These health-care companies see opportunity ahead from Alzheimer's drug approval

Published Fri, Jul 28 202310:16 AM EDT

Christina Cheddar Berk @in/christina-cheddar-berk-b864404/

As patients with Alzheimer's disease seek out a newly approved treatment, they will need MRIs, blood tests and other diagnostics, fueling increased demand for these important tools. In earnings calls this week, both GE Healthcare and Quest Diagnostics made references to the potential opportunity here, although neither company put any specific estimates behind their comments. "On the size of the opportunity, I think, it's a little too early to say," said GE Healthcare CEO Peter Arduini. "I think, it's not a huge opportunity in 2023. But if you look over 2024, 2025, 2026 pending on the uptake of the drug, which is going to be heavily tied to companion diagnostic reimbursement, therapy diagnostic, and the follow-on drugs. We believe that this is a pretty profound growth opportunity across the space." GEHC YTD mountain GE Healthcare shares are up 31% year to date. As for Quest Diagnostics, Gordon Haskett analyst Don Bilson observed that the company only mentioned Alzheimer's disease once in its March analyst day presentation, but on Wednesday's second-quarter call, it came up eight times in the transcript as Quest detailed its plans to invest in the space. "This was all news to us, and it doesn't seem to have happened by accident," Bilson said. "Quite the opposite, these companies have apparently decided that there is something to be gained from being seen as an Alzheimer fighter." Bilson likened this to how numerous companies scrambled to detail their artificial intelligence plans. Many hoped that the mere association with AI would be a boon for their stock prices — and it often was. He thinks the same thing could be happening in Alzheimer's disease. A new era for Alzheimer's treatment No doubt, it's a new era for treating the mind-wasting disease. The Food and Drug Administration granted full approval of Leqembi in early July. The announcement was quickly followed by Medicare's decision to cover the treatment, developed by Biogen and Eisai , under certain conditions — a crucial step in guaranteeing access to older Americans. Experts estimate there could be as many as 6.7 million people with Alzheimer's disease in 2023, and that number is expected to increase over time as people live longer. It is the most common form of dementia, and ranks sixth as a cause of death in the U.S., according to the FDA. Unfortunately, the antibody treatment isn't a cure, but Leqembi does slow the disease's progression. That can allow patients to live independently for longer. Patients taking the drug receive an intravenous infusion twice a month. Then, the antibody targets a protein called amyloid that is associated with the disease. During treatment, patients will be monitored with an MRI to make sure there aren't any amyloid-related imaging abnormalities, or ARIA, which can be life-threatening in some cases. DGX YTD mountain Quest shares are down more than 13% since the start of 2023. Early diagnosis will be critical Early diagnosis of Alzheimer's will be key since qualifying for treatment will rely on patients having only mild cognitive impairment. Typically, when dementia is identified, MRIs, CT and PET scans are among the tools used for diagnosis. Other methods such as spinal taps or biopsies also may be part of the mix. Quest and other companies such as C2N Diagnostics are working on developing blood tests that can be used for screening. Quest's test measures the ratio between two peptides of amyloid beta, which are a hallmark of the disease. It remains to be seen how many people will seek out treatment with Leqembi, since taking the drug presents significant logistical hurdles, especially for older adults — among them, traveling to an infusion center and qualifying for treatment. The drug also has risks, which include brain swelling and bleeding. In return, the results may be limited. Still, Leqembi and Donanemab —a drug in development by Eli Lilly that could become a rival if approved by the FDA later this year — offer hope to a group of patients that previously had none. So what's the takeaway for GE Healthcare, Quest and others in the diagnostics space? "Based on our analysis, we estimate that as Leqembi usage grows, it will only account for [low-single digit] penetration as a percent of the broader MRI capacity," BTIG analyst Ryan Zimmerman wrote in a research note. "This is unlikely to stress the system and also unlikely to spur a meaningful uptick in imaging unit sales. At ~1% penetration of the AD population, we estimate an incremental ~140k MRIs needed out of ~42.5M annually performed in FY24." Zimmerman reiterated a neutral rating on GE Healthcare on Wednesday, saying it was fairly valued relative to its peers. According to FactSet, 60% of the analysts who cover the stock rate it a buy, with an average price target of $90.88, which is about 18% above where shares closed Thursday. As for Quest, most analysts have its shares at a hold, with an average price target of $147.82, according to FactSet. That implies 10% upside from Thursday's close. Both stocks have had a down week, but GE Healthcare shares are up 31% in 2023. Quest's stock hasn't been as fortunate. It's down 14% year to date.