Exact Sciences Acquires PreventionGenetics For $190 Million

Exact Sciences Acquires PreventionGenetics For $190 Million

Exact Sciences Acquires PreventionGenetics For $190 Million

Exact Sciences (Madison, WI) paid $190 million, including 50% in Exact common stock and 50% in cash, for PreventionGenetics (Marshfield, WI) in early January. PreventionGenetics operates a CLIA-certified lab that performs proprietary next-gen sequencing tests, including PGnome Health Screen (list price $2,290) and PGxome Prenatal (list price $2,860).

Top 25 Lab and Pathology Companies Receiving PRF Payments

Top 25 Lab and Pathology Companies Receiving PRF Payments

Top 25 Lab and Pathology Companies Receiving PRF Payments

Not surprisingly, Quest Diagnostics ($65 million) and LabCorp ($56 million) top the list in terms of highest PRF payments received by lab and pathology companies. Exact Sciences, including Genomic Health, received $23.5 million, while Sonic Healthcare, including Aurora Diagnostics, received $12.4 million. In total, the top 25 lab and pathology companies received $222.6 million in PRF payments.

Top 25 Fastest-Growing Labs by Medicare Part B Volume of Services

Exact Sciences Acquires PreventionGenetics For $190 Million

Exact Sciences Completes Genomic Health Acquisition

Exact Sciences Completes Genomic Health Acquisition

Exact Sciences (Madison, WI) finalized its purchase of Genomic Health (Redwood City, CA) on November 8. The deal was initially valued at $2.8 billion when first announced on July 29. However, a subsequent 30% drop in Exact’s shares lowered the deal value to $2.5 billion. Each share of Genomic Health was exchanged for $27.50 in cash (worth $1.1 billion) plus 0.45 shares
of Exact Health (worth $1.4 billion). The net deal worth was approximately $2.2 billion after adjusting for $275 million of cash held by Genomic Health at the time of the close. Thus the deal valued Genomic Health at 4.9 times its projected revenue of $452 million for 2019.

Kim Popovits, 60, Chairman and CEO of Genomic Health, resigned from her positions after the transaction closed. She received a severance package of cash and vested stock and options worth $13.4 million.

Meanwhile, Genomic Health’s Chief Operating Officer Brad Cole has been hired by Exact as General Manager of the company’s newly acquired Oncotype DX franchise.

Exact Sciences Acquires PreventionGenetics For $190 Million

A Closer Look At The Exact Sciences-Genomic Health Deal

A Closer Look At The Exact Sciences-Genomic Health Deal

Last month, Laboratory Economics took an abbreviated look at Exact Sciences’ blockbuster deal to acquire Genomic Health. Below we provide a more in-depth review of some of the interesting aspects of the agreement.

The Bidding Process
In October 2017, Genomic Health commenced, with the assistance of Goldman Sachs, a search for a potential buyer. Goldman contacted a total of 27 entities, including Exact Sciences. Sixteen of the parties contacted, including Exact Sciences, entered into confidentiality

 agreements and received management presentations by Genomic Health. Two parties offered preliminary bids, with one indicating a price range of $32 to $35 per share and the other at a range of $38.50 to $39.50 per share. These bids valued Genomic Health at approximately $1.2 billion.

Exact Sciences was not one of the bidders. Laboratory Economics speculates that the unnamed bidders might have included LabCorp, Quest Diagnostics, Myriad Genetics or Roche. In any case, following completion of due diligence, no final offers were made and the process ended without a
deal in February 2018.

Meanwhile, a little over a year later, Exact’s CEO Kevin Conroy had a change of heart and contacted Kim Popovits, Chairman and CEO of Genomic Health. At a dinner meeting with Popovits on J

une 13, Conroy proposed to acquire Genomic Health for $64 per share.

Conroy’s initial offer was rejected, but after a few weeks of haggling, Exact agreed to pay $72 per share, or approximately $2.78 billion, comprised of $1.06 billion of cash and $1.72 billion of Exact Sciences’ stock. The agreement was finalized late in the evening on July 28 and publicly

announced the next day.

Extraordinary Valuation
The deal is expected to be completed by the end of 2019. The purchase price works out to be $2.54 billion, after accounting for $244 million of cash and securities that Genomic Health has on its balance sheet. At $2.54 billion, Exact Sciences is paying 5.6x for Gen

omic Health management’s forecast revenue of $452 million in 2019, 34x its forecast EBITDA of $74 million, and 65x its forecast free cash flow of $39 million.

