By Saumya Joseph
(Reuters) - Exact Sciences Corp (O:EXAS) said on Monday it will buy peer Genomic Health Inc (O:GHDX) for about $2.8 billion in cash and stock, expanding the cancer diagnostic company's testing capabilities to breast and prostate cancers.
The deal will bring together Exact Sciences' non-invasive stool screening test for colorectal cancer Cologuard, and Genomic Health's Oncotype diagnostic tests for various cancers.
Genomic Health would help expand Exact Sciences' focus from screening into treatment selection as well as monitoring, which are highly attractive markets, Canaccord Genuity analyst Mark Massaro said.
Under terms of the deal, Genomic Health stockholders will receive $27.50 in cash and $44.50 in Exact Sciences stock, for a total value of $72 per share.
Shares of Genomic Health rose 2.7% to $70.51 in early trading, while Exact Sciences' shares fell 12.1% to $103.6.
Massaro said while the merger makes sense over time, investors may not like the deal right away due to the lack of commercial synergies.
That is because Exact Sciences caters primarily to primary care physicians, while Genomic Health targets oncologists, surgeons, pathologists, and urologists, he added.
Exact Sciences will also gain access to Genomic Health's oncology sales force, that would help it achieve its goal of capturing about 40% of the U.S. colorectal cancer screening market from a current market share of about 6%.
Colorectal cancer testing represents a $15 billion opportunity in the U.S., according to Exact Sciences.
"We have a one plus one equals three here... We're looking at a potential combined market opportunity of $20 billion total, of which less than 10% (is) penetrated today," Genomic Health Chief Executive Officer Kimberly Popovits said on a conference call.
Deutsche Bank (DE:DBKGn) Research analyst Dan Leonard called the purchase price fair, adding that he does not see a rival bid or any risk to the deal's completion.
The company said the deal does not have any impact on its partnership with Pfizer Inc (N:PFE), inked last year, under which the drugmaker agreed to share marketing expenses and co-promote Cologuard.
Separately, Exact Sciences posted second-quarter revenue of $199.9 million, a 94% increase from the prior year, as Cologuard test volumes nearly doubled.
The deal, expected to close by end-2019, is estimated to yield about $25 million in cost synergies within the third year, the companies said in a statement.