Financing Deals of the Year Nominee: Foundation Medicine

It's time for the IN VIVO Blog's Fifth Annual Deal of the Year! competition. Once again we're presenting awards in three categories to highlight the most interesting and creative deal making of the year. The categories are M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply a half dozen nominations in each category throughout December, and you, the voting public, will decide the winners, voting early and often once we've announced all the nominees. Strap yourselves in, it's The Race for the Roger™.

It’s difficult for physicians to access wide-ranging genomic analyses for patients and to then incorporate those into their treatments. But Foundation Medicine aims to make that process simple. It provides oncologists with a genomic analysis of a patient’s tumor. And then takes the next step – offering information on drugs and clinical trials that might be useful based on the patient’s genomic information.

Foundation Medicine made the Deals of the Year short-list with a $42.5 million Series B round to finance the marketing of its first product, FoundationOne. Launched in June, this test identifies all classes of genomic alterations (including copy number alterations, insertions, deletions and rearrangements) in about two hundred cancer-related genes. These are genes known to be altered in solid cancer patients, based on the scientific and clinical literature. FoundationOne also provides a list of drugs associated with the specific alterations that are FDA approved, in clinical testing or likely to enter the clinic in the next 12 to 24 months.

The idea is to delve deeper into a larger number of genetic alterations than is now typically analyzed, thereby enabling more accurately targeted treatment. FoundationOne found at least one genomic alteration that leads to a subsequent actionable treatment in 325 (77%) of 441 solid tumor patients, according to data presented by the company in June. Of these 325 patients, only 35% had genetic alterations that would have been found with currently available “hot spot” or single gene tests.

In addition to data on a specific patient, oncologists will someday be able to access a database about patients with similar genetic alterations as well as their treatments and outcomes.

The logistics of FoundationOne go like this: physicians’ offices send a standard tissue sample from a biopsy that is formalin-fixed and paraffin-embedded via overnight delivery. Then, within 14-21 days, the company provides a paper or online report to the doctor. Pellini said the 21-day deadline is crucial to oncologists, who typically schedule a follow-up patient visit to determine therapy around that time. He added that Foundation is aiming to reduce that gap closer to 14 days.

The list price for FoundationOne is $5,800. The company negotiates with the insurer to determine the reimbursement amount. Commercialization won’t be easy to navigate, as Foundation navigates adoption and reimbursement issues. Plus, major cancer genomics players like Illumina and Life Technologies are likely to get increasingly savvy about making their products more useful for and accessible to physicians, not just scientists. But the quest of the big boys to establish themselves in genomic cancer analysis may also provide a field of potential acquirers for Foundation.

This year’s financing was designed to get Foundation generating sufficient revenue to help push the business to the next level. The company anticipates a 2013 launch of a test for genetic alterations in hematologic malignancies. It also expects to release several datasets supporting the usage of its tests during 2013 and 2014.

In 2012, Foundation was very active on the deal-making front with at least seven newly disclosed partnerships with drug makers to help develop genetic tests for candidates in clinical development.

All the new investors in the Series B round were either public crossover investors or strategic investors. The former include Deerfield Management, Casdin Capital and Redmile Group, while the latter include Roche Venture Fund, WuXi Corporate Venture Fund and one undisclosed investor.

Third Rock Ventures, the founding investor, Google Ventures and Kleiner Perkins Caufield & Byers were all existing investors before the most recent round. Since inception in April 2010, Foundation has raised $86 million in total venture financing.

--Stacy Lawrence

image by flickr user Paul Goyette under creative commons license

2011 Exit/Financing of the Year Nominee: Quanticel

It's time for the IN VIVO Blog's Fourth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (a half dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

Time was, the only words scarier than "carried interest tax" to a venture capitalist were "capped upside." So when Versant Ventures launched its latest portfolio company, Quanticel Pharmaceuticals, in early November, it was obvious we had entered a new era.

Incubated for more than a year at Versant, Quanticel is a genomic analysis firm spun out of two Stanford University labs, and Celgene has not only signed up for exclusive three-and-a-half-year rights to the technology but also has options to buy Quanticel outright. All for an upfront fee of $45 million.

In other words, Versant, the only venture investor in the company, is taking a higher ownership stake in exchange for a prenegotiated acquisition price -- a capped upside. Brad Bolzon, the Versant managing director involved in the deal, calls it a "different risk-reward ratio" than the traditional venture model, and he says he's looking to craft similar upfront arrangements with potential acquirers. Celgene could owe more milestone payments beyond the initial outlay; the triggers and conditions for their acquisition options are undisclosed.


To sweeten the lure, Quanticel wants to build its own pipeline in oncology indications unclaimed by Celgene. Their single-cell genomic analysis technology aims to shed light on the role of drug resistance due to tumor cell heterogeneity, which is the increase in the genetic diversity of cells as the tumor expands from a single ancestor. The aim is to learn which cells grow resistant to a drug regimen over time, and target new drugs, or combinations of existing drugs, accordingly. A top Celgene executive says the company has already chosen a number of cancers to which Quanticel's analysis should be applicable (but wouldn't disclose details).

The drumbeat for biotech investors and entrepreneurs working more closely with potential pharma acquirers is growing louder. Until the IPO returns as a viable exit strategy, if ever, drug companies with cash will have leverage to shape early-stage R&D and company formation, and investors still interested in company formation are wising up. (We were going to say "caving in," but we'll only go so far for a cheap joke.)

Celgene knows the score, too. In 2010 it paid handsomely ($130 million) to grab exclusive rights to much of the still-preclinical work at the cancer metabolism research firm Agios Pharmaceuticals, a tie-up that won last year's Roger for Alliance Deal of the Year. Agios isn't necessarily tied to Celgene's hip, however; it closed a $78 million C round in November to fund a rare genetic disorder program beyond the scope of the Celgene alliance.

Not so with Quanticel, with platform and pipeline bound tightly to its potential acquirer from the get-go. "We hope it ends in an acquisition by Celgene," Quanticel CEO Stephen Kaldor told us. "That's the design."

Photo courtesy of flickrers robstephaustralia via a Creative Commons license.