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Exact Sciences Touts Advantages of Genomic Health Acquisition for Pipeline Development


NEW YORK – Exact Sciences' proposed acquisition of Genomic Health for $2.8 billion, a deal announced on Monday, would "create an organization with a breadth of capabilities that doesn't exist today," and pave the way for Exact to sell its tests globally, according to Exact Sciences Chairman and CEO Kevin Conroy.

On a conference call with analysts following the announcement and the release of the company's second quarter earnings, Conroy said that the merger between the two firms would help Exact further develop its pipeline, and that Genomic Health's proximity to payors would help the firm build on its efforts to get additional reimbursement contracts for its products.

"Together, we have advanced technology platforms, extensive clinical capabilities, and a robust evidence-generation engine," he said. "This, coupled with prudent regulatory expertise and key relationships with oncologists, provides this team with the necessary resources to support growth in our current test and to bring new innovative products to patients."

Conroy also noted that the company's expanded sales force — the combined company will have more than 1,000 employees in total, including sales, marketing, and reimbursement teams — will enable it to more widely market and sell tests that Exact is currently developing for liver and pancreatic cancer, as well as both companies' existing Cologuard and Oncotype products.

"Exact Sciences has the largest primary care sales team in cancer diagnostics," he said. "This is important because primary care touches many different aspects of the patient journey." In addition, the company launched a new GI sales team this month.

In the meantime, Genomic Health's infrastructure "spans more than 90 countries and will help accelerate the launch of pipeline products," he added.

Conroy further noted that Genomic Health's base of operations in the Bay Area and its lab in a state where a Medicare administrative contractor participates in the MolDx program will help facilitate reimbursement for future blood-based cancer diagnostics.

Exact is developing a liver cancer test for high-risk individuals with sclerosis and hepatitis B, he said, and can use Genomic Health's clinical trial experience to generate evidence and to support the inclusion of the test in guidelines.

Relationships with payors and "industry-leading market access capabilities" will also support reimbursement for the liver cancer test, he said, adding that the increased lab and commercial capabilities of the combined company will also be helpful "to bring our liver test to more clinicians and patients globally."

Some analysts seemed confused about the timing of the deal, however, especially given the three-year cost-savings target of only $25 million. In response to questions about the rationale for the timing, Conroy said the deal is coming from a "position of strength," adding that he views it as Exact's opportunity to add cancer treatment guidance with Genomic Health's products to Exact's products for early detection of cancer.

As to the cost-savings, Exact CFO Jeff Elliott called them "compelling," adding that the firms hope to exceed $25 million but that the merger is fundamentally about incremental growth provided by the combination of the two companies.

"To be clear, we haven't assumed any revenue synergies in the model, but we are confident they exist. One clear area is the international infrastructure that Genomic Health brings. Internationally, we hope that, long-term, we can launch our pipeline test," he added. "Within the US, there are also clear sources of revenue synergies based on the relationships that Genomic Health has commercially with oncologists, with breast surgeons, and their abilities to generate evidence are very well known in the industry. So, there are clear, very meaningful revenue synergies here in addition to the cost synergies."

Importantly, Exact may be able to leverage Genomic Health's partnership with Biocartis to decentralize Cologuard and begin offering the test on the Biocartis Idylla instrument. Indeed, Conroy called the Biocartis platform "an exciting opportunity for us to look at to see if [it] would be suitable for many of the tests that we intend to commercialize globally," adding that there would likely be more to report in the future.

Exact will have an opportunity to learn more about the Idylla platform and assess its applicability for some of the company's pipeline tests, he said. "It is a proven technology that is deployed outside of the US presently and has applicability for both the breast and urology test that Genomic Health presently offers," Conroy said. "So, that's an opportunity that we will continue to look at and talk more about in quarters to come."

The merger will also allow Exact to ramp up its efforts in the liquid biopsy space, and to launch tests globally. Conroy highlighted the liver cancer test in development, noting that Exact currently lacks the commercial infrastructure to launch it globally, but that Genomic Health can do so.

Further, he added, there may be an opportunity through the merger to market Cologuard globally. "We think that there may be an alternative version of Cologuard that would be very amendable for the global opportunity," Conroy said, by changing the size or scale of the product itself, for example, or lowering its cost.

"That is a real upside to this combination is to bring our colorectal cancer screening capabilities globally where colon cancer screening is vastly underpenetrated relative to the US," he added.

In a note to investors today, SVB Leerink analyst Puneet Souda wrote that the pipeline benefits, potential for kitted products, expansion into international markets, being closer to MolDx, and experience with FDA are winning aspects of the deal but that Exact is likely to get questions from investors on the near- to mid-term strategic rationale for the merger, and on the $25 million in cost savings.

William Blair analyst Brian Weinstein concurred, noting that while the bank is in favor of Exact "building a long-term franchise," there may be some understandable investor confusion in the short term.

"Stand-alone Exact Sciences has arguably been the best growth story in all of healthcare with a very bright future. Namely, Cologuard traction continues to surprise to the upside, and we are as close as six months away from an important label expansion and a year or so away from adding a liver screen for high-risk individuals," he wrote in a note. "This combination is what investors had been in the stock for, as opposed to a longer-term view of dominating a broader space."

Exact will have to prove that it can handle two different franchises that don't have any distinct overlaps, Weinstein said. In the meantime, the company will likely see its overall growth slow.