The following discussion of the financial condition and results of operations of EXACT Sciences Corporation should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2007, which has been filed with the Securities and Exchange Commission, or SEC.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended, that are intended to be covered by the "safe harbor" created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as "believes," "expects," "may," "will," "should," "could," "seek," "intends," "plans," "estimates," "anticipates" or other comparable terms. Forward-looking statements in this Quarterly Report on Form 10-Q include, among others, statements regarding the building of material market demand, the sufficiency of our capital resources, expected royalty fees and revenues, the potential costs and impact of U.S. Food and Drug Administration, or FDA, regulatory action on the marketing and sale of our DNA-based technologies, expectations regarding third-party reimbursement of tests using our technology, expected restructuring charges, our expectations concerning our commercial strategy, and the effectiveness and market acceptance of our technologies and ColoSure. Forward-looking statements involve inherent risks and uncertainties which could cause actual results to differ materially from those in the forward-looking statements, including those risks and uncertainties described in Item 1A of this report and our Annual Report on Form 10-K for the year ended December 31, 2007. We urge you to consider those risks and uncertainties in evaluating our forward-looking statements. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Overview

EXACT Sciences Corporation develops proprietary DNA-based technologies for use in the detection of cancer. We have selected colorectal cancer as the first application of our technologies. We have licensed certain of our technologies, including improvements to such technologies, on an exclusive basis in the United States and Canada through December 2010 to Laboratory Corporation of America® Holdings, or LabCorp®. LabCorp developed and commercially offered PreGen-Plus, its first generation non-invasive stool-based DNA colorectal cancer screening service for the average-risk population based on our Version 1 technology, from August 2003 through June 2008. Effective June 1, 2008, LabCorp stopped offering PreGen-Plus. On July 14, 2008, LabCorp began to commercially offer ColoSure™, its next generation non-invasive, stool-based DNA testing service for the detection of colorectal cancer in the average-risk population, which is based on certain of our technologies. We are entitled to the same royalty and milestone structure on any sales of ColoSure as we were entitled to on sales of PreGen-Plus. Since our inception in February 1995, our principal activities have included:

†          researching and developing our technologies for colorectal cancer
screening;

†          conducting clinical studies to validate our colorectal cancer
screening technologies;

†          negotiating licenses for intellectual property of others;

†          developing relationships with opinion leaders in the scientific and
medical communities;

†          pursuing reimbursement for stool-based DNA screening with third-party
payors, including the Centers for Medicare and Medicaid Services, or CMS;

†          conducting market studies and analyzing various markets for our
technologies;

†          raising capital;

†          licensing our proprietary technologies to LabCorp and others;

†          working to further the adoption of stool-based DNA testing for

† pursuing U.S. Food and Drug Administration, or FDA, clearance or approval, or exemptions therefrom for our stool-based DNA screening technology for colorectal cancer;

† working with LabCorp on activities in support of the commercialization of tests using our technology; and

† pursuing strategic alternatives for our business.

We have generated limited operating revenues since our inception and, as of September 30, 2008, we had an accumulated deficit of approximately $170.4 million. Our losses have historically resulted from costs incurred in conjunction with our research, development, and clinical study initiatives, salaries and benefits associated with the hiring of personnel, the initiation of marketing

programs and, prior to August 31, 2007, the build-out of our sales infrastructure to support the commercialization of stool-based DNA screening. We expect that our losses will continue for the next several years and we may never achieve profitability.

From the date of commercial launch through June 2008, when LabCorp stopped commercially offering PreGen-Plus, LabCorp had accessioned approximately 14,900 PreGen-Plus samples, including approximately 500 in the six months ended June 30, 2008 and approximately 1,800, 3,700 and 4,000 samples during the years ended December 31, 2007, 2006 and 2005, respectively. On July 14, 2008, LabCorp began to commercially offer ColoSure™, its next generation non-invasive, stool-based DNA testing service for the detection of colorectal cancer in the average-risk population, which is based on certain of our technologies. From such date until October 31, 2008, LabCorp has accessioned approximately 250 ColoSure samples.

