made a tremendous amount of progress in relatively short period of time on the commercial side. We have been pleased with the execution on the test; we’ve been pleased with the demand for FoundationOne and frankly even the early demand for FoundationOne Heme since its recent launch. So I think at this point what we can say is we feel confident in the yearly guidance that we have provided, yet the day – that the year is still young and we are still learning and we will provide more information and more color as it seems appropriate.

Isaac Ro – Goldman Sachs

Thanks, guys.

Operator

Our next question is from Dan Leonard with Leerink. Please go ahead.

Dan Leonard – Leerink Swann

Thank you. So first question, it sounds like we should hear some more data coming out of ASCO on clinical utility, is that when we should also expect to hear some of the data from the studies you are working on decision impact as well?

Vincent Miller

Hey, Dan, it’s Vince, how are you?

Dan Leonard – Leerink Swann

Good, how are you, Vince?

Vincent Miller

Good, ASCO always has been a really busy meeting for Foundation Medicine. And we expect that our present sale continue to grow really commensurate with a growing adoption of our test. This activity of course is really symbolic of the response to our test growth is powerful tool for generating treatment options as well as for providing an opportunity for clinical and translation research. We as you know previously stated that we will up top line data from U.S. oncology decision impact study at or around the mid-year period. I think in response to your broader question we also anticipate a natural evolution from studies that report analytic or clinical validity to those reporting clinical utility as experienced with test growth and other clinical trial mature.

Dan Leonard – Leerink Swann

Got it, that’s helpful. And my second question, have you thought about with your updated capabilities for the interactive cancer explorer coming here in the second half of the year. How do you plan to incentivize physicians to provide outcome data to that portal?

Mike Pellini

Dan, it’s Mike, I think instead I want to be clear with the question around incentivizing clinicians, so what we understand and we certainly learned a lot from our friends over in the tech world as they have launched tools for the broader community to use and share information is that it is essential to deliver information that is meaningful to that clinician the first time he or she uses it. And so we are not – we don’t think about incentive in terms of dollar in terms we think about incentive in terms of providing a tool that impact the way they are thinking about patient care. And it is also one of the reasons why it takes time to deliver and launch what we think is potentially an important new tool for practicing oncologist. It does take a lot of thought and take a lot of careful planning and we want to hit right, we want to hit the first time.

Dan Leonard – Leerink Swann

Got it, and then my final question. Could you provide or maybe you already did and I missed it an update on the number of doctors ordering FoundationOne solid tumor in the fourth quarter. I think you said in the third quarter it was greater than 2,100 but I can’t recall if there was a number offered to the fourth quarter. Thank you.

Mike Pellini

So Dan we did not provide an update on the specific number on oncologist that ordered the test. What we said is that both oncologist and the academic medical centers as well and the community setting continue to grow in number and we certainly like to progress and we also talked about the ratio did, the evolving ratio between community based oncologist and academic based oncologist. One of the reasons why we elect not to continue to just state that there is a take a number of overall physician ordering the test is because we want to continue – we aim to continue to refine the metrics that we will give the investor community and I think over the course of this year, we anticipate providing additional information that really helps to think about our commercial ramp. And so we don’t want to provide numbers for the safety but we want to provide numbers that really give you the appropriate insight the growth of our business.

Dan Leonard – Leerink Swann

Got it, thank you for the time.

Operator

Our next question is from the Geoff Porges with Bernstein. Please go ahead.

Geoff Porges – Sanford C Bernstein

Hi, thanks very much and hi guys. Question about distribution of tumor types. That something that we discussed last year but you haven’t updated at all. And I wondered if you could give us a sense of how that playing out for both FoundationOne and I know it’s very early days for FoundationOne Heme as well. Just so we can get a sense where the utility of the test is emerging. And then any sense of which specific target or therapies you are most enabling, is it particular classes or pre-approved drugs, approved drugs, give us some flavor about would be very helpful.

Vincent Miller

Hey, Geoff, it is Vincent, I will take this one. So from over the past months and quarter I think there has been fairly constant breakdown of the tumor types which we see at Foundation Medicine with the rare and common tumor is making up somewhere around a third of the tumor types we see individually the big three, breast, colon and lung being most common and as the richness of our phenotypic data around the types of patients we are treating specifically first line, second line etcetera, grows with our registry and other initiatives that you are familiar with, we’ll have further insight around that. As you know the power of the test in part with the ability to simultaneously detect all classes of alteration so I think one of the exciting areas would be if you looked at our targeted therapy stated could be efficacious both in the contexts of point mutation, gene infusion, amplification perhaps ligand amplification, and I think you could probably envision one or more of those being testify multiple pharmas. And I think as I mentioned if you look at our publications both submitted and published over the last quarter or two, it really shows the diversity. We show we had the ESR acquired resistance mutation and previously treated breast cancer ER positive, we published this week – earlier this week cholangiocarcinoma and we issued a nice histogram with actionable alternation there including some gene that’s interestingly would have been on people’s radar a year or two year ago like IDH12 for which there are or will be therapies very imminently targeting that type of tumor population.

Geoff Porges – Sanford C Bernstein

That’s great. Then you can just talk a little bit – I know it’s early days about Heme, we are about getting any traction?

Vincent Miller

So Geoff as my intention we are really trying to – it is indeed and its early stages and I think it would be premature to provide color. I think over the coming quarter I will be – there will be quarters that we outline the both of types of patients we are seeing and also insight in the clinical trials program there.

Geoff Porges – Sanford C Bernstein

Okay, thanks very much.

Operator

(Operator Instructions). And our next question is from Tycho Peterson with J.P. Morgan. Please go ahead.

