Why Roche acquired Foundation Medicine and Flatiron Health

Roche Pharmaceuticals CEO
Daniel O’Day
Reuters

• Roche in June bought out the rest of cancer genetics
  company Foundation Medicine that it didn’t already own for $2.4
  billion. 
• It was the company’s second cancer data-related
  acquisition of the year after Roche scooped
  up Flatiron
  Health for $1.9 billion.
• Roche Pharmaceuticals CEO Daniel O’Day told Business
  Insider why the company brought both of the companies directly
  under Roche in such quick succession. 

Swiss pharma giant Roche has been making big bets on cancer data.

In June, it
acquired the rest of cancer genetics company Foundation Medicine
that it didn’t already own for $2.4 billion.

It was Roche’s second cancer data-related deal in 2018. In
February, it paid $1.9 billion for the New
York-based healthcare technology startup Flatiron Health,
which collects clinical data from cancer patients — such as what
medications patients have taken and how they have responded to
them.

Business Insider spoke with Roche Pharmaceuticals CEO Daniel
O’Day about how the two deals came together.

How majority stakes led to full-out deals

The Roche Group is made up of a number of different
businesses, spanning from
diagnostics to cancer drug development, and it’s had a
longstanding relationship with both Flatiron and Foundation.
Roche’s Genentech arm had been one of Flatiron’s early clients
back in 2013. Then toward the end of 2015, Roche led the
company’s 
$175
million Series C
.

As Flatiron was starting to fundraise toward the end of
2017, its leadership team started chatting more with
O’Day.

“We sat down at the end of last year, and said we can both be
successful continuing to do what we’re doing and working in
partnership on our own,” O’Day said. “But we both felt that we
could accelerate each other’s missions a great deal if we became
one entity.”

That same rationale, O’Day said, applied to Foundation
Medicine. 

A few years ago, O’Day started discussing funding with Michael
Pellini, who was then the CEO of Foundation. 

“So Mike and I sat down, and we said — they were also considering
traditional funding rounds — and we said is there a way for the
same rationale, expertise and capital coming together and that’s
when we decided to take a majority stake,” O’Day said. Roche
ultimately took a majority stake in Foundation in
January 2015, which made sense at the time to O’Day over a full
acquisition. 

“At that time, Foundation Medicine was at a different state at
their evolution. We firmly believed in them but they were still
really establishing their presence in the market,” O’Day said.
“So we thought majority share at that time would be appropriate.”

Working with Foundation, Roche co-developed a number of tools to
accompany the drugmaker’s cancer drugs. Eventually, a full
acquisition was on the table. 

“We just came to a point this year where we said, “It’s worked
well in majority ownership why don’t we take it to the full
level?'” O’Day said. 

Keeping autonomy

A Swiss pharmaceutical giant, a cancer genetics company, and a
New York City tech startup don’t exactly have the same work
culture. To that end, as part of both the Flatiron and Foundation
acquisitions, Roche emphasized the importance of keeping the two
companies autonomous.  

“It’s a unique model because although it’s full ownership, as you
know we will keep them quite autonomous,” O’Day said. “That’s
important for a number of reasons. They’re different companies
than Roche, different environments, different cultures, very
entrepreneurial, we want to keep and respect that.”

As a result of autonomy, both Foundation and Flatiron can still
work with other pharmaceutical companies, as well as academic
researchers. For example, Foundation is working with
Bristol-Myers Squibb on tests that determine how many
tumor mutations a particular cancer patient has as a way to see
if he or she might be a good candidate for BMS’s immunotherapy
treatments. 

“You might say, well, this is all good for Roche, why are you
sharing with other companies?” O’Day said. “I think it’s a move
that a leader in a field would make.”

One way where the data Flatiron and Foundation collect could come
in handy for drugmakers is through clinical trials. For example,
the data Flatiron collects on how cancer patients are responding
to a certain drug regimen could be used in a clinical trial to
simulate a control arm. In cancer drug trials, drugmakers have to
stack up their experimental drugs in comparison to the standard
way that particular cancer is treated. But if that half of the
trial could be simulated, it could save drug companies like Roche
time and money. 

But virtual control arms are a long way from passing FDA scrutiny
as a way for drugmakers to submit data on their experimental
drugs. Having other drugmakers add to that evidence as to why the
FDA should allow it would help Roche make its case. 

“If you’re going to go to the FDA and get a new standard, you
have to do that with a community,” O’Day said. “The more
companies we can get to work and to validate the data from
Flatiron, the more we can change standards, and that’ll be good
for the whole industry, and that’ll be good for us.”