Why Shares of Foundation Medicine, Inc. Skyrocketed Today

By George BudwellFool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Foundation Medicine rose by more than 116% Monday morning after the company announced a collaborative agreement with the Swiss pharma giantRoche forits genomic-based cancer diagnostic tests. Per the terms of the deal, Roche will purchase a 56.3% stake in Foundation Medicine for a reported $1.03 billion.

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Breaking this down a bit further, the pharma giant isbuying 15.6 million shares of Foundation at $50 a share for a total of $780 million. On top of that, Roche will purchase an additional 5 million newly issued shares, also at $50 per share, for $250 million.

Although Foundation will remain an independent entity after this deal, Roche willhelp market Foundation's current cancer products and provide another $150 million to develop additional tests.

So what: Roche appears to be feeling the heat from its competitors like AstraZenecaand Bristol-Myers Squibb, both of which have recently made major strides toward bringing game-changing new oncology products to market. At present, Roche still remains the world's largest cancer drugmaker, but it has fallen behind some of its rivals in terms of developing next-generation types of treatments. This deal, in my opinion, is a move to rectify that disparity.

Now what: There is little doubt that molecular-based diagnostic tests are going to play a huge role in the fight against cancer. Indeed, Exact Sciencesis already proving this to be the case with its newly approved colon cancer diagnostic Cologuard.

That said, the long-awaited "personalized" approach to oncology care via genomic testing has gotten off to a notably slow start, largely due to funding issues and the sheer complexity of cancer genetics.Now that a big player like Roche has taken an interest, this might be a sign that the tide is finally starting to turn. So stay tuned!

The article Why Shares of Foundation Medicine, Inc. Skyrocketed Today originally appeared on Fool.com.

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