EXACT Sciences Corporation (NASDAQ:EXAS) has reportedly secured a cash and stock deal that will allow it to acquire Genomic Health (NASDAQ:GHDX) for about $2.8 billion.
The deal will help improve EXACT Sciences’ prostate and breast cancer testing capabilities. This is because the acquisition will merge its colorectal cancer Cologuard non-invasive stool screening test with Oncotype diagnostic tests developed by Genomic Health to test for different types of cancer. The acquisition will help EXACT Sciences to focus on monitoring and treatment selection which represents a highly lucrative market.
“We have a one plus one equals three here… We’re looking at a potential combined market opportunity of $20 billion total, of which less than 10% (is) penetrated today,” stated Kimberly Popovits, the CEO of Genomic Health.
As part of the acquisition deal, Genomic Health shareholders will be awarded $27.50 in cash for each share and they will also receive $44.50 per Exact Science common stock. This means that the total value of the deal is about $72 per share. Mark Massaro, an analyst at Canaccord Genuity pointed out that investors might not immediately find the deal appealing because it does not offer commercial synergies. He, however, believes that the deal will make commercial sense over the long-term.
Why investors might not immediately find the deal appealing
The reason for the lack of immediate synergies is because Genomic Health mainly focuses on surgeons, urologists, pathologists, and oncologists. EXACT Sciences mainly focuses on physicians in the primary care segment. The deal will also allow EXACT Sciences to take advantage of Genomic Health’s oncology sales division. This will allow it to expand its market by tapping into the colorectal cancer screening market in the U.S.
EXACT Sciences revealed that the colorectal cancer testing market in the U.S is valued at around $15 billion which means that it represents a significant opportunity for the company. The deal between the two firms is currently on a clear path and EXACT Sciences says it should not affect any of its other already existing partnerships. This includes the deal that it signed with Pfizer Inc. (NYSE:PFE) in 2018.