The Massive Cancer Blood Test Opportunity
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The mythical “cure for cancer” is often misunderstood. It’s not one wonder drug for the more than 200 types of cancer out there. Each person’s cancer is unique and accompanied by a distinct genetic fingerprint that can be targeted using personalized medicine. These often take the form of expensive cancer drugs, and investing in these drug developers means exposure to lots of external risk factors that can’t be controlled which create lots of volatility. As risk averse investors, we want to reduce volatility.
Perhaps the easiest cure for cancer is simply early detection. Take breast cancer, for instance. A study on early detection showed that “personal cure is achieved for the great majority” when cancer is detected in the earliest stages. As the most common form of cancer, this means regular mammograms are imperative. But what if one cancer blood test could detect nearly all common types of cancers?
There are estimated to be around 148.6 million people over 40 in the USA. If we assume that 3/4 of them get a physical each year, and use a modest cancer screening cost of $999, then that’s a potential $110 billion market opportunity in the United States alone. Then add to that the 40% of men and women who will be diagnosed with cancer at some point during their lives, and the TAM for cancer blood tests becomes massive. But not all cancer blood tests are created equal.
Three Types of Cancer Blood Tests
There are three broad categories of cancer blood tests – those that detect cancers at the earliest stages, those that provide a genetic fingerprint of the cancer type (also called a liquid biopsy) to inform personalized cancer treatments, and those that test for recurrence (is the cancer staying away). Initial detection tests will have the highest TAM – ideally every human alive above the age of 40 should start getting tested (for example), while liquid biopsies will become standard-of-care since they save both lives and money.
The ideal way to invest in cancer blood tests would be to find a leader that is targeting all three test types – detection, recurrence, and personalized medicine. One such provider of cancer blood tests is Guardant (GH), though their leadership might be called into question based on the progress key competitors have been making.
1) Personalized Medicine
Guardant refers to their liquid biopsy offering as “therapy selection” for “advanced cancer care” and markets a number of mature tests that address various use cases for cancer treatment.
Nearly all Guardant’s revenues come from the GUARDANT 360 series of tests which are said to have achieved cash flow breakeven. The other test categories haven’t scaled yet, so they’re burning plenty of cash still. Guardant is expecting to have negative operating cash flows of $270 million this year with 65% of that attributed to getting their cancer detection product – Shield – marketed after receiving FDA approval this past summer.
2) Cancer Screening
Guardant Shield is the first blood test approved by the FDA as a primary screening option for colorectal cancer that meets performance requirements for Medicare coverage. They’ve beaten Exact Science (EXAS) to market, and now Guardant’s cancer blood test will be offered as a non-invasive test that will soon include other cancers as well.
A combo “colorectal + lung” blood cancer kills two birds with one stone while more cancers will be added as time goes on. Getting to the point where a single blood test can detect most types of cancers is where a leader needs to be.
Illumina (ILMN) saw the potential of cancer screening when they tried to acquire GRAIL (GRAL) which developed a multi-cancer screening test called Galleri. When the deal fell through and GRAIL went public again, we were able to see how much of a threat they are to Guardant’s Shield test. Our last piece on GRAIL talked about how, “surprisingly the Galleri test has not yet been approved by the FDA and it’s not expected to happen for years. Grail plans to complete a premarket approval application submission with the FDA in the first half of 2026 which would be one of the final steps towards having a test that’s legally marketable.”
Despite the lack of approval, GRAIL was still able to achieve $87 million in screening revenues for the first three-quarters of 2024 as they position the test as “standard of care screening that enables detection of more cancers more efficiently” when administered alongside existing screening methods. Individuals and enterprises are purchasing the tests while the real catalyst will be FDA approval which will lead to reimbursement and accelerate test volumes.
Even though Guardant may be first to market with an FDA-approved test, that doesn’t mean that they’ve won the race. It’s now a battle between two competing test providers, and this wouldn’t be the first battle Guardant has lost after being first to market.
3) Recurrence and Surveillance
Recently, we wrote about how Natera (NTRA) is seeing excellent revenue growth as they evolve three testing segments – non-invasive prenatal testing or NIPT, organ transplant rejection tests, and cancer screening blood tests which fall under the “recurrence testing” category and are seeing phenomenal growth.
Natera recorded 130,000 oncology tests in Q3-2024 or an annualized volume of 520,000 tests.
