What happened

Shares of Exact Sciences (NASDAQ:EXAS) were up 28% at 1:30 p.m. EDT today after the company announced solid third-quarter results and the acquisition of Thrive Earlier Detection, which specializes in tests for the early detection of cancer. 

So what

Revenue came in at $408 million, up 87% year over year thanks to the addition of $91.6 million from the precision oncology tests that the company got in the acquisition of Genomic Health, which closed last November. Coronavirus tests also helped boost revenue by $102 million. Screening revenue, which is from the company's legacy colon cancer test, Cologuard, and revenue from Biomatrica products fell 2% year over year.

Exact lost almost $220 million in the third quarter, but almost all of that ($209.7 million) was due to an intangible asset impairment for research and development on a new version of the Oncotype DX test that it acquired from Genomic Health. Backing out that charge, the company lost around $10 million, better than the $40.5 million loss in the year-ago quarter.

Doctor showing a report to a patient

Image source: Getty Images.

The acquisition of Thrive for $1.7 billion plus a $450 million milestone payment will add Thrive's early stage screening test, CancerSEEK, which can detect 10 different types of cancer from a blood sample. Exact estimates the market for early cancer detection is $25 billion, so capturing a fraction of that would make the $2.15 billion deal worth it.

Now what

Exact is paying for the up-front costs with 65% in stock and 35% in cash. The remaining $450 million is tied to milestones related to developing and commercializing Thrive's test. The deal with Thrive is expected to close in the first quarter of 2021.

The company also announced today that it did a direct offering to sell shares at $101, raising $866 million after expenses. So essentially almost all of the $2.15 billion total in the Thrive deal is being paid for by diluting shareholders. But if the company can launch CancerSEEK and generate a substantial profit, investors will own a thinner slice of a much larger pie.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.