Here's Why Grail Stock Crashed 50% Today
Key Points
The trial was designed to demonstrate a statistically significant reduction in Stage III and Stage IV disease, but the primary endpoint wasn't met.
It's possible that the follow-up data will prove more statistically significant.
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This isn't a good day for investors in Grail (NASDAQ: GRAL). The stock declined more than 50% by 1:30 p.m. today. The move comes on the day of its fourth-quarter earnings results, but more importantly, the release of its top-line results from a major trial of its Galleri multi-cancer early detection (MCED) test in England's National Health Service (NHS). As you have already surmised, the trial did not go as planned.
What went wrong
The first bullet point of the results release is what investors are focusing on today: "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 in the intervention arm after the prevalent screening round."
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Trials are designed to hit primary endpoints, and insurers key off of those endpoints before they agree to pay for the tests. Simply put, the trial missed, and investors are assuming the worst: even if Grail gets Food and Drug Administration (FDA) approval for Galleri, insurers won't pay for it.
Some silver linings?
The healthcare stock's price crash leaves it with a market cap of $2.1 billion, while it holds $904 million in cash or equivalents and only $54.9 million in lease liabilities, leaving $850 million in net cash. That will support the loss-making company (which used up $299 million in cash in operating activities) while management extends the trial's follow-up period and prepares detailed results for presentation.
Moreover, management noted a "clinically meaningful reduction in Stage IV diagnoses" and a "higher than anticipated incidence of Stage III cancers" in the test. As such, it's possible that the follow-up data (six to twelve months) will show greater statistical significance after the patients diagnosed with stage III cancer are treated. In this optimistic scenario, the follow-up data could show an even greater reduction in stage IV diagnosis.
Something for investors to hope for on a disappointing day.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Grail. The Motley Fool has a disclosure policy.
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