In addition to our Version 1 technology underlying the PreGen-Plus testing service formerly offered by LabCorp, we have also developed or licensed technologies related to a Version 2 colorectal cancer screening technology that we believe has greater sensitivity and is more cost effective than the Version 1 technology. Our Version 2 technology includes two DNA markers that, in published studies, have been shown to be associated with colorectal cancer. These markers include the aberrant methylation of the Vimentin gene promoter region, which we refer to as Vimentin, and DIA®, or long DNA. We have exclusive rights to the Vimentin technology through our license agreement with Case Western Reserve University, or Case Western, under which we pay a royalty and certain other fees to Case Western in return for the right to use and sublicense the Vimentin technology. We own the rights to DIA and do not pay any royalties on the use of DIA. In a recent research study evaluating stool-based DNA in 82 patients with confirmed colorectal cancer and 363 colonoscopically normal individuals, our Version 2 stool-based DNA technology demonstrated sensitivity of 83 percent and specificity of 82 percent for the detection of colorectal cancer. LabCorp's ColoSure testing service relies solely on the Vimentin gene and does not use the DIA marker that is also included in our Version 2 technology.

Recent Developments

Regulatory Update

From August 2003 through June 2008, LabCorp offered its PreGen-Plus testing service, which included the Effipure component from us, as an in-house developed laboratory test, or "homebrew" testing service. On October 11, 2007, the FDA sent us a warning letter (the "Warning Letter") with respect to the PreGen-Plus testing service, indicating that PreGen-Plus is a Class III medical device and that it cannot be commercially distributed without an appropriate pre-market approval or clearance from the FDA. Our Version 1 technology was the basis for LabCorp's PreGen-Plus testing service. Effective June 1, 2008, LabCorp stopped offering PreGen-Plus and indicated that it had discontinued its use of Effipure.

In addition to our Version 1 technology underlying the PreGen-Plus testing service that was offered by LabCorp, we have also developed a Version 2 colorectal cancer screening technology. In April 2008, we began to focus our regulatory efforts on pursuing FDA clearance for Version 2 of its technology, a two-marker version that we believe offers greater sensitivity and can be more cost-effective than our earlier, 23 marker Version 1 technology. In this regard, in April 2008, we submitted a pre-Investigational Device Exemption, or pre-IDE, request to the FDA for its Version 2 technology. The objective of the pre-IDE process was to seek concurrence from the FDA that a 510(k) submission followed by a de novo classification request is an appropriate regulatory path for our Version 2 technology and that the clinical and other studies proposed in its Version 2 pre-IDE submission would likely support such a de novoregulatory path.

On July 14, 2008, LabCorp announced that it would begin offering a new single marker in-house laboratory-developed test called ColoSure, which is based on certain of our Version 2 intellectual property and that does not use the Effipure component. There can be no assurance that LabCorp's offering of ColoSure falls within the category of in-house developed laboratory tests, or "home-brew tests," over which the FDA has historically exercised enforcement discretion. If the FDA deems ColoSure a medical device that requires FDA clearance or approval prior to marketing, LabCorp may be required to discontinue offering ColoSure and, under such circumstances, our business would likely be materially adversely affected.

Also in July 2008, we confirmed with the FDA the clinical performance characteristics and the minimum number of average-risk colorectal cancer samples that would be required for validation of our two-marker Version 2 stool-based DNA technology for colorectal cancer screening. In addition, based on our discussions with the FDA, we believe that the de novo pathway would be the appropriate regulatory path for its Version 2 technology. We estimate that total costs to complete our Version 2 validation studies and the related regulatory submission process would range from $6.5 million to $8.5 million. The FDA may ultimately determine that a pre-market approval application, or PMA is the appropriate path forward for us with respect to Version 2 of our stool-based DNA technology instead of a de novopathway, or that additional samples, and a more expensive and time-consuming study or studies may be required for clearance or approval. Moreover, we may determine that accruing additional patients and cancer samples to further bolster the statistical strength of any such study, which may require redrafting and resubmission of a pre-IDE application with FDA. Such a study, with additional samples, would be more expensive and time-consuming than the current protocol upon which our current estimates are based. The Company believes that the studies required in connection with

any approval or clearance of our Version 2 technology, regardless of whether the regulatory pathway is de novo classification or a PMA, will be material in cost and time-intensive. There can be no assurance that FDA will ultimately approve a de novo classification request or approve a PMA submitted by us.