Tycho Peterson – J.P. Morgan

Hey, guys, just speaking a little bit about the panel refresh, can you may be just talk about the rate at which you are adding additional gene, any – are you able to quantify how many genes you are adding and then any comment you can add on whether that changes the pricing dynamic.

Vincent Miller

Hi, Tycho, it’s Vince, I will take the first part. So as you know we continuously scrutinize the content of our test both that ramps at gene that should be order based on, the publicist literature and insight from our pharma partners and genes that might not need to remain on the test. And so I think the net-net that will be an increase in content and we haven’t given the exact number yet so I don’t think it will be any surprises and at a high level I’ll let Mike speak in time in but it shouldn’t affect pricing dynamics.

Mike Pellini

Yes, as we think, Tycho, it is Mike, and as we think about the pricing dynamics, you will recall – I think everyone will recall one of the things that we have actually been talking to payers about for an extended period of time as a matter of fact be frank as one of the things that drew to me Foundation Medicine is this idea of delivering a fully comprehensive profile and ultimately getting paid for that approach at a set price and so why that is important. It is important to the payer because they have to get out of this mindset where every time there is a new finding, every time there is an expansion of test, that’s going to mean another $500 another $2000, another $5000 to the diagnostic workup of the patient, and so we talked to payers, we let to know that our goal as we expand this test as it is clinically and commercially viable to do so, we will maintain a price at the same level, it’s always been a very important part of the strategy and I think it is important part of the way that we build the company.

Tycho Peterson – J.P. Morgan

And on the pharma side, can you may be just talk how you think about that ramps for the remainder of the year, you obviously re-upped or expanded the Novartis agreement, so is there a kind of bullish in front end work there and have you gone back and had discussion with some of the other pharma partners about expanding cooperation as well.

Steven Kafka

Hey, Tycho, it’s Steve, I will be happy to take that. I mean just on your last point I would say that absolutely it remains a really important part of our strategy to migrate these relationships to longer-term strategic and multi component sort of relationship like you are seeing with Novartis and so those discussions are ongoing. And I think that helps us first and foremost in terms of really delivering value to the partner, both around working on a large number, a large part of their portfolio but also importantly really delivering that information value and the other piece of it is – does help from a business perspective to smooth out some of the revenue components over time. We have not broken out our revenue guidance in 2014 in terms of the clinical versus the pharma component, but it certainly safe to assume that as you have seen now there is a clinical component really overtake pharma on quarterly basis now would continue to accelerate over the course of the year. Just as the volumes of our clinical business really continue to grow.

Tycho Peterson – J.P. Morgan

And then last one. Can you may be just touch on the competitive dynamics, are you running into competitors [Deep Caris and Practical Brothers] any more in the market today and I just want to make sure I understood the comments. Did you say the majority of tests orders were repeat customers and if that’s the case why, was there more traction from new customers? Thanks.

Mike Pellini

So I will take the second first, Tycho, it is Mike. I don’t want – certainly didn’t want the statement about the greater number of test order each week coming from repeat customers than new customers to – we seen as a negative. We are seeing growth in both categories, we are seeing new customers each week and as I said both in the academic and as well as in the community setting. But one of the things that we have always measured is the percentage of tests – of the test that in fact from repeat customers. Of course, that’s the way that you build the business. And as we translate that into the growth our commercial team which Steve talked about, one of the critical thing that our commercial team has to do before they or – somewhat in parallel but I’ll say before they completely just go after new business is they still have to get out and see our clients who have ordered FoundationOne for the very first time and that’s just an important part of – they are for several months into a new territory. So we like what we see on the commercial adoption side and frankly we also like what we see in terms of greater percentage of test coming in each week from current customers simply instead of all the new customers. In terms of the overall competitive dynamics, there is – I can go for a while on that question but I’ll try not to because I think first and foremost understand that we launched more than 18 months ago and we have still a really meaningful lead and that lead that personal advantage has proven to be quite important in the oncology arena as you know. As of today, and as we approach two years out from our commercial launch at outgoing 2012, we just really don’t see any comprehensive approach that’s competing with us in the market. We have seen other tests that are entering the market today are not FoundationOne like. One of the things that we talked about, just going back to JPMorgan conference a month ago is this idea that we describe these other tests that are much more narrow in breadth, they don’t have the same accuracy, and they don’t have the same completeness. We quick to mention this category to – into this category two area. As opposed to category one testing which is the standard molecular test has been around for long time, the standard PCR-base test, the standard FISH-based test and as opposed to the FoundationOne like test that we call category three. So if you look at the category two segment which is kind of just narrow panel area, there is a lot of noise in that category two space and we do expect more of these tests to hit the market over the course of the next year. But our market today is represented by the million or so patients living with metastatic disease and we believe our strength is growing in this market. So again I can go on for a bit on that but I will pause there and see if there are any follow on questions.

Tycho Peterson – J.P. Morgan

No, that was actually really helpful color. So thanks a lot. Thanks.

Operator

And there are no questions in the queue at this time. Please proceed with any closing statements.

Mike Pellini

Great, thanks, operator. In closing, our stated goal is to broaden the use of our platform as widely and rapidly as we can so that more and more physicians will harness our information to better serve their patients. If we progress against this goal as intended, Foundation Medicine will be truly successful in meeting the expectations and promise of shareholders, employees, research partners, physicians and most importantly patients. I would like to end with a note of appreciation to our employees who make everything we do profitable. We have the best team in the business. And thank you each of you again for taking the time to listen and participate today. We appreciate the support and confidence and we look forward to reporting our first quarter result in the spring. Good afternoon and thank you.

Operator

Ladies and gentleman that does conclude the Foundation Medicine 2013 fourth quarter and yearend results. Thank you again for your participation. And you may now disconnect.

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