Guardant Health unveiled pivotal results for its colon cancer-detecting blood test that lagged rival Exact Sciences — leading GH stock to crash Friday. Meanwhile, EXAS stock skyrocketed.
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 were looking for 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 first-of-its-kind study. Further, Guardant's colon cancer test, dubbed Shield, appears to be a "lock" for Medicare reimbursement. That should help stoke sales.
"We think (the stock) reactions were a touch aggressive, recognizing that Guardant missed the mark and these results should lift a meaningful overhang for Exact," he said. "We have lowered our Shield revenue estimates to reflect modestly slower adoption."
On the stock market today, GH stock plummeted 27.1% to close at 30.06. EXAS stock, on the other hand, ended the regular session at 51.92, up 16.4%.
GH Stock: Slower Uptake Expected
Guardant screened 13,000 people to evaluate its Shield blood test for colon cancer. In addition to having an 83% sensitivity overall, 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%. In an email to Investor's Business Daily, Exact spokesman Jack Hirschfield emphasized Cologuard has a specificity of 90% in patients whose cancer didn't show up in a colonoscopy.
"We view the results as mixed with a modest skew to the downside," Mikson said.
He cut his price target on GH stock to 65 from 99, but kept his buy rating. The overall sensitivity is within his views for 82%-87% and above the 74% required by the Food and Drug Administration for approval.
"In our view, 83% is good enough to warrant solid adoption over time," he said.
Guardant also expects the FDA to sign off on its test and for Medicare to reimburse its costs.
But there's no sugar-coating the results for detecting advanced adenomas. These are lesions that start off harmless and become cancerous over time. Guardant's Shield only had a 13% sensitivity for those tumors. That was below expectations for 15%-25% and prior test results for 20%.
"However, it is important to note that the malignant transformation of most precancerous lesions can be 10-20 years," Mikson said. "Thus, regular screening should detect cancer at a relatively early stage."
Removing An Overhang For EXAS Stock
Mikson kept his buy rating on shares of Exact. The company has 5%-10% of the colon cancer screening market.
"We continue to believe Exact will approach its long-term target of 40% market share for Cologuard by the 2035 timeframe," he said. The remainder 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 EXAS stock. He also has a target price of 60.
Statistically speaking, the tests aren't markedly different, Kumar said in a note. But this will have implications in the real world.
"There is now a 900 basis points delta in sensitivity for colorectal cancers," he said. "Or, for every 1 million screened individuals, Exact will detect about 315 or 10% more cancers than Guardant."
Market Still Wide Open
Despite the approval of Cologuard in 2014, there remains a large colon cancer screening market.
Patients don't always adhere to doctor's orders to submit a stool sample for cancer screening. Citing two studies, Guardant estimates just 43%-66% of people whose doctors ordered a stool test to look for colon cancer actually completed it.
Meanwhile, there are about 49 million people eligible in the U.S. for colon cancer screening.
"We are confident that a high-sensitivity blood test can play a critical role in improving screening adherence rates by offering an accurate and convenient blood test to those reluctant to get screened," Guardant Co-Chief Executive AmirAli Talasaz said in a written statement.
Still, the news sent GH stock into a tailspin. Shares have a low Relative Strength Rating of 19, which puts them in the lowest one-fifth of stocks in terms of 12-month performance, according to IBD Digital. EXAS stock has a slightly higher RS Rating of 46.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.