Blood draw (Photo by Jon Cherry/Getty Images)
Researchers are making real progress diagnosing cancer with a simple blood test. It is a game-changer in healthcare, and a big deal for investors.
Results published in September from a new medical study show that researchers have developed a DNA blood test that is 99.1% effective screening for several types of cancer.
Investors should consider buying Guardant Health Inc. (GH).
Screening for cancer with a simple blood test used to be the stuff of science fiction. So-called liquid bioposies, if accurate, could save millions of lives with early diagnosis, and reduce healthcare costs by billions through better resource allocation. The problem has been accuracy. Researchers worried about false positives – tests that detected cancer when there was none.
The Pathfinder study offered liquid biopsies to 6,621 adults aged 50 and over. The test was negative for 6,529 participants. Ninety-two study members, or 0.9%, returned positive results. And of these, 38% were later found to have cancer, according to results published at ClinicalTrials.gov.
More importantly, the liquid biopsy spotted ovarian and pancreatic cancers, typically only detected in their latter stages when survival rates are poor. Catching these cancers early provides the best chance of treatment.
Guardant Health is one of several companies pursing a simple blood test for cancer. The Palo Alto, Calif.-based company uses cutting-edge big data, machine learning and genomic sequencing techniques to help clinicians diagnose cancer cheaper and more effectively.
The company in 2019 completed a hotly anticipated initial public offering. Even after investment bankers bumped the initial offing price to $19, shares still jumped 70% on the first trading day.
While the investment climate in 2019 was more favorable for growth companies, Guardant was a special case. Prior to its IPO, the firm had seven funding rounds, and raised $550 million from venture capital heavyweights like Softbank, Sequoia Capital, T. Rowe Price, Khosla Ventures and Lightspeed Venture Partners. Those investors saw the future of healthcare.
Helmy Eltoukhy, chief executive officer, promised a liquid biopsy that would ultimately allow oncologists see all of a patient’s genomic information in one easy-to administer blood test. The alternative is a tissue biopsy, which can be expensive and risky because those tests require a piece of the physical tumor for analysis.
In an interview with CNBC in 2018, Eltoukhy claimed a typical lung cancer biopsy costs $14,000, and has a complication rate of 19%. The same information can be gleaned from a Guardant test with only two teaspoons of blood. The low cost and convenience means the test can be performed frequently to track how the tumor is mutating with medication and treatment.
Guardant’s secret is applying digital communication algorithms to the process of DNA sequencing. Whereas tissue biopsies look at the tumor only, this process reveals the entire genome. It also means the science works across all cancers. Additionally, Eltoukhy says machine learning, coupled with big data analytics, lead to a 1,000X – 10,000X error rate reductions.
It’s the kind of crazy progression that Guardant officials believe will unlock an $80 billion addressable market, according to a January investor presentation.
Guardant shares in the past were a high-flier.
The stock soared in 2021 to $180. However, rising interest rates and investor skittishness about growth stocks in April sent shares reeling below $30. Since that time the stock has doubled, yet the best may be still to come.
Although there is more research to perform, the Pathfinder study validates the science of liquid biopsies. This should lead to new business models most investors can’t even imagine. Tests are likely to become commonplace to reduce healthcare costs, and save lives.
Guardant shares currently have a total market capitalization of $5.9 billion, and trade at 14.5x sales. The company logged $370 million in sales in 2021, and is not currently profitable.
Longer-term investors should consider buying shares following a rally above 62.40, the 200-day moving average.
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