Here's Why Grail Stock Soared Higher This Week
Key Points
Investors are hoping follow-up trial data will validate Grail's Galleri test.
The failure to meet a trial's primary endpoint could be due to how the trial was designed rather than the efficacy of the Galleri test.
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Shares in multi-cancer early detection (MCED) test company Grail (NASDAQ: GRAL) rose by 11.4% in the week to Thursday, 1 p.m. The move comes as analysts warm to the stock's risk/reward proposition.
A speculative healthcare stock
High risk and high reward are definitely how investors should think about this stock. The stock declined sharply in February on news that it missed its primary endpoint in a 3-year period and in a 142,000-person demographic trial of its Galleri MCED test with England's National Health Service.
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Normally, that would be enough to walk away from the notion that the test would receive Food and Drug Administration (FDA) approval, let alone insurance coverage. For reference, the passage of the Nancy Gardner Sewell Medicare Multi-Cancer Early Detection (MCED) Screening Coverage Act in January has created a pathway through which MCED screenings can be covered by Medicare once they receive FDA approval.
Why Wall Street is warming to Grail
Despite failing to meet the primary endpoint of demonstrating a statistically significant reduction in Stage III and Stage IV (combined) cancers in the test group, Galleri did detect substantially more Stage I and Stage II cancers in the test group than in the control group.
Moreover, there's reason to believe that follow-up data from the trial may well demonstrate its efficacy, and management is pursuing FDA approval. Speaking on the earnings call in February, CEO Bob Ragusa noted that the trial was designed six years ago and "we probably should have allowed for a longer follow-up period."
The expectation is that the data from the follow-up period of up to 12 months will show a natural increase in cancers in the control group, thereby demonstrating that Galleri screening reduces late-stage cancer diagnoses. Such thinking encouraged TD Cowen to upgrade the stock recently, and this week, Guggenheim reiterated a buy rating and its $130 price target.
The stock remains a risky proposition, but it also offers rewards that might attract risk-seeking investors.
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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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