Exact Sciences Acquisition by Abbott: Stock Impact and Cologuard's Future

Abbott's planned acquisition of Exact Sciences for $23 billion, including debt, is a bold move—but is it a smart one? The headline figure alone raises eyebrows, especially when you consider Exact Sciences reported a net loss of $1 billion last year. Let's dig into the numbers and see if this deal holds water, or if it's just another case of corporate exuberance.

The Cologuard Cash Cow

Exact Sciences' value proposition hinges largely on Cologuard, their non-invasive colorectal cancer screening test. The FDA approval of Cologuard Plus in October 2024, boasting greater sensitivity and fewer false positives (down by nearly 40%), is undoubtedly a positive signal. Exact Sciences projects over $3 billion in revenue this year, and that figure is expected to grow. However, it's critical to acknowledge that a single product, even a successful one, carries inherent risk. What happens when competitors emerge with a better mousetrap? Or, perhaps more likely, a cheaper one?

The acquisition aims to offset revenue declines from Abbott's COVID-19 testing kits. That's understandable, but it raises a fundamental question: Is replacing one revenue stream dependent on a specific health crisis with another dependent on a single product a sound long-term strategy? I've looked at hundreds of these filings, and this particular justification strikes me as…uninspired. Wouldn't a more diverse portfolio be a wiser hedge against future uncertainties?

The Debt and the Details

The deal structure—$105 per common share for Exact Sciences shareholders—is a key detail. The Madison business community is celebrating, with the Greater Madison Chamber of Commerce President Zach Brandon calling it the largest investment in the region's history. That’s great for Madison, but shareholders should be asking: is this price justified by Exact Sciences' fundamentals? Abbott to buy Madison-based Exact Sciences in deal valued at up to $23 billion - Milwaukee Journal Sentinel

Exact Sciences has about $1 billion in cash and securities. The company reported revenue of $2.76 billion last year, up from $2.5 billion in 2023 and $2 billion in 2022. The revenue is growing—about 10% year-over-year, to be more exact, 10.4% from 2023 to 2024. (A healthy clip, but not exactly astronomical.) But the $1 billion net loss casts a long shadow. And this is the part of the report that I find genuinely puzzling. How can a company with nearly $3 billion in revenue hemorrhage a billion dollars? Where is that money going? Research and development? Sales and marketing? The details remain scarce, but the discrepancy is significant.

Exact Sciences acquired Genomic Health for $2.8 billion in 2019. The acquisition added tests for breast and prostate cancer, including the Oncotype DX test, to its portfolio. It appears that Abbott is betting that Exact Sciences can repeat this trick. A similar move may be in the works.

The Kevin Conroy Factor

Kevin Conroy, the current CEO of Exact Sciences, will remain with the company in an advisory role. Conroy took over as CEO in spring 2009 and oversaw the company's move to Madison and the FDA approval of Cologuard in 2014. His continued involvement provides a degree of continuity, but it also raises questions about the future direction of the company under Abbott's ownership. Will Conroy's vision align with Abbott's strategic goals? Or will he become a figurehead, his influence gradually waning?

So, What's the Real Story?

Abbott's acquisition of Exact Sciences feels like a high-stakes gamble. They're betting that Cologuard's market dominance will continue, and that Exact Sciences can successfully expand its product line. But the $1 billion net loss and reliance on a single product raise serious concerns. It's a bit like buying a flashy sports car—sure, it looks great, but can you afford the maintenance? Only time will tell if Abbott's investment pays off, or if it becomes a cautionary tale of overpaying for potential.