Golden Parachutes
Completion of the sale to Exact Sciences will trigger executive severance plan payments (i.e., golden parachutes) for Genomic Health’s top executives. For example, Popovits will receive a severance package of cash and vested options and restricted stock worth $13.4 million. Genomic Health’s Frederic Pla, PhD, Chief Operating Officer, will receive a package worth $5.7 million, and CFO Brad Cole will get $5.3 million.

Minimal Cost Synergies
Exact’s Conroy has described the combination of the two companies
as a “1+1=3” situation. But financial projections contained in Exact Sciences SEC filing for the transaction project pretax operating synergies of only $8 million in 2020, $17 million in 2021, and $25 million annually thereafter.

These projected cost savings represent only 2% of the operating expenses at the combined companies and are comprised mainly of the elimination of public company costs at Genomic Health, including job cuts at the C-suite executive level.

The combined company is projected to become free cash flow positive in 2021.

Longer Term R&D Benefits
The addition of Genomic Health and its flagship OncoTypeDx test will help Exact Sciences diversify its business, now entirely dependent on its Cologuard colorectal cancer screening test.

Longer term, Katherine Tynan, PhD, President of Tynan Consulting LLC (San Francisco, CA), believes that Genomic Health’s very sophisticated R&D team and access to specialty oncologist channels may accelerate Exact Sciences’ development and commercial launch of new cancer tests. For example, over the past 20 years, Genomic Health has completed 125 clinical studies, covering multiple indications and been published in 156 peer-reviewed journal articles.

At the recent Baird Global Healthcare Conference, Exact’s CFO Jeffrey Elliot noted that Genomic Health employs 100 sales reps that market directly to oncologists in the United States. “They’ll enhance our ability to collect patient samples more rapidly….Patient samples are the biggest rate limiter to developing new diagnostic tests. You need samples to design your test and verify that it works,” explained Elliot.

New tests under development at Exact Sciences include a blood-based test panel of six DNA biomarkers designed to detect liver cancer for those at highest risk—people with hepatitis B or cirrhosis. Exact hopes to launch an LDT version of the test next year.

The Potential for a Liquid Biopsy for Colorectal Cancer
There are at least 13 companies that have developed or are developing liquid biopsy tests based on the detection of biomarkers in the blood (e.g., CellMax Life, Epigenomics AG, Freenome Inc., GRAIL Inc., et al.).

For example, Epigenomics AG received FDA approval for its liquid biopsy screening test for colorectal cancer, Epi proColon (Septin 9), in April 2016, and began offering the test commercially in May 2016. However, Tynan notes that the company has had a number of challenges, including PAMA,
on the way to payment and market access (CPT 81327: Medicare rate of $192). “They haven’t established intimacy with physicians and payers as the test is a distributed IVD, and the big commercial labs are difficult channels to raise awareness for new tests entering the market,” notes Tynan.

The real question is whether blood-based DNA analysis is a viable tool to enhance detection of advanced adenomas (precancerous lesions), according to Tynan. “Currently the literature suggests that benign colon lesions display extensive genetic heterogeneity, that they are not prone to release DNA into the circulation and are unlikely to be reliably detected with liquid biopsies, at least with the current technologies,” she adds.

Given these performance and evidentiary challenges, Tynan believes that FIT, colonoscopy, Cologuard and to a much lesser extent Epi proColon are likely to remain the only options for colorectal cancer screening for the foreseeable future.

PAMA Rate Adjustments Looming In 2021
As a final note, Laboratory Economics wonders if the second PAMA Medicare rate adjustment cycle motivated either Genomic Health or Exact Sciences to jump into each other’s arms. The privatepayer data collection period (January 1 through June 30, 2019) is over, so both companies have a
very good idea of where Medicare rates for their proprietary tests will be set for 2021-2023. CMS is scheduled to announce the new rates next summer.

Study: Cologuard Less Effective And More Costly Than Alternatives

Study: Cologuard Less Effective And More Costly Than Alternatives

Exact Sciences’ Cologuard test is less effective at saving lives and more costly than other CMSreimbursed colorectal cancer screening tests, according to a study published September 4 in PLOS One, a peer-reviewed scientific journal published by the Public Library of Science.

The study was requested by CMS and conducted by investigators at the Cancer Intervention and Surveillance Modeling Network. Lead authors were Steffie Naber, PhD, from the Department of Health Care Innovation & Evaluation at University Medical Center Utrecht in the Netherlands, and Amy Knudsen, PhD, from the Institute for Technology Assessment at Massachusetts General Hospital. No conflicts of interest were reported.

