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Exact Sciences, Pfizer End Cologuard Copromotion Agreement

This article has been updated with new information from Exact Sciences.

NEW YORK – In a Form 8-K filed on Monday with the US Securities and Exchange Commission, Exact Sciences said that Pfizer will no longer promote the company's Cologuard colorectal cancer screening test to healthcare providers. In an email, the company further noted that Pfizer will also no longer sell the test.

The companies originally entered into an agreement to copromote Cologuard in August 2018. Under the terms of the deal, Pfizer was meant to join Exact's sales representatives in reaching out to physicians and health systems and would actively participate in the Cologuard marketing campaign in an attempt to increase adoption of the test. Exact maintained responsibility for all aspects of manufacturing and laboratory operations of Cologuard, while Pfizer paid a share of the marketing expenses and got a 50 percent share of gross profits above an agreed upon baseline.

In September, however, Exact announced that it had hired approximately 400 new sales representatives, nearly doubling the size of its primary care field sales team to more than 850 reps. The company also disclosed that the new employees were former Pfizer sales reps who were displaced from their former jobs in late August and who had been promoting Cologuard under the copromotion agreement.

Exact noted at the time that while Pfizer was still promoting Cologuard, it was doing so with a smaller sales team than it was before because Pfizer's internal policies related to COVID-19 kept the sales reps from making in-person sales calls in 41 states. Exact added that it was in discussions with Pfizer that could result in material changes to their promotion agreement.

In its new SEC filing, Exact said it will pay Pfizer $35.9 million in three installments during the second, third, and fourth quarters of 2022, and that it's no longer obligated to pay Pfizer royalties or other fees except for certain media fees, advertising fees, and any detail fees owed to the pharmaceutical company for promoting Cologuard prior to Nov. 30.

Further, Pfizer will continue to purchase certain advertising for Cologuard on Exact's behalf through the third quarter of 2022, and it will provide support in transitioning responsibilities for purchasing this advertising to Exact.

In a note to investors on Tuesday, SVB Leerink analyst Puneet Souda said the end of the copromotion agreement isn't a surprise given Exact's hiring of the 400 sales reps.

"Though it is hard to assess the full impact from growing concerns about Omicron [coronavirus variant] in the near term, we believe that [about] 1,000-strong Cologuard-only Exact Sciences sales force is likely to drive stronger penetration in the market ultimately," he wrote.

In his own note, Canaccord Genuity analyst Kyle Mikson said he doesn't view the end of the copromotion agreement negatively. Rather, it could "eliminate distractions from the external Pfizer sales force," he added.

Pfizer has been a good partner for Exact, but the benefits of the copromotion agreement haven't been as clear in recent quarters given the substantially reduced in-person promotion from Pfizer's sales reps.

"The change does not have a significant impact on our estimated 2022 operating expenses for Exact, as we factored in a similar Pfizer-related payment into our model previously," Mikson said. "We remain bullish on Exact shares, as we believe they do not reflect the company's long-term growth potential."

Exact's shares rose nearly 3 percent to $89.10 in Tuesday morning trading on the Nasdaq.

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