Cancer blood test gives new life to Guardant Health Shares

Researchers are making real progress in diagnosing cancer with a simple blood test. This is a game changer in healthcare and a big deal for investors.

The results of a new medical study published in September show that researchers have developed a DNA blood test that is 99.1% effective at screening for several types of cancer.

Investors should consider buying Guardant Health Inc. (GH).

Cancer screening with a simple blood test was science fiction. So-called liquid biopsies, if accurate, could save millions of lives with early diagnosis and reduce health care costs by billions through better allocation of resources. The problem was accuracy. Researchers worry about false positives — tests that find cancer when none is present.

The Pathfinder study offered liquid biopsies to 6,621 adults aged 50 and older. The test was negative in 6529 participants. Ninety-two study participants, or 0.9%, tested positive. And of those, 38 percent were later found to have cancer, according to results published on ClinicalTrials.gov.

More importantly, liquid biopsy picks up ovarian and pancreatic cancers, usually found only in their later stages, when survival rates are low. Catching these cancers early provides the best chance of cure.

Guardant Health is one of several companies that make a simple blood test for cancer. The Palo Alto, Calif.-based company uses cutting-edge big data, machine learning and genome sequencing techniques to help clinicians diagnose cancer more cheaply and efficiently.

In 2019, the company completed its hotly anticipated initial public offering. Even after investment bankers raised the initial sale price to $19, the stock still jumped 70% in its first day of trading.

While the investment climate in 2019 was more favorable for growth companies, Guardant was a special case. Before its IPO, the firm had seven rounds of funding and raised $550 million from venture capital heavyweights like Softbank, Sequoia Capital, T. Rowe Price, Khosla Ventures and Lightspeed Venture Partners. These investors saw the future of healthcare.

Helmi Eltuhi, CEO, promised a liquid biopsy that would eventually allow oncologists to see a patient’s entire genomic information in one easy-to-administer blood test. The alternative is a tissue biopsy, which can be expensive and risky because these tests require a portion of the physical tumor for analysis.

In an an interview with CNBC in 2018, Eltoukhy claimed that a typical lung cancer biopsy costs $14,000 and has a 19% complication rate. The same information can be obtained from a Guardant test with just two teaspoons of blood. The low cost and convenience means the test can be performed frequently to track how the tumor is mutating with drugs and treatment.

Guardant’s secret is the application of digital communication algorithms to the DNA sequencing process. While tissue biopsies only look at the tumor, this process reveals the entire genome. It also means that the science works for all types of cancer. Additionally, Eltoukhy says that machine learning combined with big data analytics results in 1000X – 10,000X reductions in error rates.

It’s the kind of crazy progression that Guardant officials believe will unlock an $80 billion addressable market, according to a presentation to investors in January.

Guardant shares have been high-flyers in the past.

Shares soared in 2021 to $180. However, rising interest rates and investor fear about rising stocks in April caused the stock to fall below $30. The stock has doubled since then, but the best may be yet to come.

Although there is more research to be done, the Pathfinder study validates the science of liquid biopsies. This should lead to new business models that most investors cannot even imagine. Tests are likely to become commonplace to reduce healthcare costs and save lives.

Guardant stock currently has a total market capitalization of $5.9 billion and trades at 14.5 times sales. The company recorded $370 million in sales in 2021 and is currently not profitable.

Longer-term investors should consider buying shares after a rally above 62.40, the 200-day moving average.

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