Grail shares plummet after UK study raises doubts over cancer test's prospects

By Kamal Choudhury and Mariam Sunny

Feb 20 (Reuters) - Grail's GRAL.O shares plunged nearly 50% on Friday after the company said routine screening with its cancer blood test failed to significantly boost early detection and reduce late-stage diagnoses in a pivotal three-year UK trial.

The results of the trial, released by Grail late on Thursday, cast doubt on the test's commercial prospects.

The 142,000-person study, run with England's National Health Service, was designed to assess whether adding the multi-cancer early detection test, Galleri, to standard screening could shift diagnoses to earlier, more treatable stages and lower the number of late-stage diagnoses.

The disappointing results raised concerns about Grail's U.S. regulatory plans. Grail filed for U.S. Food and Drug Administration approval last month based on data from a smaller U.S. trial, first-year data from the UK trial and a bridging analysis comparing data from an earlier version of the test with the updated version included in the application.

TD Cowen analysts flagged risks to both FDA approval and potential Medicare coverage, though they said the regulatory risk is smaller because the FDA is expected to rely on clinical-validity data from three studies rather than the UK trial.

The UK study enrolled people aged 50 to 77 with no cancer symptoms and found no statistically significant reduction in advanced cancers in stages three to four among those who received the test compared with those who did not.

Grail said the trial showed "a favorable trend" that may strengthen with longer follow-up. The company plans to extend the trial's follow-up by six to 12 months.

"We believe it's very important for the company to be proactive, transparent and deliberate about laying out in detail all the moving pieces (bad and good) with the trial," TD Cowen analyst Dan Brennan said. It may help investors and clinicians to see why the failure does not necessarily indicate weak utility of the test, he said.

Guggenheim analyst Subbu Nambi said the findings from the study pose more challenges for UK adoption than for U.S. approval.

Nambi said investors are now watching an ongoing trial with the U.S. Medicare insurance program measuring whether Galleri can reduce stage four cancer diagnoses, which if successful could be critical for reimbursement.