Jeff Bezos Backed Grail Before It Lost Half Its Value. Here's Whether He Was Early -- or Just Wrong.

Multi-cancer early detection (MCED) test company Grail (NASDAQ: GRAL) has some very high-profile backers. None other than Amazon founder Jeff Bezos and Microsoft co-founder Bill Gates were early stage investors in the company, which was then bought by Illumina in 2021 and spun off in 2024. Although the stock has clearly attracted a lot of attention, it also shocked investors with bad news earlier this year, sending it crashing 50%. Still, it's made a comeback in recent months, and it's time for investors to ask whether it's a buy now.

Grail and its multi-cancer early detection test, Galleri

To answer the question, it's important to understand why the stock crashed and why it's already recovered much of its losses. The reason for the crash in February came down to the mixed top-line results of the landmark three-year trial of its MCED test, Galleri, with the U.K.'s National Health Service (NHS).

The idea behind an MCED test is that it will increase early stage (stage I and II) cancer detection so the disease can be treated before it reaches the more pervasive, painful, later-stage cancers (stages III and IV), which are harder and more expensive to treat. As such, the NHS-Galleri test should demonstrate a meaningful reduction in late-stage cancer detection in the test group compared with the control group, as cancers should be detected earlier in the test group. Unfortunately, that's not what the top-line results said: "The primary endpoint of statistically significant Stage III-IV reduction was not observed. However, there was a favorable trend toward fewer Stage III-IV cancers in a pre-specified group of 12 deadly cancers."

The first sentence alone was enough to send the stock down more than 50% on the day of the NHS-Galleri test results release, while growing optimism about the second sentence led to a partial recovery in the stock in recent months.

Image source: Getty Images.

What really matters to Grail

The Galleri test is already available as a Laboratory Developed Test (LDT) and can be purchased out of pocket, as it lacks full Food and Drug Administration (FDA) approval and isn't widely covered by commercial health insurers' plans or Medicare. Although Galleri sales are rising on this basis, the real catalyst for Galleri and Grail stock will come from a combination of FDA approval (Grail has submitted an application) and, in turn, substantive adoption by medical insurers, including Medicare.

Although insurers do not need FDA approval to cover Galleri, in reality, many are unlikely to do so without it. Furthermore, FDA approval is by no means a guarantee of coverage, as insurers must be convinced that the test is cost-effective.

Image source: Getty Images.

The key thing Galleri must demonstrate

The FDA approval process is one thing, and persuading insurers to cover Galleri is another. Focusing on the latter, the company appears to have a game plan in place:

• Release more detailed data from the NHS-Galleri trial and a smaller U.S study, Pathfinder 2.
• Management is trying to agree on a 12-month follow-up period for the NHS-Galleri trial to "prove out" the test by potentially detecting more late-stage cancers in the control group.
• Management is emphasizing Galleri's efficacy with the 12 deadly cancers (anus, bladder, colorectal, esophagus, head and neck, liver/bile duct, lung, lymphoma, myeloma/plasma cell neoplasm, ovary, pancreas, and stomach).

Focusing on the last point, the Galleri test appears to have greater episode sensitivity (the rate at which cancers are detected among those confirmed 12 months after the blood draw) in the 12 deadly cancers.

Data source: Grail presentations.

As well as good positive predictive values (PPV) in the tests (the true positives that come from the initially positive result) with 52% in the NHS-Galleri and 60.3% in the Pathfinder 2 test. These stats support the effectiveness of Galleri in detecting cancer and avoiding costly false positives.

Where next for Grail?

The key decision is likely to boil down to cost-benefit analyses by insurers. Considerations could include the following: Does the benefit of catching many of the 12 deadly cancers at an earlier stage outweigh the cost of the Galleri test, and the cost of confirmation testing for all those who tested positive with Galleri but did not (false positives) have cancer?

It's a complicated calculation, and it may require Galleri to receive FDA approval before insurers sit down and do it. Still, if the ultimate answer is yes across medical insurers, Grail stock has substantial upside potential; if it's a no, Bezos and Gates will be proven wrong.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Microsoft. The Motley Fool recommends Grail. The Motley Fool has a disclosure policy.