As described under the heading "2008 Restructuring" below, in July 2008, we further reduced our cost structure by suspending the clinical validation study and other studies for our Version 2 technology and eliminating eight positions within the Company. Because we do not currently have sufficient funds to complete any clinical validation or other FDA-related study of our Version 2 technology, we will need to gain access to additional capital through a strategic transaction, a merger or sale of the Company, a debt or equity financing, or third-party collaboration, if any, and/or some combination of any of the foregoing in order to fund any FDA regulatory clearance or approval process of our Version 2 technology. There can be no assurance that we will be successful in securing or gaining access to any additional capital to pursue the clinical validation study for our Version 2 technology under any potential strategic transaction or capital structure. If we are unable to finance the requisite clinical and other studies of its Version 2 technology, we will not be able to complete and submit our application to seek FDA approval or clearance of its Version 2 technology.

Delisting Notice from NASDAQ

On July 10, 2008, we received notice from The NASDAQ Stock Market LLC that we were not in compliance with NASDAQ Marketplace Rule 4450(b)(1)(A), or the Rule, which requires an issuer to maintain a minimum $50 million market value of its listed securities for continued listing on The NASDAQ Global Market. We were provided a period of 30 calendar days, or until August 11, 2008, to regain compliance with the Rule by evidencing a market value of listed securities of at least $50 million for a minimum of 10 consecutive business days. On August 12, 2008, we received a letter from NASDAQ advising that we had not regained compliance with the Rule by August 11, 2008 and, as a result, our common stock would be subject to delisting from The NASDAQ Global Market on August 21, 2008 unless we requested a hearing before the NASDAQ Listing Qualifications Panel, or the Panel. We requested a hearing before the Panel, which was held on October 2, 2008. The delisting of our common stock has been stayed pending the issuance of a formal decision by the Panel following the hearing. The Panel has not yet issued its decision in this matter.

The delisting of our common stock could significantly affect the ability of investors to trade our securities and could negatively affect the value and liquidity of our common stock. In addition, the delisting of our common stock could adversely affect our ability to enter into a strategic transaction or to raise capital on terms acceptable to us, or at all. Delisting from The NASDAQ Stock Market could also have other negative results, including the potential loss of confidence by licensing partners, the loss of institutional investor interest and fewer business development opportunities.

Our Cost Structure

In July 2008, we took actions to further reduce our cost structure to help preserve our cash resources, which we refer to as the 2008 Restructuring. These actions included including suspending the clinical validation study of our Version 2 technology, eliminating eight positions, or 67% of our staff, and seeking the re-negotiation of certain fixed commitments. We continue to assess our facility needs and other operating costs and, as a result, could incur additional restructuring charges in the event we undertake additional activities to reduce facility or other operating costs.

In addition to the 2008 Restructuring, in October 2006 and again in July 2007, we initiated cost reduction plans and reduced our workforce and other operating expenses, which we refer to as the 2006 Restructuring and the 2007 Restructuring, respectively, to help preserve our cash resources. The 2006 Restructuring eliminated 21 positions, or 48% of our staff at that time, across all departments. As part of the 2007 Restructuring, we eliminated our sales and marketing functions, terminated six employees, and subleased a portion of our leased space at our corporate headquarters.

