this level of validation from a large pharmaceutical company. With the support of big-named backers like Bill Gates and Yuri Milner, Foundation had an easy time raising private money, then pulled off one of the rare successful IPOs in the diagnostics field last year.
From there, however, Foundation really hadn’t really taken off until today. Shares on Friday closed just $6 over its $18 debut price in the fall of 2013.
What’s more, the company still loses money, and for all its technological accomplishments, it has major hurdles to clear. It must convince major insurers to cover its tests—chiefly Medicare, whose patients account for some 30 percent of the FoundationOne tests ordered to date. And it must convince oncologists to use its tests to guide their treatment decisions. These types of challenges form the mountain that every diagnostics startup must climb to succeed.
“There are a lot of companies that have come up with great tests, but when they try to bring them to market, they’ve been killed in the process,” says Thomas McLain, a veteran of the industry and the CEO of Cambridge-based Exosome Diagnostics, which is developing a type of liquid biopsy technology.
Getting insurers to pay for tests like Foundation’s is a long arduous slog, with the ultimate goal of “coverage decisions”— insurance-speak for making reimbursement automatic. But because all payers have different requirements, there isn’t one specific piece of evidence or another Foundation can use to win over all payers. So Foundation, as Pellini told me late last year, is “casting a wide net.” It’s running one clinical trial after another, publishing papers in peer-reviewed journals, releasing posters at scientific meetings, trying to demonstrate the value of its tests.
“Our position has been to err on the side of doing as much as humanly possible and hope that’s enough,” he said at the time.
Until Foundation gets the much-coveted automatic reimbursement, getting paid is an uncertain negotiation, with the list price as a starting point. A claim is submitted, and Foundation basically waits to see when the check comes in and how big it is. While Foundation isn’t getting paid for any of its Medicare tests as of yet, Pellini said it does for the “significant majority” of the other 70 percent of its ordered tests. How fast Foundation is reimbursed, and how much, varies, but the typical cash back per test is around $3,500, Pellini said. Foundation has told Wall Street that its reimbursement challenge to get the major payers on board is a “five year effort,” with about three years to go.
There have been positive steps. Last year, Ann Arbor, MI-based Priority Health began reimbursing Foundation’s tests for its 600,000 members. And Google began offering Foundation’s tests to its employees (the company’s VC arm, Google Ventures was a key early investor in Foundation and remains one of its largest shareholders, with an 8.7 percent stake as of an April proxy filing). The amount of tests ordered have steadily increased each quarter. The 6,428 in the past quarter were its highest, up from the 5,908 the prior quarter and 4,702 the quarter before that.
These are small steps for sure. Foundation also needs to see adoption among academic and community oncologists, and there are a few positive signs on that front, as well. Ramp up has been strong so far—as of its last quarterly report, 2,100 doctors from large academic centers and community practices had ordered FoundationOne since its June 2012 launch.
In addition, the National Comprehensive Cancer Network, a non-profit alliance that helps establish practice guidelines for oncologists, endorsed broad molecular profiling (generally, not Foundation’s products specifically) for the majority of patients diagnosed with Stage IV non-small cell lung cancer.
But the company has its share of critics who believe that broadly profiling tumors with an expensive test doesn’t accumulate more useful signals, just more noise.
Here are some thoughts on Foundation, for instance, from Dr. Bradley Monk, a director of gynecological oncology at St. Joseph’s Hospital in Phoenix, who does drug development and translational science and contracts with Foundation for some of the trials he runs.
“I think it’s a research tool,” he says of the company’s test. “The way I use Foundation is if I’m trying to investigate a drug. I’ll treat a whole bunch of patients with it, and I’ll require a biopsy that’s sent to Foundation, and then we’ll look for a molecular marker that predicts response. I don’t use them very often to treat patients.”
The reason? “Although you can identify what you call actionable mutations, I’m not sure that those actionable mutations are ‘driving’ the cancer. I think they’re passengers—in other words they’re just there,” he says.
Monk, instead, views Foundation’s tests as more applicable in