The researchers used three different models to simulate a cohort of previously unscreened 65-yearold Americans who are screened with Cologuard every three years, or one of six other CMS-reimbursed screening strategies.

Life Years Gained
Compared to no screening, triennial Cologuard testing resulted in an average of 82 life years gained (LYG) per every 1,000 simulated individuals. This was more than for sigmoidoscopy (80 LYG) at a five-year interval, but less than every other simulated strategy. The most effective strategy by far was a 10-yearly colonoscopy (104 LYG).

The reduction in lifetime risk of death from colorectal cancer was lowest for Cologuard (66%reduced risk) and highest for 10-yearly colonoscopy (84%).

Cost Effectiveness
The study found that at its 2017 reimbursement rate of $512, Cologuard was the most expensive strategy. Two of the models showed that reimbursement for triennial Cologuard testing would need to be drastically lower, in the range of $6–18 per test, for it to be cost-effective. In the third
simulation model, there was no level of reimbursement at which Cologuard would be cost effective (unless priced below zero).

The most cost-effective strategies were 10-yearly colonoscopy and an annual fecal occult blood test (either guaiac-based or FIT).

What can CMS do?
The Medicare Part B program spent $170 million on Cologuard testing in 2018 and analysts’ projections suggest Part B spending on the test will rise by 78% to about $300 million this year. But there isn’t a clear-cut way for CMS to change its reimbursement rate for Cologuard under PAMA regulations. However, private insurance companies are likely to jump on the study’s findings as rationale to cut their rates. Over the long term, this should lead to significantly lower Medicare rates for Cologuard.

Public Lab CEOs Paid Average $4 Million

Public Lab CEOs Paid Average $4 Million

Public Lab CEOs Paid Average $4 Million

The chief executives at 17 publicly-traded lab companies were paid an average of $4 million each last year, according to an analysis of shareholder proxy statements by Laboratory Economics. Altogether, the 17 CEOs earned a total of $6 7.6 million, including $10.7 million from salary, $9.1 million from bonuses, $47.1 million from stock and option awards, and $751,270 from other compensation. In comparison, the average pathologist earned $308,000 in salary and bonus last year, according to the latest survey by Medscape.

LabCorp’s David King, age 62, was the highest paid lab CEO in 2018. He received total compensation of $12.3 million. In comparison, the median of the annual total compensation of all LabCorp’s employees was $43,230 in 2018. King’s compensation included: 1) salary of $1.2 million; 2) stock awards of $7.5 million; 3) stock options of $1.8 million; 4) incentive plan cash bonus of $1.6 million; and 5) other compensation of $189,068, which included financial planning services, 401K matching contributions, long-term disability insurance, use of a company car and aircraft, and home security services.

Quest Diagnostics’ Stephen Rusckowski, 61, was paid total compensation of $10 million last year versus median compensation of $46,749 for all other Quest employees. Rusckowski received: 1) a salary of $1.1 million; 2) stock awards valued at $4.7 million; 3) stock option awards of $3.1 million; and 4) cash incentives of $788,700. He also received $314,585 in perks, which included $87,414 for personal use of a company car and driver plus $100,000 for personal use of company aircraft.

Myriad Genetics’ Mark Capone, 56, got total compensation of $7.1 million versus median compensation of $77,814 for all other Myriad employees. Capone’s pay included: 1) salary of $852,000; 2) bonus and cash incentives totaling $817,920; 3) stock awards of $5.4 million; and 4) other compensation totaling $10,980, which included company-paid life insurance premiums and matching 401K contributions.

Exact Sciences’ Kevin Conroy, 53, was paid total compensation of $7 million last year versus median compensation of $98,783 for all other Exact employees. Conroy’s pay included: 1) salary of $695,800; 2) bonus and cash incentives totaling $794,952; 3) stock and option awards of $5.5 million; and 4) other compensation totaling $16,500.

Meanwhile, IRS 990 tax forms for 2017 (the latest year available) show that CEOs at the nation’s largest not-for-profit health systems receive compensation that often exceeds the pay earned by their counterparts at for-profit publicly-traded companies. For example, Ascension Health CEO
Tony Tersigni earned $17.5 million in 2017 in total compensation when base salary, bonuses and other compensation are added.

Kenneth Davis, MD, President and CEO of  Mount Sinai Health System (New York City) took home nearly $12.4 million in
cash compensation, including a supplemental executive retirement plan benefit of $8.3 million, in 2017. Jim Skogsbergh, President and CEO of Advocate Aurora Health, the largest health system in Illinois, received $11.7 million in 2017.