Dive Brief:
- Exact Sciences is buying fellow cancer technologies firm Genomic Health in a $2.8 billion deal announced Monday. Between the companies' currently marketed tests — Exact Sciences' Cologuard for colorectal cancer diagnosis and Genomic Health's Oncotype DX tests for predicting response to cancer treatments and quantifying recurrence risk — executives forecast the combined company to generate $1.6 billion in pro forma revenue in 2020.
- Exact also reported second quarter revenue of roughly $200 million, up 94% from a year earlier, while operating expenses jumped 68%. The company added 13,000 first-time ordering-physicians during the quarter, bringing the number of U.S. providers adopting Cologuard to about 174,000. Genomic Health reported second quarter revenues of about $114 million, projecting close to 15% year-over-year growth for the full year.
- If cleared by regulators, the combined company will employ roughly 1,000 people and is slated to have an R&D budget of about $200 million. The deal is expected to close by the end of 2019.
Dive Insight:
Amid an increasingly crowded market for cancer detection technologies, the deal immediately diversifies Exact Sciences' cancer disease focus to also include breast and prostate cancers. Together with its existing colorectal cancer focus, the company will have diagnostic products targeting an estimated 40% of all solid cancer tumors.
Since Exact Sciences launched its flagship stool test for colorectal cancer in late 2014, 2.6 million people have reportedly been screened using Cologuard. Recognized revenue per test held steady last quarter at $479, while cost to the company per test was lowered slightly to $123.
Exact Sciences credited part of the sales growth during the quarter to its maturing marketing partnership with Pfizer, now almost a year old. More than 80% of Exact Sciences' customers are primary care providers, but the company is looking to expand its marketing channels. CEO Kevin Conroy said on a call with investors Monday that 60 people were added to its GI sales force this month.
The Genomic Health partnership could offer Exact Sciences key relationships with oncologists. "Today, as a cancer diagnostics company, we lack an oncology sales force," Conroy said. Another benefit is Genomic Health's San Francisco Bay area location, Conroy said, "providing lab infrastructure in a state where the Medicare Administrative Contractor participates in the MolDx [molecular diagnostics] program, which may facilitate reimbursement of future liquid biopsy products," according to a company press release.
Genomic Health CEO Kim Popovits said her company has also studied potential tests addressing renal and bladder cancer.
Other upcoming growth drivers for Exact Sciences are an FDA label expansion for Cologuard to the 45 to 49 years-old age group, which Conroy said the company expects to come through in the first half of 2020. The company is currently testing a blood-based liver cancer diagnostic, part of its long-term goal to develop diagnostic tests for the 15 deadliest cancers with help from the Mayo Clinic.
Conroy declined to specify timelines for an international expansion of Cologuard or other forthcoming products.
Excluding the transaction announced Monday, Exact Sciences raised full year revenue guidance to $800 million to $810 million for 2019, up from the $725 million to $740 million previously estimated.
Potential competitors in the space include Roche, Guardant Health, Grail and Freenome; the latter announced a $160 million fundraising round last week, to be used in part for running a pivotal study to support an FDA submission for a blood-based colorectal cancer diagnostic.
"This could potentially be one of the bigger deals for specialty labs," Cowen analyst Doug Schenkel wrote to investors ahead of the announcement Monday, noting Roche's acquisition of Foundation Medicine last summer as an exception. "Perhaps it is possible that the sector is on the cusp of a long-awaited period of consolidation," Schenkel added.
