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Shareholder Letter

Colorectal cancer can be prevented. Still, there are more than 140,000 new cases in the United States each year. Many of us at Exact Sciences have been touched by colon cancer through the experience of a parent, sibling, friend or colleague with the disease.

Some of us can share remarkable stories of triumph and survival. Others have come face to face with the ugly truth that colon cancer, while preventable, is still among the most deadly cancers. It doesn't have to be.

However we've been touched by colon cancer, it has only intensified our commitment to the early detection of the disease through a new, patient-friendly screening test. Exact's outstanding performance during 2010 demonstrates the strength of that commitment and the great people here who are working hard to fulfill it.

During 2010, our work focused on three priority areas: product development, clinical trial planning, and market development. We achieved our objectives in each area, putting us in a strong position to continue our progress in 2011.

Our most important product development accomplishment during 2010 was the completion of our validation study. We are very pleased with the results of the study, which included almost 1,200 patient samples. Across all of those samples, our test, Cologuard™, demonstrated 85 percent sensitivity for cancer, greater than 50 percent sensitivity for pre-cancerous polyps larger than 1 centimeter, and 88 percent specificity. Sensitivity is the measure of a test's ability to correctly identify pre-cancerous or cancerous samples; specificity indicates the test's ability to correctly identify with a negative test result those samples without pre-cancer or cancer.

Cologuard's pre-cancer sensitivity is the key to better serving millions of patients each year through early detection and it compares very favorably with other screening methods. Cologuard also demonstrated increasing sensitivity as the size of the adenoma or polyp, a benign tumor that can become cancerous, increases. These larger polyps are the most likely to develop into cancer. Our test can identify with increasing sensitivity the more dangerous polyps so that they can be removed before they develop into cancer. Cologuard's pre-cancer sensitivity, coupled with the ability to detect increasingly more dangerous polyps with greater sensitivity, will make it a powerful, multifaceted tool in the fight against colon cancer.

In addition to demonstrating the strong performance of our test across a large number of patient samples, the validation study also provided important insights about how we can optimize our product. As a result, we completed a handful of improvements to the product that enhance its performance — and make it more convenient and easier to use for patients, labs and doctors.

Our work on the clinical trial during 2010, another of our top priorities, ensures that we'll start patient enrollment for the trial during the third quarter of 2011. The trial is a prospective study of average-risk patients, those 50 and older who have none of a series of well-defined risk factors for colorectal cancer. We will enroll between 10,000 and 12,000 patients beginning later this year. We are very pleased that the Centers for Medicare and Medicaid Services, or CMS, will conduct a parallel review with the FDA for a national coverage determination regarding Cologuard. These coverage decisions not only control CMS reimbursement of its benefits and services on a national scope, they also have a significant influence on private payor reimbursement. A test's reimbursement rate can be critical to its success in the marketplace.

$1.2 Billion


Potential U.S. market

30% Penetration


Last year, we built a team of world-class clinical trial experts to work on our study both inside and outside the company. A critical part of the team is our clinical research organization, or CRO, which we engaged during 2010. They're assisting with the planning and preparation of the trial, and will execute it with the help of our internal team. Together, we qualified more than 30 enrollment sites during 2010 and we've made additional progress in 2011. We worked with the FDA throughout 2010 on the parameters of the study and the study protocol. We've submitted our final study protocol to the FDA and are on track to begin enrolling patients in the third quarter of 2011.

Our third priority during 2010 was undertaking a strong market development effort that ensures we can successfully bring Cologuard to market, once it's approved by the FDA. We are on track with these efforts, as well. We completed our initial go-to-market study during the fourth quarter of last year. This study included market research involving all of our key constituencies. It's a critical piece of our efforts to better understand the market for Cologuard, our customer and key stakeholders. For example, 87 percent of the physicians who participated in the research would recommend a stoolbased DNA test like Cologuard for screening some portion of their average-risk patients. These same physicians believe that Cologuard could become the primary adjunct to colonoscopy. We will continue to work hard in a broad range of ways to better understand our market and customer.

One of the most important ways in which we'll do that is through outreach to key constituencies. During 2010, we began those efforts and they were incredibly fruitful. Among those we began reaching out to are key opinion leaders in the field of colorectal cancer detection, prevention and treatment, primary care physicians, gastroenterologists, clinical labs and health insurance payors. We look forward to continuing to educate them about the value of our product and to receiving feedback that will be important to our go-to-market strategy and plan.

In early 2011, we hired John Krayacich, a seasoned sales and marketing professional with 20 years of experience marketing to physicians. He'll be responsible for the final design and implementation of our market development and go-to-market plans, and for expanding our key constituency outreach efforts. Among the most important marketing activities during 2011 will be the initiation of studies that will measure Cologuard's cost effectiveness. These studies are important to our efforts to achieve the desired reimbursement level for the test. If we can demonstrate a significant economic influence on the prevention, diagnosis and care of colorectal cancer, the reimbursement rate for the test should reflect that contribution.

Our market analysis also has helped us value the market opportunity we're pursuing. There are at least 80 million Americans who are at average risk of colon cancer and eligible for screening today. Assuming a 30 percent penetration rate and current reimbursement rates, we estimate the market for our screening test to be $1.2 billion. This is a significant market opportunity—larger, in fact, than any other molecular diagnostic opportunity today. We are dedicated to pursuing it to create value for patients, investors, physicians, clinical labs and our employees.

2010 was a year of outstanding execution and accomplishment for Exact Sciences and a strong foundation for the important work we're doing in 2011. These accomplishments aren't possible without the great people of Exact Sciences, the people you'll see throughout this annual report. I want to thank each of them for their outstanding effort and dedication in 2010 and their continued hard work as we move forward with our key initiatives in 2011. Together, we're working to make a profound difference in patients' lives through the early detection and prevention of colon cancer.

Kevin T. Conroy

Kevin T. Conroy
President and Chief Executive Officer