By Bill Alpert

Grail's cutting-edge cancer blood test has stirred investor excitement many times in the past few years. With the stock down 55% from its February peak, Canaccord Genuity issued a Buy recommendation on Monday.

The company's Galleri product screens a blood sample for the genetic debris of cancer, which can appear long before any symptoms. Grail hopes its multicancer blood test will eventually become part of routine checkups.

"We believe Grail will be able to scale Galleri and achieve major regulatory and reimbursement milestones," writes Canaccord's Kyle Gibson. Those hurdles include U.S. Food and Drug Administration recognition and Medicare coverage. Still, he thinks Grail's cash levels will tide it through the next few years and see its stock rise at least 20% to $32 over the next year.

Grail made headlines five years ago, when it reported that a simple blood draw let it to find early signs of more than 50 kinds of cancer. Using genetic sequencing systems from Illumina, the test looks for telltale chemical tags on the DNA fragments from cancer cells.

I tried the Galleri test three years ago. At $950, it wasn't cheap. Galleri reports either "Cancer Signal Detected" or "Cancer Signal Not Detected", with a best guess as to where any detected cancer is. My test found no signal.

Early hopes for Grail's cancer test drew Illumina into clashes with antitrust regulators and its own stockholders that caused the ouster of Illumina's then chief executive.

In 2021, Illumina CEO Francis deSouza pushed through an $8 billion buyout of Grail, in the teeth of antitrust challenges in the U.S. and Europe. As the deal began to look like an expensive boondoggle, activist investor Carl Icahn pushed for deSouza's ouster.

Illumina's stock tanked. deSouza stepped down. After writing off most of its investment, Illumina spun off Grail last June.

Enthusiasm for the stock flared briefly again this year, after Oracle CEO Larry Ellison mentioned cancer screens as a technology that could benefit from the Stargate artificial intelligence project unveiled in January. Grail stock shot to nearly $64, before settling back to a recent $26.60.

Analyst Mikson dives deep into the stand-alone Grail in his 143-page initiation report. Negative cash flow was $580 million in 2024, on sales of about $110 million. Mikson foresees reductions in head count, production costs, and research spending. Combined with sales growth and some capital raises, he thinks Grail's roughly $750 million in cash can last until 2032 when he projects the company will become cash flow positive.

To reach the two million in annual tests and $800 million in revenue that Mikson projects for 2032, he thinks Grail will need to halve its test price, and get it approved by the FDA and Medicare. He thinks the odds of FDA approval by 2028 are good. Medicare coverage is a tougher challenge: Studies will have to show that the expense of early detection actually saves lives and treatment costs.

"There is meaningful uncertainty regarding Grail's near- to medium-term path forward," writes Mikson. "That said, we believe the stock offers solid upside."

Write to Bill Alpert at william.alpert@barrons.com

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April 21, 2025 16:47 ET (20:47 GMT)

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