Research and development expenses include costs related to scientific and laboratory personnel, research and clinical studies and reagents and supplies used in the development of our technologies and, effective as of January 1, 2006, non-cash stock-based compensation recorded pursuant to SFAS No. 123 (revised 2004), Share-Based Payment, or SFAS No. 123(R). Although we have suspended the Version 2 clinical validation study, and took steps in 2006, 2007 and 2008 to lower research and development costs, we will still likely need to invest substantial funds in additional research, design and development, or clinical or other studies that may be required for FDA approval or clearance of our stool-based DNA screening technologies, to successfully commercialize our Version 2 technology, or any future versions of our technologies or products. In this regard, the costs of the clinical and related technical validation studies that we believe are required by the FDA in connection with any future de novo 510(k) pre-market clearance notice for our Version 2 technology, as well as any subsequent studies or filings for other versions of our technologies, are expected to be material. We do not have, and can make no assurance that we can raise or otherwise secure, the capital necessary to initiate the

Version 2 clinical validation study or the related regulatory submission. As a result of the cost reduction actions taken in 2008, we expect research and development costs in 2008 to be lower than 2007 levels.

Selling, general and administrative expenses have consisted primarily of non-research personnel salaries, office expenses, professional fees and, as of January 1, 2006, non-cash stock-based compensation recorded pursuant to SFAS No. 123(R). As a result of the 2007 Restructuring, in which we eliminated our sales and marketing functions effective August 31, 2007, we do not expect to incur material sales and marketing operating expenses in 2008. We expect general and administrative expenses in 2008 to be lower than 2007 levels, primarily as a result of decreased non-cash stock-based compensation charges due to lower headcount in 2008 as compared to 2007.

Other Factors Affecting Potential Revenue Growth

We believe that substantial funds and managerial attention will likely need to be invested in sales and marketing efforts over the next several years for our stool-based DNA screening technologies to be commercially successful. We do not have, and we cannot assure you that LabCorp will devote, the funds or management resources that we believe are likely necessary to build sufficient demand for ColoSure. Despite the inclusion of stool-based DNA screening in colorectal cancer screening guidelines, we do not expect material revenue growth from sales of ColoSure until such time as FDA clearance or approval is obtained, if ever, and reimbursement is provided by CMS and other third-party payors at an acceptable level. In addition, we believe our success will also depend upon a number of additional factors that are largely out of our control, including the following:

† the impact that the inclusion of stool-based DNA screening in guidelines will have on prescribing physicians, third-party payors, including CMS, and health care consumers;

† any regulatory restrictions placed upon ColoSure or any other product or testing service based on our technologies;

† success in educating third-party payors, including CMS, managed care organizations, and technology assessment groups regarding stool-based DNA screening;

† effective negotiation and contracting by us and LabCorp with CMS and other third-party payors for coverage at acceptable levels of reimbursement for stool-based DNA screening;

† patient acceptance of stool-based DNA screening, including its novel sample collection process;

† the absence of competing technologies that offer equal or better attributes than stool-based DNA screening;

† stool-based DNA screening becoming a standard of care among prescribing physicians; and

† the quality and service of the LabCorp testing process.

As a result of the foregoing, we engaged an investment bank in the first quarter of 2008 to assist our board of directors in evaluating strategic alternatives for the Company. On July 16, 2008, we announced a revised corporate strategy to take immediate actions to preserve existing cash while continuing to focus on the pursuit of a strategic transaction, including a sale of the business. Our revised corporate strategy may not result in a strategic alternative in the near future, if at all.

Our revenue is comprised of the amortization of up-front license fees for the licensing of certain patent rights to LabCorp under our strategic license agreement and product royalty fees on tests sold by LabCorp utilizing our technology, which has historically been based on PreGen-Plus sales but will now be based on ColoSure sales. We expect that product royalty fees for the full year 2008 will be lower than amounts recorded in 2007 as a result of potential third-party royalty obligations in connection with our amended license agreement with LabCorp. In addition, as a result of the second amendment to our license agreement with LabCorp, which also extended the exclusive license period under our agreement with LabCorp, we expect that license fee revenue for 2008 will be lower than amounts recorded in 2007 as a result of the extended amortization period over which our remaining deferred revenue will be amortized.

