(Bloomberg) — Investors should buy Genworth Financial Inc. shares on the prospect that Biogen Idec Inc.'s experimental Alzheimer's drug could reduce claims costs at the long-term care insurer, Raymond James & Associates Inc. said.
"Investors in Genworth are receiving a free option on the drug," Steven Schwartz, an analyst at Raymond James, said in a note Monday. "About 50 percent of Genworth's long-term care insurance claims payments are for Alzheimer's or other forms of dementia."
Biogen's BIIB037 cut cognitive decline, with higher doses and longer treatment resulting in increased improvement in an early-stage trial of 166 patients, according to results released last week. The drug reversed build-up of beta amyloid, a protein fragment.
Genworth has been battered by higher-than-expected costs in long-term care insurance, which covers costs for nursing home stays or home health aides. The stock plunged more than 50 percent in the 12 months ended March 20 as the Richmond, Virginia-based company reported a record loss.
BIIB037 is moving this year to final-stage trials, where other promising Alzheimer's drugs have fallen short. Even if the treatment proves effective, it could take years to come to market.
"If — and it's a big if — BIIB037 is successful, then the results for Genworth's long-term care business could be significant," Schwartz said. He raised his rating to strong buy from outperform.