Guardant administered 173,000 tests in 2023 and they’re doing an annualized volume of 254,400 tests based on Q3-2024 numbers. So Natera is doing nearly twice the test volume of Guardant which means they’re emerging as a leader, at least based on the number of tests being sold. Ideally, it’s about making these tests standard-of-care so they’ll be tough to displace. Natera has firmly entrenched themselves in the “recurrence and surveillance” opportunity while Guardant hasn’t made traction since they offered their GuardantReveal test in 2021 which doesn’t even have FDA approval still. But neither does Signatera, so it seems that Natera is completely spanking Guardant for any number of reasons.
The latest Guardant earnings call provides some informative tidbits such as Reveal not even having a positive gross margin and awaiting an important reimbursement decision.
- The company continues to manage volumes for Reveal to minimize cash burn until it becomes gross margin positive, anticipated in 2025.
- Reveal’s acceleration in volume growth is contingent on achieving colorectal cancer (CRC) surveillance reimbursement, which is still pending.
The pending reimbursement is likely of critical importance for this test to scale and start generating positive – and eventually, healthy – gross margins. If you can’t sell a test for more than it costs to produce, then you’re running a charity, not a business. Natera is well past that point with Medicare reimbursement for their Signatera molecular residual disease (MRD) test for numerous types of cancer.
In recent quarterly results, Natera talked about “Signatera’s ability to predict overall survival and chemotherapy benefit in colorectal cancer” which starts to encroach on Guardant’s “therapy selection” turf. Where Guardant really needs to make up the difference is by seeing a major success for their new cancer screening product – Shield.
The Importance of Shield
Our big concern for Guardant investors is that Natera might use their success in recurrence to quickly start capturing market share from “early detection” and “therapy selection” which is what an emerging leader will eventually do – operate across all three test categories. What does it say about the potential of Guardant’s Reveal test when Natera is now selling twice as many tests as Guardant? If Reveal fails to gain the expected traction following the big reimbursement decision, it becomes critically important for Shield to fill that growth gap.
Guardant’s recent earnings call said, “Despite strong initial demand, Shield’s market share in CRC screening is not yet material.” The company is still in the early stages of commercialization for Shield, with “significant investments planned.” Investors need Shield revenues to become “material” as quickly as possible so they can monitor the progress being made to tackle this massive opportunity. It all comes down to how fast Guardant can grow their Shield test offering while continuing to show the strong revenue growth they’ve seen in the recent past across the other parts of the business.
All that growth comes at a cost, and Guardant’s billion dollars of cash on hand provides a runway of about 3.7 years based on this year’s expected cash burn of $270 million. But they may have another year of dry powder coming. In a testament to the heated competition between Natera and Guardant, the former was engaged in some false advertising and the latter was awarded $292.5 million as a result. An article by MedTech Dive covering the event saying, “Natera began contacting Guardant’s current and potential customers, including the Mayo Clinic, shortly after the Reveal launch.” The amount of the award pales in comparison to the potential setback for Guardant’s Reveal test for which we’re still waiting to see some meaningful success.
We’re told that Reveal grew 90% to low double-digit millions in revenue during 2023. So, let’s assume $10 million. And analysts at TD Cowen expect Reveal to generate sales of around $30 million in 2024. Even if that happens, it would only represent 4% of Guardant’s expected 2024 revenues. Reveal isn’t moving the needle much yet for Guardant.
Conclusion
It’s the year 2025. We can detect the occurrence of cancer in your blood, but we still don’t have a single cancer blood test administered at your annual physical that scans for multiple types of cancers. Guardant is first to market with their Shield test and hopes to become a leader in screening while GRAIL nips at their heels with real testing revenues. The flagship Guardant360 products continue to see growth while Natera cleans up on the “recurrence and surveillance” opportunity in the face of Guardant’s “first to market” test which awaits a reimbursement decision before it can properly scale. Sometimes first isn’t best. Will their first-to-market cancer screening test, Shield, make up for this flop? We’ll be watching closely to see how the situation evolves.
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I see the future of testing in generic proteomics devices, being able to quickly and cheaply identify any protein in the blood and its quantities and variations and then using AI to find patterns in the collected data.
That will give real time view of what is happening in the body.
One company to keep a look at is Quantum Si (QSI). However it may take them a few years to improve their device.
They do seem to be seeing a bunch of hype lately