The Challenges and Potential of Grail's Cancer Screening Technology in the Maturing Market

The need to avoid future major illnesses is widespread, and the potential audience for cancer early screening theoretically covers almost the entire population. Furthermore, given that early screening needs to be carried out continuously, the value of a single user increases significantly.

What's most important is that the current market lacks screening methods, providing an opportunity for technological innovators. Taking the United States as an example, there are currently only 6 types of cancer with a gold standard screening test, covering only 29% of the cancer patient population. In other words, more than 70% of cancer patients still do not have an ideal screening method. Grail's early screening product Galleri aims to detect more than 50 types of cancer, over 45 of which still lack recommended screening guidelines. If Galleri achieves its expected performance, it is highly likely to become a market-focused product, which is also the core reason for the market's eager anticipation of Grail.

Grail's total revenue in 2023 reached $93 million, an increase of 68% year-on-year, with fourth-quarter revenue reaching as high as $30 million. However, despite the positive business growth, the capital market's expectations for it have continued to decline, as Grail has not provided sufficient data breakthroughs in terms of commercial valuation.

From a financial perspective, Grail is still a long way from profitability. Particularly in the first quarter of 2024, the company's loss reached $218 million, an increase of $25.24 million from the same period last year. The profitability of biotechnology companies often relies on a significant increase in revenue, and Grail has not yet met this condition.

The success of Cologuard provides a reference for the industry. Thanks to FDA certification, excellent performance, and a reasonable price, Cologuard was quickly included in the "Colorectal Cancer Screening Guidelines" and gained authoritative recognition. More importantly, Cologuard quickly obtained nationwide medical insurance coverage after being approved, driving sales growth.

In comparison, Grail's Galleri product is not expected to receive certification until after 2026, which is its current largest uncertainty. It will take time to fully research and validate its value, and the market is divided on the application of Galleri, causing its commercialization process to be slower than expected. For example, Illumina had high hopes for Galleri, but subsequently lowered its revenue expectations, with actual revenue only reaching the lower end of the forecast.

Currently, Galleri's performance issues continue to impact its commercialization. The National Health Service (NHS) in the UK originally planned to assist Grail in launching a clinical trial, but based on the consideration of waiting for the final trial results, decided not to launch the pilot project. The results of this clinical trial will be published in 2026 and will have a significant impact on Galleri's commercial value. Although Galleri's technology is disruptive, more data is still needed to establish a solid foundation for its commercialization.

Therefore, whether Grail can achieve profitability still needs further market validation. Its slower-than-expected commercialization process and capital market fluctuations have both had a negative impact on its valuation. In the context of a new global economic cycle and the market's increasing emphasis on quality growth, the loss-for-growth strategy of the early screening industry seems to have fallen out of favor.

Before acquiring Grail, Illumina, as a leading player in the medical device and diagnostics industry, maintained a net profit margin of 20-30% and had a market capitalization that once exceeded $7.1 billion. However, after acquiring Grail, its financial model was impacted, and combined with factors such as market downturns and declines in core business expectations, its stock price has continued to decline, with a market value decline of over $6.57 billion. Precision Science Company is also facing a similar situation, with its stock price declining by a cumulative 40% in the second quarter of 2024.

The rapid changes in market sentiment reveal two major trends: the changes in the economic cycle and the gradual maturation of the early screening market. The market is now more focused on quality growth, and the early screening market is transitioning from the expectation stage to the "expectation fulfillment" stage, with stock prices being adjusted based on actual performance. In this context, Grail's valuation issue has become a key factor in whether tumor NGS companies can continue to access the capital market. However, this does not mean that the development prospects of the tumor early screening market are bleak. As Grail and other leading companies demonstrate positive performance, the tumor early screening field is expected to rebound. Although Grail's valuation issue may have an adverse impact on the industry in the short term, this problem is expected to be resolved in the long run.