Key Points

• Grail's stock surged after a positive FDA panel vote.

• Insurer adoption is crucial for Galleri's success.

It always makes sense to look at the downside risk as well as the upside potential in a stock, and that's particularly the case with a speculative growth stock like a multi-cancer early detection (MCED) test company, Grail(NASDAQ: GRAL). While most of the debate, quite correctly, centers on a binary event (FDA approval of its Galleri test) and then on whether medical insurers cover the test, there's another huge consideration: its pricing.

Grail's pathway to profitability

The company received a boost recently with news that the FDA's Medical Devices Advisory Committee's Molecular and Clinical Genetics Devices Panel voted in favor of Galleri's safety, benefit, and effectiveness, paving the way for FDA marketing approval.

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The news sent the stock soaring (up 80% in the past month) and raised hopes that subsequent FDA approval would open the door to discussions with medical insurers and bodies about adopting the Galleri test.

For those interested in a summary of some of the cost-benefit considerations potential insurers will weigh regarding Galleri, I've discussed them previously. It's always interesting to consider matters in binary terms, such as FDA approval or not. Or will medical insurers adopt?

The key decision regarding adoption involves weighing the benefits of Galleri's ability to detect cancers earlier (leading to better patient outcomes and less expensive, less painful late-stage treatment) against factors such as its cost and the number of false positives it produces (which can lead to expensive, unnecessary follow-up testing).

Price matters

The key debate may not be about adoption or non-adoption, or even about the rate of adoption; it may boil down to the price insurers and medical bodies are willing to pay. That price will largely depend on the cost-benefit calculations insurers make, which in turn depend on the clinical data Grail can present. It's not simply a question of FDA approval, or even a willingness to adopt Galleri; it comes down to what test price insurers are willing to pay.

This is a key risk factor that investors need to consider for a test with a current list price of $949.

Should you buy stock in Grail right now?

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Grail. The Motley Fool has a disclosure policy.