Maintaining health (GH) released key results of a colon cancer blood test that beat a competitor Exact sciences (EXAS) – GH stock crashes on Friday. Meanwhile, EXAS shares have soared.
In a late-stage 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. By 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 were looking for Guardant’s test to have at least 85% sensitivity, Canaccord Genuity analyst Kyle Mixon said in a note to clients. However, he does not consider the results a failure. This was the first study of its kind. What’s more, Guardant’s colon cancer test, called Shield, appears to be a “lock” for Medicare reimbursement. That should help boost sales.
“We think (the stock’s) reactions were quite aggressive, recognizing that Guardant missed the mark, and these results should add a significant edge to Exact,” he said. “We have lowered our Shield revenue estimates to reflect modestly slower adoption.”
GH shares were down 31.8% at 28.20 in pre-market trading on the stock market today. EXAS shares, on the other hand, rose 22.2% to close at 54.50.
GH stock. Slower absorption is expected
Guardant screened 13,000 people to evaluate the Shield blood test for colon cancer. In addition to having an overall sensitivity of 83%, the Shield had a specificity of 90%. Tests with higher specificity are less likely to report false positives. Cologuard’s overall specificity is lower at 87%.
“We view the results as mixed with a modest tilt to the downside,” Mixon said.
He cut his price target on GH stock from 99 to 65, but maintained his buy rating. Overall sensitivity is within its range of 82%-87% and is above the 74% required for FDA approval.
“We think 83% is good enough for solid adoption over time,” he said.
Guardant also expects the FDA to sign off on its test and Medicare to reimburse it.
But the results of the detection of advanced adenomas do not contain sugar. These are lesions that start out harmless and turn cancerous over time. Guardant’s Shield had only 13% sensitivity for these tumors. That was 15%-25% lower than expected, and the previous test results were 20% lower.
“However, it’s important to note that most precancerous lesions can take 10 to 20 years to transform into malignancy,” Mixon said. “So regular screening should detect cancer at a relatively early stage.”
Elevator removal for EXAS stock
Mikson maintained his buy rating on Exact stock. The company has 5% to 10% of the colon cancer screening market.
“We continue to believe that Exact will move closer to its long-term goal of 40% Cologuard market share 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 outperform rating on the EXAS stock. He also has a price target of 60.
Statistically speaking, the tests are not significantly different, Kumar said in the post. But this will have an impact in the real world.
“There is now a 900 basis point delta in colorectal cancer susceptibility,” he said. “Or, for every 1 million individuals screened, Exact would detect about 315, or 10%, more cancers than Gardant.”
The market is still wide open
Despite the approval of Cologuard in 2014, there remains a large market for colon cancer screening.
Patients do not always adhere to doctor’s instructions to submit a stool sample for cancer screening. Citing two studies, Guardant estimates that only 43% to 66% of people whose doctors order a stool test to screen for colon cancer actually complete it.
Meanwhile, about 49 million people in the United States are eligible for colon cancer screening.
“We believe a high-sensitivity blood test can play an important role in improving screening compliance rates by offering an accurate and convenient blood test to those who do not want to be screened,” Guarant CEO AmirAli Talasaz said in a written statement.
Still, the news took a toll on GH stock. The stock has a low relative strength rating of 19, placing it in the bottom fifth of stocks in terms of trailing 12-month performance, according to IBD Digital. EXAS stock has a slightly higher RS rating of 46.
Follow Alison Gatlin on Twitter @IBD_AGatlin.
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