Exact Sciences to Buy Genomic Health for About $2.8 Billion
(Bloomberg) -- Exact Sciences Corp. agreed to buy Genomic Health Inc. in a $2.8 billion cash and stock deal to expand its offering of cancer tests beyond the colon cancer test Cologuard.
Genomic Health holders would get $27.50 in cash and $44.50 in shares of Exact Sciences for each share they own under the deal announced Monday, subject to a 10% collar centered on Exact Sciences’ volume-weighted average price for the 45 trading days ended July 26. The deal is a 4.9% premium to Friday’s close -- before Bloomberg reported a deal was in the works -- and comes on top of the 23% surge last week after the company was added to Standard & Poor’s SmallCap 600 Index.
It’s the largest deal ever for Madison, Wisconsin-based Exact, and will add Genomic’s breast and prostate cancer tests to its line up. The two companies are coming to the deal from “a position of strength,” Kevin Conroy, Exact’s chief executive officer, said in an interview before the deal was made public.
The deal comes as the testing market heats up. Many diagnostics peers have more than doubled their returns so far this year. Exact’s stock has climbed 87% so far in 2019 while Genomic Health shares underperformed peers, gaining 6.6% as growth concerns over its OncoType test that predicts breast cancer recurrence tamped down investor enthusiasm.
Exact Sciences also reported second-quarter sales that beat analysts’ estimates, and raised its forecast for 2019 sales. The company now expects annual revenue of $800 million to $810.0 million, up from prior guidance of $725 million to $740 million, analysts had been estimating $747.2 million.
Genomic Health separately posted a beat-and-raise for the second quarter and 2019. The company now forecasts annual revenue of $448 million to $452 million, up from $436 million to $448 million. That’s ahead of the average analyst estimate or $445 million.
For 2020, analysts had been expecting Exact’s sales -- driven by its only on-market test Cologuard -- to reach over $1 billion. The companies are forecasting combined sales of $1.6 billion in 2020 on $1.2 billion of gross profit.
The deal is subject to Genomic Health shareholder approval. Funds advised by Felix and Julian Baker who founded the investing firm Baker Bros. Advisors LP hold a 25% stake in the Redwood City, California-based Genomic and have agreed to vote in favor of the deal, the companies said.
Genomic Health shares are up 0.7% while Exact Sciences stock is trading down as much as 13%, the biggest drop since last August. The companies tests target different kinds of doctors and patient populations. Analysts during the companies call on the transaction questioned the potential $25 million of synergies that aren’t expected until in the third year after the deal closes.
Centerview Partners and XMS Capital Partners advised Exact Sciences while Goldman Sachs & Co. advised Genomic Health.
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