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Grail: A billion-dollar gamble?

Written by LVS on in the category VC Views with the tags , , , .


Grail has vowed to change the field of cancer diagnostics via simple blood tests and ctDNA analysis. Their big data approach, where the company will build an atlas of cancer cell derived DNA found in the blood, convinced investors such as Bill Gates and Jeff Bezos. A whopping $1 billion was gathered in the company’s series B financing round. Yet, do Grail and its technology justify this huge ticket?

Nearly one year ago, DNA sequencing leader Illumina spun off the company Grail to apply Illumina’s sequencing technology to develop diagnostic cancer tests that can detect the disease in its earliest stages, even before symptoms become apparent. The company’s plan is to do this by detecting cancer cell derived DNA floating around in the patient’s blood stream. Although detecting cancer in blood samples is a popular approach, it is also fraught with challenges.

Circulating tumor DNA: A needle in a bloody haystack

Circulating tumor DNA (ctDNA) is present in the blood in extremely low concentrations as part of the circulating cell-free DNA in blood. When discussing the detection of ctDNA, the needle-in-a-haystack comparison is never far away. On top of that, detection is especially hard for small tumors and/or in the early stages of cancer, which are Grail’s targets. Early detection of cancer remains the ultimate goal because it increases the odds of survival by 5 to 10 times.

To succeed in its quest, Grail intends to tackle the problem with a Big Data approach. By recruiting tens of thousands of both healthy and diseased individuals and sequencing the cell-free DNA in their blood, Grail wants to lay the foundation of a circulating cell-free genome atlas. Characterizing the landscape of cell-free DNA profiles will yield a huge amount of information, and it might reveal parameters relevant to discerning healthy and non-healthy individuals at an early stage.

Big investors, big money

Backed by industry giant Illumina, Grail easily found interested investors for its series A funding round. The company gathered over $100 million—an impressive feat for a first financing round of a spin-off. Participants in the series A included Amazon CEO Jeff Bezos and Microsoft’s Bill Gates, indicating broad general interest from heavyweight investors.
 

  • Illumina spin-off Grail aspires to diagnose cancer at an early stage by detecting circulating tumor DNA in the bloodstream.
     
  • The company managed to raise over $1 billion, an unprecedented achievement for a private placement
     
  • How is such an astronomical investment justified for a company with no product or proven strategy?
     

Only one year after its foundation, the company is now finalizing its series B. In a single round, Grail will have raised more than $1 billion. You read that correctly—an astronomical $1 billion for a company with neither a product, data, nor a proven strategy, and that is far from being the first entrant in the market of ctDNA based diagnostics. A private investment round of this size is simply unprecedented. The fact that a company such as Grail is able to succeed in this makes it all the more astounding.

Where is the financial exit?

In the case of Grail’s financing, we are entering uncharted territories. Without benchmarks from either past or current competitors, investors are betting big with proportionally high risks. The question also remains how these investors will monetize their investments. An acquisition seems out of the question, considering Grail’s sheer financial size against the background of established global diagnostic companies whose turnover is typically in the 1- 10 billion dollar range.

Grail logo

An IPO seems the only viable exit strategy for current investors. However, Grail’s last financing round will make new funds unnecessary for a long while. Additionally, a significant return on investment would only be achieved with an IPO of “Silicon Valley size”: tens of billions of dollars. For that to happen, Grail must build a credible story regarding its technologies that speaks to the general population, such as the approach used by Facebook. With their pitch of a simple blood prick test that can assess whether or not a person has a certain cancer, they might be able to pull it off.

Off course Grail will also have to prove that their concept is economically sound. A multi-billion dollar valuation would only be justified if Grail’s test would be used on a global scale in cancer screenings performed on a sizable portion of the population at multiple times throughout a patient’s lifetime. Not only is this a high bar to set, but preventive screenings would also put further pressure on healthcare budgets worldwide. Budgetary pressure will not only result from Grail’s tests per se, but even more so from a higher need for additional confirmatory diagnosis, and from subsequent expensive therapies.

A hidden business plan?

The question arises if the company will try to generate value through strategies that are separate from their diagnostic product. The data generated by Grail via their population-scale studies will be highly valuable and coveted by many interested parties. Is third-party access to data part of Grail’s “hidden” business plan? If so, this would raise serious ethical questions.

Many questions remain regarding Grail’s unique position, and the company’s future is shrouded in uncertainty. Only time will tell if Grail will truly change cancer diagnostics and is thus a sustainable investment for believers.

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