FMI Stock Forecast: Foundation Medicine Rallies As Acquisition Announced
This article was written by Julia Masch, a Financial Analyst at I Know First.
“Molecular insights and the broad availability of high quality comprehensive genomic profiling are key enablers for the development of, and access to, new cancer treatments.”
–Daniel O’Day, CEO of Roche Pharmaceuticals
Highlights
- Roche’s Acquisition of Foundation
- The Future of Foundation
- Current Bullish I Know First Forecast For FMI
Foundation Medicine, Inc. (NASDAQ: FMI) is a company specializing in molecular information and cancer. Using their technologies, Foundation can identify alterations in a patient’s molecular makeup which then allows a more targeted treatment that emphasize each individual patient’s case. Over the past year, FMI has more than doubled with a whopping increase in stock of price of nearly 220%.
Making A Merger
Roche Holdings recently announced an acquisition of Foundation Medicine, Inc. (NASDAQ: FMI). Outstanding shares will be purchased in cash at a price of $137.00 valuing the outstanding shares at $2.4 billion and the whole company at $5.3 billion. This purchase price stood at a premium of 28.5% to the closing price on June 18 and was well above (47% and 68%) above Foundation’s 30 day and 90 day volume-weighted share price. The high price to sales ratio indicates that Roche has high expectations for Foundation and the market they are a part of. On June 19, the stock surged immediately opening and hit a new all time high of $137.20 before ending the day with gains of 28.46%.
(Source: Yahoo Finance)
Roche already maintained a majority stake in Foundation. The company finally decided to acquire the entire company when their standstill agreement ended earlier this year. Roche expects that the acquisition will further the collaboration that already exists between the companies.
The deal is expected to be completed in the second half of 2018. The only challenge for the acquisition is legal investigations; both Rigrodsky & Long, P.A. and WeissLaw LLP are investigating Foundation’s Board of Directors to determine whether they acted in the best interest of shareholders. However, no suits have been filed so as of now these investigations are simply a witch hunt. Every board member has agreed to tender their shares and since Roche already owns the majority of shares, the deal should go off without a hitch.
Foundation is expected to stay relatively autonomous following the buyout in typical Roche acquisition fashion. Roche acquired Genentech in a similar manner, owning 56% of stock before purchasing outstanding stocks at twice the trading price. Since then, Genentech has maintained independence under Roche and has grown tremendously. The newest Foundation merger follows Roches $1.9 billion purchase of Flatiron Health Inc. earlier this year. Together, these 2 deals are the largest Roche has made since 2014.
Instead of investing in pharmaceutical companies already testing out new drugs, Roche opts for atypical companies providing such as Roche which uses comprehensive genetic profiling (CGP) to identify and then target cancers. Foundation’s cancer detection and targeting strategies will allow Roche access to tons of data about cancer and cancer identification which it can utilize to create new drugs. Roche outspends all other pharma firms in R&D.
As a parent company, Roche will continue to invest in Foundation and their products while using their data to find even more cancer solutions.
The Future for Foundation
Roche has already been marketing Foundations products in other countries, but recently, Foundation won FDA approval for its FoundationOne CDx which assesses genomic alterations in genes known to instigate cancer growth. Additionally, FoundationOne can also be used as a broad companion in particular cancers to identify targeted therapies and relevant clinical trials. Meanwhile, Foundation is currently working to expand the types of cancer this functions with to widen its potential market reach.
Currently, only 150,000 people are being tested by FoundationOne CDx, but thanks to a newly introduced reimbursement from Medicare this number could skyrocket to over a million as the technique begins to be used for people with advanced cancers. The market for cancer treatment is massive and FoundationOne can become the dominant strategy for patients and oncologists to determine the best type of personalized treatment. The data from these screenings can also be used and find gaps in treatments and see where the company can create new ones.
Additionally, Foundation has been completing many studies to identify new cancer markers and add to the FoundationOne dictionary. These studies can inform more precise treatment of aggressive cancers. As more tumor types come into play, FoundationOne can adapt and look into the causes. Foundation’s studies are also helping to predict the response of various therapies and their effectiveness on the patient. The studies will continue to add to Foundation’s portfolio of CGP assays.
Technical Analysis
A technical analysis of FMI shows only bullish indicators for Foundation. The stock price is currently well above the 50 day (purple) and 200 day (light blue) simple moving averages (SMA) thanks to the recent jump in price following the acquisition announcement. Additionally, the 50 day SMA has consistently been well above the 200 day SMA. Finally, there has been a spike in trading volume which shows momentum for the stock.
(Source: Yahoo Finance)
Analyst Recommendations
The majority of analysts currently have Foundation Medicine rated as a hold with one choosing a strong buy position.
(Source: Yahoo Finance)
Current Bullish I Know First Forecast For FMI
At the moment, the I Know First self-learning algorithm has a bullish forecast for Foundation Medicine for the 1 month, 3 month, and 1 year time horizons. While the strongest signal is for the one year period, it is relatively irrelevant because if things go as planned with the acquisition, FMI will not be a publicly traded company in one year. However, this does signify a bright future for Foundation and, as an extension, Roche Holdings.
Conclusion
Despite the fact that the current I Know First forecast for FMI and the technical analysis show bullish momentum for Foundation, I’m hesitant to put a strong buy signal on it as it will be acquired by the end of the year. If you are looking to make a quick buck, it is a strong move as it is currently trading at $136.60 and any shares will be bought in cash for $137 once the acquisition is finalized. However, this would represent a gain of only 0.02% and would only show strong increase with a large purchase of shares. Another alternative is to look into Roche, which has a myriad of pharmaceutical companies under its belt and the ability to develop and dominate the cancer identification and treatment with its newest acquisition in combination with its prior holdings.
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Please note-for trading decisions use the most recent forecast.
