This buzzy biotech stock is up 60% this year. Cramer’s advice on building a stake
Key Points
- CNBC’s Jim Cramer said Tuesday that shares of healthcare company Grail can go higher.
- Investors have been growing increasingly optimistic about Galleri, the company’s blood test designed to screen for signals from dozens of cancers at once.
- While down 10% on a terrible day for healthcare stocks despite the S&P 500’s rally to record highs, shares of Grail are still up 60% this year.
Shares of Grail may have more room to run as the biotech company’s cancer blood test nears a pivotal decision from U.S. regulators, CNBC’s Jim Cramer said Tuesday. However, Cramer said investors must recognize Grail’s big advance this year and some questions around its Galleri test’s effectiveness make it a more speculative place to put their money. Buying Grail’s stock now isn’t the same thing as buying, say, Johnson & Johnson , a blue-chip healthcare company owned by Cramer’s CNBC Investing Club. The difference in risk profile is paramount to understand. “I think Grail’s stock can go higher, but it’s already run a lot and because it’s up so high, it’s become speculative,” the ” Mad Money ” host said. “Start with a small position and build up gradually on weakness.” Some weakness already arrived in Tuesday’s session, with Grail shares tumbling 10.9% in a rough day for many high-flying biotech and healthcare stocks. That includes Moderna , which fell 7.75%, and Novavax , which dropped 9.9%. Cramer chalked up Tuesday’s decline in Grail to profit-taking. Still, for the year, Grail is up 60%. The stock has been especially hot since mid-September, fueled by a series of positive updates from the Food and Drug Administration on the approval process for Galleri, the company’s blood test designed to screen for signals from dozens of cancers at once. The U.S. regulatory green light might come early next year, following a mostly supportive vote from an FDA advisory panel. GRAL YTD mountain Grail’s year-to-date stock performance. “The FDA’s advisory vote makes it seem likely that Grail’s test will get full FDA approval,” Cramer said, though he noted, “the test is already selling well without much insurance coverage.” Because Galleri is a lab-developed test and not a drug, Grail has been allowed to sell the test in the U.S. without an official FDA approval. The drawback is that most Americans must pay out of pocket for the test, which carries a list price north of $900, before factoring in any discounts. Screening revenue was up 24% in its most recent quarter, though the company is still unprofitable. FDA approval would be “a gamechanger,” Cramer said. “For now, the insurance companies see it was unproven. If it gets FDA approval, that’s the clearest sign that it works, and coverage will follow.” The opportunity is potentially enormous, Cramer said. Galleri analyzes DNA circulating in the blood for patterns that can indicate cancer and predicts where a detected signal originated, including for cancers that currently lack routine screening. The test is intended to complement, rather than replace, existing screenings such as mammograms and colonoscopies. There’s been some debate around the effectiveness of Grail’s test, Cramer noted, which is something for investors to keep in mind because it adds to the stock’s risk profile. “The evidence for Grail’s test is more good but not great,” he said. Most notably, Grail shares plunged more than 50% in February after a major three-year study conducted with England’s National Health Service missed its primary end point . While the British study has not derailed the FDA’s approval process, the advisory committee last month was not universal in its support for Galleri in all categories under consideration. Panel members unanimously voted that Galleri was safe; 6-4 that it was effective; and 7-2, with one abstention, that its benefits outweighed its risks. Cramer said investors also must be mindful of Grail’s valuation as a money-losing company. Shares trade at nearly 34-times sales. “That’s very expensive,” he said. “Maybe the stock will keep getting hammered like it was today,” Cramer said. “I’m betting that would be a buying opportunity, as long as the FDA doesn’t end up hitting them with an excessively restrictive warning label.” Sign up now for the CNBC Investing Club to follow Jim Cramer’s every move in the market. Disclaimer Questions for Cramer? Call Cramer: 1-800-743-CNBC Want to take a deep dive into Cramer’s world? Hit him up! Mad Money Twitter – Jim Cramer Twitter – Facebook – Instagram Questions, comments, suggestions for the “Mad Money” website? madcap@cnbc.com
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