Significant Accounting Policies

This management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, certain third party royalty obligations,and intangible assets. We base our estimates on historical experience and on various other factors that are believed to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The notes to our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2007, which has been filed with the SEC, include a summary of the significant accounting policies and methods used in the

preparation of our consolidated financial statements. As described below, we believe that that the following accounting policies and judgments are most critical to aid in fully understanding and evaluating our reported financial results.

Revenue Recognition.

License fees - License fees for the licensing of product rights on initiation of strategic agreements are recorded as deferred revenue upon receipt and recognized as revenue on a straight-line basis over the license period. On June 27, 2007, we entered into an amendment to our exclusive license agreement with LabCorp, or the Second Amendment, which, among other modifications to the terms of the license, extended the exclusive license period of the license with LabCorp from August 2008 through December 2010. Accordingly, we amortize the remaining deferred revenue balance at the time of the Second Amendment ($4.7 million) on a straight-line basis over the remaining exclusive license period, which ends in December 2010.

Product royalty fees - We have licensed certain of our technologies, including improvements to such technologies, on an exclusive basis through December 2010 to LabCorp. LabCorp developed and commercially offered PreGen-Plus, a non-invasive stool-based DNA colorectal cancer screening service for the average-risk population based on our Version 1 technology, from August 2003 through June 2008. Effective June 1, 2008, LabCorp stopped offering PreGen-Plus. On July 14, 2008, LabCorp began to commercially offer ColoSure, its next generation non-invasive, stool-based DNA testing service for the detection of colorectal cancer in the average-risk population, which is based on certain of our Version 2 technology. We will be entitled to the same royalty and milestone structure on any sales of ColoSure as we were entitled to on sales of PreGen-Plus.

Prior to the effective date of the Second Amendment, our product royalty fees were based on a specified contractual percentage of LabCorp's cash receipts from performing PreGen-Plus tests. Accordingly, we recorded product royalty fees based on this specified percentage of LabCorp's cash receipts, as reported to us each month by LabCorp. Subsequent to the effective date of the Second Amendment, our product royalty fees are based on a specified contractual percentage of LabCorp's net revenues from sales of PreGen-Plus through June 1, 2008, when LabCorp stopped offering PreGen-Plus and from sales of ColoSure from and after July 2008. Accordingly, subsequent to the effective date of the Second Amendment, we record product royalty fees based on the specified contractual percentage of LabCorp's net revenues from its sales of such colorectal cancer screening tests, as reported to us each month by LabCorp. The current royalty rate is 15%, subject to an increase to 17% in the event that LabCorp achieves a specified significant threshold of annual net revenues from the sales of such colorectal cancer screening tests.

Additionally, pursuant to the Second Amendment, we will potentially be obligated to reimburse LabCorp for certain third-party royalty payments, as described in Note 4 to the condensed consolidated financial statements located elsewhere in this quarterly report on Form 10-Q. To the extent we incur liabilities in connection with this provision of the Second Amendment, the accretion of such liabilities will be recorded as a reduction in the product royalty fee line item in our consolidated statements of operations.

Product revenue - Product revenue from the sale of certain components of our Effipure technology to LabCorp was recognized upon transfer of the components provided that title passed, the price was fixed or determinable and collection of the receivable was probable. Effipure is not used as a component in LabCorp's ColoSure offering and we therefore do not expect to record product revenue in connection with Effipure sales in future periods.

Other revenue - Revenue from milestone and other performance-based payments will be recognized as revenue when the milestone or performance is achieved and collection of the receivable is estimable and probable.

Patent Costs. Patent costs are capitalized as incurred and are amortized beginning when patents are issued over an estimated useful life of five years. Capitalized patent costs are expensed upon disallowance of the patent, upon a decision by us to no longer pursue the patent, or when the related intellectual property is deemed to be no longer of value to us. As of September 30, 2008, the majority of the recorded value of the patent portfolio related to . . .