Here’s Why Grail Shares Crushed the Market This Week

Shares in multi-cancer early detection (MCED) testing company Grail (GRAL 3.59%) rose by as much as 12.4% over the course of the week. The market-busting performance came in a week when a Wall Street analyst upgraded the stock to a “buy” from a “hold” rating.

Wall Street warms to Grail

The rating upgrade also came with a price target cut from $110 to $65, representing a 39% premium to Friday’s closing price.

It’s been a difficult year for the healthcare stock, with the company shocking investors after it released top-line results from a landmark trial showing it had missed its primary endpoint: a statistically significant Stage III-IV reduction in cancer detection with its Galleri test in the U.K.

The trial aimed to detect cancers at early stages, resulting in a statistically meaningful reduction in the proportion detected at later stages in the tested group compared to the control group.

However, there are grounds to believe that the failure to meet the primary endpoint may be due to the test’s design, and follow-up data from the trial may well support the efficacy of the Galleri test and help the company gain Food and Drug Administration (FDA) approval and insurance coverage. The TD Cowen upgrade reflects that thinking.

The case for Grail stock

The good news is the trial demonstrated a “substantial increase” in Stage I-II cancers, and a “substantial and clinically meaningful reduction in Stage IV diagnoses compared with standard of care alone across the pre-specified group of 12 deadly cancers.”

However, the rise in Stage III detections means the reduction in combined Stage III and Stage IV detections (the primary endpoint of the trial) wasn’t statistically meaningful. As previously discussed, management hopes that the six- to 12-month follow-up data will support the case for the Galleri trial, as unfortunately, cancers may well develop in the control group.

As ever, in trials, investors need to take a balance-of-probabilities approach and make investment decisions amid considerable uncertainty. TD Cowen thinks the stock is worth buying at the current price, and many investors agreed this week.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Grail. The Motley Fool has a disclosure policy.