Exact Sciences Acquisition: Abbott's $21B Gamble and Cologuard's Future

Abbott Buys Exact Sciences: A $23 Billion Bet or a COVID-19 Hangover Cure?

A Calculated Gamble in Cancer Diagnostics

Abbott's announced acquisition of Exact Sciences for a cool $23 billion (including debt, of course) is raising eyebrows, even in the inflated world of biotech deals. The headline screams "entry into the fast-growing cancer screening market," and that's partially true. But digging into the numbers, it looks more like Abbott is trying to offset a very specific problem: the inevitable decline of COVID-19 testing revenue.

Exact Sciences, best known for its Cologuard at-home colorectal cancer screening test, is projected to bring in over $3 billion in revenue this year. Abbott, on the other hand, expects this acquisition to boost its diagnostics sales to over $12 billion annually. Seems like a straightforward win-win, right? Not so fast.

The press release highlights Cologuard's convenience as an alternative to colonoscopies. And it is convenient. But convenience often comes at a price. While Cologuard can be done at home, it also produces more false positives than colonoscopies. This leads to more follow-up care, potentially burdening the healthcare system and causing unnecessary anxiety for patients. Now, Exact claims their new Cologuard Plus reduces false positives by nearly 40% (approved by the FDA in October 2024), but how does that affect the older version? Will they phase it out? What's the adoption rate of the new test? These are questions that need answers.

Beyond Cologuard: What Else is Abbott Buying?

It's not just Cologuard. Exact Sciences also acquired Genomic Health in 2019, bringing the Oncotype DX breast cancer test into the fold. They've been snapping up other companies to broaden their testing portfolio ever since. This suggests that Abbott isn't simply buying a colorectal cancer screening company; it's buying a platform for cancer diagnostics.

Abbott CEO Robert Ford stated that the Exact Sciences acquisition "reflects a view that Abbott can bring long-term value to cancer diagnostics." He also noted that cancer screening and precision oncology diagnostics are a $60 billion segment in the U.S. alone. But here's the thing: Abbott's core expertise has been in diabetes and cardiovascular disease. This move into cancer diagnostics is a significant departure.

The acquisition is expected to close in the second quarter of 2026, pending shareholder and regulatory approvals. Exact Sciences shareholders will receive $105 per share. Abbott also plans to absorb Exact Sciences' estimated $1.8 billion in debt. This is where I start to get a little concerned. I've looked at hundreds of these filings, and the amount of debt Abbott is taking on feels a bit excessive, especially given the current economic climate. Abbott to buy Madison-based Exact Sciences in deal valued at up to $23 billion

TD Cowen analyst Joshua Jennings believes the acquisition could revitalize Abbott’s diagnostics business and potentially return the segment to pre-pandemic growth rates. But is that pre-pandemic growth rate sustainable? Or was it artificially inflated by the demand for COVID-19 tests? That's the multi-billion dollar question.

Is This Really About Cancer, or Just Revenue?

Exact Sciences reported a net loss of $1 billion, or $5.59 per share, last year. However, their revenue was $2.76 billion, up from $2.5 billion in 2023 and $2 billion in 2022. So, revenue is growing, but so are losses. This isn't necessarily a red flag for a growth-stage company, but it does raise questions about profitability. Is Abbott betting on future profitability, or is it simply buying revenue to offset the decline in COVID-19 testing?

The acquisition is the largest announced in the medtech industry so far this year. Leerink Partners analyst Puneet Souda called it a "sector-defining event." Maybe. Or maybe it's a desperate attempt to plug a hole in Abbott's balance sheet. (A very expensive plug, I might add.)

The deal is expected to be immediately accretive to Abbott's revenue growth and gross margin. That's the official line, at least. But "accretive" doesn't always mean "profitable." It simply means that the acquisition will increase Abbott's earnings per share. It doesn't guarantee long-term success.

Ultimately, this deal feels like a high-stakes gamble. It's a bet that cancer diagnostics will continue to grow, and that Exact Sciences can become profitable under Abbott's umbrella. It's a bet that the convenience of at-home testing will outweigh the potential for false positives and unnecessary follow-up care. And it's a bet that Abbott can successfully integrate a company with a very different culture and focus. Only time will tell if this bet pays off.

A Very Expensive Band-Aid