Shares of Grail jumped Thursday after a panel of medical experts recommended that the Food and Drug Administration approve the biotech's multicancer blood test.
That approval-which seems likely, based on its presentations at the hearing-could come any time in the next few months. It would make Grail's Galleri the FDA-approved multicancer blood screen, giving the company a lead over cancer-testing rivals Guardant Health and Abbott Laboratories.
Grail stock rose 10% to $119.71 on Thursday.
The rally came after shares were halted all day for Wednesday's meeting of the Molecular and Clinical Genetics Devices Panel of the FDA's Medical Devices Advisory Committee. The shares rose 35% in the preceding two days following Monday's online posting of the FDA favorably-inclined briefing documents.
With Grail now valued at $4.3 billion, or 19 times the consensus estimate for next year's sales, the stock seems to have assumed that FDA approval is in the bag.
The advance questions posted by the FDA for its advisors focused on the claims Grail should make in marketing its Galleri test to Americans over 50. The agency had few questions about the test's safety and accuracy.
At the end of Wednesday's meeting, the 10 advisors voted 7-2 (with one abstention) that Galleri's benefits outweigh its risks. They voted unanimously that it was safe, and 6-4 that it was effective.
"Today's vote reinforces the strength of Galleri's clinical evidence," said Grail CEO Josh Ofman, in a statement. "Grail is committed to working with the FDA as it completes its review of Galleri."
Labs are permitted to sell tests they develop themselves. Grail is already selling Galleri, but the test is rarely covered by insurance. Last year, Grail had sales of about $150 million.
Now the question for investors becomes what kind of sales boost will an approval deliver to Galleri?
Mizuho's Bradley Bowers thinks the boost will be substantial. He wrote Tuesday that sales doubled in the launch years of other cancer-screening products-like colon cancer stool test Cologuard from the Exact Sciences unit of Abbott, or the colon cancer blood test Shield from Guardant Health.
Galleri screens a person's blood sample for bits of DNA showing features typical of cancer cells. It tells you if it has found a general signal of cancer somewhere in your body-"Cancer Signal Detected"-and makes its best guess at the kind of tissue where the cancer is hiding.
Clinical trials showed Galleri can detect cancers for which there is no standard screen, such as cancer of the ovary or pancreas. Grail's two big clinical trials showed that it rarely tells you that you have cancer when you don't. When you do have cancer, the test finds it on average about 50% of the 60% of the time.
That is good performance, compared with other widely used screens, like the mammogram. Grail plans to tell customers that they should continue using those standard single-cancer tests, as well.
It's trickier to find definitive proof that tests like Galleri will save lives. The big NHS-Galleri study in Britain failed to prove that screening reduced the number of Stage IV cancers found a year later.
Some of the FDA advisors said Wednesday that the inconclusive NHS-Galleri clinical trial outcome left them unsure that the test actually saves lives. Most standard screens, like colonoscopies, went into wide use before their lifesaving effectiveness was established in lengthy follow-up trials.
Grail came public two years ago on hopes that DNA blood screens will catch cancer early and allow millions to beat cancers that might have killed or disabled them. Peak annual sales for such tests were forecast at $30 billion to $50 billion.
It has been a slow takeoff. With a $950 price, Galleri sales are expected to reach $180 million this year. Few expect Grail to show a profit in this decade.
The stock has had a big short interest, and a quantitative analysis by UBS concludes that Wall Street's total negative bet against Grail was crowded, compared with the stock's average trading activity. That helps explain the stock's big rise this week, with shorts bailing after seeing the favorable bent of the FDA's posted materials.
Congress passed a law that will require the federal Medicare program to consider covering tests like Galleri, following FDA approval. Most people favor screening tests, but hate paying for them.
UBS analyst Doug Schenkel estimates that Medicare coverage starting in 2029 will add about $300 million to Grail sales in 2030. Total sales of $1 billion will then be in reach.
At its recent price of $110, Grail has blasted past Schenkel's $105 price target-and that of most Wall Street analysts. Still, events seem to be breaking Grail's way and Schenkel maintains his Buy rating.