Guardant Health stock jumped Friday after a Food and Drug Administration panel recommended the agency approve Guardant's blood-based colon cancer screening test.
The FDA's Medical Devices Advisory Committee voted eight to one that Guardant's blood-based test, known as Shield, is safe. Six out of nine panelists said the test appears effective, and seven to two voted that the benefits outweigh the risks.
If approved, Guardant's blood-based test could rival Exact Sciences' Cologuard, an already approved stool-based means of screening for colon cancer. Both are alternatives to invasive colonoscopies.
"Investors had expected the vote to lean favorable going into this meeting and these results should be seen as moving the test toward an FDA approval likely later this year," William Blair analyst Andrew Brackmann said in a report. "As a result, we would expect shares of Guardant to trade higher on Friday, especially after giving back some of its recent gains earlier this week."
On today's stock market, Guardant Health stock popped 13.4%, closing at 25.52. Meanwhile, Exact Sciences stock slumped 7.8% and closed at 49.84.
Guardant Health Stock: Second-Line Option?
Bearishly, analysts suggested Guardant Health's Shield will likely be a second-line option for colon cancer screening. This means patients would first be offered first-line options, like Cologuard.
"Although the panelists ultimately decided the benefits of the test outweigh the risks, the individuals did not appear to specifically support first-line use of Shield," Canaccord Genuity analyst Kyle Mikson said in a report. "Panel members commented that Shield should not be a replacement for colonoscopy and mentioned that Shield appears similar to Epi proColon, which was approved as a second-line option."
Mikson kept his buy rating and 30 price target on Guardant Health stock.
It's important to note, Shield has a lower sensitivity for detecting early-stage cancer. Sensitivity refers to a test's ability to identify a person with the disease as positive.
Shield found 13% of advanced adenomas, a type of colon polyp considered likely to become cancer. That compares to 42% for Cologuard, 24% for another stool-based test called fecal immunochemical test (FIT) and 22% for Epi proColon.
That said, Shield has a sensitivity of 55% for stage one cancer. That's in line with 50% to 65% for FIT, Mikson said.
"Given the test's relatively poor pre-cancer sensitivity, panelists noted that Shield's FDA label should clearly mention that the product is for the detection of colorectal cancer and not for advanced adenomas (i.e., polyps)," he said. "The inability of Shield to detect pre/early cancers could impact adoption and guideline inclusion."
Labeling, Education Will Be Key
William Blair's Brackmann, who has an outperform rating on Guardant Health stock, offered a similar view. The panel's positive vote doesn't imply Shield "will become an overnight success."
Guardant Health will need to take care in how its labels Shield so as not to mislead patients and physicians, he said.
"We think the FDA will work to ensure the test takes a back seat to more effective solutions," he said.
Exact Sciences said doctors should reserve this method for people unwilling to use first-line options. Notably, the company is also working on a blood-based test.
"While we believe blood tests have a role to play as a supplementary screening tool and are developing one of our own, education is needed around the appropriate use of blood tests as a second-line colorectal cancer early detection strategy with limited ability for prevention through pre-cancer detection," Paul Limburg said in a written statement. Limburg is the company's chief medical officer for screening.
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