Guardian of health (GH) unveiled breakthrough results for its colon cancer blood test which lagged its rival Exact Sciences (EXAS) – leading GH stock to tumble on Friday. Meanwhile, the EXAS stock soared.
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In the final phase study, Guardant Health said its blood test had an 83% sensitivity in detecting colon cancer. A highly sensitive test is less likely to miss positive cases. In comparison, Exact Sciences says its already approved test, Cologuard, has a sensitivity of 92%. Cologuard looks for colon cancer cells in a stool sample.
Investors wanted Guardant’s test to have a sensitivity of at least 85%, Canaccord Genuity analyst Kyle Mikson said in a note to clients. Still, he doesn’t view the results as a failure. This was a one-of-a-kind study. Additionally, Guardant’s colon cancer test, dubbed Shield, appears to be a “lock in the box” for Medicare reimbursement. This should help boost sales.
“We think the (stock) reactions have been a bit aggressive, acknowledging that Guardant missed the mark and that these results should lift a significant overhang for Exact,” he said. “We have lowered our Shield revenue estimates to reflect slightly slower adoption.”
In premarket trading on the stock market today, GH stock fell 31.8% near 28.20. EXAS stock, on the other hand, climbed 22.2% near 54.50.
Stock GH: slower adoption expected
Guardant screened 13,000 people to evaluate its Shield blood test for colon cancer. In addition to having an overall sensitivity of 83%, Shield had a specificity of 90%. Tests with higher specificity are less likely to report false positives. The overall specificity of Cologuard is less than 87%.
“We view the results as mixed with a slight downward trend,” Mikson said.
He cut his price target on GH shares to 65 from 99, but kept his buy rating. Overall sensitivity is in his sights for 82% to 87% and above the 74% required by the Food and Drug Administration for approval.
“In our view, 83% is enough to warrant strong adoption over time,” he said.
Guardant also expects the FDA to approve his test and Medicare to reimburse his costs.
But there’s no watering down the results for detecting advanced adenomas. These are lesions that are harmless at first and become cancerous over time. Guardant’s Shield only had a sensitivity of 13% for these tumors. This was below expectations for 15% to 25% and below previous test results for 20%.
“However, it’s important to note that the malignant transformation of most precancerous lesions can be 10 to 20 years away,” Mikson said. “Thus, regular screening should detect cancer at a relatively early stage.”
Removed an overhang for the EXAS stock
Mikson retained his buy rating on Exact shares. The company holds 5-10% of the colon cancer screening market.
“We continue to believe that Exact will approach its long-term goal of 40% market share for Cologuard by 2035,” he said. The rest of the market will include blood tests, tests that look for hidden blood in the stool, and colonoscopies.
Similarly, Evercore ISI analyst Vijay Kumar reiterated his outperformance rating on EXAS stock. It also has a target price of 60.
Statistically speaking, the tests are not significantly different, Kumar said in a note. But it will have real-world implications.
“There is now a delta of 900 basis points of susceptibility for colorectal cancers,” he said. “Or, for every million individuals screened, Exact will detect about 315 or 10% more cancers than Guardant.”
Market still wide open
Despite Cologuard’s approval in 2014, it remains a large colon cancer screening market.
Patients do not always follow doctor’s orders to submit a stool sample for cancer screening. Citing two studies, Guardant estimates that only 43% to 66% of people whose doctors ordered a stool test to check for colon cancer actually completed it.
Meanwhile, there are approximately 49 million people eligible in the United States for colon cancer screening.
“We believe that a high-sensitivity blood test can play a vital role in improving screening adherence rates by providing an accurate and convenient blood test for those hesitant to get tested,” said the co. -Guardant’s chief executive, AmirAli Talasaz, in a written statement.
Still, the news sent GH stock into a tailspin. The stocks have a low relative strength rating of 19, which puts them in the fifth-lowest stock by 12-month performance, according to IBD Digital. The stock EXAS has a slightly higher RS rating of 46.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
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