Exact Sciences said today it has agreed to acquire Genomic Health for $2.8 billion in cash and stock, in a deal intended to create a leading global cancer diagnostics company.

The combined company’s offerings will include Exact Sciences’ Cologuard diagnostic, designed to detect colorectal cancer, and Genomic Health’s Oncotype DX, which informs treatment decisions in breast, colorectal, and prostate cancer. According to the companies, those offerings will provide “a robust platform for continued growth” which, when combined with a commercial presence in more than 90 countries, will enable it to further increase adoption of current tests and launch new cancer diagnostics.

“Combining industry pioneers Exact Sciences and Genomic Health is a pivotal step toward building the leading cancer diagnostics company in the world,” Exact Sciences Chairman and CEO Kevin Conroy declared in a statement. “Together, with our collective resources and broader platform, we will be able to provide our existing tests to more people, while also accelerating the development and launch of future cancer diagnostic tests.”

“Uniting the best minds and molecular diagnostics capabilities will advance the fight against cancer,” Conroy added.

Canaccord Genuity analyst Mark Massaro said in a note to investors that the combination of Exact Sciences and Genomic Health “does make sense over time. But, we think investors are often near-sighted and may not like the deal right away given a lack of immediate commercial synergies.”

For example, Massaro wrote, Exact Sciences tests—which the company co-promotes with Pfizer—are ordered by primary care physicians and OB-GYNs, while Genomic Health tests are marketed to specialists such as oncologists, surgeons, pathologists, and urologists.

“In GHDX (Genomic Health), EXAS (Exact Sciences) would gain access to a strong sales force calling on cancer specialists, urologists and pathologists, a new call point for EXAS, who wants to offer tests for screening and monitoring of many cancers. EXAS could leverage these reps for future test launches across cancer states in treatment selection/recurrence monitoring,” Massaro observed.

Moving Beyond Screening

Exact Sciences would also acquire five genomic tests that leverage similar PCR molecular diagnostic technology as its own tests, Massaro wrote adding: “The GHDX tests (which include both tissue and liquid biopsies) would expand EXAS’s focus from screening (alone) into treatment selection and monitoring, which are highly attractive markets.”

The companies cited opportunities for growth in both their flagship products.

Exact Sciences said that its Cologuard had captured less than 6% of the addressable market of people over 50 years old, a total available U.S. screening market the company said totaled $15 billion. An additional potential $3 billion market opportunity for Cologuard among people ages 45-49 has also been projected. Exact Sciences said Cologuard had grown its customer base to nearly 174,000 health care providers who had ordered the test since its launch, with a goal of reaching a 40% market share “over the long-term.”

Separately today, Exact Sciences released second quarter results showing a near-doubling (94.3%) of quarterly revenue year-over-year, to $199.9 million, with approximately 415,000 people screened via Cologuard.

Genomic Health said its Oncotype IQ portfolio has guided personalized treatment decisions for more than 1 million cancer patients worldwide, generating more than 19% year-over-year overall revenue growth in the second quarter, up to $14.1 million, with $15.987 million in net income, nearly double (92%) from Q2 2018. Genomic Health estimated that its Oncotype DX suite of products in oncology and urology have a total available market of $2 billion.

Exact Sciences and Genomic Health said the combined company expects to generate approximately $1.6 billion in revenue, and approximately $1.2 billion in gross profit, in 2020. However, the companies plan to generate annualized cost reductions or “synergies” of approximately $25 million within the third full year after closing of the deal, primarily by reducing public company costs and optimizing purchases.

Bay Area Presence

The combined company plans to expand on Genomic Health’s presence in the San Francisco Bay Area—Genomic Health is based in Redwood City, CA, while Exact Sciences has been based in Madison, WI. A Bay Area presence will give the combined company lab infrastructure in a state where the Medicare Administrative Contractor participates in the MolDx program, which Exact Sciences and Genomic Health reason may facilitate reimbursement of future liquid biopsy products.

According to the companies, the combined commercial organization will have a workforce of more than 1,000 people, including sales, marketing, and reimbursement team members, as well as “the financial strength to support a high level of investment in R&D”—including ongoing R&D to identify proprietary biomarkers across the 15 deadliest cancers, while continuing to advance current products.

Genomic Health stockholders will receive $27.50 in cash and $44.50 in shares of Exact Sciences stock for each share of Genomic Health common stock they own, subject to a 10% collar centered on Exact Sciences’ volume-weighted average price for the 45 trading days ended July 26.  The total per-share consideration represents a premium of approximately 19% to Genomic Health’s volume-weighted average price (“VWAP”) for the last 30 trading days ending on July 26, the last trading day before today’s announcement.

Upon closing, Exact Sciences shareholders are expected to own approximately 91% of the combined company, and Genomic Health stockholders are expected to own approximately 9%, the companies said.

The deal is subject to the approval of stockholders of Genomic Health, plus customary closing conditions and regulatory approvals. Shareholders that collectively own approximately 25.3% of Genomic Health’s outstanding shares—a group that includes Felix and Julian Baker and certain funds advised by entities with whom they are affiliated— have entered into agreements to vote in favor of the transaction, the companies said.

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