NEW YORK – Investment bank Craig-Hallum has downgraded Exact Sciences stock to Hold and lowered its price target on the shares to $35, citing a risk from competing products and a likelihood that shares could be capped.
"Competitor Guardant Health's pivotal study of a blood-based colorectal cancer (CRC) screening test called Shield will be released by the end of 2022, and Freenome's shortly after. Extensively reviewing the landscape, which has led to our initiation of [Guardant] with a Buy rating, we see an overhang remaining on [Exact Sciences'] shares," Craig-Hallum analyst Alexander Nowak wrote in a research note on Wednesday.
This overhang could come from either positive data for Guardant in that Shield study report or from market skepticism that Exact can improve sales and profitability of its core stool-based CRC screening test, Cologuard.
Nowak cited three possible scenarios following Guardant's expected results. Exact's worst-case scenario would be if the Shield test shows at least 85 percent sensitivity, 90 percent specificity, and some ability to detect advanced adenomas.
"If this occurs, we do not assume Shield will take share from Cologuard, but it will put a perceptive cap on Cologuard's future penetration potential. This is likely to have a negative impact on [Exact's] shares until proven otherwise, which could take until Shield's commercial floodgates are fully opened in 2026 when [Guardant] gets into USPSTF guidelines," Nowak wrote.
If the Shield test is only mildly successful, with results notably lower than Cologuard's established performance record, Exact shares should bounce, "but we believe strength will be short-lived," he added, as Exact faces "its own growth challenges regardless of potential competition."
Nowak noted that Cologuard has been on the market for eight years, has been used by 9 million patients, and has been ordered by 282,000 physicians. "Under this scenario, Cologuard's sales are not at risk, potential is not capped, but [Exact's] own maturity [and] Cologuard market challenges are still unchanged."
Even if Guardant's blood test fails completely, Nowak argued that these internal factors still apply. Moreover, it would call into question the likelihood of success for Exact's own blood-based cancer tests in development for CRC and multi-cancer early detection.
Taken together, this overall outlook has led the firm to adjust both its rating and price target, he concluded.
Exact's shares were down approximately 6 percent at $33.06 in Wednesday morning trade on the Nasdaq.