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The S&P 500 lost 31% in March. The IPO market saw a huge slump in the ensuing months. There was little confidence in the public market.
But certain players in the health sector did not hurt the same. In fact, tech and health stocks seemed more stable with a work-from-home trend and a push for coronavirus vaccines.
While these sectors got a lift from this year's events, they didn't need it.
There will always be companies innovating in tech and health, despite any lockdown scenario.
Grail is one of those companies. That's why, in a year of scant IPOs, this innovative biotech is one of a handful that have come out announcing their IPO underway.
The Menlo Park, CA company announced its IPO last Wednesday.
It's at the cutting edge of science. But does that mean you should invest in the Grail IPO?
Here are some things to keep in mind before you do…
What Is Grail?
Liquid biopsies are a fairly new innovation in cancer screening. This is a way of checking for cancer without actually having to obtain any of the tumor tissue.
Tumors tend to shed DNA into the bloodstream. So an alternative is to simply draw blood for testing.
Grail is one of several biotech startups that have delivered a liquid biopsy tool. It's called Galleri.
What makes Galleri so intriguing is the fact that it screens for multiple cancers. Other liquid biopsy startups out there screen for just one.
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With that, the Grail claims it could avert 39% of deaths from cancers that would otherwise kill in five years. It said in its filing that it could detect almost 70% of cancers resulting in death within five years at an early stage.
Its tests so far have detected more than 50 cancers, with a predictive value of 43% and 7,000 false positives per million. That's huge, because it even beats several single-cancer biopsies.
Grail is a spin-off of another biotech, Illumina, as of 2016. Right now, Grail's largest shareholders are still Illumina with 14.6% and Johnson & Johnson (NYSE: JNJ) with 7.6%.
Jeff Bezos and Bill Gates are also among this company's investors.
For many, that could seal the deal. But Grail could have a long way to go still …
Is Grail Profitable?
Grail is not yet profitable. In fact, it has not had revenue since inception.
This is the catch with many biotech companies like Grail. It could be testing a product for years without anything to sell. The only thing you would have to go on is the company's progress through those tests.
That said, Grail is doing well in that department, an apparent leader in the liquid biopsy market.
The company is now gearing up to commercialize the Galleri product after extensive testing through 2021. By 2023, it hopes to have FDA approval, which would expose the product to 40 million more patients.
On top of that, the company reports around $686 million in cash as of June 30, and it plans to raise $100 million in the IPO. That should see it through the trials over that time.
If it continues to be successful, that's when the revenue will start piling up.
Early investing in biotech IPOs like these can have huge upside if you land the right one.
But there's also more risk…
Should You Buy Grail Stock at the IPO?
IPO investing is already risky enough as it is. The price is almost always driven up by market excitement leading up to the event. Often, that is followed by a crash.
For example, Snowflake Inc. (NYSE: SNOW) was one of the biggest software IPOs of all time. Despite all the excitement, it lost more than 8% in its first week of trading, going from $276 to $226.
The point is, it can be hard to discern when is the right time to buy into the stock.
Especially with biotech IPOs, you're not only predicting the success of a product in a market. You are also trying to predict whether the product will make it through a gauntlet of tests and bureaucratic measures.
Even with promising companies like Grail, this can be tricky. You can always stay up to date on the latest news releases to see how tests are going. But as long as the government is involved, it's hard to know whether it will go one way or another in the end.
Many investors will have faith in Grail's product. It's an exciting innovation, and investment from Bezos and Gates sure doesn't take away from that case.
But since IPOs can be volatile and Grail won't be releasing a product until the next year at the earliest, it makes sense to hold back. Let the price settle before buying in. You might even get to buy in at a lower price than on IPO day by waiting a few weeks.
And that's only if you're comfortable with the risk of investing in a biotech stock. If the company's products get approval and start raking in revenue, you could have a winner. But it not, you could wind up losing money.
As you await the Grail IPO, look for the stock ticker symbol GRAL.
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.