guardian health (GH) has published important results for a blood test that detects colon cancer, far ahead of the competition exact science (EXAS) — which led to GH stock crashing on Friday. Meanwhile, EXAS stock increased rapidly.
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In the late-stage study, Guardant Health said its blood test was 83% sensitive in detecting colon cancer. A highly sensitive test is less likely to miss positive cases. By comparison, Exact Science says its approved test, Cologuard, has a sensitivity of 92%. Cologuard looks for colon cancer cells in stool samples.
Canaccord Genuity analyst Kyle Mikson said in a note to clients, investors are expecting the Guardant test to be at least 85% sensitive. However, he doesn’t see the result as a failure. This is the first study of its kind. Furthermore, Guardant’s colon cancer test, dubbed Shield, appears to be a “key” to Medicare reimbursement. That will help boost sales.
“We think the (stock) reactions have been a bit aggressive, recognizing that Guardant missed the mark and these results should raise meaningful overhangs for Exact,” he said. “We’ve lowered our Shield revenue estimate to reflect a slightly slower adoption.”
In the pre-marketing transaction on stock market today, GH stock plummeted 31.8% near 28.20. On the other hand, EXAS stock spiked 22.2% to nearly 54.50.
GH Stock: Slower absorption expected
The Guardian screened 13,000 people to evaluate the Shield blood test for colon cancer. In addition to having an overall sensitivity of 83%, Shield also has a specificity of 90%. Tests with higher specificity are less likely to report false positives. The overall specificity of Cologuard was lower at 87%.
“We view the results as mixed with modest deviations to the downside,” said Mikson.
He lowered his target price on GH stock from 99 to 65, but kept his buy rating unchanged. The overall sensitivity in his opinion is 82%-87% and above the 74% required by the Food and Drug Administration for approval.
“In our view, 83% is good enough to ensure solid adoption over time,” he said.
The Guardian also hopes the FDA will approve its trial and let Medicare cover its costs.
But there is no sugar overlay that results in advanced adenoma detection. These are lesions that start out harmlessly and become cancerous over time. The protective shield was only 13% sensitive to those tumors. It was below expectations for 15%-25% and previous test results were 20%.
“However, it is important to note that the malignant transformation of most precancerous lesions can take 10-20 years,” says Mikson. “So regular screening will detect cancer at a relatively early stage.”
Remove overhang for EXAS . stock
Mikson maintained a Buy rating on Exact stock. The company has 5%-10% of the colon cancer screening market.
“We continue to believe that Exact will achieve its long-term goal of 40% market share for Cologuard by the 2035 timeframe,” he said. The rest of the market will include blood tests, fecal occult blood tests, and endoscopy.
Similarly, Evercore ISI analyst Vijay Kumar reiterated his outsized rating on EXAS stock. He also has a price target of 60.
Statistically speaking, the tests were not markedly different, Kumar said in a note. But this would make sense in the real world.
“There are now 900 basis points delta in sensitivity for colorectal cancer,” he said. “Or, for every 1 million individuals screened, Exact will detect about 315 cancers or 10% more than Guardian.”
The market is still open
Despite Cologuard’s approval in 2014, there is still a large colon cancer screening market.
Patients do not always follow their doctor’s orders to submit stool samples for cancer screening. Citing two studies, the Guardian estimates that only 43%-66% of people who are ordered by a doctor to have a stool test for colon cancer actually complete the test.
Meanwhile, in the US, about 49 million people are eligible for colon cancer screening.
“We believe that a highly sensitive blood test can play an important role in improving screening adherence rates by providing an accurate and convenient blood test for those who do not wish to be screened. “, Guardant Co-CEO AmirAli Talasaz said in a written statement.
However, the news sent GH stock into a tailspin. Stocks with lows Relative Strength Rating of 19, putting them in the lowest one-fifth of stocks on 12-month performance, according to Digital IBD. EXAS stock has a slightly higher RS Rating of 46.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
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