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Exact Sciences Raises $174M, Nearly Doubles War Chest For Diagnostics

Xconomy Wisconsin — 

Exact Sciences is significantly boosting its coffers as it continues pushing sales of its first molecular diagnostic test and goes to work developing more products.

Madison, WI-based Exact (NASDAQ: EXAS) said it expects to earn about $174 million this week in a stock offering, after deducting expenses and underwriting discounts. Exact sold 7 million shares of its common stock to underwriters Jefferies and Robert W. Baird & Co. at a price of $25 per share. The underwriters then turned around and sold those shares on the open market at an initial price of $25.50 per share. The offering is expected to close tomorrow, Exact said in an SEC filing today.

Jefferies and Baird have an option to purchase another 1.05 million shares, Exact said, which would push the company’s total capital raise to about $200 million. (Disclosure: Exact is an Xconomy underwriter, but our coverage is determined independently by our editors.)

Exact stock was trading at $25.55 per share as of this writing, up 1 percent from yesterday’s closing price of $25.29. The company’s stock opened the week at $28.49, a couple hours after releasing second-quarter financial numbers and several hours before announcing the public stock offering. It closed Tuesday—the day the $25.50 share price of the offering was announced—at $25.15 per share.

The new cash buttresses the $210.8 million in cash and marketable securities the company already had in the bank at the end of the second quarter.

The money gives Exact plenty of breathing room as it continues spending on sales and marketing for Cologuard, its stool-based DNA test for detecting colorectal cancer, which was approved by the FDA and received Medicare coverage last year. On Monday, the company reported second-quarter revenue of $8.1 million on more than 21,000 completed Cologuard tests—90 percent more tests than the previous quarter. But the company was $39.1 million in the red, or 44 cents per share, because of increased spending on things like growing its sales staff to 200 people, an increase of about 60 during the second quarter, Baird financial analysts said.

The cash infusion also allows Exact to continue investing in research and development. It recently outlined plans to create products for the early detection of lung, pancreatic, and esophageal cancers. Those tests could take more than five years and $400 million in R&D spending to bring to market, according to early estimates by Baird analysts—meaning Exact might have to turn to the public market for more capital in the future.

But for now, “this is ensuring we continue to have a strong financial balance sheet to maintain a long runway as we develop this pipeline of products,” Exact spokesman J.P. Fielder said in an interview.

The capital raise shows Exact likes to aggressively go on the offensive to keep its finances healthy, William Blair financial analysts said in a report to investors this week. This was Exact’s second stock offering in the past eight months, following the $101 million it netted in a December offering of 4 million shares. That transaction was also underwritten by Jefferies and Baird.

“This is consistent with the company’s history of raising capital when it does not need it, to ensure that it is not subjected to the whims of the broader equity-capital markets,” William Blair analysts wrote.

However, the analysts were still “a bit perplexed about the strategic need” for the extra cash, they wrote. “We concede that it makes sense to raise funds in this type of efficient capital-raising format (the company would save about $10 million in fees doing a raise this way), and that it allows management significant flexibility,” William Blair analysts wrote. “However, with the company fully funding the Cologuard rollout and all key R&D projects, we would not expect this cash to result in any incremental spending for the time being.”

William Blair rates Exact’s stock as “outperform.”