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Guardant Health CRC Screening Results Spook Investors Despite Meeting Reimbursement Requirements

NEW YORK – Guardant Health's stock plummeted late Thursday and early Friday as investors reacted to its Thursday afternoon announcement of results from its ECLIPSE trial, a prospective study assessing sensitivity and specificity of the company's blood-based colorectal cancer screening test, Guardant Shield.

In early morning Friday trade on the Nasdaq, the company's stock price was down more than 30 percent, at $28.38.

Guardant reported that its Shield test demonstrated 83 percent sensitivity and 90 percent specificity in identifying patients who would go on to be diagnosed with colorectal cancer in the more than 20,000-patient trial. The assay also picked up 13 percent of patients with advanced adenomas.

According to the company, the results are positive enough that it is maintaining its plan to submit the test to the US Food and Drug Administration early next year. Guardant also stressed that the performance exceeded the criteria set by Medicare in a national coverage determination.

Prior retrospective data has suggested that Guardant Shield could have sensitivity as high as 91 percent, but it is not unusual for test performance to drop in the context of prospective clinical validations compared to retrospective case-control data.

The investment community, however, seems to have been expecting the results to hew closer to those earlier metrics. In a note to investors on Thursday, Puneet Souda of SVB Securities said the ECLIPSE results were "much lower" than the firm's expectation both for cancer and advanced adenoma detection. In the case of the latter, Souda suggested the results were poor enough to raise questions about whether the FDA will allow adenoma detection to be on the test's label if approved.

On a call discussing the results, Guardant executives declined to discuss the firm's expectations regarding labeling.

In another note to investors, William Blair's Andrew Brackmann wrote that absent better information, comparing Shield to stool-based tests offers at least some insight.

"We will have to see, and it is too early to determine how the FDA might look at this, but our base-case assumption now is that there will at least be an advisory panel meeting to discuss the potential approval, and debate here will ensue. In other words, it is unlikely to be a smooth path to approval with a clean label," he wrote.

As Guardant's stock tanked overnight, the firm's competitor, Exact Sciences, saw a corresponding 23 percent bump in share price to $54.88 in early morning trade.

SVB's Souda wrote that with Shield's performance coming in meaningfully below that of Exact's stool-based assay Cologuard, the CRC screening space is likely to remain a "multimodal market" with Cologuard maintaining a dominant position, but Shield carving out a meaningful share.

In a second note Friday morning, Souda called the market reaction overblown, saying that investors were responding as if the trial had failed, which is "unwarranted." As such, SVB expects Guardant's shares to recover, but still lowered its price target to $55 from $80.

Other analysts were similarly reflective, despite recognizing that the results fell short of expectations. Kyle Mikson of Canaccord Genuity called the reactions of Guardant and Exact shareholders "a touch aggressive," arguing that although the results were worse than expected, the Shield test's performance isn't affecting the company's plans for an FDA submission and still meets the bar for Medicare reimbursement.

In its announcement, Guardant also cited findings from its real-world clinical provision of the Shield assay. Among 8,000 individuals whose physicians ordered the test during a routine visit, 90 percent completed testing. The company argued that this far exceeds adherence rates for stool testing, which it said max out at 66 percent.

As such, Shield, though less sensitive, could offer added value in its potential to improve overall screening rates.

In his investor note, Souda said that engaged primary care doctors and thought leaders in the space have "reiterated positive sentiment towards the convenience of blood vs. stool."

Brackmann echoed this, writing that "the old adage of 'the best test is the one that gets done' still rings true."

"There is more to come on this front, with more innovation coming and we see this as a starting point for the blood-based screening space as opposed to something negative," he added.