What happened

Shares of Guardant Health (NASDAQ:GH) rocketed over 65% last month, according to data provided by S&P Global Market Intelligence. The company is developing diagnostic tools that allow doctors to detect (or rule out) cancer from a blood sample, rather than a tissue sample, in what is called a liquid biopsy. It has long been considered the holy grail of cancer diagnosis because it could, theoretically, become a routine part of health screenings and find cancer in the earliest stages of progression, when it's much simpler to treat and leads to better prognosis.

Guardant Health excited investors with a presentation in mid-February showcasing its latest work, then followed that up with impressive results for its first Guardant360 diagnostic tool. 

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Image source: Getty Images.

So what

The idea of a liquid biopsy is simple: Cancerous cells release certain chemicals, called biomarkers, into the blood. If tests can be developed to accurately detect even the faintest chemical signatures, then it could help doctors diagnose cancer and even ensure patients receive the optimal treatment option for the specific genetic profile expressed by their cancer.

While simple in theory, it has proven pretty difficult to make work in practice. After all, there are thousands of biomarkers in your blood, and most don't have anything to do with disease. Making matters more complicated, the chemical difference between a healthy and disease-indicating biomarker could be minute. But Guardant Health appears to be on the right track.

The company reported that its Guardant360 diagnostic proved to be just as good as a tissue biopsy in testing for first-line advanced non-small cell lung cancer in a head-to-head study. Guardant Health's tool detected targetable biomarkers (read: determined by the genetic profile of the cancer, which determines the drug prescribed) at a similar rate to tissue biopsy and delivered an average turnaround time of just nine days, compared to 15 days for the standard of care. The results suggest Guardant360 could become the go-to diagnostic tool for doctors attempting to find the best treatment option for patients.

Now what

Guardant Health is developing tools for patients with advanced cancers (Guardant360), cancer survivors who require periodic monitoring (Lunar-1), and individuals who are asymptomatic but at higher risk of developing disease (Lunar-2). It estimates the total market opportunity is over $35 billion -- and if its technology platform works, then it could capture the lion's share of that, considering that it's a heck of a lot easier than a tissue biopsy. Therefore, while it may seem crazy that the business boasts a market cap of $5.8 billion despite having relatively little revenue, the potential is pretty huge.