Roche Holding AG plans to pay more than $1-billion for a majority stake in Foundation Medicine Inc. to get access to genomic tests for screening tumors and to develop a new generation of treatments for fighting cancer.
Roche will buy 5 million new shares of Cambridge, Mass.-based Foundation for $50 each and make an offer to purchase stock from existing investors for the same price to take its stake to as much as 56 per cent, the companies said in a statement today. The offer values Foundation shares at more than double their closing price last week.
The transaction will give Roche, the world's biggest maker of cancer drugs, more tools to boost sales of those medicines by helping doctors choose the right treatment for patients. Roche and Foundation also plan to develop a profiling test to be used for immunotherapies, or treatments that aid the immune system's attack against tumor cells.
"Pharma companies are increasingly looking for patient populations that are going to benefit most from their drugs, and diagnostics is an integral part of that process" Samir Devani, a biotech analyst at Rx Securities in London, said by telephone today. "This shows that treatments will become more and more individualized."
Foundation shares more than doubled to as much as $54.28 as some investors bet that Roche will have to pay more to acquire the stake, before paring some gains to trade at $48.33 as of 12:43 p.m. in New York. Roche rose 1.6 per cent to 282.60 Swiss francs in Zurich, extending the stock's climb over the past year to 14 per cent, including reinvested dividends.
"We believe that the offer terms are full and fair," said Nicolas Dunant, a Roche spokesman, adding that Foundation Medicine's board unanimously recommended Roche's offer to its shareholders. Dunant declined to say whether Roche's offer is final.
Foundation's largest shareholder, Boston-based venture capital firm Third Rock Ventures LLC, committed to vote in favor of the transaction and tender at least a majority of its holding, according to the statement. Investor Kleiner Perkins Caufield & Byers, based in Menlo Park, California, as well as Google Ventures also agreed to those terms.
Roche, based in Basel, Switzerland, gets the rights to sales of Foundation's tests outside the U.S. as part of the transaction, which is scheduled to be completed in the second quarter.
Foundation makes one genomic test for solid tumors and one for blood cancers. The diagnostic tests take a tissue sample from a cancer and analyze it for gene mutations that could be causing tumor growth. That information can help doctors pick the best possible drug.
Roche is committing to provide what may be more than $150-million of research-and-development funding for at least five years as part of the transaction.
"This is a transformational relationship for us," Foundation Chief Executive Officer Michael Pellini, who will continue to lead the U.S. company following the investment, said in a telephone interview. Foundation, which sold shares at $18 each in an initial public offering in September 2013, closed at $23.93 in New York on Jan. 9.
The tests are particularly attractive to drugmakers working on a new wave of cancer treatments that rely on personalized approaches. Foundation has sold about 35,000 of its tests worldwide, according to Pellini.
"This is fully in line with the patient-based approach to cancer that Roche described several times in the recent past," Eric Le Berrigaud, an analyst at Bryan Garnier & Co. in Paris, said in a note to investors. "In cancer, molecular information is key to make the right choice as the number of therapeutic options significantly improves with new approaches."
Foundation has partnerships with about 25 biotechnology firms and pharmaceutical companies, said Pellini, including Novartis AG and Johnson & Johnson. Current and future partnerships won't be affected by the Roche deal, he said.
Pellini, who has been CEO since 2011, was previously president of cancer diagnostic company Clarient, which was sold to General Electric Co.'s health-care unit in 2010 in a transaction valuing the company at about $580-million.
Four of Foundation's founding advisers hold positions in cancer research at Harvard Medical School. Eric Lander, one of the advisers, is also president of the Harvard-affiliated Broad Institute and was a key leader of the Human Genome Project.
Goldman Sachs Group Inc. is financial adviser to Foundation on the transaction, and Goodwin Procter LLP is serving as legal counsel. Citigroup Inc. is financial adviser to Roche, with Davis Polk & Wardwell LLP acting as the Swiss drugmaker's legal adviser.