It rises exactly as it tracks the Cologuard sentinel blood test in colon cancer

Guardian Health (GH) has unveiled pivotal results of a blood test for colon cancer that lags behind competitors Exact sciences (EXAS) – GH stock is crashing on Friday. Meanwhile, EXAS stocks rose.

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In the final phase study, Guardant Health said the 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.

In a note to clients, Kyle Mixon, an analyst with Canaccord Genuity, said investors were looking for the Guardant test to have a sensitivity of at least 85%. However, he does not see the results as a failure. This study was the first of its kind. What’s more, Guardant’s colon cancer test, called the Shield, appears to be a “lock-in” for Medicare reimbursement. This should help increase sales.

“We believe (the stock’s) reactions were very aggressive, recognizing that Guardant missed the mark and these findings would take a significant load off Exact,” he said. “We have lowered our revenue estimates for Shield to reflect slightly slower adoption.”

In today’s stock market pre-market trading, GH stock is down 31.8%, near 28.20. On the other hand, EXAS stock is up 22.2%, near 54.50.

GH Stock: Expect slower absorption

Guardant screened 13,000 people for the Shield blood test for colon cancer. In addition to having an overall sensitivity of 83%, Shield has a specificity of 90%. Tests with higher accuracy are less likely to report false positives. Cologuard’s overall specificity is 87% lower.

“We view the results as mixed, with a modest deviation to the negative side,” Mixon said.

It lowered its price target for GH stock to 65 from 99, but retained the buy rating. The overall sensitivity was within his views of the 82%-87% and above the 74% that the FDA requires for approval.

“In our view, 83% is good enough to warrant strong adoption over time,” he said.

Guardant also expects the FDA to sign off on its test and Medicare to reimburse for it.

But there are no sugar-lined findings to detect advanced adenomas. These are lesions that start out harmless and become cancerous over time. Guardant’s Shield had a sensitivity of only 13% for those tumors. This was lower than expectations for 15%-25% and previous test results of 20%.

“However, it is important to note that malignant transformation of most precancerous lesions can be between 10 and 20 years old,” Mixon said. “Thus, regular screening should detect cancer at a relatively early stage.”

Removing the overhang for the EXAS stock

Mixon maintained its Buy rating on Exact shares. The company holds 5%-10% of the colon cancer screening market.

“We continue to believe Exact will approach its long-term goal 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 shares. He also has a target price of 60.

Statistically speaking, the tests are not significantly different, Kumar said in a note. But this would have real-world implications.

“There is now a delta of 900 basis points in susceptibility for colorectal cancer,” he said. Or, for every million individuals screened, Exact will detect about 315 or 10% more cancers than Guardant.

The market is still wide open

Although Cologuard was approved in 2014, there remains a large market for colon cancer screening.

Patients do not always comply with a doctor’s orders to provide a stool sample for cancer screening. Citing two studies, Guardant estimates that only 43%-66% of people whose doctors order a stool test to look for colon cancer actually complete it.

Meanwhile, about 49 million people in the United States are eligible for colon cancer screening.

“We are confident that a highly sensitive blood test can play a critical role in improving screening adherence rates by offering accurate and convenient blood screening to those who are reluctant to get screened,” Amir Ali Talasaz, Guardant co-CEO, said in a written statement.

However, the news sent GH stock into a tailspin. The stock has a low relative strength rating of 19, which puts it in the lowest quintile of stocks for 12-month performance, according to IBD Digital. EXAS stock has an RS rating of just over 46.

Follow Allison Gatlin on Twitter at @tweet.

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