Why Grail May Have More Room to Run

 Grail's (NASDAQ: GRAL) stock surged after a Food and Drug Administration (FDA) Advisory Committee voted favorably on the safety, benefit-risk profile, and effectiveness of its multi-cancer early detection test (MCED), Galleri. It marks a remarkable turnaround for the stock after a February crash following the release of top-line results from a landmark Galleri trial that revealed it had missed its primary endpoint. Here's why this recovery could continue.

The investment case for Grail stock

The Galleri test is already in use. It's available on an "out-of-pocket" basis, whereby patients must pay for the test directly. However, sales will really grow when medical insurers start covering it. While FDA approval isn't strictly necessary for insurers to cover it, in practice, it is a prerequisite for widespread coverage. In addition, Grail needs to convince insurers that it's efficacious and cost-effective.

The first aim moved a step closer with the vote from the Molecular and Clinical Genetics Devices Panel of the Medical Devices Advisory Committee in favor of Galleri. The vote is likely to lead to pre-market approval for Galleri, which will inevitably prompt insurers to evaluate it. The second needs more discussion.

What insurers need to see

The key decisions that will guide Galleri's adoption are likely to be in insurers' spreadsheets and cost/benefit modeling. Beyond assessing clinical utility and comparing it with existing care, insurers will likely assess the cost-effectiveness of using Galleri. For example, they may compare the cost of the test and the cost of more expensive, refined testing to address false positives from Galleri testing against the benefit of earlier cancer detection from using Galleri.

Detecting cancers earlier is not only good for patients, as it can improve outcomes and help them avoid invasive, painful treatment at a later stage, but it can also save costs, since late-stage cancer treatment can be incredibly expensive.

Grail's data supporting the case for Galleri

To support these decisions, insurers need to see a few things in the trial results, including:

• A reduction in late-stage cancer detection that demonstrates test efficacy.

• A high episode sensitivity rate (percentage of cancers detected among those confirmed within cancer within 12 months) that demonstrates the ability to detect cancers.

• A high positive predictive value, or PPV (percentage of true positives among positive Galleri results), which demonstrates the ability to avoid costly and unnecessary testing of false positives.

Evidence from two large-scale studies (NHS-Galleri in England and a 35,878-enrollment study in the U.S., (PATHFINDER 2) shows that Galleri performs better on the 12 deadly cancers responsible for two-thirds of cancer-related deaths than overall across the more than 50 cancer types it tests for.

Study	Episode Sensitivity (Overall)	Episode Sensitivity (12 Deadly Cancers)	Positive Predictive Value
NHS-Galleri	30.7%	54.7%	52%
Pathfinder 2	39.3%	69.8%	60.3%

Data source: Grail presentations.

While the NHS trial missed its primary endpoint of "statistically significant Stage III-IV reduction," management noted that it "did show reduced Stage IV diagnoses of 12 prespecified aggressive cancers by 22% and 26% in the second and third screening rounds" in the top-line results release.

If insurers are satisfied with the merits of Galleri, particularly its efficacy and benefits for the 12 deadliest cancers, adoption could be widespread, and the recent FDA committee vote is a plus to that end.

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