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Investors React to Initial Data on Freenome's Blood-Based Colon Cancer Detection Test

NEW YORK – New data announced this week by Freenome, which is pursuing multiomic cancer detection assays, garnered attention from multiple investment banks this week, based on the company's potential to compete with two publicly traded firms: Exact Sciences and Guardant Health.

The company said analysis of its pivotal trial PREEMPT CRC showed that its test had an overall sensitivity of approximately 79 percent. For stage I cancers, the assay was 57 percent sensitive, rising to 100 percent for stage II tumors, dropping to 82.4 percent in stage III cases, and reaching 100 percent sensitivity, again, in stage IV cancers.

The privately-held Freenome has been pursuing a similar path to many other commercial companies hoping to break through with blood-based or liquid biopsy test that detects cancer early on. Alongside these others, Freenome has forayed outside the realm of gene mutations to also include epigenetic, gene expression, and proteomic signals in its test.

The firm has set colorectal cancer as its first target, facing competition from several companies who also have emerging testing arms in this space, particularly Exact Sciences and Guardant Health.

Investment banks that rate those competitors were quick to weigh in on Freenome's data announcement, largely focusing on assuaging Exact Sciences investors that the new data on Freenome's blood-based test didn't change their outlook on Exact's ongoing prospects for its current stool-based test Cologuard, or for its own future blood-based offering.

Kyle Mikson, an analyst at Canaccord Genuity said in an email note that Freenome's initial results were underwhelming — near the low end of his firm's base expectations.

He added that his firm is concerned that the underwhelming data on blood-based CRC tests thus far, both from Freenome and its competitor Guardant Health, could prevent this type of screening from obtaining significant share of the CRC screening market in the near term.

That said, Mikson added that he and his colleagues are still enthusiastic about the medium- to long-term impact of liquid biopsy in the CRC market. Freenome's and Guardant's data meet criteria previously set by the Centers for Medicare and Medicaid Services for covering a blood test for CRC screening as long as that test achieves US Food and Drug Administration approval.

Notably, Freenome's assay appears to potentially suffer from the same challenge as its blood-based competitor, Guardant Shield, in detecting precancerous lesions, which are a mainstay of the current clinical standard, colonoscopy.

The detection and resection of these masses is described by the colon cancer treatment community as integral to the reduction of colorectal cancer incidence and mortality.

"We believe solid advanced adenoma sensitivity is certainly preferred and may help for marketing a test. Although it is unclear if poor [advanced adenoma] sensitivity is a 'dealbreaker,' we recognize the metric could impact the long-term adoption of a blood-based CRC test," Mikson wrote.

TD Securities' Dan Brennan echoed much of the same sentiment in his own note, adding that in his firm's recent survey of 48 investors, the average expectation for Freenome's results was a much higher 86 percent sensitivity for CRC and 23 percent sensitivity for advanced adenoma.

According to Mikson, Cannaccord's long-term view of Exact Sciences' growth trajectory remains "relatively unchanged."

"We continue to believe [Exact] will approach its long-term target of 50 percent market share for Cologuard as blood-based tests, fecal [tests], and colonoscopies account for the remaining testing," he wrote. The company raised its price target for Exact shares to of $90.

Freenome did offer additional calculations in its report and said it intends to continue to refine its assay. Setting its specificity at the lower 90 percent threshold outlined by CMS, the test's sensitivity for advanced adenomas rose to 14 percent. Adding protein biomarkers pushed that above 16 percent and boosted its colorectal cancer sensitivity to nearly 81 percent.

Mikson said the news overall represents a net positive for Exact Sciences, and presents, at the very least, a neutral impact on Guardant Health, who's own data presented last year hew fairly close to Freenome's numbers.

Brennan called the results a "strong positive" for both Exact Sciences and Guardant, adding that TD Securities now sees a clearer path for Exact to rally back toward its $100 price target. Although the news is also good for Guardant, he urged caution regarding whether either its test or Freenome's will be able to muster a significant commercial impact on the CRC screening market.

JP Morgan analyst Rachel Vatnsdal said in another note that the lower than expected Freenome sensitivity removes some of the "competitive overhang risk" for Guardant that was embedded in the firm's stock.