GRAIL (NASDAQ: GRAL) is a small-cap biotechnology company that has gone on a very strong run over the last month and a half. Shares of the healthcare stock are up 58% since Oct. 24, as of the Dec. 11 close. The company has interesting technology that sets it apart from many small biotechs. I'll explain what this firm does, its uniqueness, and my view on this stock that targets a $100 billion market.
GRAIL’s Aims to Give Doctors a Huge Leg Up in Fighting Cancer
GRAIL’s business revolves around its product, Galleri. Galleri is an early cancer detection test for people over the age of 50 who are not showing symptoms. Illumina (NASDAQ: ILMN) spun off the company in mid-2024. The Galleri test can detect more than 50 types of cancer at once and is commercially available.
This is one factor that makes the company different from other small biotech firms. Many firms of similar size in this industry have yet to generate any revenue. This is because they are still working to gain Food and Drug Administration (FDA) approval or approval from foreign health regulators. Without these approvals, which can take a decade or more to acquire, they can’t generate much revenue. That’s not the case with GRAIL, which has $112 million in sales over the past 12 months.
The company’s registration statement clearly lays out the need for increased early cancer detection. The company estimates that over 60% of US cancer deaths are from cancers with no accepted screening guidelines. Only five types of cancer have a level of recommended screening from the United States Preventive Services Task Force. This includes breast, cervical, colorectal, lung, and prostate cancer. Doctors test for each type of cancer individually.
GRAIL believes that if doctors give the Galleri test alongside these cancer screenings, they could avert 100,000 deaths per year. That amounts to around 16% of the 612,000 cancer-related deaths estimated to occur in 2024. Early detection can increase cancer survival rates by 360%. In the company’s PATHFINDER study, the Galleri test correctly predicted the area from which the cancer originated in the body 88% of the time. Understanding where cancer is coming from is key to treating it.
GRAIL Pursues FDA Approval of Galleri to Expand Adoption
The Galleri test is a Laboratory-Developed Test, which exempts it from immediate FDA oversight. However, GRAIL is seeking FDA approval for the test as a medical device, which requires Premarket Approval (PMA). This is because major players in the healthcare industry don’t usually cover medical devices without this approval. The company will apply for the PMA in 2026. It expects to get results from its ongoing trial with England's National Health Service around then.
Analysts at Morgan Stanley (NYSE: MS) say GRAIL has a first-mover advantage in the $100 billion total addressable market of multi-cancer early detection (MCED). It is the first MCED test to market, and Morgan Stanley believes the company can support a long-term valuation of $50 per share. That implies an upside of 142% from its Dec. 11 closing price. However, Morgan Stanley’s near-term price target implies a downside of 22%.
Despite the effort to gain FDA approval, another significant advantage of the Galleri test is that the PMA approval timeline is typically much faster than that of a drug. Assuming things go smoothly, Morgan Stanley says FDA approval would be “likely in H1 2027."
GRAIL’s Financials Are Improving Drastically
Another reason for excitement is that, due to the availability of Galleri, observers can see if the product is gaining traction. This is unlike most small biotechs. It clearly is. Galleri revenue increased by 52% from the previous year in Q3. The company is also improving profitability and reducing expenses.
The company’s adjusted gross profit increased by 68%, and its adjusted gross profit margin increased by 460 basis points. The reduction in expenses aims to greatly decrease the company’s cash burn. With these adjustments and over $850 million in cash, the company believes it has a runway into 2028.
Overall, GRAIL is an exciting firm with a massive market opportunity. Valued at just under $700 million, this stock could have massive long-term success. Still, as is common among small biotechs, it remains a highly risky investment at this point. Poor results from ongoing studies could result in the failure to gain PMA, which would greatly limit its upside. However, with key catalysts one to two years away, this is a company I’ll be watching closely.
